The ECB-report on virtual currency schemes: some reflections

The last month, the ECB published a report on virtual currency schemes. I have been reading this with great interest as it signals the involvement of the central banks in a new area: virtual currrencies. The relevance of this report must therefore not be misunderstood. We should remember that in 1994, the EMI-report on pre-paid cards signalled the start of the regulation of prepaid-cards and electronic money products. And in a similar style, this report may become the starting point for regulation of virtual currencies.

In general, central banks are to be commended for monitoring the developments in the area of money, retail payments and near-money products. If you're a central bank, an institution that is responsible for true money, than it it always good to know what other forms of money are in circulation. And as such the report of the ECB demonstrates that the European central banks are alert.

Analytical basis could improve
I must say however that I was also somewhat disappointed. The analytical framework presented in the report is a bit shaky in my view.  It does not rest on the nature of the subject discussed (virtual tokens and currencies), but on how they are 'regulated'. As an approach, I find this little convincing. Furthermore I noted that 'unregulated' is not defined. Does it mean that central banks or supervisors are not involved or that no regulation applies at all?

As an alternative I would point out the possibility of using frameworks suchs as this one (taken from the American Law Review):

It is interesting to note that the empty box in this table can now be filled with: Bitcoin as an example of a system where money can circulate freely without returning to a central mint.

Which electronic tokens are currency of money and which are not?
The ECB distinghuishes between three virtual currency types, in terms of openness of the systems involved.

Type 1 is a closed link system in which the digital tokens are only usable in the system itself. The example the ECB provides is the World of Warcraft Gold. And although the picture suggests that there is no link to the real economy, the ECB notes: However, there seems to be a black market for buying and selling WoW Gold outside the virtual currency scheme. If Blizzard Entertainment discovers any illegal exchange, it can suspend or ban a player’s account. 

Type 2 contains systems where users pre-pay services of a supplier in the form of private issuer tokens such as facebook credits. And type 3 systems are open systems of privately issued tokens/currency that can be bought and sold. It is in this category that bitcoin and Linden dollars are placed.

What is lacking in this model, is the Type of model 1b where there is no formal buying or selling of tokens, but there is a relation to the physical world. It is the world of loyalty points and tokens, which can be earned and redeemed, but never exchanged for money itself. The ECB places these under the category II.

It appears to me that in doing so, the ECB doesn't distinguish sufficiently between loyalty tokens and payment tokens,which each have a different role to play in the business model of their issuer. An alternative table might have been:

	User cannot buy tokens at all (loyalty-type)	User earns tokens and can buy additional (hybrid of loyalty/payment)	User buys and sells  tokens (payment-type)
Tokens used in digital issuer-domain only		World of Warcraft	World of Warcraft Lynden Dollar
Tokens used in digital or physical issuer-domain only	Starbucks	Nintendo Points -Digital Payment loyalty schemes for single retailers
Tokens used at other entities than the issuer	Frequent Flyer Programmes	Frequent Flyer Programmes	Bitcoin, e-money on mobile phone's

The missing element: mobile money
What intrigues me is that the digital money on mobile phones is not a part of the discussion. It is by its definition (an exemption in the e-money directive) an unregulated form of digital money. Yet, the ECB has been so long accustomed to the strange sequence of events that made the European Commission decide that money on antenna's of MNO"s is not electronic money, that they forgot to include it in the analysis.

The reputation argument.....
Finally I noticed that the ECB finds, that if these virtual currency schemes (however defined) grow too much, they might give rise to a reputation issue for the central banks. Here again I think the analysis is a bit too strongly worded. Central banks can simply outline their scope of work and responsibility by stating that they  are not in any way responsible for money that they didn't issue and supervise. By clearly and repeatedly informing the public of this fact, the public can then choose to take a risk with the virtual currencies or stay out of them.

Yet, I wouldn't be surprised if this reputation argument (or a comparable public policy objective: transparancy) becomes the main angle from which future supervision of these schemes will be justified.

Use twitter to create banknotes: the punkmoney concept

This year in May, I was visiting the 15th Digital Money Forum (well organised as ever, by Dave Birch and his team at Hyperion), and ran across a very elegant alternative payment concept, that makes use of Twitter as a technology. The concept was called: Punkmoney and its developer Eli Gothill explained on the forum the workings and background of the concept (see the presentation here and read an interview with Eli on the background here). With the concept, he took a step back in time, skipping to the times before money was used widely.

In these early times, we can imagine societies to be local communities in which the economy consisted of exchange of services and committments. The scale of the village/community was limited and thus a trusted network of users would exchange services, goods or favours, knowing that either directly or over time, the service or favour (helping in building a house) would be returned. Later on in history the concept of money took over, so that the chain of exchange would become longer. A favour or service would then be paid for with money, that could be used to buy a service or good elsewhere.

Now, what Punkmoney does, is to use Twitter to re-create the old 'favour/gift-economy' in which no money existed. In order to print your own banknotes on Twitter, all you need to do is use your existing account and the hashtag #punkmoney. In English you might call these: Twitnotes or in Dutch: Twitbiljet. So let's see what a Twitnote looks like in real life:

As you can see, this is a promise from me to Occupy Amsterdam (@potbanging_NL) to deliver a brief talk on the financial history of Beursplein. As I used Twitter, it is a public statement that everyone can read. As such it is also read by the Punkmoney tracker, which makes a record of the statement. This central database registers all promises made on Twitter with the hashtag #punkmoney and thus serves as a register in which you can see which promises were made.

Now back to the Twitnote. My Tweet says NT at the end, which means that it is non-transferable. Another option might have been to state: TSA, meaning: Transfer Subject to Approval. In addition, my promise is quite exact in that it specifies specific moment in time when I will deliver a brief presentation (13 October on  a global noise manifestation). Alternatively I could have left out this specific time and have noted: expires in 2 years/months/days.

Of course there's a lot more technical details to be told on how to transfer and redeem notes. But the important thing to note here is that anyone who is seeking alternatives for money in its current form, can easily use the punkmoney concept in his/her community to start exchanging goods/services by using Twitter.

As I understand from Eli, he is going to be presenting his Punkmoney system/concept to the banking community on the next SIBOS (a very important banking conference for all companies, banks, central banks etc. in the world). And I truly hope that the delegates there will recognize the elegance and beauty of his design.

Google Wallet roll out.... without Google Bucks

It's about five years ago that I discovered, by accident and curiosity, that Google Payments Limited had applied for an e-money license at the FSA. Ever since, people have been wondering how Google would enter the payment space. Would they offer a wallet with virtual cards or would they issue their own new virtual worldwide currency (googles, googlets or gees)?

In good tradition, Google started out doing field tests with the wallet (which would sit in the mobile phone) and announced this in May 2011. The wallet was to contain your credit-card cards as well as a google-pre-paid card. And payment was possible with Paypass while the wallet would also facilitate the savings of loyalty-points. The card information was stored in the Secure-SIM-element in the phone and they experimented quite a bit since then.

So where do we stand now?

Well, the Google Wallet is now being rolled out and the Google development team sent out this video to further explain the wallet concept and roll-out. The most important change is that they decided to move the card-information to the cloud. This allows the Wallet to be used both via Phone and via the Web, with all your card details and important digital documents (ID's, transit pass etc) residing in a safe digital environment. So their distribution model for the application is now changing to making APIs available so that merchants and issuers can easily integrate the Wallet in their site/services.

As such, we can thus see Google moving into an integrators role, rather than a payment instrument issuer role. In fact, at some point in time, the company thought about issuing Google Bucks, according to Eric Schmidt, but abandoned the plan. The concept would consist of a “peer-to-peer” money system by which users seamlessly transfer cash to each other via a hypothetical application. However, various laws about currency and money laundering in different parts of the world made this too complicated to realize.

For now, the peer to peer payments in the Google Wallet are no longer on the agenda. And from a historical perspective (see my other blog) I think it is a good choice. Yet.... one of the developers did mention on this subject: it's impossible for now, but stay tuned for some announcements in the future.

So, are we still in for a surprise here?

Bit instant to introduce 'bitcoin'-card...

As you may know I am somewhat sceptic about the underpinnings of Bitcoin (see my previous posts), but the system does keep innovation going. Bit-instant for example is a company that helps consumers convert money into bitcoin and vice-versa. And such services are surely helpful in bringing more reach to the system.

Bit-instant is apparently now planning to bring a debit-card on the market, in two months time, that marries the bitcoin and money world even more. In this article here you can find a link to an IRC chat with Bit-instant, in which it announces its plans. It also provides a link to the picture of the card, showing a QR code that can be used to quickly deposit bitcoins residing in other applications to the card-account.

Now as I understand it, it is a regular worldwide ATM/Payment card. And it looks like it allows bitcoin to be deposited on the card balance. But essentially the bitcoin holder can ask Bit-instant for a conversion of some bitcoins to money and this money will then be deposited on the card balance for payment. By also printing the bitcoin identification on the card the concept very much looks like bitcoin is entering the card-market. And certainly to the user it will feel/look that he can pay with his own minted bitcoins.

In reality this is a very smart introduction of just another card in the market. It's a variation of the regular co-branded card where now we don't see a soccer club, automobile club, but the bitcoin club appearing. Still, it's another innovation worth exploring, so let's see where this card will take us.

The art of Reserve Banking (at the Zuidas Amsterdam)

Reserve Banking is an art. While Draghi and Bernanke are highly qualified and professional economists, they must also master the art of performance. As true actors, they use their voice, their remarks, eyebrows and somewhat vague statements to provide hints and indications that the market then swiftly responds to. It is something you can't learn from the books. It's an art that can only be mastered in practice.

Since this year, the Zuid-As in Amsterdam is also home to the art of reserve banking. But it's a bit different. I heard about it yesterday, when visiting the Holland Financial Centre. From high up in the nearby Symphony building I looked down onto a small rectangular area of the Art Reserve Bank, well fenced, with cameras and three small office buildings. One is the minting press, the other is the teller and the third one was hard to identify. It looked like this:

The Art Reserve Bank: an experiment
What happens there is a unique experiment. A group of artists have set up, without any monetary funding, a so-called Art Reserve Bank. The plan was there for some time, but as the financial crisis came along, it became easier to convince sponsors to join a project that questions the value basis of money. The main idea is that there is far too much money circulating in the world and that the crisis demonstrates that we need a new approach towards money and debt. And in the experiment, art (or: the intrinsic value of human artistic expression) becomes the money. And thus helps to freshen up or minds and stimulate us to re-think our concept of money.

The idea is that for a period of five years, each month 400 coins are minted. These are 4 series of 100 coins per week, costing 100 euro each. For each month: a different artist is asked to design the coins, which all bear the same backside with the motto: ARS PECUNIA MAGISTRA: Art is the teacher of money. A nice motto and also a tongue-in-cheek reference to the Amsterdam Zoo that bears the motto: Natura Artis Magistra (Nature is the teacher of Art).




Anyone can buy coins and thus becomes a member of the Cooperative Art Reserve Bank (Kunstreservebank). All holders of the coin are thus the collective owner of the bank. Of the 100 euro costs, 90 % is used to pay for the operational cost of the experiment and 10 % is withheld as a 'cash reserve'. Should a buyer not appreciate his/her work of art, he can return it to the bank and get the original value back with a 10% interest fee. There is also a dealing room on the site of the bank, for those who wish to buy or sell their coinst. And at the end of the five years, all owners of coins can collectively decide what will happen with accumulated capital (if there is any and if the bank stil exists).

Money, dreams and art
The experiment challenges one to consider: what is happening in our world of money and value?

For me, the Art Reserve Bank made me realize that there may now be so much difference between their coins and the official legal tender in circulation. Both coins are the product of our imagination, dreams and creativity. Which is quite clear for the Art Reserve Bank currency, but may be less clear for the euro. So let me try to explain.

What happened over decades is that we moved from a mentality of: save first, spend later, to a mechanism of: spend first, repay later. If your story about the future would be probable enough (having a job, education etc) some bank would lend you money. And the same thing was true for businesses. Essentially this is a mechanism where tough choices are made. If you don't have the job or a solid story explaining how you can repay in the future, you don't get money. Which all sounds very realistic.

Fact is however, that with hindsight we can now see that banks, consumers and companies have on a large scale lived in dream worlds with expectations of future income, growth that were not realistic after all. Money was created, lent on the basis of these dreams and imagination. And part of that money is now in our pocket. And we also know that some of the debts are definetely not going to be repaid in the future.

So wouldn't it be fair to state that some of our euros are just as much the result of our imagination, as the Art Reserve Bank coins?

Outsider ideas in the payment space.... seldom really new..

One week ago Rabobank Nederland announced that it might de-activate the possibility to use their debit-card outside Europe, in an effort to eliminate fraud. And today the Financieele Dagblad has an article in which it becomes clear that an entrepreneur claims that this is actually his idea and not Rabo.

He's written the idea of functional/geographic application controls (including de-activation for certain geography) down as his idea, sent it to the Rabobank. And some time later he even spoke with Rabobank. And now that he discovers that Rabobank will in practice block geographic use, he claims that Rabobank has stolen his idea. It appears that he's in full swing with preparation of a court case.

I think this court case may not be effective. Application and functional controls in the payment area are around since ages. There can be checks and limits on payments via certain channel, with certain amounts, to or from a geographic area, number of times of use, branche-codes and what have you. And we have seen these developing over the years. In a planned talk on this issue in 2004 I already mentioned the user control of these application controls.

In this particular case (blocking a geographic area for card use), it was clear ten years ago that there would come a time that EMV-debit-cards would be blocked for use in countries that hadn't fully migrated to EMV. And that the amount of fraud would essentially determine the timing.

Now I do understand the serendipity-element in this story. It must be frustrating for an outsider to think that he has found the golden idea in payments and observe one bank (that he spoke to) introducing 'his' idea. However, this was certainly not a unique idea, but an inevitable, already foreseen consequence of technology migration and fraud.

Debit card usage influenced by the news...

Today, the Dutch central bank published a report that debit-card usage is affected by news articles on fraud. On average, the number of daily debit card payments drops by a little over 2% on days that newspapers report on POS terminal fraud and by some 3% when skimming at ATMs is in the news. The news has the largest impact when it makes the headlines. Furthermore the news-effect increased after 2007, when fraud incidents more often happened and made it to the headlines.

DNB remarks that other factors also influence the payment intensity. Rainy days create a drop in shopping and thus in transaction traffic. And they also noted that the payment pattern returns to normal after one day, so the news-effect on payments doesn't last long.

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.

Fed-study about mobile payments.... mobile phone heralds the return of the cashiers...

The federal reserve has yesterday issued this study on Consumers and Mobile Financial Services. And it shows that mobiles are a game-changer, due to their ubiquity. The people that have bank account don't use the mobile that much, but those without a bank account (the unbanked) make quite some use of it. So it turns out that in the US you can see a double usage pattern: on the one hand the signs of a developed market, moving slowly. And on the other hand the pattern that we know from countries in Africa, with heavier usage of mobile phones as the main banking/payment infrastructure.

Of course there's much to read in the study but it's interesting to note the banking paradigm that the Fed uses in the study. It sees the mobile phones for unbanked as a possible first step towards a sort of  'true banking', for those customers. That could be a possibility of course. But I think we may wan't to revisit this approach: couldn't we also see the mobile phones as the new digital shape of the former cashiers? And couldn't the cashiers just be the cashiers of any shop as well?

Well, that's my penny's worth of thought this morning and I'll be happy to elaborate a bit more on it at the 15th (!) Digital Money Forum in two weeks time.

New card design by Rabobank marks migration to international POS-scheme

As many of you may know, the Netherlands are now in a final stage of migrating from the Dutch POS-system PIN to the international card scheme Maestro. And as a part of this migration, Rabobank has changed the looks of the card. Given the fact that chip-terminals require a dip of the card, Rabo has moved its cardholder from a landscape to portrait design. In addition it has put the IBAN number on the card, so that customers always have their SEPA-oriented account number nearby.

ING Banking a bit wobbly lately

This sunday I wanted to order a cd and sheet music by Jules de Corte. Whereas usually this is just a matter of seconds, using iDeal, I now had to circumvent it to do electronic credit transfers via e-banking. It was clear that the ING database had some glitches, but after a couple of tries I succeeded in transferring the money.

While I could just repeat the exercise, others couldn't. The glitch turned into a major failure of ING-e-banking in the last couple of days. Today however, everything seems to be up and running again. And ING will once more regret using Oracle as the back-end database of an online payment system.

Fotograph your bill and pay it... new stuff from Denmark

With all the new apps, technology and stuff, you can just build any payment produkt you like. It appears there is a Danish bank that has developed an app that lets you photograph your bill, send it to the bank and they will transfer the money to the proper account. And for those that master the Danish language: see the instructions of the Danske bank here.

I am not entirely sure if this application will really be a killer-app that fullfills its consumers' needs. But it's interesting to see that nowadays the development burden for banks is lower than in the mainframe-days, allowing for test-trials in the field rather than extensive market research.

The euro-note now ten years in circulation...

This new year brings us a bit of a memory: ten years ago we started using the euro bank notes. For many people in the Netherlands, this was a step back in terms of quality and design. And we also notices how prices were quickly moving up. At first all economists and the central bank heavily denied this, but later research (in 2005) showed that in the first year of the euro, inflation was 3,6%, of which 0,5% due to the introduction of the euro.

In their efforts to deny the experience of the public, economists coined the term: 'experienced-inflation' ('gevoelsinflatie') to outline a situation in which the perception of price rises differed from reality. This helped the economists at the ECB discover that price rises in regularly purchased items could lead to a consumer perception of inflation that was higher than their scientifically produced price-index basket. Again a demonstration of the fact that economic models need to incoporate bounded rationality rather than assume a rational consumer.

As for the future of the euro: many experts now predict its demise in 2012 and paint a gloomy picture. When listening to those 'experts' I have the impression that it's increasingly fashionable to doubt the future of the euro. And although the politicians last year didn't do their best to help out, I do think that the future may be less bleak. With the ECB lowering cash reserve ratio, widening it's collateral policy and throwing in almost unlimited amounts of liquidity the bazooka is already out there, but some fail to recognize it as such.

So I think those ugly euro-notes will remain in circulation for quite some time to come.

Looking back on 10 years of blogging.....

These days it's about ten years ago that I started blogging: I set up the blog Retail Betaalgedachten to voice my views on the retail payments issues in the Netherlands. At that point in time a friend of mine had a personal blog, but I started to use blogs for my consultancy work, thus being one of the very early business bloggers in the Netherlands. So here's the bottle to celebrate...:

Blogging has been with me ever since those first days. The Retail-betaalgedachten became: Linkdump on Retailpayments that you are now reading. And of course, when setting up 11a2.nl, a representative organisation for e-money issuers in the Netherlands, I chose the blog as the main landing/reading platform of the website. And in addition I set up a personal blog on jazz in the Netherlands.

And now, last year marks the beginning of yet another blog, this time on the financial history of amsterdam/netherlands. It's a spin off of my passion to always take a historical approach towards analyzing todays issues in society and industry. So as of this year, every now and then you can read my views on euro-crisis, financial sector and payments on that blog.

And on that note I wish all the readers a very good new year !!

Six Pack becomes fivepack: T-mobile leaves NFC-consortium of Dutch banks and telcos

Tweakers net today reports that T-mobile is leaving the consortium of banks and telco's in the Netherlands. The sixpack consortium is also delayed in its plans (from mid 2012 to beginning of 2013) given the considerable market share that both the banks and telco's have. So they will go to Brussels to aks for exemption of competition rules.

Costs of fraud by phishing at banks doubles in 2011

The Dutch Bankers Association today starts a campaign to increase awareness of consumers that they shouldn't fall for the numerous phishing mails that flood their inbox. The reason is the fraudnumbers in banking. After the first half year of 2011, the fraud by onlinebanking had already succeeded that fraud over 2010 (9 million euro). And similarly, the number of phishing incidents in this first half year amounted to 2418 while over the whole year 2010 this number was 1383.

The NVB has also renewed the website VeiligBankieren.NL; a website that I personally helped come into existence in 2005, as it was clear that awareness on the risks of e-banking required timely communication. This still is the case and thus the campaign/trailer below was developed. It will air extensively the coming days. The commercial shows the physical equivalent of phishing and warns consumers not to open fake-mail from their bank.

Finnius conference on e-money

As some of you may know, I have had quite an interest in electronic money in the Netherlands in the past. And yesterday I had the pleasure of visiting the conference on e-money by Finnius. The conference was concise and clear with talks by Andries Doets on the regulation and a speech by the supervisor (DNB: De Nederlandsche Bank). This provided a good overview of rules, exemptions and clarified the role of DNB.

After the beautiful and energizing musical break (Duo Sottovoce) Casper Riekerk moderated a discussion that focussed on business models and the difference between paper-based and digital electronic money. The panel and audience agreed that the margins in the e-money/payments business are quite slim, certainly given the rule that the float cannot be used for other purposes (which happened when giftcards where still paper-based).

At the end, following a suggestion by DNB, the thought of setting up a representative organisation for e-money issuers in the Netherlands came up once again. So perhaps we will see a new organisation emerging as a result of this conference. Time will tell.

Personally I couldn't help thinking that quite a lot of effort by the supervisor is spent on values and amounts of e-money that are irrelevant, compared to the busloads of similar-type payments via mobile phones and Ov-chipcard (exempted from regulation). It is clear that both market and supervisors have digested and codified this exemption into their rules/system. So no one questions it (if anyone still remembers the history of this exemption).

But it remains a paradox for someone like me, who witnessed and joined the discussions on e-money dating from the rise of e-cash and Mondex. It was in particular the digital forms of pre-paid e-money that raised the awareness and need for legislation on e-money. Everyone got a head-ache when they thought of a situation in which money (and goods) were digital. Because this would create a situation in which central banks in the end will not know any more how much money is in circulation. And consumers might see their digital cash disappear if it was not secured properly.

So the headache lead to the legislation on e-money. And when introduced, supervisors decided to create an exemption for precisely that form of money that made us develop the legislation in the first place.

As such I think the whole e-money debate is quite an interesting casebook example of the Politics of the European Union.

DNB releases results of survey how Dutch consumers pay...

Today, our central bank, De Nederlandsche Bank (DNB) released survey results on Dutch payments in 2010. It showed that in 2010 consumers in the Netherlands made 4.4 billion cash payments at checkouts (shops, cafés and restaurants, petrol stations and at markets) and some 672 million between persons. So this creates an interesting benchmark for anyone doing studies on payments. If you wish to estimate the number of p2p payments in a country, just take about 16 % of the total cash transactions (but remain aware of cultural differences though...).

The study (only available in Dutch: here) also reveals that most Dutch consumers pay with the payment product that they prefer. So it appears as if everyone in the Netherlands is quite happy with the way we pay. Yet we should note that the scope of the study was limited to the classical payment products. Consumers weren't asked about their preference for strippenkaart, the payment means for public transport:

I would bet that when asked, many would prefer to continue using the strippenkaart over the OV-chipcard with its cumbersome operational flaws and failures. But as of today consumers have no choice, because the strippenkaart has been taken out of circulation. Paper tickets are now only available in trains but the National Railways are planning to scrap these at the end of 2012.

The cultural side of payments: Hofstede provides an interesting picture

One month ago I had a meeting with two American visitors that wished to know more about the history of payments here in the Netherlands. And as they had just arrived and had no time for the Walking tour on the history of Dutch payments we discussed those topics over a cup of coffee and lunch. And of course we came to discuss the Why-question. Why is it that the Dutch seem to be more keen on cooperating in the area of payments than other countries?

Of course there are a number of historical reasons. And one might argue that the Dutch are of a more cooperative nature given that they have to battle the water cooperatively, but it's hard to substantiate this. But then I realized that Geert Hofstede had done quite some work differences between cultures. And the funny thing is: if you chart his data, you can indeed see that the Dutch score high on uncertainty avoidance, long term orientation and low on masculinity and power distance.

So there you have it. The reflection of our cultural mindset that stimulates us to choose cooperative solutions when developing and organizing payment methods and systems. This is not to say that everything is and was collective here in the Netherlands. But in the long run there is a strong tendency to cooperate on standards.

Interesting paper on best practices for Payment Regulation

As I browsed through the programme and speakers of the E-MA conference on e-money I noticed that Rhys Bollen would present on regulatory issues. And upon googling I discovered his dissertation on best practices for Payment Regulation. Although I haven't finished reading it yet, I think it's quite a good read that deserves further attention.

E-money: an innovation revisited...

I think it is fair to say that technology and payment innovation occurs in several 'rounds'. It's sort of a boxing game where enterprises seek their niche in terms of consumer/company services but also in terms of regulatory niches. This holds true in particular for the domain of e-money.

Some fifteen years ago (I feel quite old when writing this) the buzz was all about Mondex and e-cash: two new e-money schemes. The development of these schemes coincided with the increased use of the Internet as well as the use of mobile phones. And there was a lot of debate on which rules to apply. Should e-money issues become banks or not. I remember setting up a specific branche-organisation (11a2: here's the old website) and conference on that specific issue.

While in this first round it appeared to be the case that anyone using digital coins for consumer payments needed to be regulated similarly, it turned out in a later round of regulation that some industries, notably telco's and transport companies, succeeded in convincing the regulator that their consumer money was not the same as the consumer money in banks. And this lead to a reshuffle of all kinds of regulations to allow for this.

The regulatory developments of 2011 essentially mark the conclusion of this second reshuffling round of regulation on e-money. And the industry has adapted in the meantime and is now looking forward to the new challenges, as we see the further development of mobile phone's, tablets and many other exciting new opportunities for e-money.

Should anyone be interested in the current state of affairs of the European e-money market or regulation I would warmly advise to sign up for the e-money conference of the Electronic Money Association (EMA). All players are there and all topics are on the table.

And there goes Bitcoin sinking...

These days reports are out about the sinking value of Bitcoins and we see users worried about it. And so we see yet another social/payment experiment forget that it takes quite a robust design to get a payment system going. Enthousiasm and technology are important, but no enough.

See also my previous post here.