Tag: banks

A world of criminal sheep

Are we are all criminally inclined sheep that need to fleeced and controlled?

Notorious unpaid blogger Michael Arrington recently described his battle with a bank over direct debit charges.

To overcome a fraudulent recurring charge on his credit card, Arrington cancelled his account only to find the bank moved the recurring charges to the new card, a ‘service’ designed to avoid fraud and save customers the hassle of re-establishing legitimate direct debits after a new card is issued.

Both of those are noble reasons but the core of this philosophy lies in a contempt for customers which can be summarised in two principles.

A customer is;

  1. A sheep to shorn of any available cash through sneaky fees and shady business practices
  2. A criminal

In the 1980s business school view of the world, customers are criminally inclined sheep who have to be regularly shorn to enhance profits and controlled so they don’t go anywhere else.

Only businesses operating in protected environments can get away with this today and the two obvious sectors are banking and telecommunications.

The telco industry long soiled its nest with consumers with dodgy charges and a contempt for customers which reached a peak (nadir?) with the ring tone scams where kids had their phone credits pillaged by fees they never knew they had signed up for.

While those dodgy charges paid the handsome bonuses of telco executives, it proved to another generation of consumers that these companies see their customers as sheep to fleeced on a regular basis.

Ironically it’s that lack of trust that dooms the telcos in the battle to control the online payment markets – their practices of the 1980s, 90s and early 2000s mean few merchants or consumers will trust them as payment gateways.

One of the strengths banks bring to that market is trust. Like cheques, credit cards succeeded as a payment mechanism because people could trust them.

In screwing customers over direct debit authorisations, the banks are damaging that trust as Arrington says “I really don’t think I’m going to be giving out my credit card so freely in the future.”

That’s a problem for businesses as direct debiting customers have been a good way to ensure cash flow and reduce bad debts but when clients perceive there is a high risk of being ripped off they will stop using them.

Businesses that insist on direct debits will be perceived as potentially dodgy operators who rely on locking customers into unfair contracts rather than providing a decent service for a fair price.

So the banks’ position of legal power works in their short term interest and against them – and the merchants using their services – in the longer term.

While bank and telco executives with safe, government guaranteed market positions will continue to treat customers like criminal sheep it’s something the rest of us can’t get away with.

The winners in the new economy are those who deserve to be trusted by their customers and users, if you’re abusing your market and legal powers then you better hope politicians and judges can protect your management bonuses.

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Continuing the online payments battle

Mastercard’s PayPass is a direct challenge to Visa and PayPal

Today Mastercard announced their PayPass service, a “digital wallet” that allows consumers to pay through various online channels including the web and their smartphones.

Mastercard’s PayPass is the latest move in the battle to control the online payments industry as consumers move from plastic cards to using their mobile phones and Internet devices.

One of the interesting aspects of PayPass is how it is a direct challenge to PayPal who in turn recently launched their PayPal Here service which threatens incumbent credit card services like Mastercard and Visa along with upstarts like Square.

While its early days yet in the mobile payments space as consumers slowly begin to accept using smartphones and tablet computers to pay for goods and services, its clear the industry incumbents are moving to secure their positions in the market place.

It’s going to be interesting to see how this develops, many merchants will be hoping this competition starts to drive down transaction costs.

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Should Australia pass a jobs act?

Can legal reform help Australian start ups?

Last week the US President signed the Jumpstart Our Business Startups (JOBS) Act into law.

The US law seeks to make funding easier for new businesses by lifting the burden of regulations like the Sarbannes Oxley Act (SOX) and various other financial rules.

One of the main planks of the reforms is it changes shareholder thresholds, for instance allowing 2,000 investors rather than 500 maximum before it has to go public, and allows companies to advertise their shares subject to certain restrictions.

Whether it achieves the stated aim of allowing new innovative businesses to raise funds or triggers a new generation of “boiler rooms” and investor fraud remains to be seen but it begs the question of should Australia pass a jobs act.

The funding crisis

There is no doubt Australia has a business funding crisis. Before the global financial crisis of 2008, it was difficult for smaller business to access finance.

In the aftermath of the GFC, it became even harder for businesses to raise funds as banks withdrew from the small business sector, increased their lending rates and tightened criteria.

While this situation has eased somewhat, partly due to the entrance of new angel and VC investment funds, financing of startup and small business is patchy and still tough.

An Australian Jobs Act would make it easier for business to raise funds and well crafted one might encourage both self managed and public superannuation funds to allocate some of their investments into the startup and innovation sectors.

A Scammer’s dream?

One of the big criticisms is that it reduces investor protections; while it restricts investors with less than $100,000 in annual income from punting more than 5% of their income, it’s quite clear in a full blown mania the Jobs Act will enable plenty of shoeshine boys and self funded retirees will do their life savings.

The question of course is how well the existing regulations protect investors or the community given the financial disastersof 2008.

Despite tough rules like SOX and the Basel Agreements, massive institutionalised fraud occurred and it’s surprising there have been no reforms in these rules given the huge and unprecedented costs of rectifying the problems.

In an Australian context, it’s clear local regulations aren’t working when thousands of investors are defrauded by their financial advisors in financial planner led scams like Westpoint. So reform is due.

While it’s clear the legislation isn’t working, it’s also clear the Australian financial planning industry doesn’t have the skills or ethics to advise clients should a local Jobs Act be passed.

Perhaps we should be accepting there is risk in investing and an Australian Jobs Act could help by simplifying business rules and improving transparency in accounts rather than bogging business and investors down in masses of unread paperwork.

Is the US experience valid?

Looking at the US Jobs Act it appears the Silicon Valley insiders are finding ways to extend their business models, whether this is successful creating new American jobs or just enriching the good folk of Sand Hill Road will pan out in the next few years.

For Australia it’s important we reform our laws to make business and innovation easier though we need to be careful we don’t ape the worst aspects of the Silicon Valley business model.

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