Switzerland surprised to hear it will be regulating Facebook’s cryptocurrency

In a testimony before the US Senate Facebook indicated its Libra cryptocurrency will run from Switzerland, but it forgot to ask the Swiss if that was OK.

David Marcus, who is heading up Libra on Facebook’s behalf, testified before the US Senate Banking Committee in response to profound alarm from US lawmakers at the prospect of the social media giant developing its own currency. According to CNBC he said the data and privacy regulation of the currency will be overseen by a Swiss agency, as that’s where Libra will be based, but they say that’s the first they’ve heard of it.

In his testimony, which you can watch in full here if that’s your thing, Marcus said the Swiss Federal Data Protection and Information Commissioner (FDPIC) will keep an eye on the data protection side of things, which must have only offered partial reassurance to US senators worried their citizens were vulnerable to having their data exploited yet again.

Imagine their horror, then, when they read the CNBC report and learned that Facebook and its Libra pals haven’t even made contact with the FDPIC yet. This failing, later confirmed by Facebook itself, it just the latest slip-up in what has been a frankly shambolic launch. You’d think Facebook would have dotted every ‘i’ and crossed every ‘t’ before unveiling a grand plan to revolutionise the global banking system and its failure to even check in with one of the proposed regulators it just embarrassing.

As TechCrunch notes, the data privacy side of all this is arguably the greatest concern as there will apparently be little control over developers that use the platform. Given the negative consequences of a fairly minor misuse of Facebook user data by Cambridge Analytica it’s baffling to see Facebook be so cavalier about this. The likelihood of Libra ever being set free is, on balance, increasingly small.

US lawmakers formally demand a halt to Facebook’s Libra cryptocurrency

As threatened a couple of weeks ago, the House Financial Services Committee has called for Facebook to halt its cryptocurrency plans.

The demand came in the form of a letter signed by the Chairwoman of the Committee Maxine Walters and a few other members of the House of Representatives that share her concerns. The letter was addressed to CEO Mark Zuckerberg, COO Sheryl Sandberg and CEO of Calibra, the company Facebook created to exploit the Libra opportunity, David Marcus.

“We write to request that Facebook and its partners immediately agree to a moratorium on any movement forward on Libra—its proposed cryptocurrency and Calibra—its proposed digital wallet,” opened the letter. “It appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival U.S. monetary policy and the dollar. This raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook’s over 2 billion users, but also for investors, consumers, and the broader global economy.”

The letter went on to detail quite how worrisome this disruption to the established way of things is and how little Facebook has done so far to allay these worries. The main concern seems to be similar to that attached to all cryptocurrency, that it will provide liquidity to ‘bad actors’. The difficulty of the US poking its nose into an organization based in Switzerland seems to be the main national security concern. They also spend a paragraph reviewing Facebook’s dodgy privacy track record.

“Because Facebook is already in the hands of a over quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” concludes the letter. “During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.”

Facebook and its partners must have anticipated this kind of reaction when they made their announcement. The Libra project is so grand in its scope and ambition they couldn’t possibly have expected authorities to adopt a laissez faire attitude, even if Facebook had a spotless reputation. It’s also hard to see how Facebook can do anything other than comply with the request and prepare itself for an exhaustive oversight process. Don’t expect to see Libra in the wild anytime soon.

US politicians alarmed by Facebook’s cryptocurrency masterplan

The announcement of a new currency led by Facebook has caught the attention of US law-makers and not in a good way.

The Chairwoman of the House Financial Services Committee, Maxine Waters, is alarmed by the prospect of a massive company with a patchy track record when it comes to data protection and censorship having control of a global currency. She published the following statement on the matter soon after the unveiling of Libra.

“Facebook has data on billions of people and has repeatedly shown a disregard for the protection and careful use of this data,” said Waters. “It has also exposed Americans to malicious and fake accounts from bad actors, including Russian intelligence and transnational traffickers. Facebook has also been fined large sums and remains under a FTC consent order for deceiving consumers and failing to keep consumer data private, and has also been sued by the government for violating fair housing laws on its advertising platform.

“With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users. The cryptocurrency market currently lacks a clear regulatory framework to provide strong protections for investors, consumers, and the economy. Regulators should see this as a wake-up call to get serious about the privacy and national security concerns, cybersecurity risks, and trading risks that are posed by cryptocurrencies.

“Given the company’s troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues and take action. Facebook executives should also come before the Committee to provide testimony on these issues.”

Waters isn’t the only representative to express concern and at least one Senator has joined the party, as you can see in the tweet below. Regulators are going through a period of realising they were very slow to acknowledge the magnitude of social media and they should be keen to show they’ll be less complacent about money than they were information. It seems likely that Facebook will have to jump through a lot more hoops to launch this product than it has had to previously.

Facebook leads corporate cryptocurrency initiative Libra

Social media giant Facebook has announced the launch of Libra, a ‘stablecoin’ apparently designed to revolutionise the digital payments market.

Such ambition would be highly questionable if it weren’t for the fact that Facebook has managed to get loads of other blue-chip companies involved, including Visa, Mastercard, PayPal and Coinbase. This gives the project a sense of scale and legitimacy that it wouldn’t have if this was just another gimmick to help Facebook exploit its users once more.

“Libra’s mission is to create a simple global financial infrastructure that empowers billions of people around the world,” blogged Facebook CEO Mark Zuckerberg. It’s powered by blockchain technology and the plan is to launch it in 2020. This is especially important for people who don’t have access to traditional banks or financial services. Right now, there are around a billion people who don’t have a bank account but do have a mobile phone.”

Blockchain is a pretty complicated business, so to get how this works we recommend you go to the Libra site, read the Libra white paper and watch the videos below. Libra is described as a ‘stablecoin’, which means its value is pegged to regular currencies and thus won’t fluctuate like Bitcoin famously does. There’s also talk of almost no fees, so it will be interesting to see what incentive all the members of the Libra consortium have to participate.

Facebook’s own interests will be represented by a subsidiary called Colibra, which will produce a digital wallet that will be available in Facebook’s messaging apps as well as its own standalone one. “From the beginning, Calibra will let you send Libra to almost anyone with a smartphone, as easily and instantly as you might send a text message and at low to no cost,” said the announcement. “And, in time, we hope to offer additional services for people and businesses.”

This seems like a very ambitious project, the motives for which are still somewhat unclear. The narrative is all about extending financial services to the unbanked, but you have to assume Facebook expects to monetise this service eventually. The prospect of a company that unilaterally excludes any users it disapproves of being in control of a global currency is chilling.

 

NYC public transport finally gets the mobile payments memo

Despite the US being the leading voice in the technology industry, adoption of some pretty well-established technologies has been lagging across the country.

That is about to change in New York before too long, as the public transport system gets a much-needed upgrade to include Near-field communication (NFC) payments. Last week, Google announced it had integrated its payments system into the New York public transport system, and now Apple is getting in on the movement.

The contactless payment revolution has been sweeping the globe in recent years, drastically changing the way we work, play and get around. In London, for example, you can almost hear the groans of waiting customers when the now “old fashioned” chip and PIN method of payment is used. But contactless payments are now much more wide-spread than a speedy round of beers down the pub.

Contactless payments were first introduced on London buses in December 2012, and later extended to Underground and National Rail services in September 2014. The Oyster Card system is quickly becoming a thing of the past, with Transport for London (TfL) now claiming more than 50% of journeys are completed using contactless payments. In fact, TfL believes it is saving between 9-14% on fare collection because of the introduction of contactless payments.

Of course, London is not the only city which is making use of the new technology. Globally, there are now more than 100 cities making use of contactless payments, including the likes of Sydney (introduced in 2018), Moscow (2017) and Madrid (2017).

What is worth noting is there are different types of systems. Madrid, for instance, requires you to buy a specific ticket as opposed to using your debit of credit card, while Sydney only upgraded to NFC mobile payments earlier this year. That said, progress is progress.

And the benefits are more than just operational efficiencies for the public transport systems. It is substantially quicker than traditional means, a very important factor when you consider how many people are moving out of the countryside and into the cities nowadays. According to the UN, 68% of the world population is projected to live in urban areas by 2050, up from c.55% today. There will be considerable strain placed on public transit systems before too long.

In New York, this is an upgrade which is long-overdue. Google is introducing its mobile payments systems to the Subway from May 31st, as will Apple. The tap-to-pay system will only be available on the 4/5/6 lines between Grand Central Station in Manhattan and Atlantic Avenue-Barclays Center in Brooklyn to start with, as well as the buses in Staten Island. This is only the beginning however, as the plan is to rollout the system across the entire public transport network over the next few months.

Over time this system will begin to improve. Google has already said it will continue to work with The Metropolitan Transportation Authority to bring more features with Google Maps and Google Assistant, much like it does with many other cities around the world.

Welcome to the digital world New York!

Apple capitulates to end war with Qualcomm

Qualcomm and Apple agreed to settle all the ongoing litigations with the iPhone maker paying the chipset maker an undisclosed amount and signing a six-year licensing agreement.

On Monday, Qualcomm and Apple went to court over the allegation that Qualcomm has been abusing its monopoly position to over-charge for its chips. The stakes could have run up to tens of billions of dollars, with the OEMs Foxconn and Pegatron already demanding compensation of $9 billion dating back to 2013. The case at the Southern District Court of California in San Diego was meant to last for five weeks.

On Tuesday, the two companies released a brief statement to announce a settlement. “Qualcomm and Apple today announced an agreement to dismiss all litigation between the two companies worldwide. The settlement includes a payment from Apple to Qualcomm. The companies also have reached a six-year license agreement, effective as of April 1, 2019, including a two-year option to extend, and a multiyear chipset supply agreement.”

This is definitely good news for the two companies especially for Qualcomm, and good for the industry and consumers. Specifically, for Qualcomm it means its business model will remain intact and the company can put an end to a multi-year legal saga; for Apple, in addition to avoiding the punitive $31 billion penalty, this settlement will be able to quicken its steps to launch a 5G iPhone, making up the gap already expanding between itself and the leading pack.

A few hours later, Intel announced that it intends “to exit the 5G smartphone modem business and complete an assessment of the opportunities for 4G and 5G modems in PCs, internet of things devices and other data-centric devices. Intel will also continue to invest in its 5G network infrastructure business. The company will continue to meet current customer commitments for its existing 4G smartphone modem product line, but does not expect to launch 5G modem products in the smartphone space, including those originally planned for launches in 2020.”

It must have been a blow to Intel’s mobile ambition, especially after it announced only late last year that it would bring the launch of its first 5G modem forward by half a year to the second half of this year, an act to prove the doubters wrong. That originally planned 5G modem to be launched in 2020 referred to in the announcement, presumably a second generation, was supposed to power the first 5G iPhone, after Apple all but officially declared that it would enter into an exclusive relationship with Intel.

Putting the two things together it may be reasonable to infer that Apple agreed to settle after it had realised that it does not have other options than coming back to Qualcomm for the supply of 5G modems (assuming Intel had updated Apple about its imminent decision to withdraw from the market).

In addition to leaning in on Intel, Apple has also been reported to be strengthening its in-house modem development capability, ultimately aiming to rid itself of reliance on external suppliers. Based on the terse announcement released together with Qualcomm, it looks Apple does not believe the home-grown modems will be good enough to compete with Qualcomm in the next few years. Huawei is another supplier that has launched its own 5G modem, but it may be safe to estimate that the chance of Apple going for Huawei chips is slim.

In keeping with the normal practice of settlement cases like this, the companies did not disclose the amount Apple will pay. However, Qualcomm updated the SEC shortly after the settlement announcement was made, as the settlement would have material impact on the earnings. The company expected an EPS incremental of about $2 “as product shipments ramp” without giving a specific timespan. As a reference, in the quarter ending 30 December 2018, Qualcomm delivered an EPS of $0.87 on the back of a total revenue of $4.8 billion. Therefore, assuming Qualcomm’s operational efficiency remains largely constant, the payment Apple will make could run into the $10 billion range.

Payment aside, there must be some soul-searching going on inside Apple, including by Tim Cook, the CEO, who came from a supply chain management background: how could Apple have let itself be cornered so badly in the first place? It’s hard to view this as anything other than complete humiliation for Apple, especially when you consider how aggressively it pursued this case.

On top of the millions it will have paid to lawyers Apple’s negotiating position in arriving at this settlement, considering what was widely assumed about its 5G modem situation, must have been very weak. So it’s quite possible Apple has ended up paying considerably more for Qualcomm’s chips than it would have if it had never initiated this war. Having said that, Apple’s share price seems completely unaffected by the news, probably indicating offsetting relief that it’s back in the 5G game. Qualcomm’s share’s however, surged 23% on the news.

Apple announces original content, a credit card and a news subscription service

Apple’s big services event didn’t disappoint, with a bunch of potentially disruptive launches together with new levels of hyperbole and clapping.

The headline service was Apple TV+, which marks Apple’s first major foray into original content. We were treated to an interminable procession of Hollywood types, starting with Stephen Spielberg and culminating with Oprah Winfrey, all taking it in turns to come onto the stage and hype their projects. Judging by the line-up Apple has realised it needs to spend big if it wants to take on the likes of Netflix.

As ever the audience of media and analysts at the live event were about as objective and sceptical as hungry puppies. Every pause in the polished narrative was filled with rapturous applause and ecstatic whoops. So choreographed was it that we wouldn’t be surprised if there were prompts and the tendency to cheer at the mere mention of a new product without waiting to even find out anything about it was especially jarring.

As was Apple CEO Tim Cook’s toe-curling hyperbole. “TV at its best enriches our lives and we can share it with the people we love,” he pronounced at the start of the TV announcement. The original content bit was preceded with the revelation that “great stories can change the world.” This sort of stuff was pretty hard to stomach when Steve Jobs was delivering it, but his messianic zeal just about pulled it off. Cook offers little such salve.

The other potentially disruptive announcement was a new Apple credit card called Apple Card. This had been rumoured for a while and, as expected, it has been create in partnership with Goldman Sachs and MasterCard. In reference to Apple Pay Cook felt compelled to say “Its growth has been literally off the charts,” for some reason. The most intriguing part of the card is the offer of 2% cash back on every purchase, which makes you wonder how much merchants are going to get stung for its use. There’s also a physical card made out of titanium that only offers 1% for some reason.

Apart from that we got a couple of new subscription services. The more significant one is for news and magazines that will set you back a tenner a month and will be positioned as a potential solution to the cash crisis faced by the media, but let’s see. “We believe in the power of journalism,” said Cook. There was also a teaser for a games subscription service that will offer exclusive titles and make it easier to play across platforms.

“We’re honoured that the absolute best line-up of storytellers in the world — both in front of and behind the camera — are coming to Apple TV+,” said Eddy Cue, Apple’s SVP of Internet Software and Services. “We’re thrilled to give viewers a sneak peek of Apple TV+ and cannot wait for them to tune in starting this fall. Apple TV+ will be home to some of the highest quality original storytelling that TV and movie lovers have seen yet.”

“Apple Card builds on the tremendous success of Apple Pay and delivers new experiences only possible with the power of iPhone,” said Jennifer Bailey, VP of Apple Pay. “Apple Card is designed to help customers lead a healthier financial life, which starts with a better understanding of their spending so they can make smarter choices with their money, transparency to help them understand how much it will cost if they want to pay over time and ways to help them pay down their balance.”

“We’re committed to supporting quality journalism, and with Apple News+, we want to celebrate the great work being done by magazines and news outlets,” said Lauren Kern, Editor in Chief of Apple News. “We think the breadth and quality of publications within Apple News+ will encourage more people to discover stories and titles they may never have come across before.”

Note Apple News has an Editor in Chief. Cook made it clear that Apple would only serve up the right kind of news for its subscribers and he has been clear about his willingness to impose a moral filter on everything Apple does. You have to wonder how empowered to interfere with the content published on Apple News this Editor in Chief will be.

“This represents a landmark moment for Apple with a major event solely focussed on services,” said Analyst Paolo Pescatore, who was at the event. “It underlines a growing and strong focus on services as a future source of revenue growth. In essence Apple is seeking to become a Netflix of everything in services; music, news and magazines, video and games.

“Netflix has done a great job to date. However, more content and media owners will pull programming off its offering. This represents a significant opportunity for the likes of Apple who has scale and greater resources. There are too many players chasing too few dollars. The market will evolve towards a handful of players in the future.”

Apple idiosyncrasies aside this felt like a fairly solid  launch event. The company has an amazing track record of disrupting industries and seems likely to do so again with original TV content and consumer finance. The scene is set for a content arms race with only the biggest spenders likely to survive and Apple has a deepest pockets of all. Game on, here are some vids.

 

Apple and Goldman Sachs may soon issue a credit card together

The Wall Street Journal reports that the iPhone maker from Silicon Valley and the Wall Street stalwart are mulling over the idea of jointly issuing a credit card to Apple users.

Quoting people familiar with the situation, the paper claimed that Apple and Goldman Sachs may start a trial of the card on their own staff in the coming weeks before it is launched later in the spring. A similar partnership was earlier reported in May 2018 by the same paper.

If this does happen, it will not be the first time Apple takes part in card issuing. The company has already partnered Barclays to issue Barclaycard with Apple Rewards, by which users can earn points from purchases made at Apple or elsewhere, which can then be converted to Apple Stores or iTunes Store coupons.

Nor is Apple the only internet company to issue bank cards. Amazon, for example, has partnered with multiple banks (including RBS and NatWest in the UK) to issue different kinds of credit, debit, cash-back and other types of cards with different benefits.

Where the Goldman Sacks card will be different, according to the WSJ article, is its tighter integration with features offered by the Apple Wallet app on the iPhone and the iPod Touch.

By now, users of Apple Wallet can store in the app “credit, debit, and prepaid cards, store cards, boarding passes, movie tickets, coupons, rewards cards, student ID cards” etc. Then users can use “passes on your iPhone to check in for flights, get and redeem rewards, get in to movies, or redeem coupons. Passes can include useful information like the balance on your coffee card, your coupon’s expiration date, your seat number for a concert”, and so on.

The speculated card is said to work with these Wallet functions as well as with upcoming features. For example, Wallet may keep spending limits, track rewards, encourage users to pay down their credit card debt, and manage balances. These will not be fundamentally new ideas. Apple Watch is already attempting to improve the user’s physical wellness, and the recent update on iOS has added notification of user’s screen time.

This may bring addition benefit to Apple, at a time when its Products business is slowing down while Services is growing to be more important. As a concrete example, Apple could get higher commission fee from transactions on its own cards then on those made through Apple Pay linked to cards issued by other institutions.

For Goldman Sachs, on the other hand, the main driver would be the iOS users. Traditionally an investment and wholesale bank, Goldman Sachs only recently opened an online retail banking business in the shape of Marcus by Goldman Sachs. A joint credit card would be a good channel to access the iPhone users, which are believed to be higher spenders among smartphone users. Eventually, WSJ claimed, the card may expand to offer personal loans, wealth management services, and other financial products, which would be closer to Goldman Sachs’ heart.

JP Morgan launches its own cryptocurrency but don’t get too excited

JP Morgan has created the first cryptocurrency to be backed by a U.S. bank but you can’t buy any and it’s not obvious what the point of it is.

“The JPM Coin is based on blockchain-based technology enabling the instantaneous transfer of payments between institutional accounts,” said an announcement based on gibberish-based grammar. In essence this seems to be a digital mechanism designed to speed up the movement of money within JP Morgan’s systems, nothing more.

They gave the exclusive to CNBC, which also got to chat to Umar Farooq, head of JP Morgan’s blockchain projects, who likes to start his sentences with ‘so’. “So anything that currently exists in the world, as that moves onto the blockchain, this would be the payment leg for that transaction,” he said. “The applications are frankly quite endless; anything where you have a distributed ledger which involves corporations or institutions can use this.

“Money sloshes back and forth all over the world in a large enterprise. Is there a way to ensure that a subsidiary can represent cash on the balance sheet without having to actually wire it to the unit? That way, they can consolidate their money and probably get better rates for it.”

So in essence JP Morgan is offering to exchange their client’s dollars for cryptocurrency tokens representing exactly the same amount, which it reckons they’ll be able to move around more easily. This is quite a different concept to something like bitcoin, which has seen massive fluctuations in its value against the dollar. One JPM Coin will always be worth one dollar.

JP Morgan’s Q&A sheds a bit more light on the matter. It has much more in common with stablecoin than cryptocurrency in that it’s strictly pegged to the dollar, so it’s basically a digital IOU. The big difference is that JPM Coin is private and only available to JP Morgan institutional customers. Once again: the main point of it is to reduce settlement times, nothing more.

Right now JPM Coin is still in its prototype phase and the stated use-case feels like a bit of an anti-climax for people hoping this signifies the next phase of the cryptocurrency revolution. Maybe the such a public endorsement of the technology by a big establishment name will catalyse something, but it’s unlikely to be the kind of total financial autonomy for the individual dreamt of when bitcoin first arrived on the scene.