Matt Wilcox Pro

PRIOR TO April 21, there was unilateral agreement on how upcoming Trump administration policies would impact the financial services industry.

The only hitch? The universal agreement was that there was simply no telling. No wonder more and more prognosticators are retreating to the safety of, “It could be this, that, or the other.”

But, as I said, that was before April 21. On that day, Donald Trump signed an executive order calling for, as an AP story in Fortune summarized, a review of 

… any major tax regulations set last year by his predecessor, as well as two memos to potentially revamp or eliminate fundamental elements of the 2010 Dodd-Frank financial reforms passed in the wake of the Great Recession.

There. That should put an end to
uncertainty and wild speculation, no?

Er, no. 

As the folks at CNCB.com put it,

The good or bad news, depending on how you feel, is that, based on briefings provided in advance by the White House, it does not appear that today’s order actually does anything per se. … Trump’s order does not rescind any of these rules. It merely orders a ‘review’ of them.

Cynical or not, CNBC has a point in that the order changes nothing, requesting no more than taking a look at current regulations. But it’s not as if Mr. Trump and his administration haven’t dropped a hint or two. Returning to the more balanced Fortune piece,

Treasury Secretary Steven Mnuchin said a “significant” issue to be examined will be Obama’s crackdown on inversions, which are mergers that enable U.S. firms to relocate their headquarters overseas where tax rates are lower.

The review could also touch on overlapping rules designed to stop foreign-based companies from shifting their U.S. profits abroad, another Obama initiative from 2016.

The administration is also trying to pass tax reform that would reduce corporate and personal rates.

But it’s Dodd-Frank that’s of particular interest
to the financial services industry.

The Los Angeles Times offered this as to the potential fate of Dodd-Frank:

… Trump, who has vowed to dismantle the landmark Dodd-Frank financial reform law, took aim at two of its pillars Friday [April 21].

During an appearance at the Treasury Department, Trump signed two presidential memos ordering six-month reviews of the 2010 law’s authority for regulators to designate large firms as a risk to the financial system and to try to shut them down with minimal collateral damage if they’re on the verge of failing, the White House said.

The two memos focus on possible adjustments to the Dodd-Frank law, which was designed to stop banks from growing “too big to fail” and requiring public bailouts.

On one hand, that could be good news. It’s no secret that many requirements found in Dodd-Frank and elsewhere are unduly onerous and costly. As Continuity’s Pam Purdue blogged for CB Insight, 

In Q4 [2016], regulatory agencies unleashed 115 changes … Many of those changes have yet to go into effect, and FIs are still working to ensure compliance with the changes that apply to them before they go into effect. … There are … over 14,000 requirements in the Code of Federal Regulations that financial institutions must manage. Maintaining compliance is an ongoing obligation.”

Whether Dodd-Frank requirements are needless, needful, or needful but over-the-top is a matter of hot debate. Some, including Mr. Trump himself, think doing away with Dodd-Frank in its entirety may not be such a bad idea. In an April 11 speech, Trump said,

You can take a look at Dodd-Frank. For the bankers in the room, they’ll be very happy because we’re really doing a major streamlining and, perhaps, elimination, and replacing it with something else.

Which brings us to the other hand. Monkeying with Dodd-Frank could be bad or at least partially bad news. That’s where former Federal Reserve Chairman Ben Bernanke lands. His position is hardly a surprise, since Dodd-Frank came about during his time as Federal Reserve chairman. Bernanke expressed particular concern over proposals to eliminate the Orderly Liquidation Authority (OLA), created under Dodd-Frank’s Title II. In February, in his piece entitled “Why Dodd-Frank’s orderly liquidation authority should be preserved,” Bernanke wrote:

… Under the OLA, the FDIC and Fed are provided tools to help resolve failing firms safely, in a way analogous to the approach that the FDIC has long used to resolve failing banks … In my view, repealing Title II to eliminate the OLA would be a major mistake, imprudently putting the economy and financial system at risk … under crisis conditions, the OLA (Title II) framework … would be much more likely … to safely unwind a failing, systemically important firm.

While the financial services industry would certainly enjoy jumping through fewer and lower hoops, Tamar Frankel writing for Boston University warns …

… the proposed changes in the act would limit reporting regulation and reduce the costs of the financial servicers, as well as reduce the encouragement and payment to “whistle-blowers.” That means less information about fraud by financial servicers and less caution to hide the fraud …

… Weakening or eliminating Dodd-Frank, and allowing complete free trading and churning of securities markets, will cement what is already too much of a casino culture on Wall Street.

 The Dodd-Frank Act fills over 2,300 pages

That’s about twice the length of an average edition of a King James Bible. It’s also about twice the length of the 50^th anniversary, single-volume edition of The Lord of the Rings. And I need hardly point out that Dodd-Frank has won no literary awards nor garnered praise for great pacing and flowing prose.

I bet not many legislators who voted on Dodd-Frank one way or the other—or who now argue for or against it—have read all of the law’s 2,30 pages. And while my hat is off to any of the few, social-life-bereft souls who may have managed to slog through it, reading it is one thing; making sense of it is quite another.

Few would disagree that a certain amount of regulation is needful. The crucial questions swirl around how and how much. Don’t get me wrong. I’m on the banking industry’s side. I’m on my kids’ side, too, but I don’t give them free rein.

What does the immediate regulatory future hold? What will be the long-term consequences? It is—still—all one big Unknown. I’ll close by re-quoting my friend Philip Ryan: “The election of Donald Trump has brought uncertainty and relief to bankers in seemingly equal measure.”

Each year, the country that U.S. citizens visit most is Canada, our neighbor to the north. Yanks venturing there after 2009 would have noted that Canada had already adopted chip cards, a move the United States would not make until 2105, even then not without hiccups.

Now a new survey from Payments Canada suggests that more than half of Canadians say they’re all for making the big jump to a cashless society. According to Huffpost Canana Business:

A new survey from Payments Canada finds 50 per cent of Canadians are ready to get rid of banknotes and coins. Two-thirds of respondents said they are ready to say goodbye to personal cheques.

Yet From Press Canada points out that Canadians aren’t yet putting their money where their mouth is:

… it’s still a minority segment of the population that has adopted paperless forms of payment, according to the 1,507 Canadians surveyed by Payments Canada and Leger Marketing.

Canadians do only 19 per cent of their shopping online, and only 13 per cent say they have uploaded an e-wallet app, according to the online survey conducted in late March and early April.

“This data demonstrates a natural ambivalence around emerging technological advancements in payments but endorsement from early adopters, which often signifies a tipping point,” said Gerry Gaetz, chief executive of Payments Canada, the organization which owns and operates Canada’s payment clearing and settlement infrastructure, in a statement.

It’s important to bear in mind with surveys that what people say they’ll do doesn’t necessarily mean they’ll do it. And it would be prudent not to rule out inadvertent bias on the part of Payments Canada. Notwithstanding, Canada does seem to be moving steadily away from cash, as are a number of other nations.

As I reported last month, the Republic of India has made becoming a cashless society an official goal. Yet according even to India Today, Scandinavia may be least abashed about going cashless. Cash transactions in Sweden are reportedly down to just 3 percent. In Norway, one bank has proposed eliminating cash, and several no longer distribute cash to customers. And in Denmark, a growing number of retailers refuse to accept cash.

Not that everyone agrees on who the leaders are. World Atlas ranks Belgium as leading the cashless charge (yes, pun intended), followed by France, Canada, and the United Kingdom, with cashless transactions at, respectively, 93, 92, 90, and 89 percent. Big Decisions reports that the top five cashless countries are, in order of cashlessness, Sweden, Denmark, the UK, Canada, and Belgium.

The astute reader will note that while reports vary as to who leads, they are mostly in agreement as to which countries are at the top. Canada is one of them. If the Payments Canada survey reflects reality, we can expect Canada to keep up the trend.

The name Canada derives from an aboriginal American word meaning “village.” Clearly, its humble beginnings as reflected in the name belie the powerful economic force that is Canada today.

A few weeks ago I wrote about the future of fintech under the Trump administration. Since then, a flood of articles has burst forth about Trump’s taken and threatened actions in the financial services arena. The consensus seems to be: Could be good, could be bad, or some of both.

Yeah, I’d say that about covers the spectrum.

For a good start on the subject, I commend you to this piece by my friend Philip Ryan. Here’s his opening:

The election of Donald Trump has brought uncertainty and relief to bankers in seemingly equal measure … banks needed just 222 hours to comply with new regulations, down from 809 the previous quarter, a decline of 73%. The incremental cost of new regulations during the quarter was $10,360, down from $53,046 the quarter prior.

But, the article goes on to warn

“… against optimism about repealing regulations under Trump, particularly the huge and complex Dodd-Frank Act.”

To do justice to explaining why, I would end up quoting Ryan’s entire piece. So tell you what: Please click here and read the original. Next week, I’ll summarize views from various perspectives within the financial services industry. 

You probably know the term cognitive dissonance. It refers to the sensation of gears inside your head grinding to a halt at the appearance of contradictory data.

For a good example, look no further than prognostications about the impending fate of cold, hard, tangible currency. Depending on who pipes up and when, the future of minted and paper currency is either dismal or glorious.

Last week in a The New York Times piece entitled “Cash Is King No More,” writer Lee Siegel rued the demise of currency:

Cash. Remember? It’s what people used to exchange for things. You can see it sometimes in old movies on TCM. I think Gibbon mentions it in “The History of the Decline and Fall of the Roman Empire.” An old song, “Brother, Can You Spare a Dime,” was actually about a dime. It was not “Brother, Can You Spare an Amazon Rewards Card.”

Siegel is not alone. No shortage of predictions in both the consumer and business press place cash on the endangered species list, and there are plenty of reasons to hold to that view. In my recent ABA Bank Marketing article “Measuring the ROI of Digital Banking,” I discussed a study by Fiserv and Bank of the West showing the appeal that digital banking holds for rising generations, and how that dovetails nicely with the potential for banks to increase share of wallet, loyalty, longevity, and fee income. That’s a clear win-win—unless you happen to be currency, in which case it would be reasonable to fear that your days may be numbered. I mean, come on. Even food stamps are going digital. 

Now for the cognitive dissonance 

But not so fast. An article just published by Fiserv strategic partner ATM Marketplace entitled “Why consumers still love cash” claims that studies “… consistently show the hype about the decline of cash to be inaccurate and wildly overstated.” It goes on:

Despite continuing growth in alternative payment options, consumers still rely on cash as their primary form of payment for gifts, food, personal care, automotive, entertainment and transportation services.

But, with so many “more convenient” options available, why do people continue to rely on hard currency?

By way of answering its own question, the piece suggests that people are loath to give up cash due to concerns about potential hacking, dissociating from hands-on budgeting, loss of anonymity, and merchants who do not accept credit cards or digital payments. While all of those explanations hold water, I’m a little wary of explaining results of “studies” where no reference is cited, for they leave me powerless to check out the claim for myself. As University of Oregon Professor Emeritus of Psychology Ray Hyman observed in what has since been dubbed Hyman’s Categorical Imperative, “Do not try to explain something until you are sure there is something to be explained.”

But then, ATM Marketplace is no lone voice. No less than the venerable BBC challenges the sounding of “the death knell” for cash:

Physical money has been with us for thousands of years for a reason. Cash is essentially untraceable, it’s easy to carry, it’s widely accepted and it’s reliable. If the power goes out, or there’s a blip in the electronic systems that make the online commerce world go round, cash is there. If someone wants to buy something without anybody tracing it back to her, cash is the way to do it. If someone wants to be certain that their form of payment will be accepted, cash is the best bet. Even with advances in technology, some of the aspects of cash simply aren’t reproducible with bits just yet.

There is simply no alternative system of payment that is as convenient, reliable and anonymous.

Speaking of venerable, Georgia State University is of like mind. While many cash defenders echo ATM Marketplace’s reasoning—perhaps they share a common source—GSU offers some unique points. Among them are the fact that not everyone has a bank account (a problem The Republic of India must sooner or later face as it pursues its stated goal of becoming a cashless society); the suggestion that the removal of currency will only spur people to substitute some form of cash by another name; and the fact that the demise of cash has been predicted before. Such was predicted, for instance, with the advent of checks. Perhaps you noticed that cash is still in use.

The not necessarily venerable but not altogether dismissible Huffington Post opines that cash is here to stay. More notably, so does ACI Universal Payments. If you’d expect to find a pro-demise-of-cash bias anywhere, you’d expect to find it there. Yet in a delightfully comic piece that manages to bring rickshaw rides into the picture, ACI’s writer quips that cash “… is almost as good as money,” adding, “It’s universally accepted, there’s no surcharge to use it, and for some, it fits nicely into their fanny packs … ”

I cannot resist weighing in with own thoughts. 

It is, after all, my blog.

Digital is taking over, and there’s no reason to imagine that it will slow down. It will become the standard, and, I suspect, sooner than many think. With that said, of course currency will never altogether disappear. Neither have typewriters and rotary phones. The “demise of cash” should not be taken literally but understood to mean “the reduction of cash to a negligible proportion.”

In any case, neither I nor anyone else attempting to predict the future need worry. That’s the beauty of making predictions. If in time you turn out to be wrong, chances are that by then no one will remember that you even made a prediction, much less what it was.

It has become something of a journalistic fad for reporters to invite hackers to, well, hack them. Without exception, they emerge shaken by two observations: Just how vulnerable they are; and just how much sensitive data they’d forgotten about that awaited discovery.

TIME reporter Joel Stein is one of the latest to give it a whirl. He writes about his experience in his column dated March 23. Unsuccessful at recruiting real hackers—those he contacted may have feared embarrassing him or worried about entrapment—he finally cornered a pair of young staffers at the magazine with no hacking abilities, gave them his passwords, and told them to have at it.

“The advice hackers give when looking for dirt in a pile of data,” Stein says, “is to …

… search for words such as pissed or angry. They suggest figuring out to whom the most emails are sent, since that signals a trusted relationship. And to use Facebook to suss out relationships—ex-girlfriends, college acquaintances—to spot dubious interactions. Deleted photos are telling, as are erased emails. And they say to always, always look in the draft folder, which houses the truly horrible stuff people are too smart to send … Using this advice, my two hackers delivered an 18,000-word document of humiliations three weeks later.”

Three years earlier, Telegraph reporter Sophie Curtis wondered,

… is the threat of being hacked something that you or I really need to worry about? And if someone did hack into your computer, what would they be able to do with the information they found?

Over the summer I decided to put these questions to the test. I got in touch with an ‘ethical hacker’ called John Yeo, who works for cyber security firm Trustwave, and asked him to try and hack me.

Curtis had written a good deal about cyber security, so, she wrote, “most of my profiles are fairly locked-down.” But, not so fast. Her hired hackers found indirect ways of learning more about her. Next, they faked an email appearing to come for LinkedIn, a source she trusted. The mere act of opening the email—without clicking links—embedded a single pixel that let her hackers “fingerprint” her computer, that is, identify …

… which operating system the computer is running, as well as which browser I was using, which browser add-ons I had, and which security software might be running on the computer.

That’s where Curtis’s tale turns scary. I recommend reading her article by clicking here. You might also check out this piece by Kevin Roose, who “dared two expert computer hackers to ruin my life.” Roose reported,  “If I had to give myself an overall digital security grade, I’d give myself an A-.” But then he found out that 

… it didn’t matter how good my defenses were. Against a pair of world-class hackers, my feeble protections were about as useful as cardboard shields trying to stop a rocket launcher. For weeks, these hackers owned the hell out of me. They bypassed every defense I’d set up, broke into the most sensitive and private information I have, and turned my digital life inside out.

“Please hack the Pentagon”

According to the Infosec Institute, in the 1960s the word hacker originally meant

… someone dedicated to solving technical problems in machines in a different, more creative fashion than what is set out in a manual … “hacking” just intended to find out a quick way to evaluate and improve problematic systems that need to be optimized.

Yet the potential threat wasn’t hard to anticipate. The Unites States government routinely hired hackers to test online security as early as the 1960s and 70s. Despite such precautions, it caused no small stir when in 1990 three men not retained by the government were indicted for hacking into classified U.S. military data. Meanwhile, the 1983 movie War Games, with Matthew Broderick and Ally Sheedy, had already fanned the public’s fears.

War Games was highly fictionalized, but the threat of hacking is real and continues to grow. This is from Symantec’s 2016 Internet Security Threat Report:

In 2015, we saw a record-setting total of nine mega-breaches, and the reported number of exposed identities jumped to 429 million. But this number hides a bigger story. In 2015, more companies chose not to reveal the full extent of their data breaches. A conservative estimate of unreported breaches pushes the number of records lost to more than half a billion.

The threat of nefarious hacking has increased the demand for “ethical” hacking. Last year, a call went out from no less than the Pentagon seeking hackers to try to penetrate their defenses. Of course, applicants had to pass a background check. Even that’s a little unsettling, since more experienced, not-so-ethical hackers usually don’t bother submitting to background checks before setting to work. In any case, according to USA Today, the program …

… launched in April and the Pentagon said it would [offer] prize money awards and other recognition … The Pentagon has acknowledged that its networks are under daily assault by hackers and securing the systems are [sic] a high priority. Last year, an email system used by the Joint Chiefs of Staff was penetrated by hackers and had to be taken offline in order to cleanse the system.

Somewhere in all of this are important takeaways:

• Vigilance is a must. Even with good security in place, you must never assume you’re invulnerable.
• Most of us have no clue as to the sophistication of determined hackers.
• Just opening an email can be dangerous, even without clicking on links.

It creates something of a juggling act for an industry like banking, whose markets demand digital services. The trick is to keep clients forewarned and forearmed while avoiding frightening them so much as to lose their confidence. Perhaps paradoxically, the proper presentation of information on staying safe from hackers can increase client confidence by conveying that a financial institution is knowledgeable and cares about its customers.

In the meantime, a bit of good advice for us all is summed up in a cartoon, which, out of respect for copyright laws, I shall not post. But I can link to it.