APRA Tweaks, But Retains ADI Points of Presence Reporting

APRA has announced they will continue to report ADI’s point of presence data following a consultation paper last year, with some changes. We welcome this decision, because the data is a valuable resource for those tracking channel evolution and migration.

APRA received seven submissions from ADIs and industry associations in response to the proposals outlined in the discussion paper.

The submissions indicated support for retaining the PoP statistics, with limited feedback provided in relation to the proposed content and format of the streamlined PoP statistics.

Three submissions commented on the costs of the current PoP data collection, with one of the submissions including detailed costings. Based on these submissions, the transitional and ongoing costs of the PoP data collection appear to be small.

On the basis that most of the submissions supported retaining the statistics, and the relatively small costs of reporting, the benefit of publishing the statistics outweighs the ongoing compliance costs of submitting data on the proposed form.

After considering the submissions, APRA concluded that it should continue to collect and publish PoP statistics, but in a modified form. APRA therefore intends to implement the following revisions to the PoP statistics:

  1. establishing a tighter definition of other face-to-face points of presence, which will result in greater consistency of reporting of these service channels;
  2. removing the requirement to report non face-to-face points of presence;
  3. collecting more accurate locational data of the points of presence; and
  4. capturing additional information about the remoteness of these locations using the Australian Statistical Geography Standard.

To lessen the burden of reporting on the current PoP reporting form for 2016, APRA is issuing an exemption that will reduce the reporting requirements in relation to the number of service channels. This exemption will allow ADIs to report no more than the four service channel categories that will be included in the revised reporting form ARF 796: branches, other face-to-face points of presence, ATMs, and EFTPOS terminals. ADIs will not be required to provide information on non-face-to-face point of presence, such as unmanned branches, telephone banking, internet banking and call centres.

The first edition of the streamlined PoP statistics for the reporting period ending on 30 June 2017 will be published in late 2017. In the interim, APRA will release the current version of the PoP statistics for the reporting period ending on 30 June 2016, with reduced service channels 24 August 2016.

New instant card feature for NAB Pay

NAB customers can now continue using their personal Visa credit cards through NAB Pay within minutes of a replacement card being issued if their card has been lost or stolen.

This new instant card feature means customers who have NAB Pay on their compatible Android device can keep paying with their replacement card, without having to wait days for their physical card to arrive in the mail.

Customers who need to arrange a replacement card can call NAB and will be able to link to their new card in their NAB Pay digital wallet, making it immediately available to use.

An additional six NAB Visa credit cards will also be added to NAB Pay from today, which means all personal NAB Visa credit cards can be used on NAB Pay.

Independent research recently undertaken by global intelligence and digital media provider RFi Group showed that banks are the most trusted provider of mobile payments, with almost 80 per cent of consumers saying they would most trust their main bank to provide them with a mobile payment service.

Launched in January, NAB Pay is rapidly being adopted by customers, with more than 225,000 debit and credit transactions made through the app in the last six months.

NAB is the first Australian bank to utilise Visa Token Service in Australia, providing an important extra layer of security for customers.

Tokenisation replaces a customer’s credit card number with a unique digital ‘token’ that can be used for digital payments, without revealing sensitive account information.

NAB Pay is available as part of the NAB Mobile Internet Banking App on compatible Android devices, and can be used wherever contactless payments are accepted.


ACCC Warns SME’s of Australian Business Funding Centre “Government grants” website

The Australian Competition and Consumer Commission has issued a Public Warning Notice about the conduct of Australian Business Funding Centre Pty Ltd (also known as Australian Business Financing Centre or ABFC) which operates the website www.australiangovernmentgrants.org.

The ACCC alleges that ABFC website, and its sales representatives, purport to offer access to an online database of the Australian government grants and loans available to small businesses. Small business owners paid fees ranging from $497 to $701 to access the database, only to find there were no suitable grants or that they were ineligible for grants listed.

The Public Warning Notice alleges ABFC has made false or misleading representations about the service’s capability and quality, and the role the service has played in assisting small businesses gain government grant funding.

The website also prominently features a range of “success stories” from actual Australian small businesses, but when those businesses were contacted by the ACCC, they said the stories were used without their permission and that they had not obtained any government funding via ABFC.

“The ACCC is issuing a warning in relation to ABFC’s conduct including its australiangovernmentgrants.org website. We are very concerned that small businesses are paying ABFC for a service that does not provide the information and assistance they are have paid for,” ACCC Acting Chair Dr Michael Schaper said.

“Similar websites targeting small businesses in other countries have also come to the attention of regulatory authorities in New Zealand and Canada.”

“Small businesses should take care when assessing offers to assist them in obtaining government grants. The bottom line is that information relating to government grants is generally available free of charge from a variety of state and federal resources online,” Dr Schaper said.

The ACCC says despite the australiangovernmentgrants.org including an Australian address, it is operated by ABFC’s sole director who is based overseas.

Legitimate information about government grants can be obtained for free at www.business.gov.au and other websites ending with .gov.au.

The Public Warning notice is available here: Australian Business Funding Centre Pty Ltd (also known as Australian Business Finance Centre or ABFC)

What’s wrong with the web and do we need to fix it?

From The Conversation.

More than 20 years after the first web server started bringing the internet into our lives, a recent conference in San Francisco brought together some of its creators to discuss its future.

The general tone of the conference is probably best summed up by the Electronic Frontiers Foundation’sCory Doctorow:

In the last twenty years, we’ve managed to nearly ruin one of the most functional distributed systems ever created: today’s Web.

This might seem like a surprising statement. To many of us, the web has become an indispensable part of modern life. It’s the portal through which we get news and entertainment, stay in touch with family and friends, and gain ready access to more information than any human being has ever had. The web today is probably more useful and accessible to more people than it has ever been.

Yet for people such as Sir Tim Berners-Lee, the inventor of the world wide web, and Vinton Cerf who is often referred to as one of the “fathers of the internet”, Doctorow’s comment cuts right to the heart of the problem. The internet has not evolved in the way they had envisioned.

The centralised web

Their main concern is that the internet – and the information on it – has become increasingly centralised and controlled.

In the early days of the web, people who wanted to publish online would run their own web servers on their own computers. This required a reasonably good understanding of the technology, but meant that information was distributed across the internet.

The photo-sharing website flickr. Screenshot

As the web grew, companies that took the technical hurdles out of web publishing were established. With Flickr, for example, a photographer can easily upload his or her photos to the internet and share them with other people.

YouTube did the same thing for video, while tools such as WordPress made it easy for anyone to write blogs.

Social media in particular has made it easy for everyone to get online. The period in which these services really took off is generally referred to as web 2.0.

But along with this development of easy-to-use publishing technologies came a centralisation of the internet, and with that, the loss of some of the internet’s potential.

The decentralised web

Proponents of the decentralised web argue that there are three main problems with the web today: openness and accessibility; censorship and privacy; and archiving of information.

Openness and accessibility refers to the tendency of centralisation to lock people into a particular service. So, for example, if you use Apple’s iCloud to store your photos, it’s difficult to give someone access to those photos if they have a Microsoft OneDrive account, because the accounts don’t talk to each other.

The second issue – censorship and privacy – is a deep concern for people like Doctorow and Berners-Lee. Centralised web services make it relatively easy for internet use to be monitored by governments or companies. For example, social media companies make money by trading on the value of personal information.

As we use social media, fitness trackers and health apps to document our lives, we generate a lot of personal data. We freely give this personal data to social media companies by agreeing to their terms of service when we create our accounts.

The third issue with today’s web is that it is ephemeral; information changes and websites go offline all the time, and very little is retained or archived. Vinton Cerf has referred to this as the “digital dark age” because when historians look back at this point in history, much of the material on the internet won’t exist anymore – there will be no historical record.

A good example of this loss of history occurred when GeoCities, which hosted millions of web pages created by individuals, was first bought out by Yahoo and then discontinued.

The technologies to support a more decentralised web are already being developed, and are based upon some you are probably already familiar with.

One of the key technologies to support a decentralised web is peer-to-peer networking (or more simply, P2P). You might be familiar with this concept already, as it’s the technology behind BitTorrent – the software used by millions of Australians to illegally download new episodes of Game of Thrones.

On P2P networks, information is distributed across thousands or millions of computers rather than residing on a single server. Because the contents of the files or website are distributed and decentralised, it’s much more difficult to take the site offline unless you own of the files.

It also means that information uploaded to these networks can be retained, creating archives of old information. There are already organisations such as MaidSafe and FreeNet who are creating these P2P networks.

Other technologies, such as encryption and something called blockchain, provide levels of security that make transactions on these networks extremely difficult to track, and very robust.

Together these technologies could protect the privacy of internet users and would make censorship very difficult to enforce. It could also allow people to securely pay creators for online content without the need to an intermediary.

For example, a musician could make a song available online and people could pay the artist directly to listen to it, without the need for a recording company or online music service.

But do we need it?

Perhaps the biggest question with decentralising the web is whether it is actually something most people want or value. While archiving some parts of the internet is clearly valuable, there is probably a lot on the internet that can safely be forgotten, and some things that should be.

The technology itself is a hurdle to adoption. Peer-to-peer and blockchain technology are clever, but they are also complex. If decentralised web technologies are going to be widely used, they need to be easy to install and operate.

This isn’t an insurmountable problem, though. In the early 1990s, installing the software to get the internet working on your computer required substantial technical knowledge. Today it’s simple, and that’s one of the main reasons the internet took off.

Beyond the technical challenges, there are other social concerns that are potentially more substantial. Recently Facebook’s live streaming facility has raised questions about the level of control that should be exercised over internet media.

At the end of the day, it may be that the decentralised web is ready for us, but we’re not yet ready for it.

Author: Sam Hinton, Assistant Professor in Web Design, University of Canberra

Digital Disruption Offers SME’s A New Growth Path

A new digital marketplace and small business hub – Proquo – was announced early June, as a start-up joint venture between NAB and Telstra. They are now developing their market presence, and have told DFA that they had 500 users registered prior to launch. Proquo offers small business owners and accounting experts access to a range of services from other providers. Users can create briefs for the work they need, provide quotes, manage payments and publish reviews, all on the one platform. Interestingly, they are not planning to make access to the service available by a dedicated app at launch time (but it is on the road-map for later), but access is via their web presence. Here is their marketing video which explains the concept nicely.

Proquo says micro and small business owners, as well as experts in the accounting industry are invited to register for free to take advantage of this world-class tool to aid networking and help their business thrive. The services offered under the accounting umbrella include: Budgeting, Book keeping, Xero, tax and many more.

Small business bartering is no secret and Proquo’s unique swapping feature is an innovative tool for digital marketplaces. Members also have the option to buy, sell or pay the difference should a trade-off not match the cost of a service.

Proquo is free to join and has no subscription fees, and members who sign up by 25 July 2016 will enjoy no transaction fees for the remainder of the year. From 2017 fees of 7.5 per cent to 10 per cent will apply to paid transactions charged to the service provider, the lowest fees of any services marketplace in Australia, they claim. Transaction fees do not apply for straight swaps. When a payment is involved, Proquo holds a 50 per cent deposit in its secure Vault, assuring members their money will only be released when the job is delivered successfully.

When registering, members create their own profile, which includes ABN validation to ensure only Australian businesses can transact, as well as to outline their experience, qualifications and previous work. This and Proquo’s rigorous rating and review feature helps fellow members make informed decisions on who to collaborate with.

Proquo says that a dedicated team and robust briefing and quoting process is in place to make sure members have the right person for the job and both parties are on the same page about what’s being delivered.

We have confirmed that Proquo will focus on Australian businesses, and there are no limits to the number of transactions, or value of transactions which can be made on the platform.

Co-CEO Carl Spurling said, “Proquo combines transactions and networking, enabling small business owners and accounting experts to connect, share their expertise and grow their customer base via a trusted online hub”. We encourage the Australian small business community and especially experts in the accounting industry to register and explore the essential business services available, to help them get ahead with the expertise and customers they need.”

Now this is an excellent example of digital disruption in play as we know from our SME surveys, that many are technology capable, as measured by our technographic analysis, and expect more services to be available on mobile devices.


But we also know that 50% are likely to fail, and whilst access to funding is one reason, many fall over because they cannot find a channel to market to find customers easily. So, it looks as if Proquo has the potential to become an excellent catalyst for the SME sector. Though many SME’s will find the barter approach quite attractive, it will be interesting to see if the momentum continues to build, once they start charging a fee for cash transactions.

Finally, it is worth remembering that according to the ATO, barter transactions are assessable and deductible for income tax purposes to the same extent as other cash or credit transactions. When an entity that is a member of a trade exchange makes a taxable sale to another member, there is a liability for tax, including GST.


The Digital Economy in the Age of Disruption

Mexico hosts the OECD Ministerial Meeting on the Digital Economy. The first ministerial of its kind on this subject (then called “electronic commerce”) was held in Canada in 1998, and the second one in Korea in 2008; hence Mexico is the third county to have this distinction and the first Latin American country to organise and lead this undertaking. As the use of information and communications technology (ICT) is favourable for productivity across a large number of strategic industries in any economy, we have chosen “Innovation, Growth and Social Prosperity” as this year’s theme, three goals that can hardly be achieved without the impetus of digital technology. Their infographic highlights some of the challenges ahead.

Ildefonso Guajardo Villarreal, Secretary of Economy, Mexico, and Chair of the OECD Ministerial Meeting on the Digital Economy, writes:

As the use of information and communications technology (ICT) is favourable for productivity across a large number of strategic industries in any economy, we have chosen “Innovation, Growth and Social Prosperity” as this year’s theme, three goals that can hardly be achieved without the impetus of digital technology. Under this axis, we have defined four key areas of discussion to promote the advancement of the digital economy: (1) Internet Openness and Innovation; (2) Trust in the Digital Economy; (3) Building Global Connectivity; and (4) Jobs and Skills in the Digital economy.

Take the first topic, Internet openness and innovation. It is essential that the participating governments focus on keeping the Internet free and accessible, so that all individuals can use it to exchange information, build and link networks, without restriction or permission from authorities, as it has been to the present day. These data flows are important to trade, innovation, entrepreneurship, growth and social prosperity. Promoting the open, distributed and interconnected nature of the Internet and encouraging multi-stakeholder co-operation will be key to keeping us on the right path.

Regarding trust in the digital economy, we have come a long way: 18 years ago at the ministerial meeting in Canada, one of the main objectives was to promote the use of electronic commerce; today, in leading countries, for instance in the United States, 90% of Internet users undertake online banking transactions and 80% carry out purchases online. Despite this breakthrough, in some regions, distrust of electronic transactions prevails, so we must develop the mechanisms to ensure the security of users’ data.

Higher connectivity has been achieved in the last decade, allowing us to move from the era of “Internet People”, to the digital era of the “Internet of Things”, where the number of connected devices exceeds the number of connected people. And the trend will continue: it is estimated that by 2022 there will be 14 billion connected household devices in OECD member countries. This implies significant technological advances, but also policy challenges to facilitate the development of these technologies and at the same time, help strengthen the privacy of its users.

The Digital Economy and the Internet of Things are revolutionising not only the way we consume, but also the way we work, altering labour market needs. According to the OECD, 65% of today’s children will have jobs that have not yet been invented. This means that knowledge and skills required to enter the labour market will be very different from those provided by the current educational model. Therefore, the fourth area in which we must work, is to create new approaches to education and more flexible training and competencies, so as to allow the integration of students within highly technological environments.

The current period of rapid technological progress is leading us into a new era of disruption, where the way we interact, consume and work, is constantly being transformed by new technologies. This means that the results we achieve in these four key areas will be the foundation that will allow us to move forward..

In the era of disruption, governments along with all stakeholders, need to work together to design strategies and promote comprehensive efforts to facilitate the transition, for our economies and especially for human capital, towards knowledge-based, innovative, growth. The celebration in our country of the OECD Ministerial Meeting on the Digital Economy is an important step in that direction for Mexico. We will concentrate all of our efforts, so that the Cancun Ministerial Declaration can become a work agenda which, through collaboration, will promote growth and prosperity for all.

Angel Gurría, Secretary-General of the OECD writes about the social compact for the digital age:

The Internet is now an essential part of our lives and a critical element of the world economy. Internet penetration increased almost sevenfold in the past 15 years, from 6.5% of the world population in 2000 to 43% in 2015.

The expansion of broadband networks has already brought 3.2 billion people online worldwide. Some 116 billion devices are already connected to the Internet and this number is growing faster than the number of Internet users. Internet and software companies such as Facebook, Apple and Google have all overtaken traditional companies such as GE or Exxon Mobile.

These examples are just a foretaste of how fast the Internet is transforming our economies, our societies and our cultures. That is why we must strive to get the rules governing this incredible platform for growth and social well-being right. The “One Internet” report from the Global Commission on Internet Governance sets us on the right path.

Three lines of action in the report particularly resonate with the OECD:

First, the need to increase access for a truly inclusive global digital economy. Access to the Internet is essential to benefit from the digital economy. Yet, over 50% of the world population remains offline, most of them living in emerging and developing countries. To increase access and make it affordable, policy leaders must encourage private investments and promote competition among providers, while increasing digital literacy. But we must also support governments in developing countries who want to provide free access internet spaces for their citizens.

Second, the importance of promoting Internet openness. The Internet is a global network of networks. We can capture its full potential only if we preserve the global free flow of information and promote the cross-border delivery of services. As the report notes, the open and accessible qualities of the Internet are the very qualities that encourage creativity and innovation. This is why the OECD has made Internet Openness and Innovation one of the four themes of our ministerial meeting on the digital economy this June.

Third, the undisputed necessity of building an environment of trust. Lately, many important companies such as Target, Home Depot, eBay or LinkedIn reported hacks and data breaches. Public safety is challenged when criminal and terrorist networks exploit the Internet, while important financial losses can result from cybercrime. We need to do more to strengthen trust across borders. Policy leaders, the private sector and civil society must join forces to effectively manage digital risks. Otherwise, as the report notes, users will modify their behaviour, and the online engagement that has made the Internet such a successful platform for growth, development and innovation will be eroded.

Besides these key areas of action, the report also touches upon a wide range of forward-looking aspects that are worth pointing out. It includes a framework to understand the Internet as an ecosystem of technologies, protocols, hardware, software and content, as well as recommendations to ensure human rights for digital citizens.

The report is also a call on governments, corporations, civil society, the technical community and individuals to create a new social compact for the digital age: a social compact that may bring about a completely new mode of interaction, of exchange of ideas, of negotiation that could also enhance policymaking processes in all areas, with the idea of making them increasingly open, transparent and, in the end, democratic.

Getting Internet governance right has never been more pressing. In the past few years, we have benefited significantly from the expansion of the Internet, the most powerful information system the world has yet seen. But this outstanding evolution has brought new challenges that we must address, collectively, if we want to keep an accessible, inclusive, secure and trustworthy Internet.

Banks Can’t Ignore Robo-advice

Robo-advice is just as important to the future of Australian banks as the integration of superannuation platforms was in the 1990s, argues robo-adviser Clover. We agree, but cannibalisation and effective segmentation are the key issues yet to be addressed, as shown in results from our surveys.


Speaking to InvestorDaily, Clover chief executive Harry Chemay said the major Australian banks will have to address automated advice sooner rather than later.

“Robo-advice is as important to the future as superannuation was to the banks in the 1990s, when every bank started to buy a superannuation fund or platform to gain entry into the market,” Mr Chemay said.

“Now we’re seeing that the next stage is the technological implementation of wealth advice and wealth management.”

Mr Chemay predicted that many banks will attempt to build a robo-advice platform in-house, with Macquarie Bank “the first cab off the rank” with the launch of automated advice service Owners Advisory in 2015.

However, it will be “fundamentally difficult” for a bank to build out an automated advice solution for two reasons, he said: “You do need a very customer-centric approach, which is very user experience-driven design, and you need to be fairly agile,” Mr Chemay said.

“There’s no doubt that banks could do it, but if they adopt the traditional method of product development it will be slower to market and it will require substantial resources.”

The alternative is for banks to look at third parties such as Decimal or Ignition Wealth to provide an ‘out of the box’ white-label solution, he said.

That could, however, create compliance headaches down the track, Mr Chemay said, noting that ASIC has made it clear that the operation of advice algorithms is the responsibility of the wealth management firm, not the robo-adviser.

“Unlike a human-to-human interaction across a table, robo-advice is running 24/7 – it can potentially be generating advice all the time around the clock,” he said.

“And if something goes wrong with an algorithm, there is the potential for many people to get incorrect advice.”

Concerns such as these prompted Clover to apply for its own managed discretionary account licence from ASIC, with the licence approved by the regulator last week, according to Mr Chemay.

Clover will be moving a select few of its clients into a beta testing environment in the next few weeks, with a full launch targeted for July or early August 2016, he said.

Clover also has a relationship with industry fund Equipsuper, which is in the process of rolling out an automated advice solution to its members.

The additional point we would make is the potential cannibalisation of existing customers. Analysis we completed earlier in the year showed that those with existing advice relationships AND high digital alignment were most likely to consider Robo-Advice.  Those who are digitally aligned, but not seeking advice showed no propensity to use such a service – at this point in time.

So two observations, first there are many different potential offerings which should be constructed on a Robo-Advice basis, as the needs, of young affluent, and very different from say exclusive professionals. So effective segmentation of the offers will be essential, and different personas will need to be incorporated into the systems being developed.

Second, the bulk of the interest lays with those who have had advice, so it may not, in the short term grow the advice pie. Indeed there appears to be strong evidence that existing advisors may find their business being cannabalised as existing clients switch to Robo-Advice. This is especially true if the range of options are greater, and the price point lower.

We therefore question the assumption expressed within the industry that Robo-Advice is not a threat, as it will simply expand the pie to segments which today do not seek advice.  In fact, we suggest the clever play is to make it a tool, and aligned to Advisors, rather than a substitute for them.  In addition, the marketing/education strategies need to be developed carefully. There is a lot in play here.


The need for speed: there’s still time to fix Australia’s NBN

From The Conversation.

A National Broadband Network (NBN) based on Fibre to the Premises (FTTP) was, and still is, the right answer for Australia’s broadband needs.

Compared to the original FTTP-based NBN, we are currently on the way to a much poorer performing broadband network with a mix of FTTP, fibre to the node (FTTN) and other technologies. It will entail increased long-term costs and be completed at about the same time as the original project would have been completed.

Around the world, the direction in which new builds of fixed broadband networks are headed has become clear. The world is increasingly moving towards FTTP. As a consequence, advances are being made in FTTP technology that make it cheaper and easier to deploy.

These developments, which have taken place in the last few years, have only reinforced the rationale for basing Australia’s NBN on FTTP.

Not too late to change

It is not too late to change the current direction of the NBN, but that change would need to be made in a controlled and managed way to ensure the project is not subject to another major disruption.

Why has it been so hard to get at the facts regarding the costs and timing of the FTTP-based NBN? The answer, as we all know, is that the NBN project has been from its inception a contentious political issue.

Initiated by the Labor party back in 2009, it was a good example of a government being courageous enough to initiate a large and complex project for the public good.

The original NBN was a visionary project and would have created a valuable asset for the Australian public. It didn’t take long, though, for the attacks on the project to start.

But the fact – confirmed this week – remains that over the past three years, Australia’s world ranking for average peak connection speeds dropped from 30th to 60th. We shouldn’t have been happy with being ranked 30th in the first place.

Yet the drivers of faster speeds and capacities for fixed broadband have not abated. Quite the contrary.

The latest Australian Bureau of Statistics data shows internet usage has been increasing over the years, from 191,839 terabytes downloaded in the month of December 2010 to 1,714,922 terabytes in December 2015. That’s nearly a ninefold increase in five years.


What’s more, Cisco is forecasting that global broadband speeds will nearly double between 2015 and 2020.

From megabits to gigabits

That’s why the debate in the United States and Asia is about gigabit per second speeds, not about whether 25MBps or 50Mbps is sufficient.

It is a bit surprising that we continue to hear the argument that nobody is buying a 1Gbps service today, so why build a network that can deliver that much speed? 25Mbps to 50Mbps is more than enough.

This has been a mantra for the Coalition, and it was supported in the view by the Vertigan committee, which was set up to review the NBN. In its final report, the committee assumed that the median household would require only 15Mb/s by 2023.

It seems especially curious that a government that styles itself as the innovation and infrastructure government should argue this. Because this argument betrays a complete lack of understanding of what the original FTTP NBN was all about.

It was about providing the vital infrastructure that Australia needs in order to remain competitive internationally in the 21st century.

It is arguable that, today, most homes and businesses can get by with speeds of up to 50Mbps. But already there are many home-based businesses that can’t and are demanding 100Mbps or more.

Gigabit services are just starting to emerge elsewhere in the world, so the applications that can take advantage of this type of speed are in their infancy. But we all know they are coming.

To spend billions of dollars on building a major piece of national infrastructure that just about meets demand today, but doesn’t allow for any significant growth over the next ten or 20 years is incredibly short-sighted.

It is such a pity that so much time and effort has been spent on trying to discredit and destroy the original FTTP-based NBN plan. Equally, it’s a pity the Coalition has put its faith in what has turned out to be a short-sighted, expensive and backward looking multi-technology mix (MTM) plan based on copper.

The nation is going to be bearing the consequences of those decisions for years to come – in higher costs and poorer performance in an area that is critical to its long-term future. Betting tens of billions of taxpayers dollars at this time on copper access technologies, as the Coalition has done, is a huge miscalculation.

The number of telcos still focussed on squeezing out the last bit of value from their old copper networks continues to decrease every year. Even the UK’s BT, which has been the poster child for FTTN, is now planning to increase its FTTP deployment, in part as a response to pressure from the UK regulator, Ofcom.

Come the election

No matter what the outcome of the upcoming election, the original vision of a broadband network built largely on a future-proof FTTP solution is now going to happen over a longer period and at a greater cost to taxpayers.

The Coalition is likely to continue with the FTTN and Hybrid fiber-coaxial (HFC) deployments and the peak funding is likely to be in the range of A$49 billion to A$56 billion. It will take a “heroic” effort, as NBN Co’s chairman Ziggy Switkowski has said, to have the network completed by the end of 2020.

Just when the FTTN equipment will need to be upgraded to provide higher speeds is an unknown but given what is happening overseas, it is unlikely to be very long. No one has yet made public the estimated costs of this upgrade.

Should the Labor party win the election, we can expect a managed transition from FTTN to FTTP, increasing the number of premises served by FTTP by about two million.

Given what we now know about the deployment costs of FTTP versus FTTN, I would not expect this transition to FTTP to make a big difference to deployment costs or timing of completing the NBN. It will result, however, in a network that is a step closer to the desired end state.

While it is impossible to turn back the clock on the MTM, it is still possible to make changes to the current direction, without introducing another major disruption. Changes that will get us closer to building the right network for the long term.

It is becoming increasingly obvious, especially to customers, that an NBN based on FTTP is a much better network than an MTM-based NBN from every angle – speed and capacity delivery, maintenance costs, reliability, longevity and upgrade costs.

An FTTP network would be a much more valuable public asset and could generate greater cash flows for the government due to lower maintenance, higher revenues and almost no upgrade costs. And it would be vastly superior in driving growth through the wider economy.

So it is a great pity that before making the shift to the MTM, the Coalition did not heed the words re-quoted by the then independent MP for New England, Tony Windsor: “Do it right, do it once, do it with fibre.”

Author: Adjunct Professor in the School of Computing and Communications, University of Technology Sydney (Mike Quigley was affiliated with NBN Co for the period from July 2009 to September 2013. He was NBN Co’s CEO during this time.)

FinTech and the financial ecosystem – evolution or revolution?

Separating hype from reality was the theme of Ms Carolyn Wilkins, Senior Deputy Governor of the Bank of Canada, speech, in which she argues FinTech, has created a lot of excitement, but also quite a lot of hype, depending on your perspective. Google searches for “finTech” have increased by more than 30 times in the past six years. FinTech has also attracted real money: over the same period, around 100 fintech start-ups in Canada have raised more than $1 billion in funding. At a global level, almost $20 billion was poured into fintech last year alone. She says now is the time for financial institutions, new entrants and policy-makers to work together. The opportunity cost of sitting back and waiting for the dust to settle is too great.

Financial institutions and infrastructure operators are making important strategic decisions about which parts of their businesses they want to defend and grow and which ones they want to scale back. This urgency is not only coming from fintech contenders. Banks are also dealing with a more demanding regulatory environment and exceptionally low interest rates around the world that are squeezing profit margins. Banks already spend close to $200 billion a year on IT globally, so replacing legacy systems will mean difficult and critical investment decisions.

For the Bank of Canada, our priority is to see upgrades made to the core payment systems that the financial system relies on and that the Bank oversees: the Large Value Transfer System (LVTS) and the Automated Clearing Settlement System (ACSS). These systems have served us well, but both require investments that are needed to fully meet our oversight requirements. Investment will also help the systems better meet the modern needs of participants and their customers.

Take the ACSS, for example, which still handles most retail transactions today. It was implemented over 30 years ago, when everyone wanted a Commodore 64. The ACSS may have been at the forefront in 1984, but we are far from the efficient frontier now. Cheques take up to four days to clear, and some information needs to be re-entered manually.

Now is the time to make our core systems more efficient and competitive. For consumers and business users, we need to move closer to real-time access to funds. In both the ACSS and LVTS, we need to collect richer data on transactions and, ideally, make them interoperable to avoid having to manually re-enter information. This effort is not change for change’s sake. If we can leverage some of the existing infrastructure and still achieve our goals, that is all the better.

For our part, policy-makers and regulators need to address innovation in financial services in a few proactive ways.

The first is to develop a solid analytical framework to understand and assess the benefits and challenges of something so new. This is something the Financial Stability Board is working on. Authorities will make their assessments through many lenses, including consumer protection, financial inclusion, market integrity, competition policy and financial stability. That is why other international groups such as the Committee on Payments and Market Infrastructures, the Basel Committee on Banking Supervision, and the International Organization of Securities Commissions are also involved. The Bank of Canada, together with our domestic colleagues, is actively contributing to these efforts. Since fintech is a global phenomenon, it is critical that this regulatory effort be global. We must also learn from emerging-market economies that are further along in some areas.

While fintech innovations promise to solve some current problems, they could also create new ones. Let me give you an example: I worry that network effects, which underpin the success of many payment applications, could lead to an excessive concentration of payment service providers. If this happens, households and businesses may not benefit from cost savings. This is clearly an issue for competition authorities.

It also is an issue for financial stability because “too big to fail” could emerge in a new form outside the current regulatory perimeter. Once again, payments are a great example. I worry that players not covered currently by regulation could become important to the system even if they never take on bank-like risks, such as maturity transformation or leverage, or become big enough to be considered systemically important. The move to increased direct access means that even smaller players could very well create critical dependencies within the financial system, particularly if they connect directly to core payments infrastructure. This could give rise to moral hazard. At a minimum, authorities need to put a large enough weight on operational dependencies when looking at systemic importance, particularly in light of cyber risk. When a payment system grows to be prominent or systemically important, the Bank of Canada’s job is to oversee it. Even before we reach that point, regulatory measures should be considered to address specific issues, such as operational resilience and consumer protection.

I also wonder how DLT-based infrastructures could affect the financial ecosystem. Ever-increasing automation through, say, smart contracts, could increase efficiency and certainty but could also increase financial volatility. Would that volatility be short-term, such as flash crashes? Or would it entail procyclical dynamics or new channels of contagion?

There are also questions about whether the regulatory perimeter is adequate, given new entrants and risks of regulatory arbitrage. In my view, the field of inquiry should include the inherent risk and systemic importance of an activity, regardless of what entity is performing it. Even as we strive to implement a regulatory response that is proportionate to the risk, we need to keep in mind that maintaining a level playing field is important. Some of these issues are not too different from those that authorities face in their work on shadow banking, another area where new entrants are challenging traditional players.16 And, big or small, operational risk deserves much greater attention.

The second way to address innovation in financial services is active engagement between authorities and the private sector. Some countries, such as the United Kingdom, Australia and Singapore, have created official regulatory “sandboxes.” These sandboxes allow start-ups to experiment with services without jumping through all the usual regulatory hoops.

Here in Canada, we are consulting with fintech entrepreneurs. The Bank of Canada is also partnering with Payments Canada, Canadian banks and R3 – which leads a consortium of financial institutions – to test drive distributed ledgers. Our only goal at this stage is to understand the mechanics, limits and possibilities of this technology. The plan is to build a rudimentary wholesale payment system to run experiments in a lab environment.

Our experiment includes a simulated settlement asset used as a medium of exchange within the system. It is very much like the settlement balances in LVTS, except it is using DLT. Because it cannot be used anywhere else, it is a different animal altogether from a digital currency for widespread use.

This is an experiment in the true sense of the word. I cannot think of a better way to understand this technology than to work with it. Other frameworks need to be investigated, and there are many hurdles that need to be cleared before such a system would ever be ready for prime time.

The third way to address innovation proactively is to do fundamental research on the effects of new technology. The Bank of Canada’s research over the past few years has focused on new payment methods, the adoption and competitiveness of digital currencies, and the essential benefits of private e-money. We are continuing this work and broadening it to include other developments, such as peer-to-peer lending and uses of DLT.

We also want to understand how new financial technologies will address the underlying forces that created the need for financial intermediation in the first place. In theory, new technology could enable a different framework for addressing the same frictions, potentially one that does not require financial intermediaries at all. The names and faces may change, but I do not see technology changing the need for maturity transformation, loan monitoring, intermediation of borrowers and lenders, and trust. This is a good question for academics.

FinTech – Revolution or Evolution?

FinTech could mean a more open, more transparent, and more democratic global financial system according to Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board,  in a speech “Enabling the FinTech transformation – revolution, restoration, or reformation?”. He also announced the Bank is launching a FinTech Accelerator to work in partnership with FinTech to help harness FinTech innovations for central banking. He concludes that FinTech should neither be the Wild West nor strangled at birth.

The Potential impact of FinTech on financial and monetary stability

FinTech has the potential to affect monetary policy transmission, the safety and soundness of the firms we supervise, the resilience of the financial system, and the nature of shocks that it might face.

It could also have profound implications for the Bank’s secondary objective, as supervisors, to facilitate effective competition between the firms we regulate.

The impact on firms’ safety and soundness depends on several factors. By making wholesale and retail settlement faster and capital allocation more efficient, FinTech could boost banks’ returns and therefore viability.

Already, FinTech is spurring new entrants including payments providers, peer-to-peer lenders, robo advisors, innovative trading platforms, and foreign exchange agents. This could, with time, unbundle traditional banking models and deny banks their traditional economies of scale and scope.

The systemic consequences of FinTech are even more complex. More diverse business models and alternative providers are positives for financial stability. By allowing better credit screening and less adverse selection, FinTech could improve risk assessment, credit allocation, and capital efficiency. But if it encourages herding on common information, trading positions could become more correlated. And if switching costs in funding markets fall, liquidity risk could rise and systemic risks grow.

Indeed, sometimes when I hear of democratising finance, spreading risk in capital-light originate-to-distribute models, I think I haven’t been this excited since the advent of sub-prime.

FinTech could also affect the conduct of monetary policy. Unbundled banking would change the roles of bank capital and funding costs in the credit channel of monetary policy. If FinTech enhances participation in financial markets, the wealth channel of monetary policy could strengthen.

More broadly, Big Data techniques could tell us about the state of the economy more accurately and promptly. Forecast performance could improve, akin to the forecast improvements that better measurement of atmospheric conditions has, over time, delivered for meteorologists.

My own forecast is that FinTech’s consequences for the Bank’s objectives will not become fully apparent for some time. Many of the technologies needed to deliver such transformations are nascent – their scalability and compatibility untested beyond Proofs of Concept. Moreover, the bar for displacing incumbent technologies is very high. Nor will the Bank of England take risks with the resilience of the core of the system. Disruption won’t come either easy or cheap.

Enabling the FinTech Transformation

We are actively exploring how new financial technologies could support our policy objectives. There are five ways the Bank is enabling the FinTech transformation.

The first is widening access to central bank money to non-bank Payments Service Providers, known as PSPs.

As the internet revolutionised commerce, making trade faster and markets more competitive, payments technology lagged in many countries, although it is worth remembering that the UK has been a global leader on real-time retail payments. Faster Payments (FPS) was one of the earliest real-time retail systems introduced, in 2008. Now, new entrants and established players are seeking to provide payment services that are instantaneous, secure, reliable and accessible anytime from anywhere.

Retail consumers and firms are increasingly demanding payments completed in seconds, not hours or days.

They expect payments to be seamless, reliable and cheap whether to recipients overseas or just up the street.

And they expect to make payments without visits to a bank branch or even logging onto a desktop computer.

Similarly, companies, financial intermediaries and governments want to process ever larger and more complex bulk payments covering multiple systems, countries and currencies.

Central banks lie at the hearts of payment systems, giving households and firms the assurance that transactions have settled in the most secure form of payment: central bank money. To fulfil that role, our payments infrastructure needs to remain fit for purpose: reliable, resilient and robust. But we must also be responsive to changing payments demands. So earlier this year the Bank announced we would be drawing up a blueprint to replace our current real-time gross settlement (RTGS) system, now twenty years old.

48 institutions currently have settlement accounts in RTGS. All other users of the systems that settle across RTGS access settlement via one of four agent banks. These users include over 1000 non-bank PSPs serving customers’ increasingly demanding standards, and many rely on major UK payment schemes, particularly Faster Payments (FPS).

As they grow, some PSPs want to reduce their reliance on the systems, service levels, risk appetite and goodwill of the very banks with whom they are competing. Re-selling services ultimately provided by banks limits these firms’ growth, potential to innovate, and competitive impact.

That is why I am announcing this evening that the Bank intends to extend direct access to RTGS beyond the current set of firms, allowing a range of non-bank PSPs to compete on a level playing field with banks.

By increasing the proportion of settlement in central bank money, diversifying the number of settlement firms, and driving greater innovation in risk-reducing payments technologies, expanding access should bring financial stability benefits. It should also enable more efficient, effective and inclusive payments, including in ways that we cannot fully anticipate.

It is not a one-way street, however.

As we extend access, we will safeguard resilience in three ways: by holding settlement account holders to the appropriate standards; by removing legislative barriers to non-bank access; and by designing the right account arrangements for new entrants.

I am pleased that both the FCA and HMRC, who together supervise these institutions, are committed to developing a strengthened supervisory regime for those who apply for an RTGS settlement account, to give assurance that non-bank PSPs can safely take their place at the heart of the payment system.

And I welcome the Chancellor’s commitment tonight to make the necessary legislative changes to ensure that these new entrants can access RTGS safely and efficiently.

By extending RTGS access, our objective is to increase competition and innovation in the market for payment services. To ensure that PSPs are not disadvantaged relative to banks offering equivalent payment services, the Bank intends to give appropriate remuneration for balances that PSPs will be required to hold overnight to support their payments activities.

The second way the Bank is enabling the FinTech transformation is by being open to providing access to central bank money for new forms of wholesale securities settlement.

Securities settlement is the lifeblood of modern wholesale financial markets – the associated payments account for fully half of RTGS’s daily settlement flows.

However, as with retail payments, securities settlement is now ripe for innovation. A typical settlement chain can involve many different intermediaries, meaning securities settlement is comparatively slow. Transactions that take nanoseconds to execute settle in days. This also means large costs and operational risk. And, like in payment systems, economies of scale introduce concentration and create single points of failure. All of that ties up potentially tens of billions of pounds worth of capital. With the economics of wholesale banking under pressure, cutting inefficiencies is a high priority for industry.

That is why it is welcome that FinTech innovators are exploring the potential of distributed ledger technology to simplify the settlement chain, reduce its cost, and raise its speed while increasing resilience. The instruments involved range from equities to bank loans. However, the challenges facing such projects are legion, including reliability, resilience, security and scale. And fundamentally, how to prove technologies that are still nascent?

One challenge an otherwise robust system of sufficient scale would not face is access to central bank money from the Bank of England. The Bank has for many years sought to ensure that, wherever possible, wholesale securities settlement occurs in central bank money.

We are already clear that we stand ready to act as settlement agent both for regulated systemically important schemes supervised by the Bank, and, on a case-by-case basis, for other new systems.9 The Bank will use this to enable innovation and competition, without compromising stability.

The third way the Bank is enabling the FinTech transformation is by exploring the use of Distributed Ledger (DL) technology in our core activities, including the operation of RTGS.

If distributed ledger technology could provide a more efficient way for private sector firms to deliver payments and settle securities, why not apply it to the core of the payments system itself?

The great promise of distributed ledgers for central banks is their potential to enhance resilience. Distributing the ledger means multiple copies of the system. It can continue to operate if parts get knocked out. That removes the single point of failure risk inherent in a centralised system.

But if we are to entrust the heart of our financial system to such technology, it must be robust and reliable. The payments system we oversee processes £½ trillion of bank transactions, equivalent to around 1/3 of annual GDP, each day. Disruptions are potentially costly. That is why, in payments and settlement, the Bank has an extremely low tolerance for any threat to the integrity of the economy’s ‘plumbing’. We won’t beta test RTGS.

To help distinguish DL’s potential from its hype, the Bank has set up our own as a Proof of Concept. We have learned a great deal – about the opportunities and the challenges that need to be met before DL could be used in central banking.

Some of those challenges are familiar to any payments system.10 Others are more specific to DL. For example, we would need assurance that DL systems can be scaled, retain data integrity, and operate at the speeds and volumes required by central bank infrastructure – day in, day out.

And we need to be certain that the privacy of the data in those distributed copies cannot be compromised by cyber attack, not just today but in the future. One way this might be achieved is to limit the distribution of the ledger to existing trusted parties, such as other public sector entities.

To move forward we are working with other central banks. Beyond this we are open to working with others to explore further possibilities, including alternative applications of the technology.

In the extreme, a DL for everyone could open the possibility of creating a central bank digital currency. On some levels this is appealing. For example it would mean people have direct access to the ultimate risk-free asset. In its extreme form, it could fundamentally and perhaps abruptly re-shape banking.

However, were it to co-exist with the current banking model, it could exacerbate liquidity risk by lowering the frictions involved in running to central bank money.11 These questions and others are why these topics are being examined as part of the Bank’s research agenda, with the prospect of a central bank digital currency for the UK, in my view, still some way off. We will work to make payments easier, and though cash may no longer be king it once was, its reign will endure for some time.

The fourth way the Bank is enabling the FinTech transformation is by partnering with FinTech companies on projects of direct relevance to the Bank’s mission.

I am announcing tonight that the Bank is launching a FinTech Accelerator to work in partnership with FinTech firms on challenges that we, as a central bank, uniquely face. The Accelerator will work with new technology firms to help us harness FinTech innovations for central banking. In return, it will offer firms the chance to demonstrate their solutions for real issues facing us as policymakers, together with the valuable ‘first client’ reference that comes with it. With time, the Accelerator will build a network of firms working in this space for the benefit of us and them alike.

How will this help us?

Consider that the Bank monitors risks that threaten the operational resilience of the UK financial system.

At the Financial Policy Committee’s instigation, we have been working with other authorities to encourage firms to improve their cyber defences.

Over the past two years, twenty-three firms have undergone CBEST penetration tests, with all core banks expected to have completed tests by the end of this year.

To complement these efforts, the Bank has begun examining how public data could be used to assess firms’ cyber resilience, including looking for malware on a firm’s systems, software vulnerabilities, or weak encryption that could be exploited by hackers.12

As a proof of concept and good cyber hygiene, we are using data publically available on the web to assess our own resilience. Early results indicate these techniques could complement existing tests in our regular assessments of firms’ operational resilience.

We are also exploring how we – and others – could use the data the Bank collects more effectively. Big Data has the potential to help the Bank’s policy committees identify trends in systemic risk and the economy. Much of the data we collect is rightly subject to strict limits on confidentiality and sharing. For example, our regulatory mortgage contract data comes under strict control to guarantee personal data protection. We can’t just share the private data to which we have access with external researchers, foreign authorities or even across the Bank.

But this means that, simply put, the people of the United Kingdom are not getting the most out of the data the Bank collects.

That’s why we are investigating ways of anonymising and de-sensitising data – fully respecting privacy laws without losing analytical content – to allow wider sharing.

Progress has been encouraging creating the prospect of better informed policy making.13

These are just two examples of a bigger programme of collaboration between the Bank and technology innovators. We are open to further collaboration and tomorrow will provide details of the next steps.

Finally, the Bank is calibrating its regulatory approach to FinTech developments.

FinTech should neither be the Wild West nor strangled at birth. The Bank is devoting considerable resources to ensure whatever develops is sustainable, not ephemeral.

If FinTech enables a great unbundling of financial services, risks will change in tandem.

Our interest is in ensuring the safety and soundness of banks, the protection of insurance policy holders and the resilience of financial ecosystem as a whole to these changing risks. It is about activities not labels.

That is why the Bank has been engaging with FinTech firms to understand better the financial stability risks that could emerge as banking is re-shaped. We will monitor those that arise along the transition path and those that could endure.

Where firms or activities become systemic and risks to the real economy grow, they will come within the purview of the Bank’s responsibilities for the stability of the system as a whole. The Financial Policy Committee will continue to monitor the scope of the regulatory perimeter. Adjustments will follow if necessary.

When FinTech companies fall within our remits, we will monitor them in the same proportionate way that we approach other firms – backed by analytics and judgement, taking action where appropriate.

We are building a system that allows for orderly failures. Not just to end the blatant unfairness of Too Big to Fail, but also to foster industry dynamism and better outcomes for consumers. After all, ease of exit promotes ease of entry. We won’t discourage avatars by preserving dinosaurs.