Taxpayers' Bung to Music Majors: Doom For Net Neutrality

Another bail out, another Quango. This time New Labour wants the taxpayer to pay for the failure of the jaded business models of the music moguls via a new rights agency to combat internet piracy, and will regulate to give them special rights to collect internet users' data.

There is no justification for this, and it is no melodramatic exaggeration to say that the direct consequence is the end of a neutral internet. Claims by content providers that they'll lose £1bn in the next 5 years are disingenuous - and it's a paltry sum given what's at stake. In its consultation on proposals to combat illicit file-sharing, BERR was told that, in spite of these "losses", online music sales are growing at 28% pa. So the industry is doing just fine, and it's no surprise that BERR received little support for its proposals. Accordingly, this focus on piracy can only be an excuse for content providers and internet service providers to lobby for a statutory right to monitor, and in due course charge for, everything we do online - whether we're "pirates" or not. BERR couldn't deliver, so now Lord Carter is to give it a try.

Apart from being another example of this government's entrenched commitment to public sector largesse, is this also some kind of parting favour to New Labour luvvies? Or is it, like the approval of Heathrow's third runway, perhaps an attempt to leave the Tories in a position where to unwind such travesties they must oppose Big Business?

Who knows, but sooner or later this particular cheque has got to bounce.

Thanks to Chris for the alert.

WeBank: New Rules for The New Economy

It was an unusually broad church that came to hear whether people will replace financial institutions at WeBank last night. More network economy than financial services.

While it was excellent to hear from platforms as diverse Zopa, Kubera Money and Midpoint & Transfer (a proposed P2P foreign exchange matching service), the panel discussion was quite revealing.

For James Gardner, Head of Innovation in a bank, the question was whether peer-to-peer finance would ever become so successful that it would make it uneconomic for banks to compete in the markets for deposits and personal loans. Having spent considerable time trying to understand how P2P platforms will scale cost effectively, he doubts that banks will lose their grip on these markets. In particular, he felt that the cost of compliance with increasing regulation will constrain growth and fee income alone won't support the investment in resources required. However, various members of the audience were keen to point out that peer-to-peer finance is the product of a very different attitude to money than people's attitude to banking. For this reason the two should not be viewed merely in competitive terms.

Indeed, Giles Andrews (MD at Zopa), said Zopa lenders were not necessarily drawing on their savings, as opposed to investment capital, in their quest for greater personal control over their returns. However, Giles did say that Zopa was gradually taking market share from banks in personal loans, having disbursed about £31m worth to date, and doubling volumes year on year. Already marginally profitable on each transaction, the business itself will reach profitability once volumes double again. On this basis, he says there is no problem with scalability.

Umair Haque of the Havas Media Lab sees P2P finance as a reflection that our established institutional rules have become ineffective, and must be re-written, in much the same way as other online marketplaces and social network services have introduced their own new rules, customs and etiquette. So we should look not so much at individual players or business models but at what set of rules is needed for social and economic recovery.

For my own part, I agree that P2P finance is not about "banking". They are on different, diverging paths. But inevitably - and particularly in the current economic enfvironment - one is drawn to the notion that banking as we have known it is doomed. James Gardner's observation that banks can't see how P2P finance could possibly scale given current institutional constraints is quite telling. Perhaps it is that mindset that has given rise to frustration and innovation amongst non-banks, from hedge funds to payment service providers to retailers and even individual people. Everyone wants to do things differently to how banks have insisted they be done. Even formal regulation has opened up more lightly-regulated territory that was previously reserved for banks, such as e-money and payment service provision - endorsing non-regulated products at the same time. In this way, one can see how the new economic rules are being written around banking, rather than by banks themselves.

Banks Bow to Pressure on PPI

Finally, the Great PPI Robbery is over. The news from various high street banks effectively concedes it was too difficult for them to sell this little-used insurance policy in a compliant manner to enough customers to make a fast buck.

It was a long overdue concession, only wrung out of them after years and years of expensive market reviews, inquiries, regulation, more inquiries, and heavy fines - culiminating in the record £7m fine imposed on Alliance & Leicester last October.

Will they capitulate on bank charges next?

Government to End Bank Charges Litigation?

With the government now such a significant shareholder in so many UK current account providers, it could save taxpayer's money and boost the (alleged) victims' finances by requiring an end to the expensive saga of bank charges litigation, and the refund of fees that the OFT alleges are excessive.

Note the finding by Mr Justice Smith (at para 415) that "information provided by the Banks suggests that in 2006 [alone] the Banks between them received £2.5 billion from Relevant Charges on an average daily unarranged overdraft balance of £0.6 billion."

Another judgment in the saga is due tomorrow morning (21 January 2009) at 10 a.m.

Update: the 21 January judgment held that only certain NatWest terms are capable of being a penalty. Whether or not they do constitute a penalty is phase two of the saga, and phase one is yet to conclude.

Phase one is held up because the banks appealed the first instance decision that both their current terms and their historic terms are capable of being assessed for fairness under the Unfair Terms in Consumer Contract Regulations. Judgment on the current terms is expected soon, whereupon the banks' appeal in relation to the historic terms will begin.

Of course, the Court of Appeal's decision on both sets of terms could go to the House of Lords, meaning several years' further delay.

Meanwhile, the lower courts won't hear cases pending the outcome of the higher court proceedings. And the Financial Services Authority is also preventing anyone getting their money back via the banks' own complaints procedures. Similarly, the Financial Ombudsman Service (where complaints to the banks utlimately go) won't process complaints until the court proceedings are over.

This is no way to treat the nation's consumers, especially when the consumers' own watchdog is involved.

If the banks won't act fairly on their own initiative, then it must be part of the government's "fiscal stimulus" package, to insist that all banks that took bail-out money immediately refund the element of bank charges which the OFT has complained are excessive.

Bleeding Edge No Place For Bleeding Hearts

You may have seen some of the bleating about Google's decision to retire some of its services that never hit the mainstream. Such whinging must be ignored, as to heed it only risks making the difficult process of innovation harder still.

Having been involved with internet start-ups since 1996, of course I subscribe to Geoffrey Moore's variation of the "Technology Adoption Life-cycle", that there's a "Chasm" between innovators/early adopters using a disruptive product, and successfully selling it to the early majority.

As an innovator or early adopter, you are out to get new stuff for free (or pay for it to be exclusive to you - thanks KM), and be ahead of the crowd. You love to show off the latest stuff and brag about how you were there at the beginning. And you definitely earn those bragging rights for putting up with the pain of participating in alpha- and beta-testing, the inevitable crashes and other technological mayhem. You understand that if you aren't protecting yourself against the failure of new technology you only have yourself to blame. Either you never let on there's a problem, or you wear the latest outage like a badge of honour. But if you whinge about it, then you aren't really an innovator or an early adopter, and you lose your bragging rights. You've become a member of the early majority - where new products with bugs or in beta-test (as opposed to new releases/upgrades) are not tolerated, and ongoing support is expected.

Similarly, if you're eager to sell your business to Google or some other behemoth in the hope that it will magically transport your "baby" across the chasm, then you're setting yourself up for intense disappointment. Even the big guys struggle to cross the chasm (which is why Microsoft waits patiently on the majority side). Until you've crossed there's still a ton of work to do, which is why they'll call one of the clauses in your sale and purchase agreement an "Earn Out".

The bleeding edge is no place for bleeding hearts.

Rant ends ;-)