Google

Tuesday, 16 September 2014

Google Switches To Defence In Its War On The Human Race

Nine months after Google's Chairman, Eric Schmidt, used his speech at Davos to declare war on the human race, he and the other  Big Data commanders find themselves very much on the defensive.

"I was suprised it turned this quickly," Mr Schmidt is quoted as saying of the political tide, after his European smarm offensive in June failed to avert calls for Google to be broken-up.

The trouble is that Big Data funds itself by selling the opportunity to find humans and present advertising to them. Even the craze in wearable devices is all about geolocating the wearer (and potentially their companion(s)) for advertising purposes. Ideally, you'll buy a watch or pair of glasses that will keep you reading ads and search results while on the move, but a wristband that tells your 'friends' what you're doing and where will do just nicely. Maybe one day you'll even go for the driverless car, so you can watch ads instead of the road.

As I mentioned in January, the advertising revenue that initially helped fund the transition from the analogue/paper world now dwarfs the value we actually get from Big Data and the Web. Mutuality - and humanity - is being sacrificed in the Big Data rush to sell you tat. Oh, and in the quest for The Singularity, when the high priests of SillyCon Valley believe that machines will achieve their own superintelligence and outcompete humans to extinction. Yes, really. 

In the same way that banks have grown from their mutual origins to suit themselves at our expense - keeping most of the 'spread' between savings and loans to suit themselves - Big Data platforms are primarily focused on how to leverage the data you generate ("Your Data") without rewarding you for the privilege.  GCHQ and the NHS are playing pretty much the same game.

But not all digital platforms finance themselves by using Your Data as bait for advertising revenue. Since eBay enabled the first person-to-person retail auction in 1995, that model has spread to create marketplaces in music, travel, communications, payments, donations, loans, investments and personal transport. The marketplace operators thrive by enabling many participants to use their own data to transact directly with each other in return for relatively small fees, leaving the lion's share of each transaction with the parties on either side. 

The marketplace model also reveals that most of daily transactions could be carried out between our machines. After all, they are much better at crunching all the data than we are. They are in the best position to combine our own transaction data, open public data and commercial product information to recommend the right car, mobile phone tariff or insurance products, without disclosing our identity to every advertiser in the process.  And why couldn't they arrange it so you switch to the cheapest phone or energy tariff each day, or switch car insurers depending on time of day or where your driving?

True, the platforms that enable you to leverage your own data more privately haven't yet attracted investors to the same extent as Big Data. eBay is solidly profitable and doesn't depend on substantial advertising revenues for its existence, yet it has a lower market capitalisation than Facebook or Google. It should come as no surprise to you that Wall Street and the world of high finance attaches a lower value to democratic and sustainable business models that don't suit a short term, institutional view of the world. But the financial news of 2014 must show institutional investors that we humans doubt whether Big Data has our best interests at heart. So the stock market value of marketplace operators may yet exceed that of the Big Data boys.

That's not to say that the whole Big Data movement has been a wasted experiment - it has just strayed from the path of simply digitising our daily experiences to trying to exploit them. Much of their technology could be re-aligned to empower you as an individual user, rather than treat you like a farm animal for the benefit of advertisers. 

Neither should we underestimate the Big Data giants' ability to reinvent themselves for the better. They are well-funded and more responsive to customers than banks and other institutions which have lost their way.

And it would be good to know they're working to sustain the human race, rather than kill it off.


Sunday, 14 September 2014

The Old Fake Collection Letter Scam

I've read with fascination the UK banks' attempts to justify their decades-old fake collection letter scam. The RBS letter is here. The HSBC letter is here. The Santander letter is here and the Barclays letter is here. Lloyds also admitted to using the same trick. Despite the attempted justifications, all the major banks have stopped the practice. But how much will it cost them, and what other scandalous conduct is lurking in their processes?

News of the banks' scam followed uproar over the admission by Wonga that it had used a similar practice four years ago (probably borrowed from the banks). Even the Student Loan Company had been in on the act. Wonga had confessed the issue to the Office of Fair Trading, and agreed to pay customers £50 each in compensation, presumably to avoid problems with its consumer credit licence during the transfer of consumer credit licensing responsibility to the more aggressive Financial Conduct Authority.

Basically, the banks and others played on the idea that debtors are more likely to pay up when a creditor hires someone else to recover their money. The letters from the CEOs of Barclays and Lloyds stated that their debtors tended to ignore chasing letters on bank letterhead (the banks seemed oblivious to the idea that everybody dreads a letter from the bank - especially ISA customers).

Of course, the banks were reluctant to actually pay anyone else to chase their debts. So, instead of hiring independent collections agencies and law firms, the banks simply created their own firms and called them something different to create the appearance that a genuinely independent third party had become asked to chase the debt. Whether they also charged the same recovery fees as independent firms remains the subject of investigation by the FCA.

The major banks also pretended to the authorities that they weren't responsible for collecting their own debts. When the Office of Fair Trading consulted with the industry on new debt collection guidance in 2002, the banks didn't respond under their own brand names, as creditors. The list of respondents in the Annex to the consultation response only included the banks' pet collection agencies and law firms.

But as the OFT's Debt Collection guidance made clear (in section 1.9), it's the creditor who is expected to "abide by the spirit as well as the letter" of the guidance, not just its collections agencies, and ignoring the guidance could affect the creditor's licence to lend in the first place. The guidance goes on to state:
"2.1 It is unfair to communicate, in whatever form, with consumers in an unclear, inaccurate or misleading manner.
2.3 Those contacting debtors must not be deceitful by misrepresenting their authority and/or the correct legal position.
2.5 Putting pressure on debtors or third parties is considered to be oppressive.
2.7 Dealings with debtors are not to be deceitful and/or unfair." 

The OFT's 2003 guidance was updated in 2011 and has since been enshrined in the FCA's new consumer credit rules. Hence, like Wonga, the banks have becone increasingly anxious to clean up their act.

The narrow question is whether the banks will need to compensate customers affected and, if so, how much. 

The bigger question is how many more examples of banks' systematic disregard for customers are lurking in their processes?

Thursday, 28 August 2014

Why Bankers Make Poor Managers

If UK banks ran our restaurants, we'd all be spending a lot more time in our smallest rooms.

In the latest example, the Financial Conduct Authority found that only 2 of the 164 RBS and NatWest mortgage sales reviewed actually met the required sales standard. Even the banks’ own tests confirmed the problem that borrowers were at grave risk of being sold the wrong type of mortgage. Yet it took the banks nearly a year to stop fiddling and begin taking proper steps to resolve the issues. Worst of all, this took place in 2011 and 2012 - long after the events of 2008 had alerted everyone to just how poorly these banks were managed generally; and after numerous specific failings had been detected in their retail operatons. The same banks had just been fined for failing to screen customers and handle complaints appropriately - and had even failed to enable customers to pay bills or access money

Of course, RBS and NatWest are not alone, and the banks' problems are not confined to their retail operations. Most of the major banks are embroiled in scandals arising from lack of operational controls of one kind or another.

Over at heavily-embattled HSBC, the Chairman and Chief Executive have been whingeing about the 'cost of compliance', as if it's a dead weight they're forced to bolt-on to the side of their sales process, rather than a set of largely common-sense business rules that should be embedded in their operations. 

They don't seem to realise what a sad indictment it is on the level of management skill in the financial services industry that successive regulators since 1986 have felt obliged to spell-out in minute detail how to operate a financial services business at every level and in every scenario. As a result, no human could possibly lift a printed version of the FCA's 'Handbook'. 

The same charge can be made for failings in longer term strategy. The government had to force the banks to invest in faster payment processing capabilities, for example, and it took an extensive series of court battles before banks were finally shamed into 'voluntarily' reducing overdraft charges. The most recent indictment on the levels of skill, enthusiasm, initiative, vision and energy at the top of the UK's banks is that the government will have to regulate to make them refer rejected business funding applications to alternative lenders

That's right, UK bank executives aren't even up to negotiating simple lead-referral arrangements.

Which begs the question: what do UK bank executives actually do all day?

Why, they fight regulation, of course, and all the operational rigour it seeks to impose.


Tuesday, 5 August 2014

HSBC Still Doesn't Get It

You would not expect a conglomerate under heavy regulatory fire to use its latest results announcement to campaign against regulation. But that's HSBC for you.

Yesterday, the CEO complained that the group now spends $800m a year on 'compliance and risk programme', an increase of $200m, with more to come next year. In other words, even after years of scandals and massive fines, HSBC remains under-invested in compliance and risk controls.

Even more alarmingly, the Chairman says that such resources would otherwise be spent on customer-facing staff, who he says are becoming too risk-averse. But that's exactly what regulators, customers and taxpayers are afraid of - the biggest banking group in Europe spending an extra $200m a year selling toxic crap without adequate controls over an aggressive salesforce. 

Bizarrely, HSBC's Chairman is also pushing for the ring-fencing of the retail bank to be deferred at the very same time as a major Portuguese bank goes under.

Not a great attitude to regulation from the leadership of a bank that has 3 years to go under the deferred prosecution agreement it signed with US authorities for money laundering and sanction breaches - ending HSBC's involvement in $100bn worth of businesses. That's in addition to claims for market rigging, mis-selling PPI and interest rate swaps, not to mention it's starring role in the 'Magic of Madoff'

I can't imagine that Res Publica's Virtuous Banking report went down terribly well at HSBC HQ.

At any rate, with revenues already down 9% and pre-tax profits down 12%, in the year to June, you can expect a lot more bad news from these bozos. 


Friday, 11 July 2014

Virtual Currencies Get Real

The Establishment has finally woken up to the reality of virtual currencies, but official responses are all over the place. Let's hope the industry can help forge some international consensus on how to proceed towards a supportive mix of proportionate regulation and self-regulation in the months ahead.

So far, UK officials seem to be the most openly supportive of innovation in this space. The Cabinet Office included virtual currencies in an open workshop in October 2013 (video here) and the Revenue issued a statement clarifying their tax treatment earlier this year.

In the meantime, the industry formed its own body in November 2013 - the Digital Asset Transfer Authority - to participate in the policy making process. Over 30 firms worldwide are represented, and many US Federal and State regulators attened the AGM in April 2014.

That wasn't enough for the Canadians, however. In late June they drew a line in the sand with specific regulatory measures aimed at "dealing in virtual currencies" (undefined), including restricting banking services to registered dealers.

Uncertainty as to what is meant by "virtual currencies" and "dealing" may explain why most other authorities have been careful not to rush. For instance, the Financial Action Taskforce (FATF) released a report at the end of June that was designed to “stimulate a discussion” on appropriate definitions and how best to introduce risk-based controls. That seems to be an initiative that it would be worthwhile for the industry to engage with.

Last Friday, however, the EBA steered a strange path between the Canadians and FATF, requesting the EU's national financial regulators to 'discourage' their financial institutions from buying, holding or selling virtual currencies.  I've reviewed the shortcomings of that approach in an article for Society for Computers and Law. Let's hope wiser heads prevail - it can't be help anyone's cause for the regulated financial sector to completely lose touch with such an important area of innovation.

What the industry makes of all this sudden activity is not yet clear, but I'm sure it's all been much discussed at CoinSummit over the past few days and no doubt we'll hear something from DATA soon. Perhaps from a new Brussels office...


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