The FinanSer

Spain win Euro 2008 thanks to Twitter

Actually, it's the other way round: Germany lose Euro 2008 thanks to Twitter, according to CNet News.

If you're not familiar with Twitter,  it's a great way to communicate short messages and links and views, using SMS texting on mobile, blackberry, as well as short updates via Facebook or the internet to Twitter.

It's an aggregation of thought streams for the great and the good.

CNet take it a step further with the idea of Angela Merkel providing advice to the German team during the game in real-time, such as "Tell Torres, he's a girl".

Unfortunately, Twitter's reply service was down at the time, so the team got confused about why they should call him a girl and that allowed him to get past Lahm and dink the ball over Lehmann to score the only goal in the game.  The winning goal that is.

They take this on to illustrate other ideas, such as Gordon Brown twittering to our Olmpic racers that they should "imagine they are being chased by Margaret Thatcher".  That'll make them run faster.

I'm just wondering what Alan Sugar of The Apprentice: You're fired would Twitter to Gordon Brown?

PayPal’s Tenth Anniversary

I wrote an indepth analysis eighteen months ago about PayPal’s 100 months birthday and now they’re celebrating their official tenth anniversary, so I thought I would add a small addendum. Although I say it’s a small addendum, it’s quite an interesting one.

Basically, I was updating some old slides about PayPal and thought that I should track their number of users over the years, as they do publish these numbers. First of all, I looked up the last published quarterly results from PayPal on the eBay website.

In their latest company presentation, published June 16th, they have these figures:

• PayPal operates in 190 markets using 17 currencies
• A third of people in the UK have a PayPal account
• Over 100,000 websites accept PayPal in Europe

Read more ...

You can’t hide anything anymore

A year ago, Wired magazine had the front page headline: Get Naked. It made me buy the magazine and turned out to be a fascinating article all about how the world is now transparent. Nothing can be controlled or hidden anymore. You cannot keep anything secret. It will all get out there somehow, some way.

Since this article, I’ve noticed how true this is. Embarrassed politicians, corrupt traders, covert chief executives and their cohorts should all be afraid. Very afraid.

You cannot hide anything anymore. Information will out, whether it be through Facebook, blogs, emails, instant messaging, chatrooms, text messages … you name it. Information will out.

Here are a few examples of how disruptive these trends are proving to be.

Read more ...

The consolidation of everything

With so many websites, blogs, voicemails, emails, text messages, adverts, media, feeds and chatrooms twittering at the poor individuals who inhabited earth in 2008, the citizens of the world found it impossible to keep up with everything.

Everything had become so fragmented, that workers of the world were drowning in an information overload. As a result, they rebelled by using consolidation services, alternatively known as aggregation, to overcome the overload.

Read more ...

The future is already here (from Japan)

I've said for a while now that Robots would eventually look after all my banking needs, and with the Semantic Web and Artificial Agents, we're almost there.  But then I see these developments coming out of Japan:

and I realise that the future is real robots.

I particularly like the way that Robina signs her name.  I wonder if she can steal my identity too?

But these bots are not a joke.  They are incredibly important to Japanese society to cope with their aging population.  That's why Toyota and Honda are investing billions to lead this market, as are other firms such as Microsoft who want to set the standards for these systems.

The future is not that far away after all.

Now where did I leave R2D2 and C3PO?

Disconnected banking in a connected world

Since technology first appeared in the financial world, we have worked harder and harder to use automation to reduce costs and increase efficiency. We successfully made the back office a processing machine, whilst trying hard to create a front office where customers serve themselves.

Well, we have succeeded.

We have managed to get customers out of branches and transform them into data entry clerks, who serve themselves through ATMs and the internet.

However, what this has resulted in, is disconnected banks. Banks have disconnected from relationships, and are perceived to be ‘faceless’ and ‘remote’.

Are we really disconnected banks?

Read more ...

I wish banks had never invented the one thing they give us for free

This was a comment I made during a panel at the ACT Conference in Edinburgh, where I joined esteemed speakers in a BBC Question Time style debate, chaired by Andrew Neil, the political journalist and writer.

The other speakers on the panel were:

• Angela Knight CBE, CEO, British Bankers’ Association; 
• Robert Waugh, Head of UK Equities, Scottish Widows; 
• Sahar Hashemi, Co-Founder, Coffee Republic; and 
• Trevor Williams, Chief Economist, Lloyds TSB.

Questions included:

• “Are business ready for stagflation – the nightmare of low growth and high inflation?”
• “Should the UK take advantage of the weakness of sterling today and join the euro?”
• “Dubai, Mumbai, Shanghai, Goodbye? Will China and other economies offset recession in the USA?”
• “After China’s success, which countries would you look to invest in next?”
• “Will the turmoil in the credit markets spread to the equities markets?”
• “Can the panel name any organisation or institution that they think is responsible for this crisis?”
• “Can anyone on the panel name one bank product that they wish had never been invented?”

Read more ...

Internet Banking: 2010 and beyond

I’ve been reading a range of articles about the next generation internet, or the semantic web as it is called by those in the trade.

Semantic is a method of looking for the meaning and relationships between things, and the semantic web effectively moves us away from files and downloads to databases and integration. In practice, this means that rather than going on to the internet to pull things out and push emails and files around, the internet continually monitors you and your tastes and finds things to push at you which match your electronic lifestyle. In other words, it makes everything online much more relevant to you as an individual, and moves us away from having to search because the semantic web will find for you.

Read more ...

PayPal gives banks a free phishing lesson

Reading the PayPal blog is worthwhile, particularly as this item appeared the other day. It’s all about stamping out phishing with Michael Barrett, chief information security officer, blogging about the ways in which PayPal were attacking this issue. As PayPal and eBay are the target of three-quarters of all phishing attacks, according to Sophos in July 2006, they should know what they are talking about.

The reason why Michael’s blog is relevant to you, me and all the bankers and citizens of the world, is that he thinks they have found a way to stamp out phishing losses. Between July 2006 and July 2007, the phishing rate targeting PayPal and eBay dropped from peak rates of over 80% to under 10%.

How did they do it?

Read more ...

Online Banking is as good as Amazon and eBay

The fourth Foresee online financial services survey came out today, benchmarking banking websites for their engagement and satisfaction with the user. 

What it finds is that online banking websites score 82 in overall satisfaction, a 12% improvement since 2003, and the best of the websites for financial services available online.  This is a great score, as e-retailers only benchmark at 83.  According to the report, online banks are getting the balance just right between convenience, value, information and transactions.

Apparently, where customers are ‘highly satisfied’ in their banking experiences, 31% are more likely to purchase more, and 57% are more likely to use the website as their primary channel for the bank.   

Whilst the banking websites get a rating of 82, investment and credit card websites score 75.

Highly satisfied investment website users are 68% more likely than others to recommend the investment service to their friends.  Similarly, highly satisfied online credit card users are 47% more likely to use this card as their primary credit card and 66% more likely to recommend the card to others.   

The headline I keep coming back however is that 12% improvement to a benchmark of 82. The fact that banks have improved 12% in five years to be on a par with the Amazon’s, iTunes and eBay’s of this world is definitely saying something.  You can download the full report here.

You do wonder about the extremes here though.  After all, you can have highly satisfied customers online, but what about all the other surveys that come out every day saying that people are fearful of online finance, such as this one saying that 1 in 5 Americans have had their account details compromised online.

I guess the balance between online bank lovers and internet financial haters is about 50:50?

Except that the survey from Gemalto is actually a big PR gaff as 1 in 5 Americans compromised would mean 60 million Americans have had their internet accounts accessed by hackers.  That is far and away more than the numbers reported anywhere else.

Therefore, Bank Technology News chased up and discovered the numbers were a bit 'jumbled' ... in other words, wrong.  The actual number of Americans who have had issues is about 27 million or 11% ... and their issues have been some form of loss of personal data, not banking data.

Maybe we do like internet banking after all.

 

G7 creates the Global Ivy League of Banking

The Global Ivy League is the scenario of truth for the future banking markets. More globally harmonised regulation creates less innovation, but more security, amongst the major league players who we feel we can trust. Or rather, our politicians feel we should trust.

Read more ...

Microsoft's Vista is better than the Mac

Not really, but there is a lot more debate about its pro's and con's amongst the tech community, with at least some saying it is not that bad.  Not many, but a few.

I reckon that 95% of Vista users have not had the issues I have had, and are happy.  They may not have old hardware and lack the drivers.  They may not find things locking up, hanging up or just not running.  They may not have software spam filters that are incompatible with the newly included filters that Outlook 2007 and Office 2007 builds in.

So yes, there are some who love it.

Like this blogger, Preston Gralla, on Computerworld.  He says it's better because it runs more software, is safer, cheaper and more open than a Mac and, most of all, is not managed by the vindictive Steve Jobs.  Many others disagree with this opinion, with Chris Pirillo providing a very articulate rebuke.  Even Gartner have joined the bandwagon by saying "Windows is collapsing".

Most of you know my own views.  I've never owned a Mac, have always used Microsoft and just feel disillusioned with the way they've managed this roll-out, all the glitches, things not working and, overall, that Vista has been out for 15 months and it is only now that it is starting to become stable thanks to update after update.  So I'm in the 5% who are unhappy and have been kicking up a stink.  In fact, I sometimes worry that I have started to sound like a broken record, but this is important.  After all, it could determine the future shape of computing if Microsoft really did go kaput.

Regardless of all of these arguments however, the process has been a real pain for me, the others affected, Microsoft and the business world.  And to show what an own goal it has been, is demonstrated brilliantly by this advert for the Mac:

Just ask Mick and Keef

Nothing to do with banking and technology you may say, but this actually has everything to do with banking and technology as it is all about Marketing in the Digital Age and the way we use new channels.

To start with, I was intrigued to spot  that some very old rockers have been hired as mouthpieces for online entertainment channel, most of which is user-generated: YouTube.  Mick Jagger and Keith Richards  launched YouTube's Living Legends today, with the idea being that you can ask them any question you want ... and you may even get an answer.  Just go see what the word is:

Then there is another advert creating quite a stir using old media broadcast channels - what is known as Television - to market a car.  The car is the new Citroen C5.  It is very irreverent about Germans, so much so that it's almost unbelievable.  For example, the tagline is "Unmistakably German ... Made in France".   Worth a look:

Finally, there is the recent brilliant Cadbury's advert with the Gorilla.  It started as an online viral campaign, and later moved to mainstream TV and created another hit for Phil Collins re-release of "In the Air".  Have a look at it, if you haven't seen it already, as it is rumoured to have resulted in a 5% increase in sales  for Cadbury's, specifically as a result of this ad:

The Gorilla ad has now been followed up with this, not quite so inspired affair (depending on your view):

although the website is great.

The reason for posting these three advertising campaigns, is that they all demonstrate the wonders of marketing in the digital age, and banks and technology firms can learn something from them ... bearing in mind how bank brands suck.

First, you have YouTube spending a load of dollars to attract more volume - the Stones don't come cheap - and they are not even putting the Stones on TV. It's all viral.  Yet the video has over thousands of comments, viewings, favourites and links already ... in other words, folks are asking questions and loving it.

You then have humour working well to create a debate about nationalities and borderline racism.  The fact that an advert can create a debate online about it, when the old days of one-way media meant some of us would laugh whilst other would fume and have no voice, shows how powerful it is to have YouTube in this world.

Finally, you have lavish productions and expense that again, can be debated, critiqued, loved or hated online.  In other words, you create your campaign and the world can now converse with you about how good or bad it is.

With viral working well for some, quality for others, and  big ideas brilliantly or poorly implemented by a few more, the fact is that the world of marketing in the digital age has never been more vibrant or more challenging.

Watch out for the thought police

According to the Byron review of social networking in the UK, Facebook, Bebo, MySpace and others sites are to be censored, and Google, Yahoo, MSN and others must show SAFE SEARCH in clear options from the home page.  This is because some parents do not supervise their children's use of the Internet.

Next, we intend to bring riot police into any home that accesses any undesirable websites, whether there are children in the home or not.  Sorry, that was my joke ... or was it?

Web chat worth more than America's fifth largest bank

Most of you know that America's fifth largest bank, Bear Stearns, was sold at bargain basement prices to JP Morgan over the weekend.  The price?  $2 a share.  That's 90% less than the bank's valuation last week, and a fraction of the $117 per share value for the bank last October.

So, JPM pays $240 million for an 85-year old institution that, until recently, had been one of America's financial leaders.  Why so cheap?  Because America wanted to avoid the embarrassment of another Northern Rock, as investors withdrew $17 billion from Bear Stearns in just two days last week.

What gets me, to put this in context, is that a bank can be worth less than a few web pages.

Take the three year old firm Bebo.  Bebo, with its 22 million unique visitors who spend 40 minutes a day socially networking and sharing tips about hair, health and celebrities, sold to AOL last week for $850 million.  That makes this website worth almost four times more than Bear Stearns, even though Bear Stearns made over double this value in profits in 2006.

The real shocker is when you see sites like Meebo, an Instant Messaging aggregation service that launched in September 2005, creating more valuation than Bear Stearns.  Meebo, worth only $60-$70 million this time last year, is raising funding and looks to achieve a valuation this year of around $250 million.  Slightly more than America's fifth largest bank.

These points are discussed in depth by Matt Marshall in VentureBeat and almost made me spill my coffee this morning.

What next?

The FinanSer worth more than the Financial Times?

Technology strategy is the bank strategy

In banks today, technology strategy is the essence of business strategy. 

In capital markets, where algorithmic trading analytics can make the difference between success and failure, technology is critical to competitiveness.  If you cannot compete with another bank’s new derivatives capabilities, which are driven by technical excellence, you might as well give up the ghost.  If you lose a millisecond of speed in the investment markets, you are dead.  That is why low latency is at the core of capital markets today and technology strategy is at the core of latency. 

This is why an exchange said to me, “If it takes more than 500 milliseconds to process then it is of no value because it is out-of-date”.  Technology strategy is the core focal point for the exchange. 

This is why an investment firm said to me, “We moved servers to Moscow because it takes 60 milliseconds to route a trade from London to Tokyo via Moscow compared to 240 milliseconds if we process the trade via New York”.  Technology strategy is the core focal point for the bank. 

This is why investment firms are co-locating their servers within exchanges.  It is also why we are seeing market blips occurring on a regular basis, because markets move in real-time.

In capital markets, technology strategy is at the core of business strategy. 

This is also true in commercial banking.

For the commercial banker, faster payments are all about real-time payments.  SEPA is all about replacements of technology infrastructures.  And the supply chain for the corporate client is all about straight through processing.   

In corporations, especially manufacturers, you can now transport goods as cheaply from Guangzhou to Grantham as you can from Gillingham to Grantham.  How come?  Because mass container shipping has made the transport of skyscraper-sized boats full of goods a reality.  Hence, the cost of shipping a box of shoes from Guangzhou is now as cheap as shipping a factory full of shoes. 

This is due to standards.  And the standard is a container box. 

In the financial support of that supply chain, there are no standards. Therefore, banks are scrambling to work with SWIFT on SCORE, MA-CUGs and TSU’s; with ISO on ISO20022; and with TWIST on implementing einvoicing standards, bank services billing standards, and other standardised processes for straight through processing.

All of this is about making the bank easy to do business with, which means plug-and-play connectivity, real-time reporting, and value-adding information services for the corporate client.  In other words, technology strategy is at the core of business strategy. 

This is also true in retail banking.

Many of us believe that retail banking is all about branches.   

Rubbish. 

Branches are just sales stores today, as transaction services have moved out of the branch to the ATM and the internet.  In other words, retail bank customers serve themselves online through automated systems, and in real-time. 

This self-service culture is going to be even more pervasive as retail banks offer more services across electronic mobile channels, as well as introducing new payments channels using chip technologies.  New payment channels are critical to the war on paper: cash and cheques.  Yet, paper is the only reason customers go into branches these days, purely because they cannot process paper, cash and cheques, electronically so they cannot serve themselves. 

The result is that retail banks purely have electronic connections with their customers.  In other words, technology strategy is at the core of business strategy.   

So, technology is at the core of the strategy deployed in retail, commercial and investment banking.  It is the foundation of banking in the 21st century.  You cannot reduce and downgrade the import of getting technology right or wrong.

Now the challenge.   

Bearing in mind that technology is fundamental to client relationships, is obsolete the day you buy it, is disruptive and changing at a speed that is hard to keep up with, then the bank has to place technology as the cornerstone of their business strategy.

It is the most important aspect of the bank’s business strategy. 

Put it in the context of a bank being like a human body.

The brain of the bank is the executive management, who set strategy. 

The heart of the bank is the people, the organisation structure, the front line staff.

The skeleton of the bank is the buildings, bricks and mortar. 

And technology is the nerves, veins, muscles, tissues and blood for the bank.  It keeps the bank body connected.

The brain is the IQ of the bank, with some being more intelligent than others. 

The heart sets the culture of the bank, and it is hard to copy a culture.

The skeleton is rarely broken but has to be on occasion, as branches are moved and new markets opened. 

But if the nerves, blood and veins of the bank are clogged, blocked or hardened, then the bank will die.  It is not the brain that stops thinking; it is the blood to the brain.  It is not the heart that stops beating; it is the blood flowing through the heart.  Bones do not disappear; it is the blood and tissue.

A bank’s blood flow is its’ technology, as that’s the only thing that connects all of the disparate pieces of the bank together. 

This is why technology strategy is the bank strategy in today’s world. 

Bank technologies are obsolete the day you buy them

I have had the contention for a while that Technology needs to be seen as disposable.  The day you buy it, it is out-of-date.  No sooner do you invest in new technology, than you find your investment is obsolete.   

It has always been this way ever since the PC revolution took over.  Should I buy an Intel 80386 processor when the 80486 is on the way, and then the Pentium chip and the Celeron, the Xeon and the Atom ...

This is the point of the IT industry: to change, to adapt, to innovate and to continually get us to upgrade.  In so doing, technology has moved from being a long-term investment to a short-term hike.

As consumers, we know that this point is obvious.  We get a new mobile telephone every eighteen months.  No sooner have we bought a new iPod than the iTouch or iPhone appears.  You just bought an HD-DVD player when the world settles on Blu-Ray.  You invest in a Sony Bravia TV and a new one comes out a week later.

Do banks get this?

Not really.  Many banks still work on net present value depreciation models.  They still want cost-benefit analysis and 18-month return on investment business cases.  They need to settle and agree by committee the decision to purchase, and the committee meets once every quarter, so wait for your investment requirement to appear on the business radar before you can even think of a sign off. 

The trouble is, bearing in mind the speed of technology change, these are the processes and structures of yesteryear. 

Yesteryear, banks made massive investments in technology that required huge consideration because of (a) the cost, (b) the risk of getting it wrong, (c) the time it would take to implement, and (d) the time you intended to use it for. 

Two to three decades ago, you would be buying into a lifetime’s investment. 

A core system would be expected to last … well, a lifetime.  That’s why so many are still around today.  That’s why so many banks are worried about changing core systems. That’s why so much is layered upon legacy, rather than displacing such legacy, although a lot of the legacy exists due to cost avoidance: if it ain't broke, don't change it.   

In 2008 however, we need to look at things differently.  Nowadays, techology is disposable.  It is obsolete the day you buy it.

Take the CIO I mentioned yesterday, who sees his issue as applications and capacity.  This CIO had run out of physical space for servers in London.  Then a front office head of dealing came up to him and said, “Look, we need to implement a new derivative to compete with XYZ and we need it fast”. 

The derivative was so complex and global, that the CIO basically brought a lease on a new office, deployed a grid server farm, developed a new application to run the derivative at low latency globally, and had the whole thing up and running within 18 months.  By the time it was deployed, there was more computing power in the new data centre than the old one. 

That’s disposability in mission critical core applications in action. 

We need to look at things differently. 

We need to think that our delivery channels might change every year and our services may be completely overhauled in months.  Therefore, our systems and structures cannot constrain us.  They have to be agile and flexible.

And bankers are concerned that their systems are not agile and flexible. 

That’s why Open Account trading for corporates is of concern.  After all, this moves the commercial bank out of the corporate supply chain to become just a commoditised settlement engine at the bank-end of the process.  No bank wants to be just a commoditised back-end, which is why they are all trying to create real-time services to add value to their corporate clients. 

That’s why social lending is of concern.  How rapidly could services such as Zopa, Prosper, Smava and ppdai displace traditional bank lenders?  Who knows?  What we do know is that they are offering a real alternative to banking in the 21st century. 

That’s why retail banker’s are deploying new retail services, such as mobile and contactless.  Bankers want to innovate and to show their technology capability can keep up with consumer and societal changes. 

But here’s another issue.  The sooner you change something, the sooner you need to change it again. 

By way of example, the UK banks determined to implement Chip & PIN in 2000, five years after France and the Netherlands had proven the model worked.  The fact that such a change would mean a national implementation, it had to be agreed by committee through APACS, which took about three years to decide on how to implement this. 

The banks determined to implement the service using Static Data Authentication (SDA), which means that the PIN can be authorised by terminals that are offline.   The alternative would have been Dynamic Data Authentication (DDA), where a unique number is generated for each transaction.  This is used in France, but was considered too expensive for the UK banks.

So the service rolled out in 2005 and was made mandatory on February 14th 2006. 

In other words, it took six years to implement a service based upon a decision by committee. 

Then the cracks started to appear. 

First, not all card issuers had sent out EMV-chip cards. 

Second, not all customers had PIN’s or used them. 

Well, those two were overcome easily enough.  It just meant all UK cards had to be reissued and all customers had to change behaviours. 

Then industry pundits came out and said the system was being hacked because static authentication is too easy to defraud.  In other words, we should have implemented Dynamic Data Authentication, as it is more secure. 

Then we find that Chip & PIN only works for retail payments where the cardholder is present, so we send out Xiring terminals for online payments. 

Then we want to rollout contactless payments, so merchants now have to have two terminals at the checkout. 

Then we want to move to mobile payments and so on and so forth. 

The speed at which banks make a consensus decision is too slow, whilst the speed at which individual banks are trying to rollout innovations is, for some, too fast.  The two processes are potentially even in conflict.

On the one hand, the customer expects the bank to innovate to suit their life, to make buying and selling stuff easy, to provide information services that are of value to them.  On the other, the bank needs to rollout technologies that secure the bank's systems, that force customers to behave in a secure manner ... even if the customer doesn't want to.

The result is that technology is therefore not only disposable, but it is potentially undermining the relationships between the banks and their customers.   

So here’s the quandary of today’s modern bank.

Technology is disposable.  It needs replacing rapidly and easily.  But technology also fundamentally changes your customer’s and corporate client’s operations, processes and behaviours.  In other words, it can make or break your customer relationship.   

So how can you get technology right, first time, every time?

There’s the rub. 

The banks that can deploy and implement technology at low cost and faster, more efficiently and effectively than their competitors, in a flexible, agile and rapid methodology, will be the banks that win in the future of this technically turbo-charged industry.

Microsoft's internal Vista docs released by law

A friend of mine sent me this link last week, having seen how annoyed I've been about Windows Vista.  It's a link to internal memos from Microsoft SVP's and other senior staff in Q1 2007, airing the same issues I had with Vista.  It's slow.  Graphics and software and peripherals aren't working, etc, etc.

I didn't write it up as I thought it might look like a personal vendetta against Microsoft, who I still quite like as a firm just to be clear.  The XBox is great.

Anyway, the New York Times summarised the story well, so follow the link to their site, and here's the rub:

Jon "upgrades two XP machines to Vista. Then he discovers that his printer, regular scanner and film scanner lack Vista drivers ... Steven, hears about Jon’s woes, he says drivers are missing in every category ... then there’s Mike, who buys a laptop that has a reassuring 'Windows Vista Capable' logo affixed. He thinks that he will be able to run Vista in all of its glory, as well as favorite Microsoft programs like Movie Maker. His report: 'I personally got burned.' His new laptop — logo or no logo — lacks the necessary graphics chip and can run neither his favorite video-editing software nor anything but a hobbled version of Vista. 'I now have a $2,100 e-mail machine,' he says (I know the feeling).

"It turns out that Mike is clearly not a naïf. He’s Mike Nash, a Microsoft vice president who oversees Windows product management. And Jon, who is dismayed to learn that the drivers he needs don’t exist? That’s Jon A. Shirley, a Microsoft board member and former president and chief operating officer. And Steven, who reports that missing drivers are anything but exceptional, is in a good position to know: he’s Steven Sinofsky, the company’s senior vice president responsible for Windows."

Ah well.  Nice to know that even those in the know got burned.

Ballmer's reaction?

"Righto".

What a ferengi.

Numbers, Part Ten: eBay and PayPal

It’s been a while since I logged a numbers blog, the last one was in November, but it takes a while to find one that’s worthy.  So I was gratified today to find one – eBay. 

Now, what has eBay got to do with financial technology, you may ask? 

Well, many folks have said that eBay is effectively a trading venue.  The only difference between them and an exchange is that they are trading in high volume, low value person-to-person goods and services.  Some think eBay could actually become an exchange themselves, although it does not appear to be in their game plan at this time.

However, they do relate to our financial technology community, and this is why I’m blogging about their numbers.  eBay's distinguished research scientist, and a Brit, Paul Strong presented at Tradetech architectures today.  He went on immediately after yours truly and talked about eBay’s server farms and structures.

He began with a whole load of numbers that impressed me, including:

• eBay has 276 million registered users worldwide, with 1.3 million people saying that eBay is their primary or secondary method of generating income;
• the 276 million users have 113 million items for sale at any given time, with 6 million new items added per day;
• eBay users worldwide trade more than $2,039 worth of goods on the site every second;
• eBay members worldwide have left more than 6 billion feedback comments for one another regarding their eBay transactions;
• the most expensive item sold on eBay to date is a private business jet for $4.9 million;
• net revenues totalled a record $1.5 billion in Q4-07, representing a year-over-year growth rate of 21%, with 46% from US operations and 54% International; and
• gross merchandise volume (GMV), the total value of all successfully closed items on eBay's trading platforms, was $16.2 billion, giving a total GMV for 2007 of more than $59 billion.

You can find more of these stats here.

The bit that intrigued me, which you can’t find on eBay’s website, is their infrastructure.  Here are a few stats Paul threw out around their technology structure:

• eBay’s operating software is updated and renewed every two weeks;
• 34 billion SQL transactions are processed every day;
• 600 or more production database instances (parallel processes) run over 100 clustered servers;
• 16,000 concurrent instances are managed over 8,000 blade servers
• all of eBay’s applications are backed up by 2 to 4 replicas; and
• eBay adds more than 11 terabytes of new data each week.

This is mission critical, extreme scaling with extreme agility and, according to Paul, the daily transaction volumes being processed through eBay are more than the combined trading volumes of NASDAQ and the NYSE put together.

Not bad for a little website?

Meanwhile, you can also find out the latest PayPal’s numbers on the same area of eBay’s website.  These include:

• PayPal has 141 million total accounts, of which 57 million are active accounts with some activity in the past 12 months;
• PayPal supports payments in 17 currencies;
• PayPal maintains a very low loss rate due to fraud of just over one quarter of one percent (0.27%);
• PayPal's revenues for Q4 2007 were $563 million, up 35% year-over-year;
• PayPal's international business accounted for 44% of revenues in Q4 2007;
• PayPal's total payment volume, the total value of transactions in Q4 2007 was over $14 billion, up 35% year over year;
• Merchant Services total payment volume was $6.1 billion in Q4 2007, up 66% year over year;
• PayPal's net total payment volume for 2007, the total value of transactions, was $47 billion, up 33% year over year;
• PayPal transacted about $1,806 in total payment volume every second in Q4 2007;
• PayPal’s net total payment volume in Q4 was a record $14.0 billion: this represents almost 12% of American and 8% of Global eCommerce;
• In the U.S., PayPal is the most preferred payment service on the Web after Visa; and
• In the UK and Australia, PayPal is the most preferred payment service on the Web.

So, between being the largest trading platform in the world and the most preferred payment service on the web, maybe eBay should become an exchange.

I'm sorry, you are firewalled out

I regularly run workshops on the future of banking.

Part of the workshop explores the implications of virtual worlds and social networking on bank services, and what the world of banking might look like five years from now as a result.   Yep, you guessed it, we talk about Entropia, Second Life, Habbo Hotel and Club Penguin; we also talk about Facebook, MySpace, Bebo, Cyworld, Mixi and Badoo. 

The normal reaction at the end of such discussions is: “Chris, I never knew about any of this.  It’s fascinating.  Is our bank doing anything?” which kinda amazes me, (a) that they don’t know about it and (b) that they don’t know if their bank is doing anything.

Now the fact is that very few banks are doing much in this world of any note. 

ING, ABN AMRO, Royal Bank of Scotland, Saxo Bank, BNP Paribas, Deutsche Bank and a few others have messed about with Second Life.  Similarly, TD Waterhouse, Royal Bank of Canada, JPMorgan, the Co-operative Bank, Bank of America and a few others have thrashed around with social network experiments.  A few have tried to make a really strategic deployment to leverage this space, such as Wells Fargo, who have spent serious dollars on virtual worlds and blogs; and Fortis with the Join2Grow website, which is a real innovation for small business networking online.  Bank of America's copy for small business isn't bad, but Fortis have created a site that doesn't even carry their brand, which is why they get the reward. Social networks are not for branding, as people shun this in the real world, it's to provide platforms of participation.  That's what Fortis and Wells Fargo have been trying to create.

Regardless of whether what these banks are doing is good or bad, at least they are all trying and I'm sure some are reaping benefits (please add any other good examples to this blog if you have any).

But going back to "I never knew any of this was happening", I wondered why this was?  I mean, even the folks who use social networking didn't know a lot of what was really happening.  This is because they have a Facebook page "because my kids use it" and although they therefore are aware of Facebook and stuff, they admit that they don't get it!

I discovered the answer as to why most don't get it about eighteen months ago

I was at an annual kick-off internal conference for a client in October 2006, where the CEO of this major global organisation was addressing the audience.   This company has offices in almost every country, has a multi-billion dollar turnover, and is one that everyone would recognise.  They are also one of the most strategically led companies in the world, always ahead of the pack.

He began by saying how astounded he was that Google had just paid $1.65 billion to buy YouTube.  He was astounded because, as the most strategic company in the world, how could he not be aware of a company that was worth $1.65 billion?  He had never heard of YouTube.

So he called all of his direct reports into a meeting and said: “how many of you are aware of YouTube?” 

No-one raised a hand. 

He said, “well this morning Google paid $1.65 billion for them and so, as the most strategic company in the world, it is to our shame that we don’t know what they do.  Let’s find out.”

At this point, he switched on his PC and typed in www.youtube.com.

The computer buzzed away for a few seconds and then spat out the answer, “the corporate firewall does not allow you access to this service, please talk to the systems administrator if you are having a problem.”

This is the irony of the modern world, as nearly every large, traditional organisation is firewalled out.  Strategists, marketers, technologists, bankers, consultants, governments and more are all missing out on the most fundamental changes to our world because it is invisible to them.

This is why people tell me “Chris, I never knew about any of this”, because it is hidden away from them.  They spend their days working for companies that stop them from being involved with what they see as follies, gimmicks and timewasting websites, because the employees should be working.  That's why we employ them.

The employees then go home in the evening to become humans, and the last thing they want to do is waste time using websites that they don’t know why they exist because they want to play with their kids, eat dinner and have time with family and friends.

The world of today is passing by the generation of yesterday because the management dictate policies of yesterday to the world of today.

What the hell will they be doing tomorrow?

Facebook, MySpace and Bebo have a hiccup

Maybe all the talk of Facebook's privacy policies being a concern are finally having an impact on people networking online as Facebook had it's first drop in usage in January.  According to Nielsen's ratings, the number of unique visitors in Britain fell from 8.9 million people in December 2007 to 8.5 million in January 2008. 

The same was true in Europe also, with unique French users down 200,000 people to 1.87 million in January, and 23,000 Spanish users disappearing in January leaving 659,000 to kiss, date, hug and poke each other.

British Bebo and MySpace users are also tailing off, with Bebo peaking in July 2007 with 4.6 million unique users dropping to 4.1 million today, whilst MySpace peaked at 6.8 million users in April 2007, dropping to 5 million today.

Nevertheless, the millions of users are still worth noting, and social networking will not go away.   After all, this is a global phenomena with Facebook registrations in the USA still rising, and also with my friends in Asia telling me just this week about the success of Cyworld and Mixi in South Korea and Japan respectively.

Like Facebook, MySpace and Bebo, these are social networks for Asia that have also enjoyed similar success.  For example, 20 million Koreans had signed up with Cyworld last year which, when you consider the total population of South Korea is 47 million, is amazing.  90% of South Koreans in their 20s have their own page on Cyworld.

Mixi in Japan has had more modest growth because you can only join if you are invited by another Mixie user.  Even so, with 10 million users, they're not doing bad.

Just goes to show that the internet - as a relationship service - cannot be ignored and banks that want relationships, which they claim is the core of their business offer to their customer, still need to get a grip on this phenomena.

The Britney Exchange

Due to the voracity of the stock markets and traders looking for new ways to wheel and deal, we will soon be trading in things we never thought of trading before.   

For example, I was intrigued that Britney Spears has her own economy.  The poor lass, who is being hounded by the paparazzi to either hospital or an early grave, has great value with her $9 million a year earnings ballooning into an annual $120 million industry, even in her current fragile state. 

This industry, nicknamed the Britney Industrial Complex in Portfolio magazine, operates through:

• her 83 million record sales, worth $400 million since her debut in 1999;
• she generated almost $150 million through tours;
• she is worth $50,000 to sit next to, or that's the cost for a table at Pure Nightclub in Las Vegas who reportedly sold seats at a table next to hers;
• Britney's perfumes have sold almost $100 million;
• photos of Britney are estimated to generate $4 million a year; and
• she generates magazine sales of $360 million a year, with her impact on those sales worth around $75 million a year.

This Britney economy reminded me of the move ten years ago, when David Bowie converted his back catalogue of music into Bowie Bonds.  This was a first and netted Bowie $55 million so everyone followed, from Rod Stewart to Iron Maiden.  Nevertheless such bonds, a bit like subprime, are viewed as being near junk status today (some of the music was considered that status originally).

The reminder of this is purely the coming together of celebrities and financial markets.  So why not consider a Celebrity Stock Exchange, where you can buy celebrity equities and even options and futures on someone's career?

Oh yes, sorry, there already is one.  In fact there's many, such as The Hollywood Stock Exchange (HSX), The BBC's Celebdaq and Celebrity Contest. On these exchanges, I can create a portfolio of the great, not so great and downright sad.  A little bit of Jack Nicholson and Nicole Kidman would be a good backdrop for low-risk, and then throw in some Lindsay Lohan, Amy Winehouse and Britney for higher risk with higher returns. 

Then stitch this together with some futures and options.  I'll hedge a bet that Britney gets sectioned this year with an option on her being #1 in the charts.  I'll take a slice of Amy being wino housed with an option on her performing at the Royal Variety Show. 

As this starts to become more and more complex, I could then build in some news algorithmic engines to change my investment strategy.  Aha, the rumour of Heather Mills's money pay-off from Paul McCartney automatically triggers a hedge on his daughter Stella ripping out Heather's eyes at the Fashion Rocks show. 

The more this goes on, the more extreme it could become, and far more fun than dealing with commodities or FX.    I could even start building some really complex cross-celebrity class trading strategies. 

Should David Beckham get groin strain then invest in Posh Spice trying to make a comeback hit song; underwrite this with an option that as long as Posh Spice does not record a song this year then buy shares in LA Galaxy along with the US economy recovering from recession; and, as a result, invest in the Spice Girls making a new movie, Spice World 2: The Climax, offset by the Spice Girls being played by Lindsay Lohan, Britney Spears, Paris Hilton, Nicole Richie and Charlotte Church.

The only trouble is that, like these other markets, much of what we're discussing here is just called gambling.  In Britain, we actually tried to ban such gambling 200 years ago.

In those olden times, folks used to bet on well known persons dying or getting the pox. 

"I reckon the King will be around for at least another year, don't you?" says the odorous oike. 

"Oh no, I think he'll pop his clogs well before November 13th", some peasant replies, "and I'll give you a shilling if he doesn't". 

"That's good", says the smelly squire, "and I'll give you two shilling if he does." 

"Tis a deal", says t'other and they shake their grubby mitts. 

This form of gambling was outlawed in Britain in 1774 by the Life Assurance Act.  This Act is the foundation for today's modern life assurance markets and a fundamental principle enshrined in the Act is 'insurable interest'.

After 1774, life contracts could only be enacted and honoured if you had an insurable interest in the life you were paying premiums for.  This meant that the person being insured had to be related to you in some form, and that you were dependent upon them.  The usual life assurance is therefore only taken out by the policyholder, such as a father or mother insuring themselves to protect for their children, who would be destitute if they expired suddenly. 

The problem before this Act was passed is that I'd bet that Joe Blow would die before the year end, and would then go and kill him.  Sure enough, I'd win my bet and get my money. 

Maybe, 200 years later, as we look at the Britney Exchange in action, we'll realise we haven't changed that much.  So let's all join the 16.7 million people who have watched Chris Crocker on YouTube pleading, "Leave Britney Alone!".

 

p.s. I think I'm going to buy a little equity stake in Chris Crocker's acting career on HSX

 

We are living in a cashless society

It is interesting to think about cash and where cash is going.  Can we really be cashless?

The history of cash, as those who know my presentations, is that it was invented for sex.  I know a lot of people don't believe this, but the first form of money was the shekel.  The shekel was invented because 5,000 years ago Sumeria, which is now Iraq, was moving from the disorder of the ancient world to a more formalised society.  As one of the most advanced of the Ancient Civilisations, Sumeria used religion as the political force to manage law and order for their society. 

Trouble was that they had no way to control that society.  Therefore, the Sumerian priests invented the shekel to ensure farmers worked hard on the land and behaved.  But why would a farmer want a shekel?  A useless bit of metal with little real value.

The answer was that the shekel could be used at the temple to meet Ishtar, the goddess of fertility.  The Goddesses were actually ordained women, priestesses, who represented Ishtar on earth and, in exchange for a shekel, these women would have intercourse with the farmers as a holy act.

Farmers gave their shekels to the priests in exchange for sex with the priestesses and the world’s most ancient profession was launched.

For much more depth on this subject, or for those who have no knowledge of the subject and want to know more, please read this link where, halfway down, it explains the currency of Ishtar.

5,000 years later, both prostitution and cash are around in abundance and are still as difficult to manage, police and control.

In the case of cash, it is all about the fact that you have a real-time exchange of guaranteed value that is anonymous.  If you give me your credit or debit card, can I really trust it's you and it's not a fraudulent transaction?  Also, if you give me your card then everyone knows it's you and what you purchased, from whom, when and where.

With cash, we don't have those concerns.  As soon as you give me cash, that's it.  I've got the money.

I sell a car and I don't want a banker's draft.  I don't want a cheque.   I don't want a money order.  I want cash.  I want to know the money is clear before I give you the goods.  Only cash gives me that reassurance.

I hire a cowboy builder to stick a conservatory on the back of the house and, guess what, I give him cash.  Avoid the tax and all that guv'nor.

I want to move my $205 million of drug runner's illicit earnings across borders, and so I stick it in the bedroom.  It's the only way to ensure I have my most liquid asset to hand, and I can always stick it in a suitcase to move bits across borders.

I go to see the goddess Ishtar, which I don't by the way ... but if I did, would I use cash or a credit card?  I think cash still rules there too.

Cash rules.

This is why most societies thrive on cash.  For example, recent research sourced from a variety of diverse groups* provided me with this picture of cash usage worldwide:

%age of total payments made in cash
94%    Russia
90%    China
79%    Japan
77%    Spain
67%    Italy
40%    Australia
21%    America

These figures reflect, in some cases, the sophistication of the markets' usage of alternative payment mechanisms, such as cheques and cards, rather than the 'cashless' society.  For example, Russia and China have very low usage of credit and debit cards today, but this is changing. America has low cash usage but cheques, or checks if you like, constitute 36% of all payments which is why Check21 is so important for the USA.

Even so, most low-value transactions are made in cash, and how the hell will we ever get rid of cash when it fuels the underworld, allows those who want anonymity to be anonymous, and ensures those who want real-time value transfer to have it?

Well, I can start to see a way.   The basis of cash is that it needs to maintain those two key elements of being anonymous and providing real-time transfer.  The former is why direct debits, credit transfers and cards could never promote themselves as a cash substitute, and even PayPal has issues with the latter as they run on the bank and card network.

But there may be a way, and it made me wonder if I could create a cash injected economy, that was anonymous and outside the banking system, or the tracking system as we should call it, in real-time.

How about starting with PayPal or a prepaid card?

With PayPal it's hard to transact unless you provide name, address and other details.  However, you can open an unverified PayPal account with no such information.  You are asked for name and address, but you can falsify this information to open an unverified account.

This means that anyone can open a PayPal account as a Premier Account, without giving out bank or other details, and with a false name and address potentially.   You only need to "Get Verified" and prove all of this information, if you want to get more benefits such as higher spending power and increased security.

In order to start my cashless trading, I open a fictitious PayPal account, unverified.  Maybe I put £100 in there by buying an IDT Prime prepaid Credit Card, which also needs no identity proof to transact on the card, unless you want one that's reloadable. 

I put £100 ($200) on the IDT card and transfer that to PayPal, or I start selling a little on eBay to create a debit float on my PayPal account. I then take that debit float or prepaid card, and stick the cash into Second Life's Linden $'s or Entropia's PEDs (Project Entropia Dollars).  Through this method I can now have unlimited anonymous transactions.

And, you can generate real cash in these worlds.  We all know about Anshe Chung being the first millionaire in Second Life by buying and selling land that doesn't exist, but what about Jon NEVERDIE Jacobs who has become the millionaire owner of Club Neverdie in Entropia, the most expensive virtual object ever, according to the Guinness Book of Records. In the press release that goes with this record, there's an interesting paragraph:

"Many high-end items in Entropia Universe are regularly traded between players for tens of thousands of dollars. Recently documented sales include a virtual shopping mall for $70,000 USD, a land area for $35,000, a top-of-the-line healing kit for $30,000, an Imp MK II Hunting Rifle for $17,000 USD, a spaceship and hangar for $12,000, a complete Supremacy armor set for $11,000 USD and a Unique Green Atrox Queen (mystery) Egg for $10,000."

Hhhhhhmmmmmmmmm. 

For fraud and money laundering, there are definite possibilities here, which I've blogged about before when I mentioned the Chinese were concerned about QQ for all the reasons above.   

Meantime, there's also China's version of PayPal, Alipay.com. 

Alipay is owned by Alibaba, China's largest ecommerce firm, and is China's largest online payments services with 47 million users in August 2007, with 80,000 new users registering every day! 

Launched in 2005, Alipay is proving to be incredibly popular for these reasons and also because their business model is different to eBay and PayPal's.  Rather being positioned as a payment service for online trading, Alipay positions itself an online service to support and promote Chinese trade.  Maybe this is why eBay have found them to be a pain in the derriere.

All in all, between prepaid cards, virtual worlds and online payment services that allow me to open accounts without providing full and verified bank and billing details**, I reckon I could quite happily build a very nice cashless business that is anonymous and outside the bank network, with real-time value transfers.

This means that maybe, just maybe, after 5,000 years, we will finally have a society that can operate electronically and still pay for the world's oldest profession with a shekel ... but now it's an e-shekel.

 

* including Global Insight, National central banks, GIE CB, APACS, ARA and McKinsey's Payments Practice 

** with PayPal, this is difficult to do, but with some other services not mentioned, it's a lot easier.

 

 

 

Wanna be a millionaire through social networking?

There's a new service called Yuwie. It's aim is to compete with Facebook and MySpace. You may say that space is full, but it's not.  The reason is that Yuwie pays the social networkers to network. 

Unlike Facebook and MySpace therefore, who make around $8 million and $25 million a month in advertising respectively, Yuwie makes money through advertising and then pays some of it back to the social networkers who can make a mint themselves.

Therefore, unlike Adonomics where Facebook applications such as Slide, Rock you and iLike are valued at millions for being add-ins, Yuwie takes a percentage of all this advertising and add-ins so that every time a networker clicks upon you, you get something back.

The way they pay you is through referrals.  Each referral you make and those that they refer accrues to your account at 5 cents per 1,000 page views: the number of times you and your referred friend's pages are viewed.  This means that you are incentivised to blog, add, talk, update and communicate as often as possible.

They've kinda merged PayPal and Facebook therefore.  PayPal works virallly on the basis of people always open a PayPal account when they get an email saying, "You've got money".  Combine that viral effect with a Facebook style website, and you may be onto a winner.

However, with adverts all over the site and five new 'friends' inviting me to linkup in my first hour of Yuwie registration, I'm not sure it'll work.  After all, a bunch of strangers all saying "hey, look at me, read my blog, over here" will make a few of us switch off.  Although you can overcome that by changing your Yuwie privacy settings to 'only friends' can connect and view your profile.

Nevertheless, Facebook are obviously worried about Yuwie. For example, as I tried to post about it in my Facebook blog, guess what?  Facebook stopped me by prohibiting the link to the Yuwie website.

Maybe that's why some folks despise Facebook. Equally, with 60 million people shouting at me in Facebook, almost 200 million in MySpace and millions of others in Bebo, Badoo, Flickr, Twitter, Vodpod, Dopplr and more, I'm not listening anymore. 

That is not to say I'm discounting the relevance or importance of social media, social networking or virtual worlds.  I'm just trying to ensure that the stuff I pick on and use fits my way of life, and not someone else's.

Equally, I'm also looking for future ways of making millions which will come from investing, not from page views.  That is why JP Rangaswami points out in his excellent blog Confused of Calcutta: "Think why Goldman Sachs has a very high percentage of employees using Facebook. Goldman Sachs, wasting time? You better believe it. And making money while they do it."

Please go away, the internet is broken

I rang my bank call centre today and, as usual, it was diverted to their Indian call centre.  Unusually, I then got this message: "We apologise for disruption to our service, but we cannot receive your call at the moment.  Please try again later".

I wondered what had happened and, being in Asia, they knew the deal. 

Apparently a ship was unsure whereabouts they were off the coast of Egypt.  As they couldn't work out where they were, they dropped anchor to hang around for a while.  Unfortunately, as they dropped anchor, they didn't realise they were next to two key underwater internet cables owned by Verizon. 

As they lolled about in the Egyptian waters, their anchor dragged under these cables and severed one cable whilst ripping out the other, causing significant damage.

Result? 

South Asia and the Middle East are disconnected from the internet.

Whoops.

Apparently, 70% of Egypt's  internet access was impacted, leaving Cairo with no access for the whole day.  When asked about the impact on the banking system Tarek Amer, Egypt’s ­deputy central bank governor, is reported to have said: “We are disappointed [with] the service and will consider alternatives for the banking system if this happens again.” 

I'm sure you will Tarek, as it's a bit difficult to communicate without the internet these days, isn't it?  SWIFTNet?  Nope.  Internet banking?  Nope. Finextra?  Nope.  Not forgetting all the other things we do online these days :) 

What could be worse?!

Ah well, at least you won't have to put up with my tut every day.

Meanwhile, India's bandwidth was also cut by over half, causing their offshore call centre services a big issue.  It will take a fortnight or so to mend, and I expect that two weeks of unpaid leave will leave India's major workforce steaming a bit for leaving them in the ship.

The lesson is obviously: "to contact your banker, don't be an anchor".