Madoff Unleashes the Counter-Veblen Effect

I seldom bother to read the Sunday Times, but today I had little choice but to learn how the Madoff scam has rocked the exclusive world of the super-rich.

We can skip the lecture on supply and demand, save to say that all the featured sob-stories suggest that Madoff targeted the mega-wealthy private investor on a personal level, triggering a snob effect and/or bandwagon effect. In other words, the mugs confused either exclusivity itself or popularity amongst their "circle", with the quality of the investment. According to the FT, even "Union Bancaire Privée, the Swiss bank that is one of the world’s biggest hedge fund investors, told clients in a letter this week that it had spotted potential dangers but had been reassured by Mr Madoff’s reputation and clean regulatory record." More snobs on the bandwagon.

Of course, appealing to investors on this basis was especially insidious, as it robbed them of any interest in transparency. Whereas concern at the lack of it kept more rational institutions and professional investors safely at bay. Even the publication of Michael Ocrant's article in May 2001 ("Madoff tops charts: sceptics ask how") strongly suggesting a scam, failed to restrain the rampant enthusiasm amongst the wealthy elite for the long social climb ahead.

Well, they're all down from the mountain now, of course, claiming they should've been warned by the SEC and raging round their lawyers' offices spouting the whole sorry history of restaurant names and lunch dates while litigators take notes. But once they've ridden the whole length of the change curve, I have little doubt they'll get their own back without any help from the lawyers or regulators.

In fact, the backlash could well unleash what has been termed the "counter-Veblen effect: preferences for goods increasing as their price falls, over and above the traditional supply and demand effect, due to a conspicuous thrift amongst some consumers."

This will be more than merely an austerity measure. Like investing with Madoff, the counter-Veblen effect will be the product of a lifestyle choice. So, while it's interesting to see how it fits with the ways in which we are tightening our belts as a tactical response to the credit crunch, the counter-Veblen effect might actually chime better with, say, the actions of prominent people driven by environmental concern - like Darcey Bussell leaving for Australia to become an "eco-Mum", the committment of the entrepreneurs behind the Tesla electric car, and ultimately the Bill & Melinda Gates Foundation - as well as the authenticity demanded by the Web 2.0 community that clashed with "gut instinct" politics during the recent US Presidential campaign. Like these trends, the counter-Veblen effect could well turn out to be real and lasting.

So welcome, I suggest, to a new world of battered Bentleys, frayed collars and housecoats in Knightsbridge, where cheaper is better and champagne is for wimps.

EC to Ask First, Shoot Later

Great news. In her recent blog, the European Commissioner for Consumer Affairs, Meglena Kuneva, has said:

"In January, I will publish a report on the realities of cross-border e-commerce for consumers in Europe and investigate what the real barriers to shopping online in another Member State are. Once the problems are identified, they are easier to resolve."

This is indeed a welcome departure from the Commission's approach to facilitating cross-border e-commerce over the past 8 years or so, which resulted in firing out a plethora of European directives that only 7% of EU citizens have been able to enjoy.

Time, at last, to focus on the analysis and resolution of the root practical causes of why cross-border appears to be growing so slowly - if that is truly a problem in itself.

Of course, there is no single “e-commerce market”. Rather, every market has its online segment, and each develops differently from its offline counterpart as well as online segments of markets for other products. Drawing together the “vertical” analysis may help identify which areas of e-commerce may be more ripe for early progress and/or especially difficult practical problems on which work/education needs to start now if a market is to materialise in the longer term.

For example, it is worth considering that the May 2007 study by Civic Consulting revealed the main barriers to a single European market for consumer credit to be “different language and culture; consumers’ preference for national lenders; credit risk for lenders – no access to creditworthiness information; problems related to tax, employment practices etc.; difficulties to penetrate local market; different consumer demand in different Member States; lack of consumer confidence in a brand; differing stages of development of consumer credit; and lack of adequate marketing strategies.” The study concluded that “a single market for consumer credit cannot be expected to be created by harmonisation of legislation alone, and this is a long term rather than a short or medium term perspective.”

The Bank That's Fair

To keep up my professional development points, I'm currently groaning under more than just the weight of the judgments in the UK overdraft charges litigation against the 7 institutions who've cornered the current account market.

Here's some context for the case:

• UK overdraft users - and particularly those who incur fees - essentially pay for everybody's personal current account service. Mr Justice Smith found in his April judgment that interest on credit balances as well as overdraft interest and fees are relied upon by banks to provide "free-if-in-credit banking" (para 53). The fees "are not set by reference to the costs of activities which give rise to them, but... to support the personal current accounts service as a whole" (para 54).
  

• Further, consumers have no real choice in the market for current accounts. So they're stuck with the current pricing situation. In July the OFT reported that:
  

"The complexity and lack of transparency of personal current accounts makes it extremely difficult for individual customers to compare their bank account with other offers. There is thus little incentive for consumers to switch - especially as people generally believe that it is complex and risky to switch accounts. Also, when the switching process does go wrong consumers can find themselves bearing a significant proportion of the resulting costs. The result is that only six per cent of customers we surveyed had switched in the last 12 months - one of the lowest switching rates in Europe."

While I'm interested in the judicial reasoning to date, you'll be aware the case is frustratingly inconclusive on whether or not the charges can even be assessed for fairness, let alone whether they are actually fair or not. In the current economic circumstances, I agree with Which? that such uncertainty is "piling on the misery" for those affected - and as Mr Justice Smith found in his April judgment (at paras 56, 57), that's roughly 20% of current account customers with an overdraft facility. The Financial Ombudsman Service is awaiting the outcome of proceedings before processing any more complaints and this has encouraged various opportunists to bury their snouts into the trough of despair.

In the midst of all this, you may recall that Barclays recently launched its "Personal Reserve" - an 'over-overdraft', as it were. It's obviously an attempt by the bank to dig its way out of the litigious mess. But as this slew of Google search results demonstrates: when you're in a hole, stop digging.

Personal Reserve is supposed to be a very "simple and transparent" "service" in itself. Trouble is it's targeted at overdraft customers on an opt-out ony basis. And surely one can infer that it is intended to address a key issue with the underlying overdraft - what happens when you exceed the limit. In that sense it could be seen as a feature of the overdraft, rather than a service in itself. Further, a trawl through the multiple web pages describing the feature alone suggests that it is some distance from being either simple or transparent. It's less than clear what happens if you opt out - I can't even find a link to an explanation of the ordinary unarranged overdraft situation, if that still applies. And the fact that there are many different circumstances which can trigger additional charges makes it just as tough to forecast the potential cost of a 'bad month' as with any overdraft - something that's never been what you'd call "simple" or "transparent". Finally, it just doesn't smell right that one could be charged £22 every 5 days that you use as little as £1 of your "Personal Reserve" (see FAQ #7).

I'll spare you further detail, save to say that the feature does rather whet one's appetite for a whole new merry-go-round of analysis as to how well it really complies with the myriad technical requirements of the law related to fees, interest rates, advertisements and consumer contracts, including the Unfair Terms in Consumer Contracts Regulations 1999 (the subject of the current litigation) and the brand new Consumer Protection from Unfair Trading Regs. Indeed, it will be interesting to see how this feature, and overdraft charges generally stack up as "treating customers fairly" etc., etc., under the FSA's reforms to the retail banking regime, whenever those might take effect.

But as the current inconclusive litigation demonstrates, the legal niceties don't transmit to the coal face very quickly, if at all.

So surely there's a golden opportunity for one of the members of the current account collective to break ranks and genuinely distinguish itself from the others. It could start by submitting to an independent assessment of the fairness of its charges. Then it might capitalise on the pleasant surprise by diverting the money it spends on TV ads claiming to have the personal touch towards actually engaging with customers to produce something that they buy into as fair.

Anyone for first-mover advantage?

How EU Law is Made. No, Wait, Unmade

You may recall my abortive attempt some time ago to launch a Quest for the Source of EU Legislation. Well, in that vein I now commend to you Simon Bradshaw's excellent post on Whatever Happened to Amendment 138.

A giant hat-tip to Hugh Hancock, creator of the "Save EU Amendment 138, stop extra-legal punishments and stop Three Strikes!" Facebook group, which seems to have done its job.

I've also added some long overdue blogs to the blog roll to help stay abreast of the subtleties. Perhaps I should also somehow find the time to help with the Free Legal Web initiative to create a window into all these shenanigans, but a client calls...

That'll Be All, Thank You Gordon.

They've really done it now. After ten years of unrestrained public sector expansion dressed-up as "Prudence" and leveraging their way through the good times like investment bankers on speed, New Labour's got no choice but to raise taxes. As Martin Wolf puts it, "This is a different country."

And as the late, great Hunter S. put it:

"... The Swine are gearing down for a serious workout this time around... So much, then, for The Road — and for the last possibilities of running amok in Las Vegas..."
The Great Shark Hunt: Strange Tales from a Strange Time

Even Faster Payments, Please

My refusal to pay for a current account landed me at Alliance & Leicester some time ago, as it also took the extraordinary step of paying decent interest on a regular balance. "Clunky" is not the word for it, and you really need your wits about you to avoid the fees lurking within. Being a retail financial services lawyer helps mightily.

Recently the bank left me a message to say that it had decided to introduce so-called Faster Payments. This is hardly dazzling - you may be aware that this has its roots in the tidal wave of frustration at slow payments that was punctuated by the Cruickshank Report in March 2000, and the ensuing regulatory saga. I was there to help "sink the slipper", as a quaint Australian rugby expression would have it. Typically, the UK banks fought tooth and nail to avoid the inevitable conclusion that:

"there were profound competition problems and inefficiencies associated with payment systems in the UK. The report found that the underlying economic characteristics of the systems did not deliver price transparency, good governance, non-discriminatory access, efficient wholesale pricing and innovation."

I won't bore you with the catalogue of dithering over implementing a solution, but the fact that "faster payments" are long overdue is evident from the APACS's bizarrely triumphant puff:

"Faster Payments is the first new payments service to be introduced in the UK for more than 20 years. For the very first time phone, internet and standing order payments can move within a few hours - almost at the touch of a button."

But compare the APACS puffery, with the statements below from Alliance & Leicester. Note the nasty little catches marked by * and **. I've brought the weasel words up from the footnotes and placed them in bold italics immediately after each. I've even had to use red text to show the nasty catches within the nasty catches. There's a way to explain what they're doing without making such sweeping claims or promises in the first place. Faint hope that nonsense like this might disappear under the tighter FSA regulation of retail banking.

"We are improving our service to you by taking part in a payment scheme being introduced across the banking industry called Faster Payments. This means that when you move money electronically either by internet or telephone banking it will usually be available for you to use on the same day*. Other types of payments such as direct debits and the time it takes for a cheque to be available will not change. Payments to Alliance & Leicester Credit Card will not be sent using the Faster Payments scheme. This means that the time it takes for these to go through will also not change.

What this means to you

Currently, if you move money between accounts or make bill payments, it will normally be available 3 to 4 working days later. Faster Payments means your money will usually be ready to use on the same day.

We are now able to receive money by Faster Payments and have started to send money by the scheme. We plan to have the Faster Payments scheme fully implemented later this year. Certain conditions will apply**. If the bank (or account) you have requested the money to or from is not part of the Faster Payments scheme, your money will continue to be moved using the BACS (Bankers' Automated Clearing Services) scheme and will be available for you to use 3 to 4 working days later. The Faster Payment scheme limit is £10,000 for immediate transfers and one off transfers that are set for a future date. The limit for standing orders is £100,000. Standing orders move money to another account on a regular basis. To start with we will have lower limits. These limits may change at any time without us telling you first. Other banks' limits may be different. Additional security checks may be carried out to protect you from fraud. If this happens your money may not be available on the same day.

You can easily make transfers or bill payments 24 hours a day, 7 days a week using our internet or telephone banking services.

[skipping several paragraphs of guff about internet and telephone banking that separates the * and the ** from the corresponding footnotes]

The Faster Payments scheme will allow you to keep your money in your account for longer."

A little premature to make the last claim so unreservedly, I'd say.

PS: 18 June '09: Here's John Kay's piece on the anniversary of the "faster" payments programme.

Early Payment of SME Invoices

Today the FT reports that "88 per cent [of traders surveyed] reported bigger companies not paying on time – a factor that 72 per cent said had a serious impact on their business."

Early this year I was involved in discussions about a way for individuals with surplus cash to enable SME's to get their invoices to big corporates paid early - and at rates that are competitive with SME's current financing options, represent a great return on people's spare cash, and allow big corporates - and the public sector - to extend their payment terms. This would be additional to SME's current financing options, rather than interrupting or replacing them.

The parties required to implement the necessary process agreed how it should work in detail. Their remaining challenge was finding the SME-facing brand necessary to market the service effectively. Early discussions with the perfect brand yielded some progress, but ultimately launch depended on another of their initiatives progressing.

One way it could work, in basic terms, is that the supplier offers to assign the invoice to Zopa or a collection agent for the benefit of the Zopa members who chip in to pay it early. Notice would need to be given to the corporate buyer to pay the invoice amount to the Zopa members' account. Someone at Zopa would also need to call the corporate buyer to ensure it was happy with the arrangement and confirm the date the buyer is promising to pay. That promised date could go on the invoice listing. Zopa members could then study the listing and decide what discount rate to offer (credit reference data would be available for those that want it). There would be an auction, so pricing would be very transparent.

There's another model that would work in reverse, with buyers posting invoices it's prepared to pay - with a promised payment date - to suppliers' accounts. The suppliers could then hit a "Pay Me Now" button that takes them to the Zopa site where their invoice could be listed etc. While that model is certainly technologically possible now, I suspect that it would follow once people got the hang of the supplier-driven process.

At any rate, if you're a supplier to big corporates who's frustrated by their extended payment terms, why not contact Zopa and say you're interested in either model I've described?

Maybe the continuing explosion of the late-paying problem, coupled with falling savings rates on people's spare cash, will hasten the implementation of this solution.

Mo-gress

Well, twelve days into Movember and the photos just don't do my effort any justice at all, so I won't repeat them here.

In fact, my mo' is much more visible than the camera suggests, and such an eyesore that I have to creep home at night. Young ladies are beginning to give me very strange looks indeed, when they used not to notice at all. Young men run away. Dogs cross the street, and cats hiss.

Bring on the 30th faster, I say.

In the meantime, you can donate to The Prostate Cancer Charity by clicking here and using your credit card, or by writing a cheque payable to ‘The Prostate Cancer Charity Re: Movember', referencing my Registration Number 1586826 and mailing it to:

The Prostate Cancer Charity
First Floor Cambridge House
100 Cambridge Grove
Hammersmith
London W6 OLE

The money raised by Movember is used to raise awareness of men's health issues and donated to The Prostate Cancer Charity which will have an enormous impact on many men's lives and the awareness will help us to fight prostate cancer on every front - through research, support, information and campaigning.

Did you know...

• Prostate cancer is the most common cancer in men in the UK. 35,000 men are diagnosed every year and one man dies every hour.
  

• 1 in 11 UK men will be diagnosed in their lifetime.

For those that have supported Movember in previous years you can be very proud of the impact it has had.

London's Super Sewer - Pro or Con?

I never thought I'd be giving a hat-tip to Hammersmith & Fulham Council, but thankfully its Leader has warned residents of the £2.2bn "Super Sewer" that Thames Water plans to build under the Thames.

Somehow I'd missed all the kerfuffle.

Not content with writing to residents, the Council has also launched a petition that's been signed by over 1,500 people, and we are invited to a public meeting on the subject at Hammersmith Town Hall, King Street, on Monday 17 November 2008, at 7.00pm.

The Council is concerned that the Super Sewer is the "wrong solution to the wrong problem", is too costly (adding £200 p.a. to water bills), too disruptive (8 years of construction), will destroy open space, and is merely designed to avoid EU pollution fines that are open to challenge in any event. It recommends an independent study to review the problem, solutions and alternatives.

I confess to being somewhat perplexed, and would be interested to get a balanced view before choosing "sides", even if backing the Council only results in an independent study. It would be nice to see a concise summary of the problem, it's size, root causes and possible solutions - though not while eating a curry.

Having been less than impressed at the investment in maintaining London's creaking infrastructure to date, I'm wary of undermining Thames Water's enthusiasm on that front without a very good reason.

But the Council did a great job in opposing the West London Tram, and has shown itself to be very effective in arousing public support on this occasion too. Maybe it's on the right track again, if you'll excuse the pun.

Looks like I'll have to turn up to the debate.

Movember

One of the er... upsides to working in a client's offices with lots of people is participating in their crazy schemes.

So, during Movember (the month formerly known as November) I'm growing a Mo. I'm doing this, it says here, because I'm passionate about tackling men's health issues and being proactive in the fight against prostate cancer - the most common cancer in men in the UK.

But I'm really doing it for the cringing sense of embarrassment the new Mo grower gets from watching the eyes of the person he's speaking to being drawn irresistibly to the mangy spider materialising on his upper lip. And from feeling the inevitable question grow throughout the conversation until his victim is obliged to enquire, "What the hell is that?" Or worse.

You can donate to my Mo by clicking here and using your credit card, or by writing a cheque payable to ‘The Prostate Cancer Charity Re: Movember', referencing my Registration Number 1586826 and mailing it to:

The Prostate Cancer Charity
First Floor Cambridge House
100 Cambridge Grove
Hammersmith
London W6 OLE

The money raised by Movember is used to raise awareness of men's health issues and donated to The Prostate Cancer Charity which will have an enormous impact on many men's lives and the awareness will help us to fight prostate cancer on every front - through research, support, information and campaigning.

Did you know...

• Prostate cancer is the most common cancer in men in the UK. 35,000 men are diagnosed every year and one man dies every hour.
  

• 1 in 11 UK men will be diagnosed in their lifetime.

For those that have supported Movember in previous years you can be very proud of the impact it has had.

How to Disable Phorm

I looked at Phorm in February and again in June, but not really wearing my consumer hat. Now I have an unwelcome opportunity to do just that.

You see, I'm a BT broadband subscriber with multiple users at home, some of whom may not be all that, ahem, technologically inclined. So I'm a bit paranoid that, while I'm not aware of having been asked or consented to using Phorm (branded "WebWise"), other users may have inadvertently switched it on in the course of a BT trial.

Why I am paranoid? Well the service is basically designed to track the browsing habits of all users of the broadband-connected PC or laptop and use this to send more targeted advertising, so that BT and Phorm can make money out of you. But I don't just "browse", I research stuff, work and look after my financial affairs. Other users in the house from time to time will do the same. I don't want this stuff tracked, scanned or whatever else Phorm or BT plan to do with it. And I don't want to be pestered by ads, especially ones that may have nothing do with my real interests. I don't consider that I have a relationship with BT when I use my broadband to access the internet. I permission or de-permission cookies or accept marketing bumph from each of the site I'm happy to deal with. And so on.

I've now done what any good consumer should do. I've looked at the BT WebWise site and even the audit report from Ernst & Young (the mere fact that an audit report is felt necessary chills me to the bone). While these purport to tell me what Phorm is or isn't doing, it doesn't explain BT's role or the data it has access to and retains, or what BT is getting out of using Phorm. The BT terms and conditions (clause 18) aren't exactly encouraging on this point. In fact they are so lacking in material information that they deserve further consideration in light of the Consumer Protection from Unfair Trading Regulations 2008 (which I perhaps rather hastily lampooned - but hey, if they're there, use them). The killer is that the mere presence of this unwelcome "service" casts on me an obligation to constantly police my own computer and all its users to ensure that we're opted-out and remain opted-out. It would be too much to hope that the anti-virus software providers will create a Phorm-killer.

Let's be clear. BT needs to persuade me, as its customer, to opt-in to taking this additional "service". It's not for BT to use my broadband connection to build relationships with people who aren't the accountholder, and get me to police their opt-in/opt-out. It must be BT's problem to ensure that if I don't opt-in (or if I do, but opt-out later) that the effective opt-out works for everybody on my connection all the time.

And to have any chance of persuading me to opt-in, BT must specify in more detail the nature of the data that will be obtained, all the proposed uses of that data, what I am going to receive in return (and don't say targeted ads - show me the reduction in the price of broadband to reflect your opportunity to gain ad revenue), and how I can opt-out and have that data deleted. From a personal standpoint, the "WebWise" service doesn't go far enough in this regard for me to trust it. Nor should the current level of disclosure be enought for BT to be able to claim they have my consent to thing under the Data Protection Act - I simply don't consent, anyway.

So, not trusting BT on the particular issue of how to stay opted out, I did a quick Google search hoping to learn how you would really know that you were not signed up, and how to switch it off completely. No luck.

The Register, which has done a lot of digging on Phorm in the past, and got a very concerning post from Chris Williams on 3 October. According to Chris' discussions with BT, they seem to track your usage whether you're opted in or out... so they can record whether you have opted in or out. You then simply have to trust that they won't sell or otherwise use your data to get extra ad revenue, fall victim to organised criminals, or allow the authorities to mash it with the Communications Database (you'll recall that the UK government has been particularly supportive of Phorm).

All the technical detail is in Richard Clayton's excellent piece on Phorm. His research suggests that you can add the Fraud Act, Computer Misuse Act and the Regulation of Investigatory Powers Act to your reading list before deciding whether or not to sign up to WebWise. And even intellectual property rights owners have a serious set of bones to pick, as Nicholas Bohm and Joel Harrison have fulsomely discussed in their excellent September article for the Society for Computers and Law. But none of that is going to occur to the average consumer, so why is the government not taking their corner instead of Phorm's..?

Who knows. For my money, it's time to switch broadband providers.

Speaking of which, I see that Orange is attempting to make a virtue out of not using Phorm.

LinkedIn Goes Social

LinkedIn has just added various collaborative, work-oriented applications to its platform. But I'm struggling to get beyond it as a fairly static place to hold your CV and network in a fairly basic, formal sense. I do receive requests for my services via LinkedIn, and it's useful for making introductions and learning a bit about someone you're scheduled to meet or call – the whole reason they published their profile. I guess people might use it as a “work” platform, add their blogs stc and yet retain the air of formality. But not all of that seems compatible. We'll see.

In the meantime, Facebook still seems more engaging and better aligned with the blurred social, business and academic blogosphere - it's the equivalent of meeting with the founders of a start-up in Starbucks, or with colleagues in a bar to talk shop and whatever else is going on. So that's where I prefer to share my blog, for example.

It will be interesting to see whether, and if so, how Facebook reaches out to the business community as LinkedIn evolves to be more engaging.

Travels in the Blogosphere

Phew! What a journey, and what a pleasure to have so much great stuff to consider and comment on over the past week, including:

• the iPod of financial services on Guillaume's blog;
  

• the European Commission's e-money plans on panGloss;
  

• the EC's consumer protection plans on Digital Law;
  

• discovering that European Commissioner Meglena Kuneva has launched her own blog;
  

• the future of cash at Digital Money Forum; and
  

• the impact of prescriptive regulation on financial services innovation at The Bankwatch.

Thanks, folks, please keep it coming!

In the meantime, I reckon I'll need another week off...

Be Careful Saving With Your Mortgage Lender

You'll be aware of recent concerns about how much of your deposits are covered by the UK's Financial Services Compensation Scheme.

Their general guidance on the subject is here, but there was a twist announced indirectly at a recent conference - hat tip to the Fool Blog:

• if you have an offset mortgage - where the bank agrees to credit your savings against your mortgage balance and only charge interest on the difference (if any) - then if the bank goes under, your savings will simply be deducted from the mortgage balance, even if those savings exceed £50,000. So you won't actually have access to the money anymore (unless, perhaps, the mortgage is taken over by another bank on the same terms and you can draw down again, or you remortgage, which will cost you interest).
  

• if you're an ordinary saver who just happens to have deposits with the same bank who has your mortgage, indications are that the FSCS will treat you the same as if you had an offset mortgage, although only £50,000 of your savings may be protected. Again, you could merely be treated as owing the bank less, and not actually get your savings paid back to you.

It does seem fair that the FSCS is able to offset deposits against mortgages or other loans in the event of bank insolvency, regardless of whether or not you agreed an offset mortgage. The higher deduction for offset mortgagors is also fair. Otherwise, people who've saved more than £50,000 and who were therefore able to take on a bigger mortgage than their income might have supported, could find themselves penalised. That would be inconsistent with the principles of recent mortgage regulation.

But this could be a disaster for anyone who's tried to set aside 3 to 6 months' net salary as "rainy day" money - as a buffer against unemployment, lengthy illness etc.

So, you should consider making sure that your rainy day money is not deposited with your mortgage lender. Worth checking with the FSCS before making the decision. Here are their contact details.

Consumers Paying For Services That Are Free

In these troubled times, we as individuals must take economics into our own hands - cut costs, repair balance sheets. And so on.

One needless expense is the purchase of complaints handling services from private suppliers when the alternative is free of charge.

Not only does that cost you money, but it also means your complaint may not be visible to the authorities. So there won't be as much pressure on the product provider to cure the problem you're complaining about.

Topical examples include:

• financial services claims management companies - why pay these guys, when the Financial Ombudsman Service (FOS) is free to consumers? The regulated product providers must pay FOS's fee for handling the dispute. That's an added incentive to resolve your complaint more quickly, and to avoid causing problems in the first place. But, as I've pointed out before, some claims management companies and law firms continue to promote services where the consumer bears the expense. There is even speculation within the industry that some product providers who've mis-sold financial services in the past are either starting up claims management companies or selling lists of affected consumers to them in order to profit from curing the problem they helped create. Your first complaint should be the product provider. But, if you aren't satisfied, then FOS is your best bet. Going to the media might sound attractive, but you shouldn't have to bear your soul in public to get a private financial matter resolved.
  

• call blocking services - sure, cold calls are annoying - especially those from an automated calling system that fails to connect anyone when we pick up the phone (known in the industry as "silent calls"). But rather than pay for a blocking service, the best solution is to help ensure the people using these systems get named, shamed and fined. That way, it's the perpetrators who will demand - and pay for - the improvements in technology that stops this happening, not you. So, before you pay for one of these blocking services, complain to Ofcom or the Information Commissioner. The Ofcom policy on the subject is here. You'll be comforted to hear that Ofcom fined Barclaycard the maximum fine of £50,000 for breaching the rules on silent and abandoned calls last month. It may not sound like much, but it will end up saving you money on a blocking service.
  

We all whinge when the Government doesn't act. But we only have ourselves to blame if they do act and we don't take advantage - and end up paying for it.

War on File-Sharers Spells D-o-o-m for Net Neutrality

The UK government is planning to promote "attractively packaged content" on the internet, bowing to pressure from copyright owners to prevent online piracy.

Only figures for the music industry are cited in the consultation paper, yet various regulatory and co-regulatory solutions are proposed that will affect all copyright content online.

The paper claims that about 6.5m people in the UK (25% of UK internet users), engaged in illicit P2P file sharing in 2007. This is estimated to "cost" the "music industry" £1bn over the next 5 years, against revenues of about £1bn per annum.

So, where's the problem? The "music industry's" digital music sales increased by 28% in 2007. Sure, declining CD sales resulted in a loss, but that's like saying Ford made a loss because no one wants to by the Model T anymore. It is also conceded that the decline in CD sales wasn't due to piracy alone - supermarket discounting and the shift to digital purchases were chiefly responsible. In other words, the "music industry's" woes are born of consumer dissatisfaction.

Consumers are used to getting content for free online, knowing that providers are making money out of advertising. So it's no surprise that 91% of survey respondents file-share because the content is free. More telling is that 42% say it's because they could find everything they were looking for. In other words, constraining supply by "attractively packaging content" doesn't work, and the music industry needs to get with the programme.

Of course, file sharing isn't actually not free. File-sharers spend time and pay for wireless technology, proxy servers, encryption and communications to download the material. No figures are given for how much revenue this generates, but at 6.5m UK consumers, it seems to be a sizeable market. I wonder who's making money out of that?

The chief cause of music industry misery actually seems to be the cost of enforcing copyright via the clunky legal system. They say it can cost £10,000 for each court order to obtain the IP address for each file sharer. I'm prepared to believe that, and I'm all for reducing the cost of enforcement. But that problem shouldn't need a "memorandum of understanding" among the rights owners' associations, network service providers and goverment, paragraph 3 of which says this:

"Many legal online content services already exist as an alternative to unlawful copying and sharing but signatories agree on the importance of competing to make available to consumers commercially available and attractively packaged content in a wide range of user-friendly formats as an alternative to unlawful file-sharing, for example subscription, on demand, or sharing services."

One shudders to think what is meant by "attractively packaged content". But it's implicit that any such packaging will be done by, and must suit, the few industry players who signed the MOU.

And that implies we'll be forced to pay for premium content bundled with rubbish, like "albums" on CDs. A sort of packaged internet, chosen for us by cosy institutions.

The neutral, open internet appears to be doomed.

PS: The Society for Computers and Law response to the consultation can be viewed here, and the SCL's response to proposals to increase the penalties for criminal infringement of intellectual property rights can be viewed here.

Closure of Zopa's US Credit Union Program Contrasts P2P Model

It's a sad day at Zopa, which has announced the closure of its US credit union programme due to adverse market conditions for credit union deposits and loans. My sympathy to the whole team.

But, by comparison, the steadily growing success of Zopa's UK P2P model starkly demonstrates the benefits of enabling simple, capital-efficient, transparent lending directly between responsible individuals, as opposed to the intricacies of even a straightforward savings and loan operation like a credit union.

And it's ironic that the US regulatory system could permit everything from NINJA loans to CDOs riddled with unquantifiable risks, yet fail to accommodate a model that has maintained such low delinquency in the UK for over 3 years now, and seems to be repeating that success in Italy.

Maybe one day US regulators will be more receptive.

Nanny Home Office to Record Everything

The Home Office continues to build an all-seeing Nanny State at our expense, regardless of proportionality, competitive and low-cost communications or the need to conserve our taxes to support the financial system.

The proposed Data Retention Regulations require UK public network providers to retain data that identifes the source, destination, date time and length/size of every single phone call and email on their networks, as well as the type and location of the device involved. Using that data, authorities can of course find the content in, ahem, 'other systems'.

"... We [the Home Office] consider that these measures are a proportionate interference with individuals’ right to privacy to ensure protection of the public. Previous debates have concluded that the retention period is a significant factor in determining proportionality. In the draft Regulations at Annex A, we propose to continue with a retention period of 12 months."

Failing to mention, of course, that the Home Secretary can extend the retention period to 24 months, merely by written notice. And ignoring the fact that the cost is in secure storage, retrieval and deletion, for which the Home Office is now infamous.

This particular initiative has been handed to us (with Home Office complicity) by European Directive 2006/24/EC, conceived amidst the panic of the 'war on terror'. So, of course, it must be well considered and completely necessary today. It's also a natural extension of the Regulatory of Investigatory Powers Act 2000 (RIPA!) which David Blunkett introduced to such a warm welcome and which has been critical to Local Authorities' success in their war on dog-fouling [checks shoes for 3rd time today]. But just to add weight to its claim of proportionate impact on our human rights, the Home Office cites a vast empirical study undertaken by independent experts:

"During a two week survey in 2005 of data requirements placed by the police, there were 231 requests for data in the age category between 6 and 12 months old. 60% of these requests were in support of murder and terrorism investigations and 86% of the requests were for murder, terrorism and serious crime, which includes armed robbery and firearms offences."

So, we need this giant database and retrieval system for names, dates and places for every single communication on a British network in order to support about 200 data requests a month. Well, clearly the new regulations weren't needed to enable these requests to be made in 2005. And history appears not to record how critical the results were to solving a crime. Murder is an ironic justification, given how firmly the Home Office is holding the pillow over our faces. However, while the unsolved murder rate has nearly doubled over the past decade to 52, the Tory response missed a golden opportunity to justify investment in some enormous database to prove the exact time I called last night to say I'd be home to read stories. Instead, they merely blamed this rampant surge in mayhem on "police being overwhelmed with red tape, bureaucracy and government targets that distract officers from protecting the public." I feel their pain.

Ah, yes, the cost. The good news is that the taxpayer is to reimburse the network providers the "additional costs for retaining and disclosing all communications data". The Home Office claims this will amount to a suspiciously precise "£68.44m capital, £39.40m resource over 8 years", whatever that really means. Is the £39.4m perhaps an annual figure? Is it inflation adjusted? It assumes no investment in public sector systems, so that must be hidden elsewhere. Weirdly, it also assumes that electronic communications will cease in the UK in 8 years time, rather than grow exponentially. Perhaps the database will enable Plod to figure out whodunnit.

In the meantime, the Home Office claims it will avoid the disproportionate impact of all this on small firms. This assumes that either (a) there will be no more small firms providing network services in the UK (sad, but now plausible) or (b) small firms will be able to carry the cost of investing in the additional storage and retrieval systems until their requests for reimbursement are lodged with the Home Office, processed, approved and finally paid. Either way, start-ups and other competitive, low-cost network providers can't afford to play in that sort of bureaucratic game.

Next: average speed camera networks.

PS: the Society for Computers and Law response to the proposals can be viewed here.

It's Double, Not Quits, for UK Bank CEOs

Guess who said this yesterday:

"Our strategy is clear. It is to achieve good growth through time by diversifying our business base and increasing our presence in markets and segments that are growing rapidly."

Clue: he's a chief executive of one of the banks that has today asked the UK taxpayer for a helping hand.

Give up?

You're right. Perhaps he should, along with the other heads. Surely it's worth considering that the CEOs who oversaw the unbridled expansion of recent years are the wrong people to restore confidence to the banking system? Citigroup made the change almost a year ago, after all.

Where is shareholder activism when we need it most?

I'd also argue that banks (and insurance companies, for that matter) have demonstrated that they are in fact ill-equipped to commit very much in the way of capital, if any, to 'rapid growth' opportunities...

The Great PPI Robbery

It's stunning enough to see yet another hefty fine for misselling "payment protection insurance", or "PPI", let alone one that costs Alliance & Leicester £7m of precious capital in these troubled times.

But, worse still, the findings suggest that the FSA let this go undetected for 2 years, leaving 210,000 consumers to find the extra £1200, plus interest in the meantime.

Meanwhile, the Competition Commission has also waited until now to get tough on banks who it alleges have raked in a combined £1.4bn in "excess profits".

Given the pace of enforcement to date, is it conceivable that A&L will be the last bank caught ignoring financial regulation?

PS: the FSA fined Egg £721,000 in December 2008, for mis-selling 106,000 PPI policies to its card customers at an average of £156 each for the period Jan 2005 to Dec 2007.

A Rower's Revenge

Finally, after about 50 weeks of steady training, I had my revenge yesterday. It was indeed a dish served cold, with lashings of rain and mud. White kit would not have been my first choice, but then I'm raising money for Prostate UK, not a rehab unit for super models.

I'm pleased to say that the rain and local flooding did not prevent me beating my 2005 time - run on a cool dry day - by about 10 minutes, coming in 49th in 1:42:50.28. Proving not only that you can get younger, but also that a 2007 Bianchi road-racer with clip-in shoes is a much faster mode of transport than a 1997 Trek hybrid, even with mud guards and pannier racks removed.

And I must add that it was a special pleasure to repair (quite literally) to the warmth and hospitality of the George and Dragon with my father, on his much anticipated visit from Oz, for an excellent steak and ale pie and about 7 years worth of aimless conversation.

A Counter-Cyclical Week

The last week saw me bouncing around London, Oxford and Slough, attempting to speak at two conferences while negotiating a deal, before landing in a surreally crunch-proof hotel in Eze to celebrate the completely voluntary and utterly joyful marriage of two investment bankers.

Yes a happy, willing marriage, when we're told that divorce amongst the financial elite is all the rage, not to mention shotgun weddings involving either JP Morgan Chase, Banco Santander or Citigroup.

But the most counter-cyclical moment for me came last night, as I finally collapsed in front of BBC television 24 hour news to watch the US Congress dither over the suspiciously definitive $700bn bail-out package. Barack Obama's message to Congress from his Denver rally was to "get it done", but with one tantalising, ironic condition: to ensure that the taxpayer "gets paid back"...

Civil Law View of State's Role Slows EU Growth

Last Tuesday, I played a very small part in the closing panel discussion at the Society for Computers and Law 3rd Annual Policy Forum. The focus of the Forum was the European Commission’s painful review of the 15 or so Directives it has set up to regulate retail communications (and content/e-commerce) over the past decade.

It was an excellent event, and here is the link to the presentations.

Huge credit goes to Chris Marsden for persuading a stellar line-up of international speakers over the 2 days. Credit is also due to Mark Turner of Herbert Smith and Caroline Gould of the SCL for hosting the event and taking care of the endless practicalities.

For what they are worth, the points I made during the closing discussion were:

• The European Commission continually states its belief that regulation is required to catalyse cross-border retail markets in Europe. As it was explained to me in International Comparative Jurisprudence at law school, that’s because the European, civil law, view of the world is that people should only do what the State says is acceptable, whereas the common law view is that the law should follow to regulate commerce/behaviour as necessary to resolve market problems.

• However, while national e-commerce has surged, the evidence of the past 10 years is that the EC’s approach to cross-border markets hasn’t worked and will not do so until more the more practical obstacles to cross-border trade are cleared. As set out in my previous post, Civic Consulting found that these include language, culture, consumer preference for national products, lack of shared data on creditworthiness, tax/employment differences, difficulty in penetrating foreign markets, differences in consumer demand, lack of confidence in foreign brands, different stages of market development, lack of adequate marketing strategy.

• Regulators can play a role in early market phases. In fact, they would gain the trust and the buy-in of market participants to any regulatory measures that may eventually be required if they first helped facilitate market participants’ efforts to remove the practical obstacles to cross-border trade and learned something about the markets they’re trying to regulate along the way. Regulating first will either prove futile, or risk creating further obstacles. In the meantime, it will needlessly interfere with national markets.

Because of the jurisprudential difference I mentioned, these points seem to find favour with the common law members of the audience, rather than our civil law friends. Ironically, EC officials don’t seem to see it as within their remit to care whether or not regulation actually will deliver a single market. They simply have a mandate to churn it out in line with the EU’s single market policy, and fuss around with reviews when it doesn't work out. The practicalities are ignored. As a result, we are doomed to wait a much longer period of time for cross-border retail markets to develop, if they ever really will.

EU Choking on its Own Consumer Law

Having committed rather too late to the principles of "better regulation", it's only right that the European Commission should now seem to be choking on the dog's breakfast of consumer laws it has served up over the past 13 years (bearing in mind it takes 5 years to pass an EU directive).

Officials are reforming a plethora of electronic communications directives, and reviewing the 8 directives that make up what is (weirdly) known as the "Consumer Acquis" (which for some reason excludes the constant review of the E-commerce Directive). And, of course, it's overseeing the implementation of the Audio Visual Media Services Directive which overhauled EU television regulation in December '07.

With any luck, the Commission might realise how truly gargantuan a meal this has been for the average European citizen or small business to digest, let alone for the lawyers who have to produce bite size summaries for the busy executive's bin.

Has all this amounted to the catalyst for a cross-border consumer market that the Commission hyped, sorry, hoped? Not according to the Commission's own research. Nor could it, for the practical reasons previously mentioned. There is a facilitative role that the Commission can play, but that involves understanding the problems, their root causes and potential solutions before regulating.

More in this vein next Monday/Tuesday at the SCL's Annual Policy Forum!

UK Govt Backs Phorm PR Effort

It's one thing for the UK Government to support Phorm's challenge to personal privacy at EU level while defending its position in the face of European Commission concerns.

But it's quite another to be seen to selectively release to the media the portions of its letter to the European Commission that list the ways in which officials believe Phorm to be a good thing.

Bad Phorm, in fact.

It would seem that the authorities may have something to lose if Phorm isn't a success...

Enable Best Customers to Create Financial Services

All vendors and platform operators feel an obligation to look after their best customers. But to what extent are those customers really allowed to influence product development?

In the course of researching a presentation on the long tail of payments services for GikIII (a two day workshop on the intersections between law, technology and popular culture), I've been struck by how these observations combine to emphasise the same point:

• There is value in marketing "long tail" products if adding selection is cheap (as it is online): Anderson;
• Compared with heavy users of online retail services, light users much prefer better selling products; both prefer “hit” products more than those in the tail; but it is the heavy users who venture into the tail: Elberse;
• Successful Web 2.0 businesses are those that facilitate an 'architecture of participation': O’Reilly;
• "Lead-user product development can be a far more effective means of innovation than conventional product development in a closed system": Sheahan (citing von Hippel, of course) and giving various illustrations of the same concept in Threadless, Jones Soda, LEGO's Mindstorms Users Panel, and of course Linux.

Suggestions that even "excellent retailers" have run out of ways to improve the online shopping experience, and the only scope for real innovation is on the buy-side, are way overdone. But it must be true that improved tools for buyers as well as, e.g. 'power sellers', are an important set of features in the overall consumer experience mix. And it should also follow that enabling your prolific buyers to add to the range of products available for all buyers is a powerful step to take. Some of those products might even prove to be popular enough to work their way up the 'tail'.

In the payments context, it's interesting that recent research by Datamonitor suggests financial institutions are too mired in last century's anxieties to let their online customers loose with a bunch of web-based tools.

Seems my 2008 predictions for the SCL are still holding up nicely!

Turn Complaints Into Fixes, Features and Products - Welcome to Web 2.0

Ever since GE required me to get my Six Sigma greenbelt, I've been convinced that complaints can have a significant positive effect on costs and revenues. But only when you're prepared to painstakingly work from identifying the critical expressions of dissatisfaction to implementing the fix, feature and maybe eventually the product, that might logically result.

That isn't to say every business problem can't be solved without an enterprise-wide investment in Six Sigma, LEAN or some other problem-solving methodology. After all, an expression of dissatisfaction suggests a desire by the customer to improve his or her experience. And the process of capturing those expressions and resolving the issues creates the "architecture of participation" that is the very essence of successful Web 2.0 businesses.

Simply implementing a process for accurately classifying customers' initial expression of dissatisfaction from the customer's standpoint will get you going along the right path. It's then pretty much common sense to identify the most common issues, figure out their scale or value, and spend a proportionate amount in resources to find their root cause, the best fix for the money and a trigger that tells you if and when the problem resurfaces.

This is not a "customer service" issue. It's a business in itself.

Allowing all functions to see and contribute to the complaint resolution process will ensure that bad stuff doesn't get hidden, blame goes out the window (it could be you next!) and the organisation takes a holistic, realistic view of significant problems and the resources available to put them right for good.

Interestingly, the European Commission is currently consulting on a plan to harmonise the classification of complaints to third party agencies to ensure that "policy makers will be able to get a better picture of collective consumer detriment in various sectors". Ironically, that may in fact slow the pace of EU consumer regulation, as lack of transparency and consultation on the actual basis for regulating has long been a criticism leveled at the Commission.

BMW Should Help Pimp My Ride

I'm having an interesting discussion with BMW in the context of my efforts to reduce the wind noise on my R1150 GS.

It's been quite tough to find all the information on steps you can take to reduce wind noise. Most of it involves products offered in the after-market and no one seemed to have gathered the data together. So rather than waste my effort, I blogged it all and sent the link to BMW and MotorcycleNews.

While BMW were pleased to see the blog and its subsequent publication on MCN, they said "we are unlikely to link this to our website as it mentions other companies that we do not endorse or have any links with".

Now that's exactly the sort of standard corporate guff that I expected. Although I must say that I'm grateful BMW even took the time to respond, let alone say they liked the blog.

But in my view BMW is missing a few tricks by not facilitating its customers' efforts to personalise their bikes, notwithstanding their World of BMW off-road training courses, holidays and other efforts to encourage riding.

First, it would enable BMW to maintain a positive relationship with people who'd recently bought a bike. That relationship would help in the event there were any problems with the bike - and BMW recently admitted some quality control problems as demand for their bikes increases. Perhaps it was that admission which emboldened some owners to publicise their dissatisfaction, but those owners might not have felt so frustrated or inclined to publicise their concerns if their issues were swept up in the course of positive discussions about after-market features.

Second, BMW could profit from the after-market, both in terms of selling their own accessories as well as perhaps a revenue share on the sale of others' kit, e.g. via ad revenue on an owners' community website.

Third, well-facilitated personalisation options may make the bikes more attractive. Look at the Toyota's customisable Scion. The ability to personalise the car itself, drew praise in Peter Sheahan’s book, Flip. And according to the entry in Wikipedia:

"Scion offers about 40 different accessories; other after-market companies through the Optomize Scion program offer to add other accessories, as well. For example, one can add a subwoofer as well as different types of decals. The tC now offers an optional supercharger to increase power from 161 to 200 hp (120 to 150 kW). All accessories are sold individually, and do not require special packages. However, some options, such as Ground Effects, do prevent other accessories (such as mud flaps) from being installed. Companies that participate in the Optomize Scion program include GReddy, OBX, RÄZO, a few car detailing companies, and others."

So, what's to stop BMW facilitating its customers' efforts to personalise their bikes?

Nothing except BMW itself.

Pawnbroking Gets the Web Treatment

Kudos to Paul Aitken, Founder and CEO of Borro for spotting the gap in the secured loans market and cracking the process to support online pawnbroking in a way that people find usable.

For the cynics amongst you, this is not a ploy to prey on the overindebted. As the Channel 4 found, 50% of the customers have never been to a high street pawnbroker, and about the same are "middle class".

Pawning a souvenir or heirloom for a few months clearly seems preferable to persuading a bank to fund a short term gap in your cash flow.

"Platform" as "Markets"?

A hat tip to The Bankwatch for pointing out Umair Haque's interesting post "What Apple Knows That Facebook Doesn't".

My sense is that there's really not much in this, and there are more similarities between the Apple and Facebook approaches than substantive differences.

I understand Umair to be saying that Apple has adopted a "market" business strategy, whereas Facebook is taking a "platform" approach. Apple facilitates an increase in flexibility and utility for its customers, while Facebook channels its users into functionality of its choosing and exposes them to advertising. Apple will dominate, Facebook is somehow doomed. Specifically, Apple's approach will alter the basis of competition, irrevocably alter the market by unleashing a domino effect and open the value chain to myriad new entrants.

But how does this improve on O'Reilly's explanation that the success of Web 2.0 businesses stems from their "architecture of participation"? He sees the internet as a "platform" but with a different set of rules for success. So it seems we should see platforms as a feature of markets or certain market phases, rather than "platforms as markets", as Umair would have it. Perhaps this is nothing more than saying that markets consolidate around 2 or 3 large participants (platforms?) and fragment again over time.

And you could easily switch Umair's examples.

Facebook has actually made the internet and internet technology more usable for people who want to network, socially or otherwise. Yes, there are crappy apps, but VC's are funding some of those because of their ability to acquire signficant numbers of users overnight, hence the notion of the Facebook economy. It may be hype, to some extent, but what VC-fest isn't? The basis of competition has changed, because you can launch a business today with a tenth of the funding you needed 3 years ago. The domino effect might be seen in the way incumbents are forced to enter the social network services space and in the numbers of start-ups and early phase businesses relying on low-cost services like cloud computing to reduce their "burn", helping making those services viable in turn. Similarly, Facebook is encouraging new entrants, and opening up the long tail of apps and content for all those niche communities you see in the groups.

Apple, on the other hand, sought to make its iPod and now the iPhone the dominant platform in its space. Apple drip-feeds new functionality, new versions and content deals with the majors as a way of trapping people on those platforms. The result is a standards war between device manufacturers, by any other name, and it's boring for anyone who wants truly interoperable mobile applications and music that will play on any device.

Actually, I sense that the approaches of Facebook and Apple may be more similar than different. Each has created an architecture of participation, and time will tell which is more successful at sustaining it - perhaps both will be.