Mydata And Consumer Empowerment

On Thursday, work began in earnest on the 'mydata' project featured in the government's "Consumer Empowerment" strategy (see Better Choices: Better Deals, on which I posted earlier).

As with the overall consumer empowerment policy, the primary goal of the ‘mydata’ project is “to put consumers in charge so that they are better able to get the best deals for themselves, individually and collectively.” Achieving that involves enabling consumers to access information about their purchases, analyse it according to their own preferences and use that information to make better purchasing decisions.

As a long-time critic of the European Commission approach to facilitating e-commerce, I'm overjoyed the government is convinced that new legislation is not the best way to achieve consumer empowerment. Instead, it's relying on "a wide range of new programmes that have been developed in partnership with businesses, consumer groups and regulators" against a background of normal regulatory enforcement.

The mydata development work is being fostered through a series of 'boards', chaired by Professor Nigel Shadbolt. There's a Strategy board made up of private sector retail businesses, consumer bodies and government representatives; four Sector boards comprising representatives of suppliers in the energy, financial services, telecoms and retail sectors; and an Interoperability board of private and public sector representatives. The focus of the Interoperability board is on maximising synergies among the sector groups' work; addressing barriers common to all groups; maintaining a balance amongst key issues of practical utility, privacy, security and data portability; and offering suggestions on where ideas and solutions in one sector might link up (or mashup) with others to better reflect consumers' day-to-day activities.

I know what you're thinking, but these boards are not designed to be exclusive talking shops or symbolic meetings of 'the great and the good'. The idea is to be as pragmatic as possible, using the boards to draw in as many interested parties, ideas and resources as possible to achieve rapid progress. It's a fascinating challenge, and I'm thrilled to be helping out on the interoperability front.

There'll be plenty of project communications, of course, which I'll be doing my best to retweet etc, and send to people I know who may be interested or able to help. I also plan to share material that I happen across outside the project. For starters, I've included below the links to Sir Tim Berners-Lee's TED talk on the semantic web (or Linked Data) and a few of the items he mentions. I'm very interested to receive any comments, referrals, ideas etc you may have.

Sir Tim cites some key examples of Linked Data and its uses. DBpedia is the fascinating "community effort to extract structured information from Wikipedia and to make this information available on the Web." And here is the TED talk by Hans Rosling to which he refers:

Image from 1Million1Shot.

A Plan for Small Business Growth?

Hat-tip to @JamesGreenThing for the link to the last Business Insider list of up-and-coming entrepreneurs.

These lists are always much more interesting 6 months on. In this case, the bubble in online coupons is more obvious, as is the fact that the fashion market is getting the Web 2.0 treatment. Yet BankSimple still hasn't launched.

Online invoice discounting has been on my radar since early 2008. So it's heartening that The Receivables Exchange is highly rated in the US, and reassuring that MarketInvoice is gaining traction in the UK. Doubtless there'll be more on that front soon.

Partly for that reason, SecondMarket really caught my eye. It's a market for alternative investments, so incorporates a channel for equity in private companies (e.g. CrowdCube in the UK). But the emphasis on gathering "robust market data" signals a growth in the availability of richer information about private companies. Focus on this is timely, given the massive official paywall around corporate data. Recent commitments to 'Open Government' (follow the Open Knowledge Foundation) are promising. There's already a Government commitment to arm consumers with their own data. Perhaps enabling SMEs to use their own data for their own benefit could be added to The Plan for Growth?

Image from AppAssure.

HBOS Complaints: A Nice Little Earner

There's a loooong way to go, but it's nice to see the FSA chipping away at all the 'revenue' banks have made through various nefarious means. The latest in the saga is HBOS's trick of wrongly rejecting half the complaints it received over investment products.

Their spokesman is quoted as saying:

"We recognise we have fallen short of the high standards of service our customers should be able to expect of us and we apologise to them for this."

Yeah, yeah. Just show us the money. We want our £17m in taxes back where they belong.

Do The Media Matter?

"Well, old man, I will tell you news of your son:

give me your blessing: truth will come to light;

murder cannot be hid long; a man's son may,

but at the length truth will out."

The Merchant of Venice, Act II, Scene ii

Whether you love or hate Articles 8 and 10 of the European Convention on Human Rights (or the UK media's own Editors' Code of Practice), its perfectly understandable that a judge doesn't consider it in the public interest for the media to publish the 'news' that a man and woman have bonked each other, or that a court has made a decision to that effect.

At first I found it strange that John Hemming MP would choose this particular location on which to build his redoubt in defence of freedom of expression. But then I read his Wikipedia entry.

The Trafigura saga is perhaps a far better example of something on the margins. However, it also shows that an issue may grow to be considered in the public interest in due course, despite early attempts to keep it under wraps. And that the 'traditional media' have little to do with that process, although a mention in Private Eye might be required to get the ball rolling. By contrast, it seems the recent Twitter coverage of bonking injunctions was driven more by media folk and an opportunistic MP than the genuine ferocity behind the social media attention given to Trafigura.

In other words, the truth about matters of real public interest will out. Maybe not in a way that allows the tabloids a 'scoop' and a fast buck. But it will out.

So perhaps the biggest irony in all this is the enormous quantity of free advertising the traditional media have lavished on Twitter. For the sake of argument, they point to Twitter as a rival media property. If Twitter can publish, they complain, why can't the media?

Let's put aside the reality that Twitter does not have anything like the marketing spend, reach or 'authority' behind it as the UK press. The fact is that Twitter is an unedited dynamic, the product of its individual participants' own publishing decisions. For the media to complain about Twitter is simply to admit that the truth will out in spite of them.

Image from Mogulite.

Why The GIB Should Be P2P

In this month's Financial World, Michael Mainelli helpfully explains why the Green Investment Bank "supporters get a hard ride from City anlaysts." The problem, he says, is lack of independence from the government, especially since government policy on alternative energy is "capricious".

I like the "slightly subversive" suggestion for an index-linked carbon bond with the coupon set to the government's performance against its green energy targets. Although if the City won't gamble on government policy, we probably shouldn't let the government bet taxpayer money on its own performance either.

However, there is a way to encourage both broad-based retail investment and widespread household commitment to alternative energy without direct government support. Allow individuals to directly finance each other's alternative energy projects via a dedicated channel on any peer-to-peer finance platform - or, indeed, on dedicated peer-to-peer platforms. Credit risk would sit with individual lenders who are able to diversify across many projects and limit the amount allocated to each one, while earning a better return on their surplus cash than bank savings rates. The initial and ongoing capital requirements for each platform operator would be nominal, compared to the £3bn currently being contemplated for the GIB. And the transparency of online P2P platforms would enable easy measurement of the capital dedicated to alternative energy. In effect, the government would be leveraging its subsidies towards feed-in tariffs etc., not by borrowing on its own account through the bond markets, but by attracting surplus personal savings that currently lack a decent return.

As I've previously explained, this would also avoid the primary risks associated with the vertical credit model of existing bond structures, namely:

1. The separation of lender and borrower, and fragmentation of the original loan note makes it harder to adjust loans when borrowers get into trouble (as highlighted by the 'fraudclosure' and 'forced repurchase' problems in the US also explained in Confessions of a Subprime Lender).
2. The process of transforming 'maturity' (changing the date when loans or debt instruments are due to expire) creates balance sheet risk for the intermediary.
3. It is unclear whether ratings, accounting and audit functions really do remove information asymmetry between borrowers and lenders. Do we have "credible" ratings agencies, when only three dominate the market and they are paid by the issuers of the securities they grade? Similar problems exist in the accounting and audit markets - hence the calls for reforms in these areas.
4. There are huge challenges for subsequent bondholders to undertake adequate due diligence on large volumes of original loans long since disconnected from the bonds and often not even under the bond issuer's control.
5. Pressure to reduce the amount of capital required by each operator in the vertical chain of intermediaries results in a game of regulatory, tax, capital and ratings arbitrage that spans the globe and creates endlessly complex corporate structures.
6. Various factors lead to underestimation of the capital required for the private and implicit public sector guarantees required to support it. This is further complicated by the fact that "...the performance of highly-rated structured securities... in a major liquidity crisis... become highly correlated as all investors and funded institutions are forced to sell high quality assets in order to generate liquidity."
7. The knowledge that the market can ultimately 'put' problem securities on the taxpayer (whether this is explicit, implicit, direct or indirect) creates a moral hazard that seems to increase in line with the demand for the securities until the system irretrievably melts down.

Horizontal credit intermediation, is a feature of peer-to-peer finance platforms - like Zopa, Ratesetter and Funding Circle - where each borrower's loan amount is provided via many tiny one-to-one loans from many different lenders at inception.

The one-to-one legal relationship between borrower and lender/loan owner is maintained for the life of the loan via the same loan origination and servicing platform (with a back-up available), allowing for ready enforcement. The intermediary has no balance sheet risk, and therefore no temptation to engage in regulatory, tax or other arbitrage. Loan maturities do not need to be altered to achieve diversification across different loans, loan terms and borrowers. The basis of the original underwriting decision remains transparent and available as the basis for assessing the performance of the loan against its grade, as well as for pricing the loan on any resale or refinance, making due diligence by subsequent owners easy. To the extent that credit risk were to concentrate on certain borrowers or types of borrowers, those risks would remain visible throughout the life of the loan, rather than rendered opaque through fragmentation, re-packaging and re-grading. Similarly, the transparency of the initial underwriting and subsequent loan performance removes the scope for moral hazard.

Image from Carnation Canada.