Matt Wilcox Pro

Thanks to peer-to-peer payment, fondly abbreviated to P2P, it’s now possible to split tabs at restaurants and reimburse friends for odd expenses without having to handle currency. And, much to my kids’ joy, extended family members can send birthday cash faster than ever, without resorting to checks and envelopes.

But lunch buddies, friends, and grateful nieces / nephews / grandchildren aren’t the only ones singing P2P’s praises. PYMTS.com recently reported:

Peer-to-peer (P2P) payments continue to gain popularity among consumers, with two of the biggest providers, Zelle and Venmo, reporting ongoing and significant gains. But amid that growth is a fresh trend that could present challenges for law enforcement—the use of such payment methods for illicit transactions, including drug deals.

PYMTS.com references a LendEDU poll of over 1,000 millennials, which found that nearly 32.5 millennials admitted to having used Venmo for illicit drug purchases. Examples include Schedule II controlled substances (Adderall®, for instance), marijuana, and cocaine. And in a follow-up poll last year, 21 percent said they’d used Venmo for illegal gambling.

It’s reasonable to suspect that the real numbers are higher. Even in anonymous surveys, people tend to overstate their virtues, understate their vices, and simply recall incorrectly. Moreover, much has changed since the surveys were conducted in 2017 and 2018, respectively. The use of P2P for individual drug and gambling transactions has no doubt increased overall, tracking with societal tolerance. And since the surveys were taken, Zelle has become an increasingly significant player in and has likely expanded the P2P market. 

Not to be overlooked is the fact that the studies focused on millennials. Granted, millennials are P2P’s most-frequent users, but there’s no reason to think that other demographics lack sufficient smarts to figure how to use P2P for the verboten. 

Verboten via P2P 

Reimbursing a friend for a quarter-gram of weed is one thing. The larger problem is the increase in P2P payments for more serious, more harmful activities, such as human trafficking.

If you think it might be risky to pay for the illicit via a P2P app, you would be right. Most P2P providers have strict policies against and enforce penalties for certain types of transactions. Besides shutting down accounts and freezing funds, they may share, as Zelle discloses, “… information collected or accessed from you and about you with … law enforcement, government agencies, and other authorized third parties …”

I need hardly point out that P2P transactions leave an electronic trail. By overlaying data, it’s possible to identify drug trafficking operators, including Dark Web operators using onion routers like Tor, and even including, to an extent, deals paid in cryptocurrency. 

The United States government in particular is cracking down, as evidenced by the Treasury Department’s newly released, 12-page “Advisory on Illicit Activity Involving Convertible Virtual Currency.” The document’s purpose is …

“… to assist financial institutions in identifying and reporting suspicious activity concerning how criminals and other bad actors exploit convertible virtual currencies (CVCs) for money laundering, sanctions evasion, and other illicit financing purposes, particularly involving darknet marketplaces, peer-to- peer (P2P) exchangers, foreign-located Money Service Businesses (MSBs), and CVC kiosks.”

The Treasury Department Advisory lists 30 “Red Flag Indicators of the Abuse of Virtual Currencies.” Here’s a sampling:

• A customer receives multiple cash deposits or wires from disparate jurisdictions, branches of a financial institution, or persons and shortly thereafter uses such funds to acquire virtual currency.

• A customer receives a series of deposits from disparate sources that, in aggregate, amount to nearly identical aggregate funds transfers to a known virtual currency exchange platform within a short period of time.

• A customer’s transactions are initiated from non-trusted IP addresses, IP addresses from sanctioned jurisdictions, or IP addresses previously flagged as suspicious.

The type of criminal activity the Treasury Department looks to intercept is on the level of money laundering, human trafficking, and terrorist financing. The occasional, casual transaction may—may—be harder to detect. Paying a neighborhood weed dealer might be indistinguishable from repaying a loan between friends.

But with the volume of data generated daily, and with AI’s increasing ability to sort and correlate, I wouldn’t count on it.

Someday the payments industry may rely on thought alone. PayPal founder, serial entrepreneur, and rich dude Elon Musk recently announced that his company Neuralink plans within a year to have a device that allows people to use their minds to work a computer. 

It’s too soon to get excited—many a Musk project has fizzled—but the dream is reality-based. In 2005, Matthew Nagle became a formidable Pong player by means of microelectrodes buried deep in his brain. The hope is to give Nagle, who is paralyzed from the neck down, and people like him greater independence and communication ability through computer use. Neuralink’s technology will likewise insert microelectrodes in the brain. 

Musk didn’t bring up banking specifically, but it’s not much of a leap, especially since (1) Musk has a background in payments and (2) Neuralink aims to connect users to an iPhone app. 

Biometrics as the butt of jokes … and in butts

Biometric technology is showing up in many places and forms. The first phone with a fingerprint scanner was the Pantech GI100. That was in 2004, when the iPhone was still three years away. Other iterations of fingerprint authentication followed, but it was in 2013 that Apple that made it famous by including it on the iPhone 5S.

Screenwriters love to use biometrics to comedic effect. In the 2018 movie The Spy Who Dumped Me, Audrey (Mila Kunis) replaces her lipstick with a deceased bad guy’s finger in order to use his phone. I guess it didn’t occur to the writers that once Audrey unlocked the phone, she could have reprogrammed it with her own fingerprints; and that a severed finger isn’t of much use for unlocking a phone anyway.

Sometimes biometric ID begs mockery. Like when Tokyo’s Advanced Institute of Industrial Technology installed 360 sensors in the driver’s seat of a car. This enabled the seat to recognize the car’s owner—I swear I’m not making this up—by the shape of the owner’s rear end. That’s great for vehicles, but I don’t expect to see Butt ID used to authenticate payments anytime soon. I believe the average consumer would sooner revert to cash than sit on a point-of-sale reader.

Swedish fingers at the forefr0nt

But right now in Sweden, people are signing up for a biometric ID device so fast that the country’s main manufacturer is having trouble keeping up with demand. The product is a chip embedded under the skin, usually in a finger. NPR reported,

The chips are designed to speed up users’ daily routines and make their lives more convenient—accessing their homes, offices and gyms is as easy as swiping their hands against digital readers … Around the size of a grain of rice, the chips typically are inserted into the skin just above each user’s thumb, using a syringe similar to that used for giving vaccinations.

And, according to cybersecurity company Kaspersky…

Facial recognition is a part of everyday life in Chinese cities, where it’s used for routine purchases, and London is famously dotted with CCTV cameras. Now, New York, Chicago, and Moscow are linking CCTV cameras in their cities to facial recognition databases to help local police fight crime … Facial recognition cameras are already at work in … airports throughout the world, including those in Helsinki, Amsterdam, Minneapolis-St. Paul, and Tampa.

PYMNTS.com has noted that Facebook is “… working on a system …

… that will let people type with their brains,” the company said … “Specifically, we have a goal of creating a silent speech system capable of typing 100 words per minute straight from your brain—that’s five times faster than you can type on a smartphone.

Apocalyptic warnings

Hollywood comedies aside, all of the above generate apocalyptic warnings based on everything from finger amputation, to identity theft, to HIPAA violations. Swedes appear not terribly concerned, but citizens of other countries may not take reassurance from knowing that the founder and CEO of Sweden’s leading chip manufacturer Biohax was not trained in medicine or technology—but in body piercing.

Yet it’s not as if developers haven’t anticipated and planned for security concerns. Per NPR,

Osterlund says personal microchips are actually more difficult to hack than many other data sources because they are stored beneath the skin. “Everything is hackable. But the reason to hack them will never be bigger because it’s a microchip. It’s harder for someone to get to, since you put it in you,” he says.

And, per Kasperksy:

… biometric technology still offers very compelling solutions for security, as the systems are convenient and hard to duplicate. They make a good replacement for user names as part of a two-factor authentication strategy that incorporates something you are (biometrics), something you have (like a hardware token) or something you know (like a password). That’s a powerful combination, especially as IoT [Internet of Things] devices proliferate.

And there’s the convenience factor. There’s something to be said for having to carry around only one device—or one finger—to access myriad apps. In Sweden, consumer convenience is driving embedded chips. The rest of the world may not be far behind.

If you happen to visit First Data’s home page, you may notice a big, blue rectangle hovering it. It says, “First Data is now Fiserv.” 

It was in January of this year that Fiserv and First Data announced plans to become one company under the Fiserv name. Now, seven long months later, the deal is complete. Accuse me of hijacking my own blog to bring you news about my employer if you will, but I think it’s justified. This is a newsworthy event I’d be remiss to overlook. 

Besides, it’s nice to be able to brag to someone who gets it. If you’re reading this, odds are you’re already aware of Fiserv and First Data. My neighbors, not so much. When I tell them I work for Fiserv, experience has taught me to add a brief description without waiting for the inevitable “What’s Fiserv?”

Except in Wisconsin. There, Fiserv is a household word. This is partly because Fiserv makes its headquarters in Brookfield, a suburb of Milwaukee, and mostly because Milwaukee’s Fiserv Forum is home to the Milwaukee Bucks. There are no blank stares when I tell a Wisconsinite I work for Fiserv. Instead, I usually get, “You work for that Fiserv? Cool!” This is usually followed by, “What’s Fiserv?”

Don’t get me wrong. Working for Fiserv is something to be proud of. Its technology underlies and powers account tracking, payments processing, and mobile banking services for small banks to mega banks worldwide. There’s hardly a life that Fiserv doesn’t touch.

And its low public profile is by design. An unstated part of Fiserv’s mission is for my neighbors who love their suite of digital banking services to sing their bank’s praises, not Fiserv’s.

First Data, too, has maintained a low public profile. Of course, merchants are certainly aware of the company. They use First Data’s point-of-sale hardware at the cash wrap to accept payment and, thanks to First Data’s Clover® Station POS System, to accept it in pretty much any form.

The months between announcement and completion of the acquisition weren’t hurdle-free. For instance, the United States Department of Justice requested a stack of information. And then, another stack. I suppose that puts Fiserv in good company. I mean, why should Facebook, Google, and Amazon hog all the attention? With the deal complete, I’m going to assume the DOJ was satisfied. 

The purchase price was $22 billion, which is more than I make in a year. When plans for the acquisition were announced, the press was largely positive, even though it’s the press. The Wall Street Journal said that the all-stock deal “connects Wall Street to Main Street”:

Fiserv and First Data provide a range of technology services to banks, merchants and other companies involved in the business of moving money. Chief among those services: payments. Fiserv processes credit- and debit-card transactions for banks, while First Data handles the merchant side of the equation.

To wit, a Fiserv press release dated July 29 states:

As a global leader in technology and payments that enables commerce, banking and the safe and secure movement of money, Fiserv has the breadth of capabilities and depth of expertise to deliver unmatched value to clients. As a result of the combination, clients will have access to a more comprehensive set of solutions and innovations, an extensive range of end-to-end capabilities and integrated delivery, which enable differentiated value for their customers.

Even the Motley Fool rang in with a word of praise:

The agreement combines two companies in the financial services industry that surprisingly overlap very little in their core capabilities … Banks that subscribe to Fiserv’s platforms can now offer Clover as a default point-of-sale option to their business accounts. As [First Data CEO Frank] Bisignano put it, the deal “massively changes the distribution capability of Clover.”

This joining of forces is a positive step toward heading off a wave of upstart fintechs like Square that, as the WSJ put it, have “… muscled into the market in recent years, luring away potential customers [from traditional financial institutions] and threatening a major source of revenue”:

[T]he growing number of payment options for merchants has started to take a toll on the business. First Data has long relied on banks to funnel merchant clients its way, yet many businesses are turning to Square and other upstart rivals. First Data’s Clover payments station competes with Square’s signature white card readers that plug into smartphones.

Returning the Motley Fool: 

With Clover becoming a part of Fiserv, banks will have the same access to sales data that Square has and be able to offer loans to merchants in much the same way Square does now. For financial institutions losing market share to Square, that is a compelling proposition. [Italics added.]

“With the transaction now complete,” observed PYMTS.com, “Fiserv is one of the world’s largest payments and financial technology providers,” adding:  

[Fiserv CEO Jeffrey Yabuki said that] … the combined firms are primarily focused on their areas of synergy, particularly expanding technologies like point-of-sale lending, helping merchants get their money faster and using data in terms of “thinking about how to make better decisions around fraud and the like.”

Exciting times. I’m grateful to be able to play in this sandbox.

The United States Justice Department and Federal Trade Commission are about to get an earful about Amazon and Google from the Retail Industry Leaders Association (RILA). Bloomberg reports that RILA, whose members include Walmart, Target Corp., and Best Buy Co. and others …

… joins a slew of companies, including Oracle Corp., Yelp Inc., Tripadvisor, Inc. and News Corp., that have raised concerns about competitive harm from dominant technology platforms. The retailers’ group has already laid out its views on competition issues to the House Judiciary’s antitrust subcommittee, which is investigating the technology industry …

Antitrust laws exist to ensure healthy competition, the reasoning being that consumers suffer in its absence. Government needn’t delay stepping in until a monopoly has actually caused harm. The potential to cause harm is enough, a standard that has its roots in The United States v. Alcoa. When Alcoa happened upon a production method that took the price of aluminum from $545 to $8 per pound, it passed the savings to consumers who, not surprisingly, were quite pleased. It was competitors who sued for Alcoa’s breakup. Ultimately there was no breakup, however, it was now established that a too-dominant player could be deemed be an illegal monopoly, even when dominance is attained through fair play, and even when consumers benefit. The potential to harm can warrant oversight and, perhaps, action. 

It’s a philosophy with PR implications that make a two-edge sword of success.

Americans love tales of people who rise from rags to riches using only raw talent and gumption. Perhaps we like these stories because they give the rest of us hope. 

But beware too much success. 

Americans cheered Sam Walton, born a poor farm boy, as his suburban stores began closing on Sears, then the world’s largest retailer. But not long after toppling Sears, Walmart became something of a hiss and byword. Independent stores shuttered and blamed Walmart. Manufacturers complained of having to lower quality to meet Walmart’s pricing demands. Politicians accused Walmart of underpaying employees whose resort to welfare constituted an effective government subsidy.

Another entrepreneur, born to a humble, 17-year-old high school student, experienced similar cheers followed by jeers. He grew up, obtained an education, married, and then one day headed west, his wife at the wheel, while he mapped out plans for a business he would launch from a garage. For years, his venture failed to turn a profit. People admired his vision and while shaking their heads at his recklessness. Then, overnight or so it seemed, Amazon was suddenly a force to be reckoned with. Retail booksellers found themselves on the rocks. Publishers bowed to its will. Retailers had trouble competing with its ever-widening array of products. Jeff Bezos—I’m sure you guessed who by now—even bought The Washington Post, for crying out loud.

Or take the two Stanford University PhD students who couldn’t even spell googol. They were hep, they were cool, they were fun. They even had morals: “Don’t be evil” graced a headquarters wall. But then, Google kept growing. And then, Alphabet took them over. And then, they took “Don’t be evil” down, causing consternation despite the fact that one of Alphabet’s core values was “Do the right thing.” Eventually, “Don’t be evil” went back up, but for many it was too little too late. As Google’s fingers reached into more and more pies, its honeymoon phase with America drew to a close.

Which brings us to where we are today. According to Bloomberg:

“It’s pretty clear to us that the FTC and different relevant regulators should be taking a much closer look at these platform companies,” said Nicholas Ahrens, vice president of innovation for RILA, in an interview. “We are here to help.”

… The group wrote a letter to the FTC … arguing that the tech platforms create an “information bottleneck” that has the power to skew markets and circumvent the traditional power of price competition.

RILA also raised concerns about how tech companies may compromise the brands of retailers, favor their own products over sellers on their platforms, accumulate data about competitors and allow for the proliferation of counterfeit goods.

Note that RILA does not accuse the giants of having caused actual harm, but of having the potential to cause it.

“Too big to fail” is a related concern. As I wrote last month, the U.S. House Financial Services Committee has issued Facebook a cease and desist plea regarding Calibra. A recent report from Finextra says: 

“Because Facebook is already in the hands of over a quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” the lawmakers wrote. “During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.”

Like most people in digital banking, I worry when government gets involved. It has a habit of using a rooter where a Q-tip would do. On the other hand, I’d be loath for government to await the emergence of a problem before taking action. On Amazon, Google, and Facebook scales, any problem could be instantly far-reaching.

In recent years there has been a glut of headlines the likes of Wells Fargo to close 900 branches, Banks Will Be Obsolete Within 10 Years, and 6 Banking Services That Will Be Obsolete in 10 Years, on which the first item was “Bank Branches and Bank Tellers.” Indeed, a scant two years ago, none other than Yours Truly wrote for The Financial Brand, “… nearly twice as many consumers prefer remote banking as opposed to branch banking—and the vast majority of those prefer digital channels.”

So it’s no wonder that JPMorgan Chase just opened one of its largest branches in the U.S., announced plans to open 400 more in 20 markets, and has begun construction of its new headquarters in the not exactly low-rent district known as Manhattan.

Say, what?

It’s true. For some banks, branches are a thing again. 

JPMorgan isn’t the only financial institution on which the building bug has left bite marks. Bank of America plans to put up 500 new branches. Even local banks, such as San Antonio’s Frost Bank, are getting in on the act. According to the Houston Chronicle’s Al Lewis, Frost is “… planning on opening a branch a month over the next couple of years.” 

One might ask, what madness is this? “Some find that decision puzzling,” wrote Aaron Elstein for Crain’sNew York Business. He continues:

Banks nationwide have shut 5% of their branches since 2012. Digital, which has long been banking’s future, has become such a part of its present that the number of ATMs declined last year for the first time since they were introduced in 1969. Digital-only rivals, such as Goldman Sachs’ Marcus and BankMobile, are gaining traction by offering savers low-cost accounts with higher interest rates than most traditional banks.

Yet proponents argue that yielding to the building bug is not madness but sound strategy. After all, in the above-referenced article, I warned, “Don’t close your branches yet,” pointing out that …

… buildings still matter. More than half of respondents reported visiting a physical branch in the month prior to [a Fiserv quarterly consumer trends] survey. Over a six-month period, that figure jumps to 80%. The most common reasons for visiting a branch include depositing checks (61%) or cash (40%) and withdrawing cash (44%). It is notable that none of these transactions requires a branch visit. There appears to be either an emotional component (comfort in a face-to-face meeting) or an educational gap around digital capabilities that keeps people visiting physical structures.

But, enough of me quoting myself. Per Reuter’s, here’s what JPMorgan management had to say on the value of building: 

“Seventy-five percent of our deposit growth comes from customers who use our branches,” Thasunda Duckett, chief executive of Chase consumer banking said in an interview. “Customers still visit branches, on average, four times a quarter.” 

… JPMorgan has found that people who want to open new accounts look to see which banks have convenient branches even though they will do most of their transactions electronically. Duckett said branches are critical to establishing the bank’s presence locally and serve as hubs for mortgage lending, asset management and services to small businesses, such as accepting daily cash deposits.

Lewis points out that …

Bank branches serve as billboards. We know the brand Mattress Firm because the company seems to put showrooms on every block. For Frost, building branches is an essential step in its Houston expansion. 

… “Sixty percent of our accounts in the Houston market are within 5 miles of an existing branch today,” he told reporter John Roper. “I think this is true of consumers: They want to know that a branch is nearby if they need anything.” (Chronicle, op. cit.)

Bank of America CEO Brian Moynihan said, “A digital-only institution, in our mind, is not the way that you should go.” And JPMorgan Chase CEO Jamie Dimon said, “Every time we open branches in a new market we bring the full force of JPMorgan Chase to that community.” (Yahoo, op. cit.)

American Banker also cites Moynihan:

Speaking at at the Economic Club of Washington in mid-February, [Moynihan] said that most of the bank’s retail sales originate in the branch and that some 800,000 people visit Bank of America’s branches every day. The branch is also where many bank customers turn to for financial guidance. A survey released by J.D. Power this week found that most consumers seeking financial advice prefer to receive it in person, and not through digital channels.

Still, not everyone is convinced. 

“Chase has very smart people, but what they’re doing here doesn’t make any sense to me,” said Charles Wendel, president of Financial Institutions Consulting. “People are done with branches.” (Crain, op. cit.)

Notwithstanding Chase’s, Bank of America’s, and other banks’ renewed commitment to building, more branches are closing than opening. Time will tell whether JPMorgan et al will cheer or rue the building spree.

But one advantage of physical branches is certain, and Lewis nailed it: “When you bank online, you don’t get a free sucker.”