Supporting Fast Payments for All – and Economic Freedom
October 9, 2018 4:56 AM Subscribe
Democratising online payments – and the digital economy - "When Berners-Lee and his team were building the world wide web and designing HTTP and HTMP standards, they included error codes such as '500: internal server error', or '404: page not found'. In the early 90s, they were trying to realise Licklider's vision and setting out the rules for how we were all going to interact over this information network. One long-standing error code is '402: payment required'. The original intention – the reason 402 is reserved for future use – was that this code would be used to transact digital cash or micropayments. It has never been implemented – and the Collisons argue this is the reason tech is turning from an equal access opportunity to an oligopoly controlled by five companies now worth more than $3 trillion."
“The idea driving 402 was that it’s obvious that support for payments should be a first-class concept on the web and it’s obvious that there should be a lot of direct commerce taking place on the web,” says John “In fact, what emerged is a single dominant business model which is advertising. That leads to a lot of centralisation, because you get the highest cost per clicks and with the largest platforms. A big part of what we’re trying to do with Stripe is continually make it easy for new business to start, and for new businesses to succeed. Having commerce and direct payment succeed on the internet is a very important component of that. It’s the final piece in the Dream Machine.”Social media are poisoned by two original sins - "Why the mere existence of a permissionless decentralized alternative, one not financed by ads, one not ruled by any central titanic company, is important."
The first is advertising-driven media. This is creepy enough in and of itself: it leads directly to user tracking, browser fingerprinting, ad retargeting, clickbait farms like Outbrain / Taboola, ads that crash mobile browsers or obscure the content you actually wanted to see, autoplay interstitials which make TV commercials seem inobtrusive, etcetera. But it’s catastrophic for social media, because it incentivizes ever more engagement, which in turn incentivizes outrage generation, fake news, demonization of “the other side” whoever that may be, etc. — because those things lead to greater engagement, which lead to more advertising income. No matter what social media executives may say, the black hole of more money, higher profits, hitting their targets, and getting their bonuses will keep tugging at them, inexorably, so long as their business model is driven by advertising.In Pursuit of a Better Payments System - "A safe, efficient and broadly accessible payments system is vital to the U.S. economy. The Federal Reserve, in its role as central bank, leader catalyst and payments services provider, is committed to collaborating with a wide array of stakeholders to enhance the speed, safety and efficiency of the U.S. payments system."
The second is the simple fact that, unless you design against this from the very beginning, technology tends to centralize power, courtesy of Metcalfe’s Law and other winner-takes-most effects. Which leads inevitably to the situation wherein a Facebook bug (an inexcusable but honest error) compromises the accounts of 50 million people, and in many cases their Tinder and Spotify and whichever other third-party accounts, as well … because Facebook has grown to be a centralized identity power on the Internet. And what can these people do? Which alternatives can they switch to? If they’re very upset and very resolute, they might be able to change to … other, equally centralized, similarly advertising-financed identity providers. But don’t count on it.
- The Fed Proposes an Always-On Settlement System for Faster Payments - "Details of the plan are contained in a 47-page notice published in the Federal Register, the official record of the federal government. The Fed is taking comments until Dec. 14. The RTGS plan accommodates the non-bank tech companies that have become so important in the Internet age by enabling them to become agents of participant banks and submit payments into the system... Steve Ledford, senior vice president of product strategy at The Clearing House, a bank-owned New York City-based service provider and processor, tells Digital Transactions News that the Fed's... RTGS idea, however, would compete with his company's new Real Time Payments service, Ledford says... The Fed already offers some services available through the private sector. For example, both the Fed and TCH operate automated clearing house switches. Exactly what the central bank will do after Dec. 14 has not been determined, according to Susan Foley, senior associate director at the board."
- Wait, What Did the Fed Just Say About Real-Time Payments? - "The Fed referred to the service they are proposing as a Real Time Gross Settlement or RTGS system, which confused the audience further since to most industry participants, this nothng but the Fedwire system. What is being sought is the banking community’s interest in having the Fed as a point of interbank settlement; but also on the table is is at least an inkling that the Fed also provide a real-time payments platform to compete with The Clearing House (TCH) RTP solution... Now that is interesting. And surprising to many... TCH has eight of the largest banks live on their system already. Several other financial institutions are far along in their efforts to integrate with TCH; collectively they would represent the majority of accounts in the U.S."
- The Fed Wants To Know How It Can Make Payments Move Faster - "The Federal Reserve banks provide payment services to more than 11,000 banks nationwide, stated Brainard. A 24/7 real-time gross settlement option provided by the Reserve, she added, could 'significantly improve' equitable access to infrastructure, which can foster faster payments."
- The Federal Reserve and Payments: Governor Brainard Discusses Payments and the Federal Reserve Seeks Public Comment on Potential Actions to Facilitate Real-Time Interbank Settlement of Faster Payments - "This common infrastructure would support connections across banks, and faster payment service providers acting as their agents, with the potential to weave together the current patchwork of systems."
Ensuring a reliable nationwide payment infrastructure was one of the motivations that led the Congress to create the Federal Reserve after the severe financial panic of 1907. Fostering a safe, efficient, and widely accessible payment infrastructure has been a crucial aspect of the Fed's mission from its founding in 1913. By creating a new core infrastructure for clearing and settling checks, the Fed was able to boost confidence in banks and America's payment system, ensure Americans received the full value of their checks, and speed up payments.World After Capital: Economic Freedom - "If you were to quit your job right now, could you still afford to take care of your basic needs? Could you pay for food, shelter, clothing, and so on? If you are retired, what if your company suddenly stopped paying your pension? If you are supported by a spouse or partner, what if you left that person? If you could no longer meet your basic needs, then you are not economically free."
That was the first, but not the last, time that the Fed played a central role in transforming America's retail payment system. By the 1970s, the payment system was staggering under the weight of paper checks. In 1973, Governor Jeffrey Bucher of the Federal Reserve Board described the exponential growth in check volume and the time-consuming and expensive process to clear paper checks as a "time bomb." The Federal Reserve and payment system stakeholders faced a choice: continue making incremental changes to manage the growing avalanche of checks, or look to technology to facilitate transformational change.
Working with the private sector, the Federal Reserve chose transformation, and the effect was dramatic. In partnership with the private sector, the Federal Reserve supported the implementation of the automated clearinghouse, or ACH system...
Today, our payment system is again at a crossroads... While we are seeing a growing demand for payments to be as instantaneous as the apps on our smartphones, in reality, under the hood, these payments currently rely on a patchwork of systems that can result in inefficiencies and delays, as well as uneven access...
Nascent faster payment services are emerging to address this demand from individuals and businesses for the capability to manage their finances more efficiently in real time. These faster payment innovations are striving to keep up with this demand, but gaps in the underlying infrastructure pose challenges associated with safety, efficiency, and accessibility. In many circumstances, the underlying infrastructure in place today cannot ensure that a fast payment is fully complete before the recipient seeks to use the funds. To complete a payment, the banks behind the transaction need to transfer funds between each other. Until this happens, the payment between them is like an "IOU."
Today's systems that transfer funds between banks are not set up to work in a 24/7, real-time world. Instead, most faster payments settle funds between banks on a deferred basis. Deferred settlement entails a buildup of obligations--like IOUs between banks--that could present real risks to the financial system in times of stress...
24/7 payment-by-payment interbank settlement in real-time--what we refer to as real-time gross settlement (RTGS)--offers clear benefits in minimizing risk and maximizing efficiency. A 24/7 economy with 24/7 real-time payments needs 24/7 real-time settlement, and RTGS is the way to achieve this. That is where we believe that the Federal Reserve and the private sector together need to make investments for the future. In this regard, the U.S. retail payment system lags behind some other countries: the Reserve Bank of Australia and the European Central Bank have already implemented or are on the cusp of implementing RTGS systems to support private-sector faster payment services...
As technological change continues to drive payments innovation, we continue to focus on the same basic objective that motivated our initial engagement in the payment system a century ago: promoting a safe, efficient, and accessible payment system that serves the interests of all Americans. The Fed has the unique ability to provide the infrastructure to reliably settle obligations between banks using balances at the central bank. As such, we have a responsibility to serve the broad public interest by providing a flexible and robust payment infrastructure on which the private sector can innovate.
Crucially, if you are not economically free, you are not free to participate fully in the Knowledge Loop. Hence economic freedom is a cornerstone of the Knowledge Age. We must make people economically free so that they can participate fully in the Knowledge Loop. We want more people to be free to make music and create art that has the power to inspire. And we absolutely need people to have the time to learn new knowledge, from practical skills such as gardening to the latest theoretical physics. We need more people to create new knowledge using what they have learned. And finally we need more people to share their knowledge with the world for others to learn.
We have massive problems, such as climate change, to overcome and we need more participation in the Knowledge Loop than ever. To free us up to do so, we must be able to embrace automation, not fight it for fear of losing our livelihoods.