Perspectives on (Ca-)Libra #2: On the Libra association (board) and business drivers

First of all apologies to many of you: I promised a blog on the reason why Libra would not qualify as e-money, but please accept my rain check for that. Right now, it is the day after constitution day for Libra. An event coloured by the absence of many payment industry players, that indeed felt the pressure of competition law too big to be able to join.

So yesterday, the Swiss association was set up, and we got a glimpse of more information on the organisation. I will discuss the ramifications and conclusion that we can draw later this afternoon in the Dutch radio-broadcast BNR Digital News. And this blog contains a brief analysis, which builds on my first blog that identified a couple of smokescreens by Libra.

My brief summary is basically:
- it is still a Facebook/David Marcus show, disguised as an independent association: the governance is still substandard in terms of industry best practices,
- Facebook has the fear of losing Africa to the Chinese and Libra is instrumental in helping them establish the foothold,
- Kiva and Payu are seeking actual microcredit expansion with practical product offers and Libra will be their vehicle,
- PayU, Andreesen and Xapo are regular VCs, in it for the money. If you're daring enough to step into bitcoin early, why not do the same with Libra? Worst case you lose a little money, best case, you're more on top of the world than ever.

The longread is below, but note that it is still only scratching the surface. Readers and other journalist may further research and draw additional conclusions.

Governance: still shaky
As it stands, the board that is now chosen has released info on its charter which is still very brief. It shows five board members which appointed three staff members of the Libra association. Interestingly, the head of the association is also the chair of the board and the PR role acts as the deputy chair. This is atypical, but my guess is that this is done to avoid the impression that David Marcus effectively pulls the strings.

If we compare the setting that has been now created with the one that the Dutch Payment Association has set up (after long deliberations and scrutiny by many lawyers to make a well developed governance structure) we can see some differences.
- Libra has no independent board directors
- Libra's chair of the board is also the head of the working payment organisation
- Libra has no formal Board of Appeal to deal with questions of acceptance as members, certification with respect to services/complying with rules and regulations.

The Dutch rules state:
An independent Board of Appeal makes it possible to appeal against decisions on acceptance and certification when parties are unable to reach agreement with the Executive Board, the Board and finally with the Appeals Committee of the Board.

And then an observation on what is missing. The association now has a director, a business development person, a policy/communication person. But not.... a legal council/compliance expert. As if the past months with all the varying regulatory discussions haven't happened at all. This is a very telling ommission; the organisation is all about commerce and not about compliance (but we knew that already...).

There is a lot more to say here, but I stand with my former analysis: the governance is ill conceived and not up to standard for a normal payment scheme/provider that Libra wants to be (as they announced in September to go for at least a payment license in Switzerland.

Libra members: three payment institutions remaining, not one
Reuters incorrectly informs the public in their article that the only founding member that is into payments is PayU. They missed out on the fact that Uber and Coinbase are e-money institutions which also act as payment institutions.

Of those, Uber is the youngest kid on the block. It ay either be too new to payments to understand the ramifications of the proposed governance or the underbidding and breaking of regulation may be part of the business strategy and it sees no risk here. Coinbase interestingly only has a UK license as e-money institutions and where most EMIs have their backup Brexit-license in place I don't seem to find it for them. I expect them to have a workaround or whitelabel agreement at hand however.

We should be paying more attention to Coinbase, as it is the linking pin that connects the five current board members. Also Vodafone (exempt under EU payments legislation) should not be forgotten (see PS1) as it has long standing unchallenged experience in avoiding proper banklike regulation of its payments processes.

The Board Members; interesting incrowd
Now what is Libra really up to?
For that we need to do a deep dive into the people and relationships.
I'll make a start below, but this is only scratching the surface.

The idea behind is that recruitment of board members always has a certain dynamics. In the Netherlands it is a well know fact that through charities (like the board of the Concertgebouw) top level executives meet and do networking. It also serves as a recruiting platform for next board members.

With this in mind we can see that Coinbase, Paypal and Kivi are the entities that connect the dots between the board members. And in essence, we can see that it is David Marcus who is at the center, having received what appears to be a blanc cheque from Zuckerberg to make this happen.

Therefore, let's start with David Marcus of Calibra (a Facebook tech subsidiary in US; interesting choice given the fact that Facebook Payments also holds e-money licenses in Ireland). Marcus is a serial entrepreneur, coming out of telco environments, with one of the companies being bought by Paypal and thus ending up at Paypal. He then moved to Coinbase and shortly thereafter Zuckerberg scouted him for the Facebook/Libra plan.

Marcus via Paypal to Ellis
He has worked together at Paypal with Laurent le Moal, who heads PayU. So there we have connection number one. Do note that the PayU representative Patrick Ellis is primarily a lawyer, but not with payments background. He is more a securities regulation guy with African and South African experience.

Haun via Coinbase/Cesares to Horowitz
Connection two is with Katie Haun from Andreessen Horowitz. She is a former prosecutor who was firmly into all kinds of legal cases and bitcoin dark markets. As such she undoubtedly also came in contact with the Winklevoss twins and most likely may have met Wences Cesares as well. Her work in crypto-land led Coinbase to invite her to their board: a classic defence mechanism to ensure good contacts with legal prosecutors/supervisory community. This board role at Coinbase resulted in an invitation to work at Andreessen Horowitz, where she manages a huge VC fund that invests in crypto. The people hiring her said: 'She is a credible face for crypto'.

Cesares via VC world and Paypal
Connection three is Wencles Casares of Xapo Holdings He set up on online financial firm early on, which was subsequently bought. Onwards he setup Wanako Games (with exit), Lemoncard (with exit). The he was smart to set up a safe storage facility for bitcoin for the super rich that invested early in bitcoin. So he is a serial entrepreneur, now well taken care of due to all the bitcoins in his possession (we can assume he is a whale and sometimes see him retweeting large bitcoin movements on the blockchain). Xapo itself was funded by the VC Community involving.

His involvement in charity can be tracked into his participation in Viva trust, aiming at financial inclusion in Latin America. Later on he also served as a board member at Kiva (which accidentally also holds a seat on the board of Libra). And then of course, he is still a board member of Paypal, so there we have some dots connecting. So he is smart, rich and you may want to see how in 2006 he bought a nice real estate venue to live back home but returned to California later. The house is now part of a charity foundation and acts as a meeting point/venue for businesses and such.

Davie via Kiva/Paypal (Prenmal Sha) and Cesares (Kiva-board)
Connection four is the connection to Kiva Microfunds. Matthew Davie is s serial entrepreneur, pretty much involved in the strategy area of this longtime charity. Do read this article on how Kiva was set up as peer to peer crowdfunding and further developed into a lending platform. This has inclusion written all over it. And Kive, by the way, since the start did all its payments via Paypal. This was due to their contact with Premal Shah, who had also been experimenting with his own microfinance project while working at PayPal. So again, dots are connecting to the Paypal line, with a crossover to the VC community via Cesares.

Again, there is a lot more to say, but I leave it up to the crowd to further investigate.

Business proposition and drivers
As for the business drivers, you may want to look into what Kiva is doing recently. It is setting up a Kiva Protocol in Sierra Leone, to do microcredits based on reputation. My good friend Dave Birch has been very keen on identifying early on that this was one of the future points for Libra already mentioned in their plans. So Kiva is basically doing the proof of concept for phase 2 of Libra.

Next up to PayU. They are not just a payment processing company, but also a VC company owning reddot payments. And that is a company that brings Wechat and Alipay to Africa. Even more notable is that they own a large share in Tencent (Wechat) and their role as a big investor in the payments game. What is interesting here is that PayU thus seems to be introducing the Libra competitors into Africa. At the same time they join the initiative that seems to be set up to counter this development.

Because this much is more clear to me now. Facebook has the fear of losing Africa to the Chinese and Libra is instrumental in helping them establish the foothold. Kiva and Payu in the meantime are seeking microcredit expansion and Andreesen and Xapo are regular VCs, in it for the money. If you're daring enough to step into bitcoin early, why not do the same with Libra? Worst case you lose a little money, best case, you're more on top of the world than ever.

Further blogs: on definition and e-money and securities regulation in Eu
I promise, the blog #3 will come. But first I hope this blog inspires many people to do some further digging.


PS 1. On Vodafone, mpesa and payments
John Maynard pointed out to me that Vodafone and Mpesa also come into play here. Which is true for two reasons. First of all as part of the business opportunity in Africa and the desire to seek solutions that go beyond the one country. Cryptically speaking one could say that Mpesa itself may be the result of incidental local stakeholder constellations rather than the logic of business and regulation.

But the second reason is that effectively, the mobile operators have a great record of ducking relevant e-money legislation in the EU. If you would browse many pages of history of the e-money directive and a number of mobile phone payment initiatives (feel free to do so here) you will see that At some point in time the EU mobile operators succeeded in getting an exemption in the PSD2 and the e-money directive of the net-effect that funds on mobile phone accounts will not be considered e-money or funds under the payment services directive, even though they can be used to make sms-payments or added-service payments.

The trade off in those days was that mobile operators had just paid huge sums for 3G licenses and lobbied the Ministries of Finance via their Ministries of Transport/Telecommunications to call for a specific exempted regime for electronic money when residing on a mobile phone account. I still see this as one of the best executed bank-lobbies by non-bank institutions, which prevented the whole e-money directive being applicable to them. See also this website 11a2.nl  or read this consultation feedback that tries to provide this adhoc idea with a reasoned basis.

Therefore, when we look at the EBA payments institutions register you will thus see Vodafone being exempted for their payment business. They have a long standing experience in being able to duck e-money regulation and avoid the rational interpretation of regulation and may well be thinking that with the power of Facebook behind the initiative, this may also work now. This holds particularly true if your aim is not the developed market, but to capture the underdeveloped market in societies which have less robust regulators and supervisors.

PS 2. The team doing the association work: David Marcus reassembles colleagues
- Managing director of Libra. Betrand Perez has had some tenure with Paypal and also worked at Zong (the David Marcus company that Paypal bought). The same goes for Business Development person . Kurt Hemecker. So we can see the classic recruiting movement of having a soccer trainer taking along some of his trusted players to the new club.

- Head of Policy and Communication is Dante Disparte, a profiled professional with Harvard Business School and NY Stern education and diverse work experience. I sense a flavour of business and geopolitical work experience, related to national security. This can also be seen in repeated statements from Marcus outlining that for the US to keep its role/position, Libra is a necessity (in order not to let Chinese take over everything).

PS 3. What's the rush: the Chinese central bank on its heels
In response to the Libra initiative, central banks are now reconsidering the relevance of issuing central bank based digital currencies. The Chinese central bank is actually moving forward very fast in this respect. It appears to use similar concepts as Libra and thus develop a state-owned issuer of e-currency. See the Coindesk article here.

My personal take is that it may not have to be the central banks, but could be the Ministries of Finance that take up the issuance of digital coins (just as they usually mint the physical coins). But that is a whole different discussion, laid out in this article: The Full Reserve Bank is up for grabs.

PS 4. And of course the VR/AR angle
I almost forgot. Introducing a new currency into a real world does not make a lot of sense, as existing currencies and e-money may be more efficient. But imagine that there is a virtual agumented reality world / economy. You convert fiat money, step in and then use the game money. Like the Second Life Linden Dollars. But it's not a game and game money any more. It's IOUs of central bank Libra (aka Facebook). That may well be the end game (and first mover advantage) that Zuckerberg is seeking.

Perspectives on Ca-Libra # 1. Getting rid of three smokescreens

This week the world has witnessed the announcement by Facebook of Calibra, a digital currency wallet and company. The wallet holds Libra, a virtual currency, with the idea to be used globally. Its distribution and use will be further promoted, organised and executed via an association of partners, called the Libra-association. The information pack (download here) also outlines more technical details on programming languages, future plans and committment to regulatory compliance.

Immediately thereafter, a storm of analysis emerged in order to understand the initiative. Quite some politicians and regulators are eager to quickly respond and that is completely understandable.

Facebook is not just the grocery shop around the corner, dabbling about with some new technology. It has allocated significant resources to the development of Libra. With a customer base of at least 2 billion (close to 25% of the worlds population) it is an entity that in itself acts as a world-wide platform and does not need others to achieve a network effect.

Perspectives as the approach for this series of blogs
As the Libra-initiative can be viewed from many angles, I plan to write this series of blogs and label them as perspectives. It's always helpful to view things from a couple of angles and that is precisely what I intend to do. This means we will be looking into definitions, regulatory regimes, business case and previous historical analogies. And as we go along I will take stock of developments and responses.

As you may notice, I will be judging Facebook by a very high standard. The reason for that is simple. If an organisation has so many resources available, I expect them to come up with careful, consistent and accurate thinking, wording and technology. And as a sneak preview: this is not what we got over the last week.

While the maturity of the exercise may look impressive to some observers, the huge inconsistencies and home-brewed interpretations of what a blockchain is cannot be a coincidence. We can see an announcement that Calibra will become available in 2020, while the state of thinking mid 2019 is 'early in the process'. This is accompanied by a PR-smokescreen on cryptocurrencies, that doesn't help our understanding the effort.

So the very first challenge that exists, when discussing the Ca-Libra virtual currency initiative, is to separate fact from fiction and to be precise in terminology. That is why this first blog seeks to get rid of the three biggest smokescreens that we were facing this week.

Smokescreen #1: libra association is not an ecosytem but a payment association with added functionalities
If we start with the source of payments revenue for Facebook, this originally all boiled down to payments related to Flash games (in 2015). But technical problems in Flash would hit their revenue. So they quickly understood the need to be more flexible and to be able to operate different business propositions and solutions. Therefore they moved towards licenses in the US (cash via messenger) and in Europe. They also moved the US e-cash system to France and UK, but announced 2 months ago that they would drop it in Europe per June 15, 2019.

And now, per June 18, 2019 Facebook essentially announce to re-up their game, but not with electronic euro's but with a self-invented world currency, backed by other currencies and liquid financial instruments. To blow away the first smokescreen, let's analyse the difference between the old Facebook e-cash or e-money with fiat currencies and the new Facebook libra, as distributed by Libra Association.

What we can see is that Facebook seeks to move the fiat-currency of its e-money system out of its direct control and responsibility as an issuer. Facebook Payments Inc is currenlty the entity that is responsible and guards all the relevant rules with respect to working with the e-currency. But in the new construct Facebook Calibra is merely one validator that can use the Libra-system under open source rules. So we see the fiat-e-currency companies of Facebook stepping aside and a new Libra association entering the playing field. At the same time, the technology shifts from in-house proprietary systems to an open-source codebase in the hands of no one in particular.

Top organisation	Facebook Inc	Facebook Inc
Type of asset	Virtual Currency	E-money
Denomination	Libra (self-invented)	Pound, Dollar
Issuer / Currency creation	Libra ‘association’	Facebook Ireland
Nature of issuing	No direct issuance to customers. Direct issuance to validators.	Direct issuance to customers Direct redemption at issuer
Secondary market	Secondary/tertiary market with reselling - disbursement via exchanges/other institutions	No reselling of e-money.
Fee structure for Reselling	Unknown, but most likely the price for validators is unequal to that for exchanges or customers.	Issuance at par and redemption Of full amount minus some cost
Issuing without Customer demand	Currency base may change without actual demand of customers.	Issuance as part of buy-transaction of the customer
Reserve pool	100% reserve in basket of currencies	100 % reserve in Denominated fiat currency
Technology	Open Source community	Proprietary
Control and use of technology	Unknown contractual arrangements and safeguards for entities in the value chain	All usage governed by contract with issuer and financial law

Bringing the currency to the public or ducking the issuance responsibilities?
Of course one could frame the above shift of roles as bringing a currency to the public. Facebook is however dumping its core-responsibilities with respect to shaping and operating a currency-system and moving a lot of activities to an ill-equipped new Libra association with no track record at all.

While Calibra states that it will comply with all relevant legislation, we can see that the actual information of the Libra Association in this respect is pretty thin. They issue a currency-like digital token/record but do not explain which legal regimes would apply. Also their actual claim as whether they are a not-for-profit organisation does not align fully with this twitter thread outlines that it is a regular company with wider statutes.

If it looks/talks/qucks like a payments scheme, it is a ...?
In payment terms - which is what Facebook says to be aiming for - the Libra Association is essentially a payment scheme. Such a scheme defines the rules for an ecosystem that wishes to transact electronically. Examples are Visa and Mastercard, organisations that need to abide with a lot of rules in order to avoid them becoming a place of illegal cartel-agreements on price and illegitimate contract terms to end users.

With payment schemes we have huge and long discussions and deliberations of price levels. There is the obligation to ensure that there is no obligation to buy processing power from the scheme itself. There are policy views and obligations that schemes should be interoperable and open. And then there is a mountain of rules that specifies how to use the brand and which technical criteria must be complied with in order to be allowed to connect to the system.We find very little of this in the current papers on the association.

What makes this payment scheme special, a payment-scheme-plus ?
What sets Libra apart from Visa and Mastercard is that the association is effectively an issuer of the currency. This means a blurring of operational roles and scheme responsibilities, which is generally considered as a bad practice in governance terms. But what is most striking is that the membership rules are not geared towards controlling/monitoring and creating a safe and sound currency. We find no mention of specific prudential licenses or governance/quality certifications required for different roles under the scheme and as a member (or shareholder).

The only thing we read is: we seek to expand, we want to incentivise the use of the token and for this we don't want the small players in the market. We aim for the big players with market power. We separate the wholesale participants from the retail participants (allowing for price upticks). And then - the devil is in the details - the customer pricing format is based on a FOMO-principle (do you want your transaction processed: please throw in some more gas).

I am curious what reasoning Facebook and its founding members have had in this respect. The whole association setup is ostensibly aimed at market dominance, without proper governance safeguards and without any guarantees as to operational security and safety and soundness of the system. If I were a competition regulator I would jump at the opportunity to wait for the founders to sign the participation agreement and deliver a letter to their doorstep, next day, to start investigating the market abuse that might be at play here.

Governance claims and reality: a scheme is a supertanker without effective governance
I have been reading all the statements on the public structure of the association with a lot of amusement. Facebook is claiming that it will bring the intellectual property into the public domain and of course all the members of the association have a voice. So this seems to be well arranged with room for consultation, discussion and changing course.

The reality is completely different, as everybody in the banking sector knows. There is sufficient experience with clearing houses and associations (even with a relatively small number of shareholders) that are unable to essentially change course, once set up. Large associations like EPC, Visa, Mastercard, are effectively orphans without parents. Stakeholders are always irritated about the fact that these associations set their own course and associations always claim their shareholders have no vision. Bottom line: if you transfer your Libra-currency design into this domain, it is quite likely to be persistent. So don't expect any radical changes after this one is live; it will be gradual evolution from here onwards.

Not just a scheme for the payment instrument, but the unit of account (and a security as well)
There is another difference between Libra and Mastercard and Visa that I would like to highlight. The regular payment schemes seek to transact efficiently, taking existing currencies/structures as a basis. But this scheme introduces a new currency itself and regulates this currency via the management of reserve assets. It demonstrates that the aim of Facebook is to design its own Facebook buck, push it into the public domain and then profit from the benefits of having their own unit of account in place, while hiding behind the members and the open source philosophy when things go wrong.

A specific element in the scheme is that the unit of account is backed by a basket of currencies and financial instruments. Effectively this means that if you buy one Libra, you buy a couple of foreign currencies. Or put differently: you participate in an open ended money market / investment fund. And you use the digital representation of your participation in this fund as a means of payment.

This is a bit of double work as this means the association and the scheme are not just subject to payments legislation but also to investments/securities legislation. But it is legally possible: the payment would legally not be a discharge of obligations via a financial payment, but via a payment in kind (currency basket).

So what do we see here?

The Libra association is a mere manager of the governance and operational arrangements and activities that come with using the virtual currency Libra and participating in the Libra scheme. This Libra scheme is a private and commercial arrangement which:
- defines a unit of account for a new virtual currency: the Libra,
- defines the asset mix that backs one currency unit,
- lays out the distribution and management rules of the currency units and reserve funds,
- lays out commercial rules and does a private placement to further promote the use of the Libra by giving them away (for free or at a discount).

The Libra association itself will be steering future technical development and is charged with the project goal to move the whole infrastructure towards a permissionless setup. This is completely impossible (as these associations act with oil-tanker dynamics) but that brings us to the next smokescreen.

Smokescreen #2: Libra is not a blockchain, not a cryptocurrency but a digital virtual currency /financial instrument
It was fascinating to see that the carefully crafted and prepared introduction of the Libra sought to position it as blockchain and as a cryptocurrency. This creates a lot of noise. Also, the use of similar words for different concepts and organisations is confusing.

We should distinguish between:
1- Calibra, the organisation, a 100 % subsidiary of Facebook, acting as a validator node,
2- Calibra, the branded digital wallet developed by Calibra to carry the Libra virtual currency,
3- Libra, the digital currency that will be in the Calibra wallet
4- Libra, the reserve pool of assets that backs the digital currency,
5- Libra Core, the Network or 'blockchain' that forms the core operating technology for clients and validators,
6- Move, the programming language developed for the Libra Network.
7- Libra, the association governing, promoting and executing the virtual currency system,
8- Libra members, big commercial players that may join the Libra association, provided that they are a validator.

What struck me in the communication is the flagrant re-definitioning by Facebook of the concepts blockchain and cryptocurrency. Facebook really wants to be seen as doing some cryptocurrency stuff. But they don't. Just for fun I will be comparing the Facebook FAQ with the wisdom of the Wiki-crowd.

Libra is not a blockchain
Facebook succeeds in not mentioning the facts that blockchains are, by definition and terminology, a chain of blocks, linked together. Wiki has it right.

What is a cryptocurrency exactly: native currency of an open blockchain
Wiki states, that the decentralized control of cryptocurrencies works through distributed ledger technologies, typically a blockchain. Personally I would not have mentioned those ledgers as the blockchain is not so much a ledger as a journal (log roll of transaction entries). And apps are creating the ledger feeling for blockchains. But let's look at the wording in the image.

The wording of Facebook is interesting. It speaks of using cryptocurrency due to the use of strong crypto. This leaves out the issue that cryptocurrencies may be native to blockchains (as in chains of blocks). And then Facebook moves on to cryptocurrencies being built on blockchain technologies.

Which is true of course, but if I use all the parts of an air plane to build a firmly grounded restaurant, this doesn't mean that my restaurant is still an operational air plane. It is built on air plane technology, but the wording matters. Facebook puts up a smoke screen here to position itself in the blockchain community.

Libra is not a cryptocurrency
The funniest part of the Facebook FAQ was the mere statement that the Libra is a new cryptocurrency designed to have a stable and reliable value. Coming from a perspective where cryptocurrencies are inherent elements of open, truly decentralised permissionless blockchains, this is an interesting statement. It demonstrates that Facebook wishes to be a cryptocurrency but it isn't.

The text above also shows that Facebook has its eyes on the stablecoins that are around. These stablecoin are, in my view, privately issued currencies, with the goal of a fiat peg. The stable-'coin' is used a lot in the cryptoworld to facilitate fiat/crypto exchanges in times when the financial system is not online. The fact that this currency is used a lot in the cryptoworld, does however not make it a cryptocurrency in the terms of an inherent currency of an open permissionless blockchain.

Libra, what is it then, in regulatory terms?
My conclusion, after quite some pondering and tweeting is the following.

Libra is a privately issued and distributed digital  and virtual ‘currency’, that is intended to function as a means of payment. It is not a true currency because its actual composition/counter value is a basket of fiat-currencies and financial instruments. It is not e-money as the Libra is not ‘monetary value’. The digital value qualifies as a financial instrument (a mini-participation in an open ended investment fund) and is used in an open source payment instrument, to be used for payment and acquiring. Both payments and securities legislation apply, as well as the relevant competition and consumer protection rules. 

The Libra association is the scheme owner and scheme operator of the Libra virtual currency. This currency/investment can only be bought directly by members of the Libra association. Other entities or customers must revert to second tier players, exchanges or peer-2-peer applications. Technical development of applications is encouraged and rules to secure the application by contract or licensing seem to be absent.

Due to the blending of scheme and operations, the Libra association cannot really be viewed as the beginning of a proper payment scheme. Functionality, pricing and membership rules make Libra and the Libra association an easy target for consumer/data protection and competition supervisors, bank supervisors and securities supervisors.

Smokescreen #3: Libra is not a charity exercise that seeks to operate a public good but a commercial enterprise
A huge amount of effort has gone into convincing the public this week that Libra is all about helping the rest of the world. Getting more inclusive finance. Making payments faster, easier and such. It is striking that these statements mirror the claims that originally come from the Bitcoin community or from the Fintech community.

Of course those claims strike a chord. People may well be fed up with their banks and the perception of banks with slow procedures and expensive fees for foreign payments are an easy target for PR-people who want to position their initiative in a friendly way to the public. Who doesn't want to take on the banks and improve the world.

Commercially, the thinking of Facebook is most likely to be that it needs to counter the We-chat Pay dangers and all other Fintech movements that lead to easy in-app payments. Payments will increasingly be an afterthought and harvesting the data in those payments will allow for even higher ad revenues, as Facebook will see what works and what doesn't. Interestingly Facebook did not increase the speed of its current developments; it chose to move up the value chain, towards setting up its own currency and hoping that it will work as a unit of account (and may stay in the system for long).

Of course, the move by Facebook is a big signal. But we must note that there are still also other players that could make the same move. Which would lead to some form of a duopoly (as with Mastercard and Visa) and the need to agree on interoperability or on open access to infrastructures of the big techs involved. I did not come across this notion a lot, so far.

The public good narrative: unbelievable coming from Facebook
What struck me most, coming from Facebook as a centralised company that is not interested in respecting democracies and laws written by those democracies, is the sketch of opportunities in the White Paper. And do have a look at the phrasing on public good.

Given that by now I hope to have convinced you that the design of the Libra association and its constituency is far below the usual standards to be expected from payment schemes, you can imagine that I was unable to reconcile these laudable beliefs with the actual proposition.

If you truly wish to create a new public good, a new worldwide currency, it is not impossible to deliver this with private sector entities. There is a whole range of public policy theories (delivery of universal services or service of general interest) that can help out here. But putting the richest, biggest enterprises of the world in one room, to distribute a world currency/investment proposition without proper safeguards or recognition and qualification of the activities of the issuing association is not the way I would go about.

Facebook cloaking its plans in cryptoterms,but why? 
Let's face it. This whole complex open source, cryptocurrency story that Facebook has published is not necessary. If Facebook Payments Inc or Facebook Ireland wishes to change its currency mechanism towards a different setup it could do so itself. Why is there a need to involve other stakeholders with a trendy and hip storyboard on decentralisation, blockchains, cryptocurrencies and such?

It can't be a money issue. Facebook has sufficient resources to fund the whole exercise itself. And the quality of the exercise could then convince other commercial partners to join. So why the need to step out of its digital currency issuing role itself?

To me it is pretty clear that Facebook seeks to move up in our lives. Doing our financial business is not enough. It is all about entering our mind at a deep level. At the fiat currency level. We should think prices in terms of Libra, not in terms of fiat currency. And there is a good power reason for it. Because as long as Facebook uses digital fiat currencies it can be under the rule of the government that issues it. Now, by having a basket of currencies, Facebook can kick out currencies/countries if need be. State regulators and supervisors lose their power.

In addition, Facebook chooses to limit its own role and hide behind am Swiss association, to cover the fact that they don't want to take the responsibilities that come with issuing a worldwide association. They are suckering/forcing partners into joining this programme, without alerting them to the obvious violations of competition rules that may arise. They leave out all mentions of safeguards and contractual arrangements that can aid in ensuring operational integrity for this worldwide currency. Rather they throw the technology in the public domain, knowing well that this means that it's use cannot be fully controlled.

It is no surprise why politicians and regulators were keen to act. Their immediate response was that this was a further extension of an a-moral company that stops at nothing. As Maxine Walters outlined in the US, when asking Facebook to stop further development:

Reversing the statements to see what's hidden in plain sight: ruthless selfishness
As a thought exercise I was wondering. If they claim that it is a blockchain and cryptocurrency, while essentially it isn't, shouldn't we also reverse the other statements to see what is truly happening here.

I leave the result for you to ponder and thank you for bearing with me in this ultralong blog.
Up next I expect blog 2 to be about EU-definitions and legislation.

THE THREAT
As we, as Facebook are in it strictly for our own goals, we intend to hide our true intentions and motivations so we can fool the community and our partners in the ecosystem to go along. 

We believe that many more people should buy financial and identity services from our company specifically, even when doing so will come at a higher cost than the available alternatives. 

We don't believe that people have an inherent right to control the fruit of their legal labour. 

We believe that global, open, instant, and low-cost movement of money will create immense economic opportunity and more commerce for us in particular. 

We believe that people will increasingly trust centralized forms of governance. 

We believe that a global currency and financial infrastructure should not be designed and governed as a public good. 

We believe that we don't bear a final responsibility ourselves to help advance financial inclusion, support ethical actors, and continuously uphold the integrity of the ecosystem.

PS. I have changed the definition on June-24, to reflect that the currency is a mini-investment fund which is used in an app/ecosystem that would qualify as a payment instrument. Definition blog will follow.

Digital Money Forum 2012... 15th anniversary and lively as ever

The Digital Money Forum is an event that this year reached it's 15th anniversary. And a special event it is. My previous visit to the Forum was probably some ten years ago, when everyone was pretty much into the e-money way of life. But technology, money and society continue to develop and that's where Dave Birch and his team of Consult Hyperion come in. In setting up the forum they provide for a lively and thought-provoking event where money is dealth with from all different angles. And as before, it was a pleasure to participate.

So this years event was special in many ways. We all got a better look at the evolving phone payment landscape, delved into possible future scenario's for the world and money, we spoke about the future and death of cash, about social inclusion and lots, lots more. And, quite fascinating, I got to issue my own currency, PunkMoney, via Twitter, by promising the developer, Eli Gothill, two beers and a financial history tour in Amsterdam.

A bit more on the principles of Punkmoney (as I understand them). If we look at money it is an invention to facilitate transactions in society. But before the official money we had mutual obligations and trust relations in society. I would help my neighbours out with building their house, assuming they would do the same for me, in time. And so on. So there was this web of mutual obligations and promises that cemented the relations in society.

Now what Punkmoney does is to leave all the monetary issues and digital money aside and elegantly replicate this web of promises. With some rules as how to form proper messages, Twitter as the carrier and a software enige that scans twitter for any promises of Punkmoney. And when it finds one, it registers it and there you have it. Not the real money, but something even better: real promises. Just as trustworthy as... yourself.

After Punkmoney, we moved on to another kind of money. Monopoly money, sitting on a Samsung phone (with an application neatly developed by Easan).

Six teams on six tables started playing and as for me personally, I was literally quite lucky. I landed on 3 airports in the beginning of the game, won some lotteries and eventually turned into a big shot property owner. I turned out to be the winner of the competition, with an awesome price: this incredibly beautiful banknote (an official German forgery of a UK 20 pound note; part of the Bernhard operation):

Some more on that will follow on my financial history blog later.

ING first to announce SEPA strategy for cards/terminals - all brands allowed

Yesterdays Telegraaf contained some interesting news. ING has announced that it will sell POS-terminals and contracts to retailers which accept V-Pay, Maestro and PIN, all for the low price of todays PIN-transaction. Only one condition applies: it should be an EMV compliant terminal.

Well, this is exactly what retailers wished: clarity on future prices and terms and conditions. So one would think that would now be happy.... but are they...?

Well, no of course. The instant that a retailer gets the prices and desires he wants, he assumes that he has insufficiently bargained and that there is more left to bargain for. And he will immediately start negotiating for another round of fee cuts or what have you.

Likewise in the Dutch situation. In their reply to the ING announcement the retailers didn't spend any second complimenting ING on their vision, their fee structure or on fulfilling their previous demand. The next complaint in line is now that they find it intolerable that on the issuing side (which is completely not their concern) the PIN technology is based on magstripe and the other brands on EMV. In their view PIN should move to chip-based PIN as well....

To be continued.... I would say... until banks decide to stop participating in this retailer bargaining game.

Commission prohibits MasterCard's intra-EEA Multilateral Interchange Fees

See the press release here to read a landmark decision of the Commission. It's main argument:
The Commission concluded that MasterCard's MIF, a charge levied on each payment at a retail outlet when the payment is processed, inflated the cost of card acceptance by retailers without leading to proven efficiencies.

Well, the discussion cannot be solved and Mastercard will not be able to prove it is right. But neither can the Commission. As I pointed out in an earlier post (ultimate paper on interchange fee by Brookings Insitution). So this is a power game, a legal game and a communication game at the same time.

We should note that at present the multi-lateral fall back MIF allows lots of smaller banks and participants to the Mastercard scheme. Those players would otherwise have to negotiate individually with all issuing banks. And that would be so costly that they wouldn't join the system at all. And I fail to see why the Commission isn't able to calculate those costs of negotation (and view the efficiency benefits of having a fallback MIF). Do they now really expect all members of Mastercard to use the next 6 months to agree bilaterally on new fees...?

All on the Visa restructuring.. and the risks.....

This SEC filing contains all you want to know about Visa and its upcoming reforms. My personal favourite by the way is the risk section with main risks such as:
- Interchange fees are subject to significant legal and regulatory scrutiny worldwide, which may have a material adverse impact on our revenue, our prospects for future growth and our overall business
- If Visa U.S.A. or Visa International is found liable in the merchant interchange multidistrict litigation, we may be forced to pay substantial damages
- If Visa U.S.A. or Visa International is found liable in any of the cases brought by American Express or Discover, we may be forced to pay substantial damages.
- If the settlements of Visa U.S.A.’s and Visa International’s currency conversion cases are not ultimately approved and we are unsuccessful in any of the various lawsuits relating to Visa U.S.A.’s and Visa International’s currency conversion practices, our business may be materially and adversely affected.
- If Visa U.S.A. or Visa International is found liable in certain other lawsuits that have been brought against them or if we are found liable in other litigation to which we may become subject in the future, we may be forced to pay substantial damages and/or change our business practices or pricing structure, any of which could have a material adverse effect on our revenue and profitability.
- Limitations on our business and other penalties resulting from litigation or litigation settlements may materially and adversely affect our revenue and profitability
- The payments industry is the subject of increasing global regulatory focus, which may result in costly new compliance burdens being imposed on us and our customers and lead to increased costs and decreased payments volume and revenues.
- Existing and proposed regulation in the areas of consumer privacy and data use and security could decrease the number of payment cards issued, and could decrease our payments volume and revenues.
- Government actions may prevent us from competing effectively in the domestic payment markets of certain countries, which could impair our ability to maintain or increase our revenues.
- If government regulators determine that we are a systemically important payments system, we may have to change our settlement procedures or other operations, which could make it more costly to operate our business and reduce our operational flexibility.
- We face intense competitive pressure on the fees we charge our customers, which may materially and adversely affect our revenue and profitability.
- Our operating results may suffer because of intense competition worldwide in the global payments industry.
- Our operating revenue would decline significantly if we lose one or more of our largest customers, which could have a material adverse impact on our business.
- Consolidation of the banking industry could result in our losing business and may create pressure on the fees we charge our customers, which may materially and adversely affect our revenue and profitability.
- Merchants are pursuing litigation and supporting regulatory proceedings relating to the costs associated with payment card acceptance and are negotiating incentive arrangements, including pricing discounts, all of which may increase our costs and materially and adversely affect our profitability.
- Certain financial institutions have exclusive, or near exclusive, relationships with our competitors to issue payment cards and these relationships may adversely affect our ability to maintain or increase our revenues.
- We depend significantly on our relationships with our customers and other third parties to deliver services and manage our payments system. If we are unable to maintain those relationships, or if third parties on which we depend fail to deliver services on our behalf, our business may be materially and adversely affected.
- Global economic, political and other conditions may adversely affect trends in consumer spending and cross-border travel, which may materially and adversely impact our revenue and profitability.
- Visa Europe’s payments system operations are becoming increasingly independent from ours and if we are unable to maintain seamless interaction of our respective systems, our business and the global perception of the Visa brand could be impaired.
- As a guarantor of certain obligations of our members, we are exposed to risk of loss or insolvency if any of our members fail to fund their settlement obligations.
- If our transaction processing systems are disrupted or we are unable to process transactions efficiently, our revenue or profitability could be materially reduced.
- If we are not able to keep pace with the rapid technological developments in our industry to provide members, merchants and cardholders with new and innovative payment programs and services, the use of our cards could decline, which would reduce our revenue and income.
- Account data breaches involving card data stored by us or third parties could adversely affect our reputation and revenue.
- An increase in fraudulent and other illegal activity involving our cards could lead to reputational damage to our brands and could reduce the use and acceptance of our cards.
- Adverse currency fluctuations could decrease revenues and increase expenses
- Some of our financial incentives to customers are recorded using estimates of our customers’ performance. Material changes in our customers’ performance compared to our estimates could have a material adverse impact on our results of operations
- We have significant contingent liabilities for settlement payment of all issued and outstanding travelers cheques.
- Our brand and reputation are key assets of our business and may be affected by how we are perceived in the marketplace
- Our retrospective responsibility plan depends on several related mechanisms to address potential liabilities arising from the covered litigation, some of which are unique and complex, and if we are prevented from using one or more of these mechanisms, it may be difficult for us to fund the payment of a settlement or final judgment against us, which could have a material adverse effect on our financial condition.
- The shares of class B common stock that are held by members of Visa U.S.A. following the restructuring will be subject to dilution as a result of any follow-on offerings of our class A shares, the proceeds of which will be used to fund additional amounts into the escrow account necessary to resolve the covered litigation.
- Our governance structure after the restructuring could have a material adverse effect on our business relationships with our members.
- Following the restructuring, our relationship with Visa Europe will be governed by our framework agreement. This agreement gives Visa Europe very broad rights to operate the Visa business in Visa Europe’s region, and we have limited ability to control their operations and limited recourse in the event of a breach by Visa Europe.
- Our framework agreement with Visa Europe requires us to indemnify Visa Europe for losses resulting from any claims brought outside of Visa Europe’s region arising from either party’s activities that relate to our payments business or the payments business of Visa Europe, and this indemnification obligation could expose us to significant liabilities.
- We have granted to Visa Europe the right to require us to purchase all of the outstanding shares of Visa Europe’s capital stock. If Visa Europe exercises this option, we could incur a substantial financial liability and face operational challenges in integrating Visa Europe into our business.
- Our management team will be new and will not have had a history of working together.
- The restructuring is expensive and will require us to make significant changes to our culture and business operations and if we fail to make this transition successfully, our business could be materially and adversely affected.
- There is no existing market for our regional classes of common stock or for class B common stock and class C common stock into which the regional classes of common stock will be converted prior to our planned initial public offering, and thus we do not expect these shares to provide you with liquidity.
- The voting power represented by shares of our common stock may be limited because ownership of a significant percentage of our common stock will be concentrated in a few of our largest members.
- The U.S. Internal Revenue Service may treat a portion of our common stock received by a member of Visa International or Visa U.S.A. as taxable income.
- Members may incur tax liabilities in jurisdictions outside the United States, as well as in United States state and local jurisdictions, in connection with the restructuring and the true-up.
- The consideration that will initially be issued to members upon the closing of the restructuring is subject to reallocation and conversion.
- Anti-takeover provisions in our governing documents and Delaware law could delay or prevent entirely a takeover attempt or a change in control.
- U.S. federal and state banking regulations may impact our members’ ownership of our common stock.

Most interesting risk of course for us in Europe is to note the risk that Visa Europe becomes too independent. It's quite interesting that right now the fears that retailers try to increase among public policy makers, is that future Eu card schemes might become American owned.....

Interchange complaints are just a call for lower merchant fees..?

Here's an interesting article on the Javelin Strategy and Research site. It ends with the open remark that all the fuss about interchange payments, made by retailers could be merely those groups posturing for lower fees by whining about high charges for merchants and disruptive interbank agreements.

Now, if indeed all this hidden tax for merchants, interbank agreements and huge profit would be so terrible to retailers, why dont't they set up a retailer based card scheme....? Because in the end accepting payment with cards in a shop is a make or buy decision.

If you don't like the brands and fees out there, just do it better yourself. And then, when the argument comes that it would be impossible to reach all consumers with your single retailer card, or that it would become a messy world if each retailer would issue its own card: well, that would make one really understand what it is exactly that you as a retailer are paying for, when you decide to go along with bank issued cards.

Banks have solved a complex cooperation, coordination and reachability problem in the cards-space and do not just use their expertise for themselves (by limiting the interbank card usage to ATM withdrawals) but also allow their consumers/merchants the benefit of using that same card for paying in the shop. But then, when push comes to shove, all the users can do is be unhappy with the pricing (as if anything in the world would need to be provided for free).

So indeed, I would agree with the Javelin remark. It is high time for either a retailer based third card scheme in Europe or a more modest and less agressive approach by retailer lobby organisations.

Answers to MP-questions on liability shift

While in considerable parts of the world chip and pin (and liability shift) is underway, the Dutch developments are a bit slower. Our move to EMV is however well discussed within the National Platform on Payments, in which in 2004 parties concluded that you cannot reasonably do a liability shift if there is no EMV-compliant terminal/infrastructure available.

With some new EMV terminals coming on the market, EMS decided to start moving towards including a liability shift in the retailer contracts (for credit-card payments). And Dutch retailers, that are keen on making every penny possible in negotiations, thought it would be a good idea to whisper some questions into the ears of an MP about how incorrect this liability shift thing is. And that the actual agreement in the National Platform would have been that rather than having a range of EMV-terminals in the market, it would be necessary for more than one terminal-provider to be active in the market. And only then would there be a liability shift.

So this week Minister of Finance answered to these questions by explaining that he had indeed been made aware of the contents of the letters of EMS to the retailers. Yet he did not wish to confirm the retailer interpretation on 'agreements in the national platform on payments'.

The answer of the Minister of Finance is a delicate 'no, you're wrong' to MP Vos. Delicate because Minister Bos is the leader of the Labour Party, while MP Vos is one of the newcomers for that party in Parliament. And 'you're wrong' because there is a free market for EMV-compliant terminals right now (which will be further expanding quickly in the future) and because in today's society retailers and acquirers are free to conclude all kinds of contracts they like.

What he forgot to mention is that also in a formal sense a commitment not to introduce a price structure is impossible, because such an agreement would have constituted a price/cartel agreement. And the National Platform, by its statute, is only there to discuss payment developments and not to do price-bargaining or arrange for price-agreements for any of its members.

The answer of the Minister is that given this freedom of contract and all other variables in the credit-card game (retailer segment, segment specific controls etc), it is not by definition the case that retailers will charge the cost of the liability shift to consumers (and I would add that it is similarly unlikely that they will pass on revenues from the liability shift and translate it in a lower price level, due to lower fraud costs...).

So, the one question that remains is: is the retailer strategy to continuously do public price bargaining by asking questions via MP's in parliament an effective one, or does it in the end just demonstrate penny-wisdom?

Ministry of Finance answers to MP-questions on bank fees and duopoly in SEPA

As mentioned earlier on this blog, Dutch MPs asked our Ministry of Finance to comment on the retailer statements that payment with cards would become expensive due to a duopoly for Visa and Mastercard. Yesterday, the answers were published. In broad terminology the Minister seeks to appease both retailers and banks by outlining vaguely
- that he agrees with the conclusion of the competiton enquiry that competition and interchange fees are important elements of the future banking market,
- that he indeed has a concern with prices of banks and that those should remain as low as possible in a SEPA-world,
- that however the public should be aware that in a move to make pricing more transparent (the philosophy underlying the PSD), it may look to customers that bank prices rise, while effectively they get more control and insight into the cost of their payment behaviour, allowing them to influence and their own specific fee level to lower levels than under previous pricing regimes.

EU banks in secret debit card talks..... but why would that make sense

A Reuters message outlines that EU banks supposedly are in secret debit card talks. Meaning that a third scheme would be born for EU-use in particular. The source is a document from Laffety Group which states that the banks are "believed to be unhappy with the possible emergence of MasterCard's Maestro as the dominant provider of debit card network services in Europe. The banks involved include Societe Generale, Deutsche Bank, Dresdner Bank, Commerzbank, Unicredito, ABN AMRO, ING, and Rabobank.

The main concern is that having two schemes is around would be insufficient for competition.... but why and how a third scheme would solve this is not clear. If we look at for example the situation in Australia. There used to be a bank credit-card scheme. But with international schemes coming in (also offered by those banks to allow their customers usage abroad and such) the bank card was in less demand than the international card schemes. Which is what will happen in Europe with this supposedly new scheme as well of course.

Imagine that a number of banks set up a EU-brand.. how are they gonna get that brand to work in the rest of the world? It is hard to figure out why this EU-brand would be preferred in Europes countries. Customers are increasingly travelling and mobile all over the world, so what would be the use of trying to build this third EU brand for EU-use. This would only work if the ambition and investment would go so far to completely replace one of the two brands internationally...

Which would be a silly ambition because in that case, this third EU-bred brand is a triplication of previous scheme efforts. So all in all, this doesn't make a lot of sense, other than that it might help a bit in the negotiations of EU-banks with Visa and Mastercard.

Banks block Mastercards as precautionary measure

Volkskrant informs: that Postbank and ING block a series of Mastercards as a precautionary measure, without further disclosing how many. There will be free new cards for the account holders in the Netherlands and there will be an arrangement for those that are on the road and require a new one. ABN AMRO is also replacing cards (some ten or twenty).

Visa further penetrates retail market with Gamma

While retailers representative organisations are trying hard to stop the credit-cards from being used, large building and D-Y-I chain Gamma has introduced a Visa-Gamma card. Providing discounts to the D-Y-I shoppers.

House Financial Services Committee hearing on credit-card practices

See the website of the House Financial Services Committee to view a webcast on the hearing on credit card practices. The chair of the committee announced that a second hearing will be held (first week in June) with all bunch of regulators. Late May the FED will publish a revision of disclosure rules for credit-cards (I think its reg E).

Belgians reconsider rolling out Maestro for domestic payments

The Belgian newspapers all cover the news that, contrary to earlier reports and choices, the Belgian banks have chosen not to move over to Maestro as of 1.1.2008, for national Point-of-Sale payments. Their argument is that the European policy framework for payments is a bit unclear and also that merchants and domestic stakeholders were not really in favour of the idea. This very much looks as a victory for retailers, who have been sounding the alarm bell all over Europe that moving to SEPA may mean higher costs/fees for merchants.

Well, how should we read this stuff about an unclear policy framework? The Sepa Card framework is indeed a bit vague, but generally the idea to converge to panEuropean card payments is quite clear. So what would be the real issue here?

My guess is that it's not only the merchants voice, but also the uncertainty and threats of local and EU governments as to interchange fees for card payments, that is now making market developments come to a temporary standstill. The main issue is whether all brave and tough speeches by cartel-busters are merely gallery-play fr the public or a reflection of a serious determination to end interchange fees in Europe. And at present there is a formal complaint pending with the Belgian competition authority as to the Belgian move to Maestro. So given this uncertainty it may indeed be wiser for Belgian banks to adopt a wait-and-see approach to the issue, rather than moving ahead towards a scheme which will then be subject to further competition-reviews by regulators.

And more retailers into credit-cards....

While one part of the Dutch retailers seek to continue a battle against the credit-card, their own colleagues are making this a losing battle. Webwereld has an article that outlines that on-line retailer Wehkamp will start accepting ideal for webpayments. Furthermore, Wehkamp is planning the issuance of its own credit-cards. Which neatly fits their consumer lending business model.

Page on US Senate hearing on credit-cards

See this page dedicated to hearings on Credit Card Practices: Fees, Interest Rates, and Grace Periods.

Why?

Well, how about this...:

In 2001 and 2002, Wesley Wannemacher, our first witness this morning, used a new credit card to pay for expenses mostly related to his wedding. He charged a total of about $3,200, which exceeded the card’s credit limit by $200. He spent the next six years trying to pay off the debt, averaging payments of about $1,000 per year. As of last month, he’d paid about $6,300 on his $3,200 debt, but his February billing statement showed he still owed $4,400.

How is it possible that a man pays $6,300 on a $3,200 credit card debt, but still owes $4,400? Here’s how. Take a look at this chart. On top of the $3,200 debt, Mr. Wannemacher was charged by the credit card issuer about $4,900 in interest, $1,100 in late fees, and $1,500 in over-the-limit fees. He was hit 47 times with over-limit fees, even though he went over the limit only 3 times and exceeded the limit by only $200. Altogether, these fees and the interest charges added up to $7,500 which, on top of the original $3,200 credit card debt, produced total charges to him of $10,700

EU to investigate Visa interchange fee...

Payments news picked up quickly on the news that EU Competition Commissioner Neelie Kroes said on Monday her staff would take a close look at some of Visa's business practices and interchange fee next year, when an antitrust exemption for the credit card company runs out. Now that at the end of the year a previous exemption ends, the Commission feels it is time to reconsider its stance. Mastercard is already under investigation by the way.

So, will this the dog really bite?

Perhaps it will and perhaps interchange fees will be re-assessed (or further lowered), but politicians should realize that this sort of gallery play would only lead to more visible price hikes for the consumers. Which will demonstrate to the public that Europe (and pro-active European thinking) will make life more expensive. And I am not sure if that is a message one would like to send out in times of constitutional crisis...

Data breach, the next hot thing...

Data breach is the thing to come. While Europeans are concerned about US-police and their insatisfiable hunger for SWIFT-data, the US themselves are worrily looking at the TJMaxx data breach (basically a sloppy shop owner).

It's quite interesting to note the difference. The news in Europe is all about the government that may ue personal data beyond what is necesarry. While the news in the US focuses on the financial effects and fraud as a result of the data breach. It may be just the consequence of the nature of the data breach, but would it not also reflect something of a cultural difference?

In any case, data breach may be the real hot thing of the future. It used to be straightforward card skimming. But as technology develops, the question will become how we can shield payment information and prevent misuse in later transactions in a world of continued diversification of technologies (your account number/name or an ID linked to that will be present on all sorts of devices).

Visa commissioned report on cross-border payments

Visa spent some money and commissioned Dr. Yoon S. Park, an expert on global financial markets and Professor of International Finance at the School of Business at George Washington University, to examine the current challenges of the cross-border payments process and how a combination of forces are influencing the future of payment processing. See his report here.

In itself quite a nice study that identifies the following trends:
1: Transnational payment systems are growing
2: Government-led initiatives and mandates are increasing
3: Risk and liquidity are being closely managed
4: Multinational banks and businesses are expanding
5: Operational efficiencies are being sought through outsourcing.

Case examples by trend 2 relate to the interference and further regulation of payment regulations such as OFAC rules and the FATF-rules to send payers information with a payment message as an anti-terrorist measure. Indeed a pain, but some necessary evil. Interestingly on page 15, professor Park describes SEPA as another case example:
SEPA is a government-led initiative as defined by the European Payments Council that is having a significant impact on both banks and corporations that make euro-zone payments.

Here we see that being on the other side of the ocean does help in putting things in perspective. Here in Europe bankers and regulators may still be pointing at each other when the discussion is about the Single European Payments Market. Regulators say the the banks, organised in the European Payment Council, asked them for further regulation in the payments domain, to support the market led initiative towards harmonized payments. And some bankers insist that the EPC is a market driven proces.

Yet in its essence it is regulation 2560 and the continued nagging and threats of regulators that kickstarted this 'market driven' SEPA-process out of fear from further intervention by government. Which is probably one of the reasons why Mr Park views the SEPA-thing in Europe as a government driven project rather than a business-driven activity.

Rightly so, I would add, although I would also agree with his conclusion:
The volume and velocity of cross-border payments is made all the more complex by the differing standards of domestic payment systems, increase of international regulations and the changing landscape of emerging transnational and global systems. Market pressures and the expansion of multinational banks and businesses are driving the search for operational efficiencies.