From eMarketer. Though US data, here is an interesting snapshot, which highlights the importance of mobile devices in the context of online retail. Our research shows that in Australia, more and more users now have a smart phone or tablet, and this device has become their preferred access device for online services including retail and banking services.
Mobile makes up sizeable share of US retail ecommerce traffic. When it comes to a retailer’s mobile site, user reviews are the top feature that consumers expect to see, according to a September 2015 survey. Customer support is also key.
EPiServer, a global software provider, polled 1,060 US internet users ages 18 and older about their top mobile retail site features. More than half of respondents said they expect to see user reviews on a retailer’s mobile site. Additionally, 38% of internet users said they expected easy and direct customer support. That same percentage also counted on a mobile retail site having an automatic adaptation of screen size.
Location-based functions or maps, as well as wish list functions, rounded out the top five list.
Retailers understand the importance of mobile. Indeed, research from Demandware found that mobile devices made up a significantly higher share of US retail ecommerce site traffic in Q2 2015 than they did a year before. But while a majority of time spent engaging with digital retail content is via mobile devices, the channel only accounted for 13% of US digital retail sales in Q4 2014, per data from comScore.
Economists love Uber’s surge pricing. But it is doomed, because customers hate it.
Why?
Surge pricing occurs when the supply and demand for Uber vehicles becomes unbalanced, for example, due to inclement weather, a public holiday such as New Years Eve or some other event (public transport failure, terrorist attack, …). Supply is low (who wants to drive in a snow storm?). However, demand is high (how do I get home when the rail network is down?). So, by raising the price (sometimes very substantially), Uber aims to encourage more drivers to pick up passengers and to ration the available supply to the customers who value the service the most.
The result is a New Year filled with negative Uber articles, both in Australia and overseas.
In the Harvard Business Review, Utpal Dholakia suggests that the near universal dislike of surge pricing is due to a lack of transparency and customers’ lack of understanding about its benefits. He suggests education and transparency. But Uber is already embracing these strategies, trying to warn customers when surge pricing is likely and to make sure customers understand and agree to the surge price when requesting a car.
So Dholakia misses the key point.
It is not ignorance that leads to customer annoyance with surge pricing. Customers understand exactly what surge pricing does. And that is why they do not like it.
From the customers’ perspective, surge pricing does two things. First, it encourages more drivers and so makes it more likely that the customer can get home (or where ever else they are going) in less time (albeit at a higher – and possibly much higher – monetary price).
This is the economic ‘plus’ from surge pricing. Economists call this an allocative gain. It means that more mutually beneficial trade occurs because there are drivers who are only willing to drive for the higher price but there are also customers willing to pay that price. Setting a lower ‘normal’ price would just mean that the drivers stay at home and the customers don’t get home.
Second, however, surge pricing creates a transfer.
When I jump into the Uber car I don’t know if my driver only decided to work because of the surge pricing. He or she might have been out there anyway. And in that case, I just pay more even though the driver would have been there anyway. Of course, the driver also gets more. The money doesn’t disappear. It is a transfer. My loss through paying the higher surge price is the driver’s gain. So from an economic perspective, this transfer is neutral. But that doesn’t make the customer feel any happier.
So economists love surge pricing because it improves ‘allocative efficiency’. Customers tend to dislike it because it means all customers pay more, even if their driver would have been working regardless.
Surge pricing, and customers’ dislike of it, is simply one example of a common phenomena. When ever there is a shortage of a good or service and the market has a chance to work, the price rises and both rations existing supplies and encourages new supplies.
If a cyclone disrupts petrol supplies to Cairns, the price rises and those petrol retailers who just happened to have supplies in their storage tanks get a wind-fall gain. Customers pay more but this encourages petrol companies and private entrepreneurs to try and increase supplies.
Of course, if the same happened due to a hurricane in Florida, then “gas” prices could not rise. It would be illegal due to price gouging laws. So sellers with supplies don’t raise the (advertised) price. And it will take longer to get more supplies in (why hurry – there is no economic gain because the law has stopped the price from rising).
Some politicians in the US want to limit surge pricing claiming that it is ‘price gouging’. However, a ban is a poor way to deal with surge pricing. It just hides the price rise or leads to non-monetary payments to ration the good or service. For example, if the monetary price can’t rise, and other forms of payment to sellers are avoided, then there will be long queues and a lot of wasted time. Customers pay in time rather than dollars. And paying an entrepreneurial student to wait in line for you rather than just paying more for the relevant product is a pure waste of resources.
So surge pricing is hated by consumers and is likely to lead to legal intervention over time. But banning surge pricing just leads to queues and inefficiency.
So what is the solution?
In many markets, ‘opportunistic’ price changes don’t occur because ‘regular’ sellers and buyers recognise the long-term nature of their relationship.
Customers often have long memories. So if a regular seller raises the price today because of a temporary shortage then customers may boycott that seller when normal times resume tomorrow. And sellers, knowing this, will try to respond to the shortage by more sophisticated pricing and information to customers. So the seller may make it clear that the price is kept lower to ‘regular’ customers even though it is higher to everyone else during the crisis. Or the seller may ration supplies to a ‘fair’ level for each buyer.
It is the short-term entrepreneurs, who only supply during the crisis, who charge more. But the higher price only applies to their product and is needed to give them the incentive to overcome the abnormally high cost of supply. So the market leads to allocative efficiency while it limits the transfer for sellers who ‘would have been there anyway’.
How does this relate to Uber?
Individual Uber drivers and customers are not in a long term supply relationship with each other. But Uber has a long term relationship with both its drivers and its customers. If Uber is to avoid being damaged by surge pricing, then it needs a more nuanced approach.
For example, instead of surge pricing everyone, the price rise could depend on the customers history. Regulars get a lower price than those who have just downloaded the App due to the crisis. Of course, to encourage drivers, they would need to receive a uniform higher price. So Uber would have to sit in the middle and manage payments. This will most likely lead to lower profits for Uber in the short run. However, it will be a long run investment in goodwill.
And if Uber does not come up with a better alternative to its hated surge pricing, one of its competitors will.
At the moment Uber’s surge pricing reflects naive economics. If Uber is going to thrive long term, particularly as new ride sharing Apps emerge and flourish, then it is going to need a more sophisticated economic approach to pricing.
Author: Stephen King, Professor, Department of Economics, Monash University
Ever since computers were first introduced into the retail banking system in the late 1950s, there has been the vision of a future world where cash is obsolete. The near death of personal cheques, increase in debit and credit card use, and innovations such as PayPal, Square, Apple Pay and Bitcoin, have led us to believe the cashless society is well within our reach.
But data from Retail Banking Research, one of the most authoritative sources in the area, suggests that even though cashless payments are growing rapidly across the world, hard currency remains resilient. This trend was corroborated by a study commissioned by the ATM Industry Association of a panel of 13 countries. It suggested that global demand for cash grew 4.5% between 2009 and 2013 (when the latest figures were available).
So 50 years into the journey and we are still not there yet. However, a number of innovations have taken place around the world. Here’s how different continents stack up.
Europe
One in ten card payments were contactless for the first time in 2015 in the UK. By making small payments easier and quicker, contactless marks a major threat to cash. London is also fast becoming the world’s fintech capital, despite having substantially fewer resources available for investment than the US.
Next summer Copenhagen will host Money 20/20, the world’s major annual event for emerging payment technology. It will be the first time the forum convenes outside the US, bearing witness to the increasing importance of Europe when it comes to innovation in payments and financial technology. In countries like the Netherlands there are cafes and even supermarkets that no longer accept cash.
Many have pointed to the slow death of cash in Scandinavia, but cash is unlikely to completely die out – few may develop a mobile app suited to the needs of refugee migrants there, for example.
Contactless payments are on the up in Europe.shutterstock.com
North America
Despite playing host to the world’s top technology firms and research centres, the US lags behind when it comes to implementing some of this tech. Chip and pin payment cards were only launched in October 2015 and do not seem to have done well over the Christmas holiday season, with reports of large retailers bypassing card readers and going back to signatures. This might seem backward but it’s important to remember that chip and pin cards are as much a protocol to determine who will bear the cost of fraud as a security feature.
And, while the US has been slow to introduce chip and pin, there have been developments in smartphone payments. The bank JP Morgan Chase and retailer Walmart have both launched rivals to Apple Pay, which shows how retailers, banks and regulators are innovating to bring about faster payments and a potential cashless society.
Africa and the Middle East
The success of the mobile payments system, M-Pesa, in increasing financial inclusion in Kenya is well known, with the majority of the population able to transfer money using their phones, despite not having a bank account. And there has been similar growth of mobile payments in Botswana and South Africa. But Safaricom (the telecom company behind M-Pesa) has failed to replicate its model in neighbouring countries such as Tanzania. The jury is also out regarding the Cash-less Nigeria Project by its central bank, which aims to reduce the the amount of physical cash circulating in the economy.
M-Pesa enables users to complete basic banking transactions through mobile phones.Rosenfeld Media, CC BY
Africa and the Middle East remain the areas with the lowest global numbers of adults with a bank account while MENA countries (as well as China and other Asia Pacific nations) have been and will continue to be the worlds’ growth markets for ATM manufacturers. This suggests the high use of banknotes in the everyday life of people in these regions.
Asia, Latin America and Oceania
In China, the mobile app WeChat is one to watch. WeChat, part of digital behemoth Tencent, has grown from its original service as a messaging app in 2011 to include cab-hailing, food-ordering and money transfers. WeChat ranks as China’s most popular app with 650m users and is used to send both RMB and cryptocurrencies like Bitcoin between users.
Technology as a promoter of financial inclusion is the name of the game in poor economies where the bottom third of the population hardly have any access to the financial sector and mobile money is seen as the potential solution. Chile is a notable example of successful government initiatives in this direction. But the one to watch is the Indian government’s drive to replace money with mobile payments on top of a growing private network made up of 140,000 private business and public sector bank correspondents.
The challenge for mobile money, however, is that it sits at the intersection of finance and telecommunication and so faces regulations from both. On top of that, India and other countries in Asia and Latin America have a significant number of transactions that take place outside the formal financial sector and typically, an over-regulated telecommunications sector. At the same time, those at the “bottom of the pyramid” are fearful of and distrust established financial institutions.
No cash needed.shutterstock.com
Australia offers a much brighter outlook. The introduction of contactless payment cards in 2010 has proven hugely successful and as a result plastic has significantly eroded the use of cash and ATMs. Indeed, a recent study by the Reserve Bank of Australia found that the use of banknotes and coins fell from 69% in 2007 to just 47% in 2013. That decline took place across all age and income groups, with people in rural locations more likely to be using cash than those in major cities.
While some countries have embraced mostly electronic forms of payment, this does not mean that others still using banknotes and coins are less efficient or backward as some might seem to think. Differences between countries and between rich and poor within them remain partly due to custom, culture and regulation. But also because new technology has failed to make its case to users.
There is more innovative technology looking for a market than consumers looking for alternative ways to pay. And there is nothing wrong with existing forms of payment – they, and cash in particular, work well in most countries, for most consumers, 99% of the time. Of course, people change their habits and financial technology start-ups may one day disrupt the status quo.
Authors: Bernardo Batiz-Laz, Professor of Business History and Bank Management, Bangor University; Leonidas Efthymio, Lecturer in Management and Strategy, Intercollege Larnaca; Sophia Michael, Languages Department Coordinator/Lecturer of English, Intercollege Larnaca.
Bitcoin enthusiasts have recently been roiled by claims that an Australian named Craig Wright and his deceased partner are the mysterious founders behind the cryptocurrency.
Of course, we’ve been down this path before. The New York Times, Fast Company, The New Yorker and Newsweek have all made similar claims about different people, only to be proved wrong. And last month, Wired – the magazine behind the most recent claim – said there are reasons to believe Wright is actually a hoaxer and not “Satoshi Nakamoto,” as the currency’s creator is known.
Regardless of whether the new claims are correct, it has resurrected a worry that has long plagued bitcoin users. Around one million bitcoins were mined early in the currency’s history and have never been transferred. Were they to be sold en masse, bitcoin’s value could drop precipitously, wiping out a lot of wealth and threatening its status as a reliable alternate currency, independent of banks and governments.
However, the reporting about Wright and the bitcoin businesses and trusts he has established – presumably for tax and secrecy purposes – reveals an even bigger threat to bitcoin users and other supporters of virtual currency: how will such currencies be treated for tax purposes?
This is a question I have been exploring for the last decade, both with regard to virtual currencies designed to be used solely online, such as for World of Warcraft, and those designed for use in the real world, such as bitcoin.
Australian tax authorities searched the home of Craig Wright shortly after Wired magazine fingered him as the founder of bitcoin. Coincidence?Reuters
Currency or investment?
Bitcoins are created by a computer algorithm and are initially allocated through a process colloquially referred to as “mining.” Miners collect bitcoins by solving complex mathematical equations used to authenticate transfers and in so doing both bring more of the currency into the world and maintain the system.
Bitcoin users have a public key and a private key associated with the bitcoins they own. To effect a transfer, one must use the private key. However, transfers are recorded on a public “block chain,” which uses the associated public key.
This secure public record-keeping obviates the need for third-party intermediaries, like banks. While the world can see the public key and how many bitcoins are associated with it, the owner of the bitcoin can remain anonymous if he keeps his association with that key secret.
Approximately 15 million bitcoins have been issued to date, and they are currently valued at about US$430 each, for a total of approximately $6.5 billion. The algorithm is designed to generate 21 million bitcoins, and experts anticipate that the last bitcoin will be issued sometime between 2110 and 2140.
Bitcoin is designed to be used as a currency, though some hold it as an investment. The difficulty is that governments have taken a variety of positions on the nature of bitcoin for tax purposes.
For instance, some countries, including those in Europe, have classified bitcoin as a currency for consumption tax purposes, meaning that the various value-added taxes do not apply to bitcoin exchanges, while others, such as Australia, have not. Similarly, the U.K. treats bitcoin as foreign currency for income tax purposes, while the U.S. regards it as property.
Those who “mine” bitcoins will likely be subject to income tax on the value they receive under the theory that they are being compensated for validating bitcoin transactions and maintaining the block chain that records all transfers. But this is true regardless of whether bitcoin is recognized as a currency. In other words, they are not really mining and not subject to the complex rules governing mining operations. Instead, they are being compensated for services.
The difficulty arises when people try to spend their bitcoins, however acquired.
Another man said to be the mysterious Satoshi Nakamoto was Dorian Nakamoto.Reuters
How cash transactions are taxed
Those who spend local currency, such as dollars (U.S. or Australian) or euros, do not report a gain or loss when they do so. For instance, if I buy a hamburger, I don’t have a gain or loss on the currency used, regardless of whether it has changed value relative to other currencies.
As the baseline currency, a dollar is worth a dollar, even though it may fluctuate against other currencies or be affected by inflation.
Foreign currency is different. If I buy a euro for $1 and spend it later, when it is worth $1.10, theoretically I have a $0.10 gain that I should be taxed on. Different countries have different rules, but in the U.S., taxpayers need not pay taxes on such gains if they are under $200 in a given year.
By refusing to classify bitcoin as a currency for income tax purposes (local or otherwise), tax authorities effectively treat bitcoins as any other property, meaning that those who buy items with bitcoins must report any gain on the transaction associated with a change in its value. That is, it is treated like an investment, regardless of how the owner actually uses it.
It is as if they sold their bitcoins for cash and then used that cash to make a purchase. Worse yet, if the bitcoin has gone down in value, taxpayers might not be able to deduct the losses, because they could be considered personal. Thus, anyone using bitcoin as a currency has to keep track of each bitcoin’s cost so that he can accurately calculate gain or loss.
This administrative task, combined with the potential need to pay income taxes, could make bitcoin too difficult to use as an alternate currency.
While bitcoins are a virtual currency, some enthusiasts have minted physical versions.Reuters
Wright’s woes
Wright’s tale of woe with the Australia Tax Authority (ATA) (revealed in a transcript made public as part of the effort to prove that he is Satoshi Nakamoto) shows how the decision not to classify bitcoin as a currency creates problems with a tax on goods and services (GST).
Among other things, Wright sought to create an exchange to buy and sell bitcoin. If bitcoin were considered a currency, such exchanges would be exempt from the GST, and the exchange could operate economically. However, if the GST applied to such transactions, as the ATA claimed, the exchange would be forced to purchase $1 of bitcoin for $1.10 (assuming a 10% rate).
In other words, if you use normal currency, it would cost you $1, but if you use bitcoin, it would cost $1.10. Bitcoin becomes a lot less attractive under those conditions.
To avoid this result, Wright and his lawyers established a number of offshore trusts and argued that, for many of the transactions the ATA was investigating, no bitcoin was actually transferred. Instead, the beneficial interests in the trusts, which were not subject to the GST, were transferred. The bitcoin itself was purportedly held offshore, and any transfer of the bitcoin or rights to it were outside the reach of the ATA.
The problem for tax authorities
It’s not clear whether such arguments would actually succeed, but they illustrate a real problem that intangible assets raise for both consumption and income taxes, especially for countries that use a territorial tax system (that is, one that doesn’t tax foreign income).
If assets are considered to be outside a given country, they will not be subject to that country’s GST or equivalent tax. Moreover, if the asset can be “wrapped” in a trust or other entity whose ownership interests are exempt from the GST, it can potentially escape tax even if it is held locally.
Similarly, if such assets generate income, for instance when they are bought or sold, under a territorial system, that income will be taxed in the country where the sale occurred.
It is not surprising that Wright established at least some of his trusts in known tax havens, such as the Seychelles. Even if his efforts to shield bitcoin from tax through these efforts succeed, they are far too complicated for the average user and will likely further impede bitcoin’s adoption as an alternate currency.
Bitcoin’s challenge
Much of the recent focus has been on whether Wright really created bitcoin and whether he is sitting on a hoard worth close to a half billion dollars, which could potentially destabilize the market.
However, the real threat to bitcoin and other similar products may come from a far more mundane source: the world’s tax authorities. Absent favorable rulings, every bitcoin transaction could generate both income and consumption tax liability, rendering bitcoin impractical as an alternate currency.
Sophisticated tax planning to avoid such outcomes might succeed but would make bitcoin harder to use.
Thus, while bitcoin was developed as a means to free individuals from the need to interact with third parties, including the government, it nonetheless needs governmental cooperation if it is to move from the fringes to the mainstream.
Author: Adam Chodorow, Professor of Law, Arizona State University
The recent somewhat rapid demise of Dick Smith Holdings, resulting in its entry into voluntary receivership, is a stark reminder of the risks of investing in companies listed by private equity firms without doing careful research. Another example from the recent past is Myer, which has also never recovered anywhere near its original listing price.
Some commentators have blamed the demise on poor strategy, circumstances in the retail sector, or poor inventory management. But while investors in Dick Smith Holdings shares could end up with nothing, the private equity firm that acquired Dick Smith from Woolworths in 2012 has already recouped its cash investment several times.
How is this possible?
How did Anchorage Capital Partners manage to acquire Dick Smith from Woolworths in 2012 in a deal worth A$115 million and list it in the market for an equivalent total market value of A$520 million?
Private equity 101
Private equity firms typically represent informed investors such as high net worth individuals, or fund managers looking for higher returns through leveraged investments.
Typically a private equity firm will undertake a portfolio of highly leveraged investments in different sectors achieving a level of diversity but at a high risk the longer they stay in.
The firms have a very clear objective: identify businesses with potential for high returns based on their balance sheet, operating potential or capacity for leverage and for tax benefits but to exit as soon as objectives are achieved.
The objective is not to acquire a business with the objective of investing for the longer term, but purely with a view to exiting at a point where the return for risk relation is maximised.
Window dressing
This means that an exit is planned from day one to the extent return is not compromised. The long term prospects for the business are only of interest to the private equity firm to the extent that it helps dress the business for the market to help with the private equity firm’s exit. In the case of exit by listing this will typically involve changing and packaging the business so it is perceived as a more valuable investment by future investors. The packaging will typically involve all essential market positive aspects of the business, the balance sheet, capital structure and management.
If an acquired business is already listed, often they will de-list the firm, restructure and repackage it and then place in on the market through a stock exchange or sell it as going concern in part or whole in a sale. Often they will acquire divisions or segments of businesses within larger enterprises as was the case for Dick Smith.
Typically private equity deals are highly leveraged, namely there is much more debt than equity used to fund the acquisition, but once interest and debt is covered all returns go to shareholders, and initially this is the private equity firm. When a business is acquired by a private equity company, it is done through an entity or holding company (newco). Newco under private equity control, typically buys itself, in the sense that newco will own the acquired business but private equity controls newco.
Private equity will fund the acquisition of the business by a majority of debt within newco and not the private equity firm. The private equity firm and management will contribute the minimum equity required; this will depend on the financing arrangements which will be governed by newco’s balance sheet, the reputation of the private equity firm and management, and the appetite of the financial institutions for newco debt. Tax benefits will also be maximised to the extent that interest is tax deductible, a huge benefit given the degree of debt. Furthermore the tax paid on such gains is capital gain, taxed at a lower rate. Private equity firms will use very smart tax lawyers and accountants to structure the deal so that taxes paid will be well minimised.
The private equity firm and management will hold all the equity in newco, but with restrictions on managers in terms of selling their equity. Private equity firms will only accept restrictions on their selling down shares to the extent that it is a condition precedent for debt financing and they believe it maximises the price they can receive on exit so it doesn’t create the wrong impression.
Private equity firms will also earn returns by charging the acquired firm sometimes exorbitant management fees as well as by extracting returns from sale of the business in part or whole, and may even extract dividends, depending on financial covenants from lenders that are put in place at time of acquisition.
Private equity may plan to maintain a stake in the longer term, past their initial exit, to the extent it helps maximise the value received for their sold down stake and will be prepared to write off that continuing stake having already achieved their desired return.
This is what I suggest has already happened in the case of Dick Smith. Anchorage received a price of more than A$2 a share, liquidating the majority of its holding and in the process is also likely to have raised new equity to retire some of the debt, depending on the convenants in place. Regardless Anchorage will have made many times its intial investment at the listing of Dick Smith Holdings even after paying the upside to Woolworths if any requirement as part of the deal.
The losers will be those who are committed, management, shareholders, particularly those who held on since the Dick Smith Holdings listing and unsecured creditors with skin in the game vs Achorage which is simply involved. It’s like bacon and eggs, the hen is involved but the pig’s committed.
Author: John Vaz, Director of Education, Department of Banking and Finance, Monash University
Niklas Arvidsson, a researcher in industrial economics and management at KTH, says that the widespread and growing embrace of the mobile payment system, Swish, is helping hasten the day when Sweden replaces cash altogether.
“Cash is still an important means of payment in many countries’ markets, but that no longer applies here in Sweden,” Arvidsson says. “Our use of cash is small, and it’s decreasing rapidly.”
In a country where bank cards are routinely used for even the smallest purchases, there are less than 80 billion Swedish crowns in circulation (about EUR8 billion), a sharp decline from just six years ago, when the total in circulation was SEK106 billion.
“And out of that amount, only somewhere between 40 and 60 percent is actually in regular circulation,” he says. The rest is socked away in people’s homes and bank deposit boxes, or can be found circulating in the underground economy.
The result of collaboration between major Swedish and Danish banks, Swish is a direct payment app that is used for transactions between individuals, in real time. The service’s direct collaboration with Bankgiro and Sweden’s national bank, Riksbanken, is a critical factor in its success.
But if Swish starts to be used on a larger scale and grows to include retail transactions and e-commerce, Arvidsson says it is likely the country’s entire payment system infrastructure will have to be revamped.
That may not be as prohibitive an idea as it sounds. Arvidsson says Swish is already revolutionizing the banking system, which itself is no stranger to bold digital projects.
With digital giro systems, early electronic payment services and other advances in online financial services, Swedish banks have been early adopters of advanced IT systems, he says.
“Combined with a strong IT sector, this has led to more competitive financial services in Sweden. The success also depends on the Swedish consumer tradition of welcoming electronic payment services.”
Besides simplicity and lower costs, digital payments also add transparency to the nation’s payment system. Several banks in Sweden already have 100 percent digitalized branches that will simply not accept cash.
“At the offices which do handle banknotes and coins, the customer must explain where the cash comes from, according to the regulations aimed at money laundering and terrorist financing,” he says. Bank staff are required to file police reports in response to suspicious cash transactions.
In spite its popularity, Sweden will still have to ensure that all people are able to participate in the new payment system, Arvidsson says. The transformation would present serious challenges for those who are unfamiliar with computers and mobile phones — mainly older people living in rural areas.
Other segments of the population likely to feel the impact are the homeless and undocumented immigrants. In a society without notes and coins, they will be even more at the mercy of government systems to survive.
Whether cashless societies spread beyond Sweden is another question. “Swish is a brilliant idea, but to introduce it internationally is a challenge, not least because it takes a long time to change other countries’ banking systems from scratch. But it is not impossible that a Swish-based banking revolution can also occur abroad,” Arvidsson says.
Interesting article in the SMH, discussing the leverage banks hope to get from the data they hold on customers. The explosion in digital banking has meant the banks’ information about their customers has ballooned. And advances in technology mean they can analyse it in ways that were previously impossible, to ensure they remain relevant.
Here is a snip-it:
… as banks eye the huge potential to enmesh themselves more deeply in consumers’ lives, and fight off lower-cost competitors.
Thanks to advances in computing power and customers’ embrace of digital finance, banks know more than ever about what their customers are up to: whether it’s browsing the web, shopping online, visiting the mall, or interacting on social media.
Already, they are busily harnessing this vast amount of data to sell products to customers before they ask for them: pushing travel insurance to someone who’s just bought airline tickets, or suggesting a home loan to the newlywed couple. But over the coming years, it is set to get much more tailored to the individual, and far more widespread.
As the traditional business of banking faces growing competition from new digital rivals, experts predict banks will increasingly be pushed into targeting customer “experiences” as they seek to remain relevant, and highly profitable.
Inevitably, however, this will involve a tension between what customers regard as the bank being helpful, and when it veers into the territory of ‘Big Brother’.
In the past five years, we’ve seen a plethora of crowdfunding platforms hit the internet. And, the popularity of these “open source” funding sites seems to only be increasing, particularly with those within art communities and the tech industry.
While the goal of these platforms is to connect small business owners with investors looking for opportunities to back promising ventures or ideas, many small business owners wonder if this source of financing is a viable option for securing working capital.
Certainly, crowdfunding can be a great way to get friends, family, colleagues and peers excited about a promising new or developing business. Yet, it can be a mixed bag when it comes to actually obtaining capital to support day-to-day operations.
If you’re a business owner who is tempted to try crowdfunding to “find out” how much capital you can generate, it may be well worth your time to consider the drawbacks of launching a campaign, as well as the advantages of taking a small business loan instead.
Time and Effort to Create a Campaign
The most successful crowdfunding campaigns are those that include eye-catching content to support them. This makes sense when you consider that your campaign is actually competing against others on the platform. Campaigns that stand out in the crowd and have a particularly compelling message will get noticed and receive more funding than those that don’t quite have the same “wow” factor.
Once a campaign is launched, it then needs to be promoted. If you’re a savvy social media marketer, creating buzz on Facebook and Twitter can propel your brand to new audiences and potentially generate investor interest. If you’re not into online pitching, this can be a tedious, painstaking task that doesn’t always generate sufficient results.
In other words, you may be incredibly excited about your machine fabrication business and how you’ll be able to help manufacturers in your industry with your amazing products. However, crowdfunding investors might be more drawn to the solo business owner who is making unique purses crafted from beads sourced from a local village and sharing photos of them on Instagram.
If you’re going to try crowdfunding, you’ll definitely want to consider the time and money you’ll need to create and promote your campaign. This includes photos, a video, social media channels, the development of a website and maybe even a second microsite that is focused on your crowdfunding efforts. This can cost hundreds, if not thousands of dollars, along with many hours of your time. When you tally the costs for launching a campaign, it may be faster, easier and more effective to obtain capital from a lender that doesn’t require these efforts.
No Guarantees You’ll Be Funded
When you peruse the many campaigns on a crowdfunding site, you’ll see some are incredibly well-funded, while others haven’t received even their first dollar. There are no guarantees that you’ll secure funding, even if you’ve invested in creating a compelling campaign.
If you have a set amount that you need for specific goals you’re trying to achieve such as hiring more staff to cover a seasonal uptick or buying a new piece of equipment, rolling the dice with a crowdfunding campaign is not the right choice for you. An option like Kabbage that lets you apply and receive funding in a matter of minutes may be a better choice that can enable you to plan and budget what you need to succeed. It’s also important to remember that if you don’t reach your funding goal on a crowdfunding site, funds raised typically have to be forfeited.
Are you seeking a large amount of capital? Startups and small businesses are only allowed to raise up to $1 million annually from “small-dollar” investors on web-based platforms, according to the JOBS Act which passed in 2012. Thus, if you’re looking for a substantial capital infusion, crowdfunding definitely isn’t the right choice. You’ll be better off working with a private venture capital company.
Fees
Like with other types of small business financing, there are fees for raising capital via crowdfunding. Most platforms charge a percentage of funds raised that typically ranges from five to twelve percent. There are also other fees to consider such as those to process contributions.
When you add these costs to what you’ll spend on creating and managing a campaign, it may work out to be more costly than what you’ll pay to a lender for a small business loan.
The Cost of Rewards
Rewards-based crowdfunding is particularly popular with startups and new businesses because it also offers a way to test market products. Individuals contribute money to a campaign, and in return, the business provides “rewards.” For example, a jewelry designer may reward each contributor a handmade necklace. Or, a new bakery may offer each contributor a voucher for a free loaf of bread.
Any business that goes the route of offering rewards as part of a crowdfunding campaign needs to also include the investment in supplying rewards when it comes to tabulating the total cost for securing capital.
Time Constraints
Every business owner who is seeking working capital needs to carefully consider their time limitations. Applying for a traditional bank loan is a notoriously slow process that can span weeks or even months before an approval decision is made. Likewise, crowdfunding can also be slow and tedious, requiring daily monitoring and promotion.
For business owners that need money quickly, securing a source of working capital that can be accessed when it is needed is often a strategically smart decision.
Although these reasons certainly highlight why a small business loan can be a better decision for many small businesses, there are benefits to crowdfunding that can’t be denied. For some, being able to leverage the benefits of both may even be the right option. The key is considering your specific business needs, industry, and target market and choosing the right funding option that helps you achieve your goals.
Airbnb launched in 2008 and seven years later, has more than 1.5 million listings in 34,000 cities and 190 countries. No longer a trend, the brand now bears the moniker of major industry disruptor as it serves more than 60 million guests worldwide.
From college students renting out dorm rooms to small-scale hotels and motels, Airbnb is the best bang-for-the-buck marketing tool in decades. Airbnb charges hosts a 3 percent fee for every completed booking, way less than Expedia and Priceline that charge hotels up to 25 percent.
“The commission is so much more attractive,” said Stephan Westman, a hotel industry consultant who has listed hotel rooms on Airbnb, reports Fast Company. “Any hotel that needs to fill rooms, I don’t understand why they wouldn’t need to use it as one of their marketing arms.”
From boutique-style hotels geared toward millennials to traditional landlords renting multiple units (causing issues recently in Los Angeles) and old-school bed-and-breakfasts, Airbnb is upending spend-the-night-while-traveling behavior.
Fast Company reports that Eduardo, a student living in a New York City dorm room, listed an extra bed for $80 per night in a space “about 150 sq. ft. with ample closet space” and has made about $400 so far. Tuition costs have risen by 46 percent between 2001 and 2012, and Eduardo’s quite small dorm room costs him almost $9,000 per school year.
However, when Fast Company called his campus’ housing department, they said it was not permissible. “I don’t even know which reason to start with…If you’re not signing paperwork to make the sublet legal, you’re an illegal tenant.”
Pushing back against criticism of hurting the housing market, Airbnb denies being a ringleader for illegal rentals and announced last month it would start collecting hotel taxes, sharing anonymized data and asking hosts to verify they’re renting their primary residence rather than additional properties owned solely for rental purposes.
Airbnb calls it a “Community Compact” and shared the number of New York City’s 59,242 active listings posted by hosts renting out more “entire home” properties beyond their own residence. From November 2014 until November 2015, nearly 75 percent of revenue earned by active hosts in New York City came from people who have only one or two rental listings on the platform, reports The New York Times.
Expedia CFO Mark Okerstrom said, “We should take it seriously, and I think at the same time, we look at what Airbnb is doing, and we look at that as a potentially attractive opportunity for us,” reports Skift. Expedia last month acquired Airbnb’s direct competitor HomeAway for $3.9 billion.
New York State Attorney General Eric Schneiderman said that 72 percent of New York City’s Airbnb rentals are illegal, so state legislators are preparing a bill to prohibit hosts from advertising illegal units and those in violation of a 2010 hotel state law that bars the renting out of units for less than 30 days could face fines of up to $7,500 per violation.
New York would be the first state to enact such a law. An Airbnb spokesman countered: “We should be working on some common-sense changes that help middle-class families who share the home in which they live and depend on Airbnb to pay the bills,” according to the New York Daily News.
Like it or not, the Airbnb model offers valuable lessons for traditional hoteliers suggests Tnooz, including personalizing offerings, better communication via social media and building loyalty.
“The communication involved in an Airbnb transaction goes a long way to building loyalty with the Airbnb brand,” notes Tnooz. “There is no hotel name, yet Airbnb aficionados are loyal to the system, to the ‘community’ and what it represents—individual travelers looking for an individual experience. Airbnb resonates with the curious, inquisitive traveller and the company is growing at a pace never seen before. Hoteliers can ill afford to look the other way.”
Four years in the making, the European Union’s new data protection rules have finally been agreed by the European Council and await the approval of the European Parliament. But a last-minute addition has sparked a debate about responsibility and consent, by proposing to raise to 16 the “age of consent” under which it is illegal for organisations to handle the individual’s data. This would force younger teenagers to gain parental permission to access social networking sites such as Facebook, Snapchat, WhatsApp or Instagram.
While raising this digital age of consent from 13 as it is in the US to 16 would strengthen the protections they receive, there are doubts about whether it would be enforceable. How would the firms behind social networks be able to verify their users’ ages, for example, or whether they had their parents’ permission? There are already Facebook and Instagram users below the age of 16, so that would entail potentially closing those accounts – how would this be policed?
Could parents or social network providers be prosecuted for allowing the under-16s to access a social network? The proposed new EU rules, the General Data Protection Regulation, would impose heavy fines (4% of annual turnover) for those organisations or firms that breach data protection laws, which means the likes of Facebook would have a great incentive to ensure they complied. But there are few obvious ways to do this.
Additionally, any ban may lead some teenagers to lie about their age in order to create or maintain an account, potentially putting them in more danger by pretending to be older than they are. Janice Richardson, former Co-ordinator of the European Safer Internet Network, said that denying the under-16s access to social media would “deprive young people of educational and social opportunities in a number of ways, yet would provide no more (and likely even less) protection”.
Sophisticated age verification software would be needed, such as scanning machine-readable documents such as passports. But would this be sufficient to satisfy the legal threshold? This would also introduce further problems with the need to acquire and store this sensitive data.
So many social networks to choose from.Twin Design/shutterstock.com
Informed consent
One of the chief concerns during the consultation process for the General Data Protection Regulation was the growth of social networking sites such as Facebook and how data protection rules applied to them. In November 2011, the then EU Justice Commissioner Viviane Reding said she was concerned about the growth of digital advertising and the lack of understanding of how it involved harvesting and analysis of personal information. These concerns led to the decision to update the Data Protection Directive to reflect the many changes in how we use the internet since it was passed in 1995.
While the preamble to the General Data Protection Regulation states that young people deserve protection as they may be less aware of risks and their rights in relation to their personal data, this appears to be a paternalistic view adopted by the European Commission.
For example, the Swedish Data Protection Board (similar to the UK Information Commissioner’s Office) conducted a study of 522 participants aged between 15-18 and found that the majority had experienced unkind words written about them, around a quarter were sexually harassed online, and half of those on Facebook had had their account hijacked. But it also found that the young people had a generally good understanding of privacy issues.
On the other hand, a study from Ofcom, the communications watchdog in the UK, found that teenagers couldn’t tell the difference between search results and adverts placed around them, demonstrating that young people’s understanding of how the web works, and the role of their personal data, is not always sufficient – and perhaps insufficient to represent real, informed consent.
Negotiations ultimately allowed member states to opt-out from the requirement to raise the digital age of consent, but issues remain. With an opt-out agreed, member state governments may lower the age to 13, which would cause confusion due to the way the internet functions across borders. Would a 15-year-old in one country find that his use of social media became illegal as he crossed the border into another?
Facebook, which started among US universities, was originally aimed at the over-17s before dropping its minimum age to 13, hugely expanding its number of users. But this move was not without difficulties, and an estimated 7.5m Facebook users are under the minimum age. Facebook founder Mark Zuckerberg wants the 13-year-old minimum removed altogether.
The question is, can such young teenagers or children take responsibility for holding social network accounts? While concerns around protecting teenagers from the potential dangers of social networking are well-intentioned, it seems rather that the genie is out of the bottle. Parental guidance and education is perhaps a better approach than applying the long arm of the law.
Author: Rebecca Wong, Senior Lecturer in Intellectual Property and Cyberlaw, Nottingham Trent University
