Archive | September, 2014

Apple Pay – an iTunes for the card industry?

16 Sep
Credit: Tambako/Flickr

Credit: Tambako/Flick

The headline in the FT is uncompromising – “Apple Pay is poised to do for payment companies what the iPod did for the music industry” – and the piece that follows is an interesting exploration of what Apple’s announcement last week signified. So is this the end of Visa and Mastercard’s dominance of the world of card payments? (see for those with FT access.)

Probably not. Buried in the detail of that piece (and in other analysis from, for example, Mobile Payments Insider is a rather different picture, which has a lot more to do with the security features of Apple devices, and the resultant savings in fraud costs, than with the death of the card titans. The latter might usefully paraphrase Bogart :“Reports of our death are greatly exaggerated”.

Tim Cook, CEO of Apple, made much of Apple Pay being designed with the consumer in mind. Be that as it may, the biometric security technology built in to Apple’s devices will serve the more prosaic end of making payments via an iPhone and other Apple gadgets less prone to fraud. Don’t forget that the launch was in the US, a country who leads the world in patent innovation but has, for whatever reason, lagged Europe by a decade or so in the adoption of CHIP and PIN as a method of verifying payments. Apple Pay neatly gets round that impasse. And also ushers in the new era of single-use tokenisati

And at the rumoured 0.15% per transaction, the merchants, card processors and bank issuers look to have acquired something of a bargain – a price Apple is no doubt willing to concede (for now) to secure its seat at the global payments table, and to lure the banking top brass to Cupertino to pay homage.

So what do the card titans lose? Well, the physical plastic card may not be as ubiquitous as heretofore, but that will probably save them in renewals and lost card replacements. Their infrastructure, and charges to merchants for processing, will roll on pretty unchanged. True, their own e-wallet offerings may now be quietly shelved or allowed to wither on the vine – but that again will yield savings on investments. Perhaps the biggest blow will be to their plans to expand their scope. Apple is pushing them firmly back into a payments processing box and saying “leave the customer side to people who know what they are doing.” Which, as anyone who uses Verified by Visa or the Mastercard alternative will testify, is probably no bad thing.

Confessions of a forecaster

7 Sep

An interesting piece in this weekend’s FT magazine on forecasting by the undercover economist (and FT contributor) Tim Harford (see if you have an FT subscription; it’s in the magazine in hard copy).

My interest comes from the odd desire I had when in my twenties to do econometrics, which led, given I was an economist in government at the time, to spending five years in HM Treasury as a macro economist and member of their forecasting team.
It was an interesting time to be there (from 1980 to 1985) as it was just after the arrival of the first Thatcher government. And I arrived as GDP was falling through the floor – 1979-83 was the worst post war recession until the 2008 crisis, with a peak to trough drop in GDP of 6%.
So did the forecasters foresee this? Not really, although there was a significant “change of view” at some point in 1980 when realisation dawned that it was going to be pretty awful. And the forecasters stuck to their guns in saying that any recovery would be slow – and were quite right in doing so.
The worst of the forecasting exercises was the “Medium Term Assessment” (MTA), which in practice was simply a Panglossian exercise in saying that we would get back to trend growth in the medium term. Adequate commentary on this was given by my undersecretary saying at some point in 1981 (the depths of the recession) “but when we did the MTA in 1975, this was the year it was all going to come right”.

So what do my ramblings have to do with Tim Harford’s piece? Well, it focuses on the work of the Good Judgement Project ( which has uncovered some interesting insights into why forecasting does or does not work and how it can be improved. Key to it is that many forecasters are not, surprisingly enough, interested in being accurate – they are instead more focused in advancing a political cause (shades of the MTA again). If you want to be a good forecaster, forget that (an obvious source of bias). Instead, the Good Judgement Project recommends teamwork, keeping score (so error correction) and open – mindedness.

So on this basis setting up the (newish) Office of Budget Responsibility was a good move, and its forecasts should be better than the old, politically influenced, HMT ones. Well, there’s a Popperian falsifiable proposition for you!