As I sat listening to George Osborne’s Budget the other week I was wondering what major impact, if any, it might have on the banking sector and, of course, on the price of the pint in my hand that lunchtime. Well the ‘journalist tax’ on beer went up by 4p unfortunately and bankers weren’t spared either with the bank levy going up to ensure that the industry didn’t benefit from the reduction in corporation tax, which fell by 2% on 1st April and is due to be cut by 5% in total over the next three years.

As Matthew Barling at PwC commented, “given the government’s objective for London to remain a world leading financial centre, it’s surprising the Chancellor felt it necessary to offset the benefits of the tax cut by increasing the bank levy”. Angela Knight of the BBA fumed that the rising levy “represents an additional fixed cost for larger banks” and pointed out that it controversially includes business that banks are doing outside the UK, calling for arrangements to be put in place to avoid this double taxation.

More encouragingly, there was some support for the technologists of the future with £80 million of ‘new’ money for science in the Budget to fund new national research centres at Daresbury, Norwich and Cambridge, although the money actually came from the bank levy. £180 million is to be spent on 50,000 additional apprenticeship places over the next four years as well, as the Chancellor doubled the number of planned new University Technical Colleges from 12 to 24. According to John Cridland, director general of the CBI, this will “boost the number of science and maths graduates that businesses really need”. Hopefully, some of them may end up designing the algos of the future.

The announcement of new UK enterprise zones, with a doubling to more than 20 such low-tax and low regulation areas now planned, could also potentially impact the financial services industry in that one of the zones covers the Royal Docks area in London’s docklands – could Canary Wharf, and the many banks that are now based there, push even further east away from the City perhaps and develop the wastelands around the Royal Docks? Only time will tell …and the same verdict must be given to the Green Investment Bank (really a fund) that is supposed to help finance all those new energy efficiency and renewable technology companies that will bring jobs back to the UK. They might, but not until 2012 at the earliest as the Chancellor delayed its activation, while adding £2 billion to its coffers.

By the way, ciggies went up too by 50p a packet in the Budget, but thankfully I gave them up long ago. I’d have to have gone outside the pub to have enjoyed them anyway.

• click HERE for the full Budget 2011 report

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Global payments revenues fell at a compound annual rate of 7% from year end 2008 through 2010, according to US-based management consultancy Boston Consulting Group’s 10th annual payments survey, Global Payments 2011: Winning After the Storm.

 This decline in revenues came despite increases in overall volumes (up 5%) and values (+3%) during the same period. BCG’s report said volumes and values are back to pre-financial crisis levels.

Credit card transactions, once a real money-maker for banks, suffered a decline, particularly in the US where rising unemployment dampened card transactions. In Europe, said BCG, the Single Euro Payments Area forced banks into a rethink of their operating models and IT architectures.

Retail payments revenues fell dramatically in Europe during the period, from $173 billion in 2008 to $136 billion in 2010. BCG predicts that over the next decade, wide variations among payments markets in Western Europe and Central and Eastern Europe will exist. Western European payments values will increase by around 5% annually, while in CEE growth rates will be 11% (driven largely by Russia). In the US, BCG expects payments revenues in the next decade to grow by 5% annually.

Wholesale payments volumes are expected to post annual growth of 9% globally during the next ten years and revenues will increase from $169 billion to $471 billion.

The report cites “regulatory disruption” more than once in explaining the loss of “sizeable chunks of income” for financial institutions involved in the payments industry. For example, in the US, regulations including the Credit Card Accountability, Responsibility and Disclosure Act of 2009, the Durbin Amendement (part of the Dodd-Frank Act) and modifications to Regulation E (which establishes the rights, liabilities, and responsibilities of participants in electronic fund transfer systems) could remove as much as $25 billion in annual retail transaction revenues from financial institutions, says the report.

Characterising the current payments industry as one in transition, the report states: “Rigorous government regulation can have a dramatic impact on payments economics, sometimes necessitating strategic transformations. Such regulation is currently having a major effect on the US market and a substantial (but lesser) effect on the Western European market. These two markets each accounted for about 25% of global payments revenues in 2010.”

In Asia Pacific, regulation differs depending on whether the market is mature or emerging. In mature markets, regulation is aimed at enabling efficient payment mechanisms and competitive market structures. In emerging markets, said BCG, it is used to create a basic framework for the payments business. It cites India, where the National Payments Corporation of India has been charged with building an infrastructure to facilitate better interbank connectivity. Indian regulators have also mandated free customer access to the ATMs of all banks (as exists in many Western countries).

During Swift’s annual Sibos operations conference in Amsterdam last year, Eric Modave, chief operating officer at Barclays Africa, called for better payments regulation for emerging market regions, particularly India, Africa and Latin America. Modave’s concern was that the growth in mobile payments solutions in these regions made it important to regulate, given that mobile telecos were not banks.

The regulation bogey-man aside, BCG’s report is fairly optimistic, setting out strategies financial institutions need to pursue in order to capture the “resurgence” in payments volumes. Unsurprisingly for a consultancy, BCG has suggested that financial institutions rethink their operating models and strategies.

Financial institutions must try to strike a balance between standardisation and customisation, designing the “right business models” and identifying which elements of the core operating models can and cannot be consolidated and used efficiently across different markets, customer segments and products.

BCG says the question of how banks strike this balance depends on whether the market they are addressing is mature or transitioning (the latter characterised by a high percentage of unbanked consumers, above average real income growth and relatively young and fast-growing populations). These transitioning markets, said BCG, were also poised for developments such as mobile payments, payments innovations and the entry of non-bank players.

In the wholesale payments market, financial insitutions need to make significant investments in improving overall capabilities, client coverage and regional scope. “In the post-crisis era, transaction banking will remain a significant opportunity for financial institutions,” said the report. “Leading global institutions are assigning more importance to transaction banking from an organisational perspective.”

While BCG suggests that a rethink of operating models and strategies will help financial institutions to recoup lost payments revenues, the real driver ultimately will be an economic recovery. As austerity measures across Europe bite ever harder a resurgence in payments revenues looks unlikely and for many but the largest transaction banks, a rethink may be as effective as rearranging the deckchairs on the Titanic.

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“Cash is my competitor. I get pleasure from seeing the amounts of cash used going down and I don’t like to see customers using our cards to visit ATMs.” So said Peter Ayliffe, chief executive of Visa Europe, last night at Lloyds of London during an FS Club speech entitled ‘The Cashless Society’, which also outlined what he sees as the principal growth areas for the company – pre-paid cards; e-commerce and mobile payments. “The latter two will experience some convergence as well over the coming years,” added Ayliffe.

The cashless society presentation, which identified an obvious ‘enemy’ for the card scheme, also covered the issue of contactless cards and mobile contactless payments (MCP) in the future, with Visa Europe’s Ayliffe declaring that the Olympics games in London in 2012, which Visa are sponsoring of course, will be a contactless event. “You can come to the games and you will not need cash.” Something that was reinforced today by Mayor Johnson’s announcement that London buses will be accepting contactless bank cards for payment in time for the Olympics

“By the end of 2012 you could live in London without cash, if you so wished,” said Ayliffe. “I’m not saying that there won’t be cash, there will but if you decided you didn’t want to use it then that would be possible.”

The rise of alternative payment forms was illustrated by slides and video showing how debit cards have now overtaken the value of cash transactions in the UK, for example, and there are now more than 20 million contactless cards in the country, with tens of thousands of readers already in place as the acceptance infrastructure – which can be used for mobile contactless payments as well – grows rapidly.

“The next stage is to focus on consumer acceptance and uptake,” said Ayliffe before he proceeded to screw up a £20 and throw it off the stage, subsequently followed by his plastic cards and then his entire wallet to illustrate the point that you won’t need these things in the cashless society of the future.

Ayliffe did admit however that 78% of all payments in Europe are still in cash, so there’s a large challenge ahead in reducing this and to his credit the head of Visa Europe didn’t sound the death knell for notes and coins. Cash isn’t going anywhere fast and although overall usage may decline in future years, to talk about the cashless society at this stage is a bit premature and optimistic.

The presentation did however address the enormous changes underway in the payments world in recent years and wider issues, such as the Single Euro Payments Area, the huge number of online shopping transactions now being processed, and the fact that Google, Facebook and others could all become future players.

The rise of the customer-facing mobile channel – for remote payments, mobile contactless payments and e-wallet applications – was of course also covered, with Ayliffe commenting that there are now 4.8bn mobile phones in the world, “although it’s probably more since they last counted. There are ‘only’ 2.5bn Visa cards in the world – that’s why the mobile is so important. Indeed at last week’s Mobile World Congress in Barcelona the CEO of Sony Ericsson predicted that there would be 50bn internet-enabled phones in the world by 2020.”

This presents opportunities and threats to the established payment processors, card schemes, banks and other traditional players in financial services but as Ayliffe pointed out: “If you get involved in mobile payments be aware that you’ve got to manage standards [currently being developed by the EPC m-channel working group and the GSMA], chargebacks, disputes, regulations, and be appropriately licensed and so forth.” Providing security – both practically and emotionally – to consumers is paramount and it’s not as easy to enter the mobile banking and payments world in Western developed countries where security standards are already well established as it is, say in Africa where the rise of remote mobile payments and remittances has been such a striking feature in recent years.

Still despite the challenges, Ayliffe still said he views now as “one of the most exciting times for payments”. Technology isn’t the problem, he added, as he held up an iPhone 4 handset with an iCarte accessory that enables MCP, it’s the business case that needs working out.

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The reporting season is underway, with Barclays going first this year announcing record profits of £11.6bn for 2009 and the traditional claims and counterclaims can be heard. The ‘silly season’ at newspapers used to be in August when Parliament recessed but it seems we now have another period of the year when papers get on their high horse and earnest moral campaigns are launched. Indeed, I have in front of me a press release from UK Uncut outlining their plans to protest against Barclays’ excessive profits and shut down branches.

Now, don’t get me wrong I am as annoyed as they are that the bank only paid £113 million in UK corporation tax in 2009, just one per cent of its profits, but this doesn’t mean that Barclays is a ‘bad bank’. It just means that they are like every other major corporation at the moment – Boots, Vodafone and all the others targeted by UK Uncut – in successfully using tax avoidance schemes. By all means complain about this blatant exceptionalism for corporations, I’ll join you, but don’t pretend it’s in any way just the banks doing this.

What’s needed is a sensible discussion, involving the government, public and industry, to find a middle way for our economy where businesses can flourish (using money furnished by banks that need to turn a profit), essential public services can be maintained, jobs created and wealth spread more fairly. It’s not happened up until now and it needs to but screaming about Barclays ‘record’ profits, when they actually amounted to £5.6bn when the sale of its BGI fund management arm is factored in, helps no one. By the same token CEO Bob Diamond’s assertion that “the time for apologies is over” doesn’t help.

The legitimate concerns of the industry about the

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I was travelling into the office today listening to my iPod on shuffle and marvelling at how scratchy and lo-fi Public Enemy’s Don’t Believe the Hype sounds these days, when I started playing with the device in my hands. Having been an initial sceptic about the iPod and asserting it was ‘just another walkman fad’ (stupid boy!) I got to thinking what else might change and prove me wrong as we enter a new decade? What hype should we believe? 

Many have said to me recently that instead of a new gadget, the next technology wave will be a consolidation of functions on to the new generation of mobile smartphones, offering music, pictures, banking and even payments with new NFC-enabled secure chips. This is one consumer revolution that will drastically impact retail banking if the predictions are correct. Given that I’ve already seen the technology in action during a press trip to Sitges, Spain, last year with La Caixa, Visa and Telefonica (see story here & interview here), where 500 shops were wired up to receive contactless m-payments I’m inclined to believe the ‘futurologists’ on this one.  

I’ve also just been reading about Orange’s plan to launch what it says is the UK’s first similar m-payments scheme this summer with Barclaycard, Pret a Manger, the National Trust and Little Chef (see Story HERE). O2 trialled a similar scheme in 2009 when mobile phones could be used instead of the Oyster card to pay for tube journeys in London and the operator is thought to have imminent plans of its own in this space. Even the Wincor Nixdorf trade show that I recently attended in Germany (See story HERE) had acres of exhibition space devoted to the mobile channel, displaying how codes can be sent to phones that can then be held up to ATMs to retrieve ‘emergency cash’. Even UK retail banks, such as NatWest and First Direct, not a sector traditionally seen as on the cutting edge, have been launching smartphone apps for the iPhone and other devices (See story HERE). The buzz around the mobile channel is real and this is one case where I think – apologies to Chuck D – you should believe the hype.

Of course gripes remain. Why can’t I make P2P payments yet on my mobile current account to others outside of my own bank in the UK when this is possible elsewhere, when will the standards and cooperation necessary to support full mobile banking and payments functionality – not just account checking – finally be put in place to allow truly global, comprehensive banking on the move? The answer of course is that eventually I will be able to do these things and more. All that’s required is patience and some ground-breaking investments from the banks. The time for pilots and small scale rollouts is past and I for one can’t wait to see these developments hit the High Street. Perhaps next time I’m in the pub, supermarket queue or petrol station I won’t have to wait for ages either while lemonades, newspapers or pints of milk are paid for laboriously via card and PIN. For low-value payments such as these the m-payments revolution really could be a boon and for banking purposes mobiles could be rolled out to reach the so-called ‘unbanked’ as they have been in developing countries or to facilitate remittances. Treasurer authorisations can also be speeded up via mobile trade finance devices – the end uses are endless and I, for one, can’t wait for the hype to become reality.

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I’m looking forward to the Banking Technology Roundtable tomorrow, sponsored by Logica, on the SEPA end dates debate and future strategies for the Single Euro Payments Area. 

Will the controversial end dates of Q4 2012 for SEPA Credit Transfers and Q4 2013 for SEPA Direct Debits envisaged by the EC be implemented or delayed for a further two years as most bankers want; will the euro even survive until then; and have banks got better things to

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Commissioners of the Commodity Trading Futures Commission (CFTC) which has regulatory over the commodities markets and now, since Dodd-Frank, over derivatives, said the elections didn’t change much. At the Futures Industry Association meeting in Chicago in early November, they said that until Congress changed the terms, Dodd-Frank is the law of the land and they will write their regulations to meet the terms of the law.

Still, the laws give regulators some substantial latitude and the Republicans who are moving into chairmanship positions in the House are already warning regulators to go easy on the banks.

This should come as no surprise to readers of Rolling Stone where Matt Taibbi’s coverage of the Dodd-Frank passage amid late-night changes by lobbyists, is the best reporting I have seen on the subject.

“House ­Minority Leader John Boehner shrieked that it was like ‘killing an ant with a nuclear weapon,’ apparently forgetting that the ant crisis in question wiped out about 40 percent of the world’s wealth in a little over a year, making its smallness highly debatable.  ”

Taibbi links mortgages to the meltdown to securitisation. (see my previous posts, just below, on how this fraud continues through the court system.)

“The huge profits that Wall Street earned in the past decade were driven in large part by a single, far-reaching scheme, one in which bankers, home lenders and other players exploited loopholes in the system to magically transform subprime home borrowers into AAA investments, sell them off to unsuspecting pension funds and foreign trade unions and other suckers, then multiply their score by leveraging their phony-baloney deals over and over.”

While the FT weighs in on debate over the Volcker rule to ban deposit-taking banks from proprietary trading, Taibbi explains what really happened to it — the heart of the rule was wiped out late at night, n doubt much to the pleasure of “Treasury secretary and noted pencil-necked Wall Street stooge Timothy Geithner .” (Taibbi does have a way with words, making his articles great fun to read. Unless you’re a banker, I guess.)

Killing the tough parts of the bill proved bipartisanship is still alive and well in Washington, at least when it pays well.

” Republican and Democratic leaders were working together with industry insiders and deep-pocketed lobbyists to prevent rogue members like Merkley and Levin from effecting real change. In public, the parties stage a show of bitter bipartisan stalemate. But when the cameras are off, they fuck like crazed weasels in heat.”

Merkley and Levin wanted a ban on banks with federally insured deposits acting like hedge funds with proprietary trading. Merkley wanted to keep it to 1 percent; Geithner pushed for 2 percent. Merkley wanted a limit of $250 million

In the final hours of negotiation, New York showed by in the person of Se. Charles Schumer, ” a platitudinous champion of liberal social ­issues, moonlights as a pillbox-hat bellhop to Wall Street on economic matters.”

” In a neat trick, Schumer’s crew agreed to keep the exemption at three percent – but they raised the limit dramatically by making it three percent of something else. Instead of being pegged to a bank’s “tangible equity,” the exemption would now be calculated based on a financial firm’s “Tier 1″ capital – a far bigger pool of money that includes a bank’s common shares and deferred-tax assets instead of just preferred shares. In real terms, banks could now put up to 40 percent more into high-risk investments. “It was almost double what Geithner was talking about the night before,” says Merkley. “For Bank of America alone, it comes to $6 billion.”

Have you seen this level of reporting anywhere else? I haven’t, and apparently a lot of financial reporters haven’t either, since they tend to treat the Dodd-Frank legislation as far more limiting that it really is.

The future isn’t going to be pretty, financial experts who don’t work for major investment banks warn;

The next phase of all this – the regulatory phase – is going to be supertechnical and complex, says one Senate aide. ‘It raises questions about how journalists are going to keep the public the slightest bit interested. You might as well just hit the snooze button.’

“Worst of all, some analysts warn that the failure to rein in Wall Street makes another meltdown a near-certainty. ‘Oh, sure, within a decade,’ said Johnson, the MIT economist. ‘The question: Is it three years or seven years?’ ”

So if you want to follow the outcome of the financial crisis, you may need a subscription to Rolling Stone. Hey, it covers lovely singers and actress and might just through the kids off their view of the old man. Or woman.

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The FT’s Michael Skapinker responded to a letter from 17 leading City of London figures saying: “It is essential to restate and affirm the social purpose of financial institutions … Through work we all seek to realise ourselves as people, provide for our dependants and make a contribution to the social good.”

What’s it mean in practice? He asked one of the signers about the common practice of reducing the interest rate paid on savings without notifying the account holder. It boosts bank profits but it is terrible for the account holder. What should the banks do, he asked a signer. “He didn’t really answer.”

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What does this look like on the ground? Matt Taibbi of Rolling Stone  went to Florida to find out.  The article is available online and will appear in the 25 November issue of Rolling Stone.

“When I went to sit in on Judge Soud’s courtroom in downtown Jacksonville, I was treated to an intimate, and at times breathtaking, education in the horror of the foreclosure crisis, which is rapidly emerging as the even scarier sequel to the financial meltdown of 2008: Invasion of the Home Snatchers II. In Las Vegas, one in 25 homes is now in foreclosure. In Fort Myers, Florida, one in 35. In September, lenders nationwide took over a rec­ord 102,134 properties; that same month, more than a third of all home sales were distressed properties. All told, some 820,000 Americans have already lost their homes this year, and another 1 million currently face foreclosure.

Matt Taibbi at Rolling Stone has done some of the best reporting on the financial crisis and its aftermath. (He is the source of the priceless description of Goldman Sachs as ” a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” )

As Taibbi describes the process of mortgage loan securitization and how it went off the rails:

” If you’re foreclosing on somebody’s house, you are required by law to have a collection of paperwork showing the journey of that mortgage note from the moment of issuance to the present. You should see the originating lender (a firm like Countrywide) selling the loan to the next entity in the chain (perhaps Goldman Sachs) to the next (maybe JP Morgan), with the actual note being transferred each time. But in fact, almost no bank currently foreclosing on homeowners has a reliable record of who owns the loan; in some cases, they have even intentionally shredded the actual mortgage notes. That’s where the robo-signers come in. To create the appearance of paperwork where none exists, the banks drag in these pimply entry-level types — an infamous example is GMAC’s notorious robo-signer Jeffrey Stephan, who appears online looking like an age-advanced photo of Beavis or Butt-Head — and get them to sign thousands of documents a month attesting to the banks’ proper ownership of the mortgages.”

” An attorney for Jacksonville Area Legal Aid tells me that out of the hundreds of cases she has handled, fewer than five involved no phony paperwork. ‘The fraud is the norm,’ she says.”

The banks keep coming back with new paperwork, often internally contradictory and, once denied but without prejudice, they can come back with papers that are completely at odds with the papers they filed in previous attempts to foreclose. Just about anywhere else this would lead to come criminal prosecution for fraud. But, says Taibbi, the entire banking system in the US is at risk from this criminal Ponzi scheme which makes Madoff look like an amateur.

The fraud goes to the top of the financial pyramid, he adds.

” A company called Clayton Holdings, which analyzed nearly 1 million loans being prepared for sale in 2006 and 2007 by 23 banks, found that nearly half of the mortgages failed to meet the underwriting standards being promised to investors. Citi­group, for instance, had 29 percent of its loans come up short, but it still sold a third of those mortgages to investors. Goldman Sachs had 19 percent of its mortgages flunk the test, yet it knowingly hawked 34 percent of the risky deals to investors.”

All three agencies refused to pay attention to Clayton’s findings.

He mentions a Ms. Cooper who managed to avoid foreclosure the day he was there because the bank attorney failed to turn up. The foreclosure judge, Judge A.C. Soud’s warned — or threatened — her and the attorney who brought Taibbi into the hearing, for contact with the media. Now, I worked as a journalist in Florida and it had some of the toughest open meeting and public records laws around — for a judge to get threatening over media indicates how awful this situation is. And here is Warren Buffet and his Number 2 guy, Charles Munger, on the subject:

Cooper’s case perfectly summarizes what the foreclosure crisis is all about. Her original loan was made by Wachovia, a bank that blew itself up in 2008 speculating in the mortgage market. It was then transferred to Wells Fargo, a megabank that was handed some $50 billion in public assistance to help it acquire the corpse of Wachovia. And who else benefited from that $50 billion in bailout money? Billionaire Warren Buffett and his Berkshire Hathaway fund, which happens to be a major shareholder in Wells Fargo. It was Buffett’s vice chairman, Charles Munger, who recently told America that it should “thank God” that the government bailed out banks like the one he invests in, while people who have fallen on hard times — that is, homeowners like Shawnetta Cooper — should “suck it in and cope.”

Taibbi keeps moving up the responsibility chain:

“Why don’t the banks want us to see the paperwork on all these mortgages? Because the documents represent a death sentence for them. According to the rules of the mortgage trusts, a lender like Bank of America, which controls all the Countrywide loans, is required by law to buy back from investors every faulty loan the crooks at Countrywide ever issued. Think about what that would do to Bank of America’s bottom line the next time you wonder why they’re trying so hard to rush these loans into someone else’s hands.”

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The November 2 elections in the U.S. brought the greatest change in national politics since the 1940s, according to Peter Hart, a national pollster often affiliated with the Democratic Party.

From coast to coast, Democratic states went Republican in elections for Congressional seats and governors.

“A category 5 hurricane hit the Democrats.” Voters think the country is in serious decline, he added, speaking at the Futures Industry Association (FIA) in Chicago.

Although the House of Representatives will be dominated by Republicans, that won’t affect Dodd-Frank rule-making. Commissioners from the Commodity Futures Trading Commission, which regulates the futures exchanges, said they are on target to develop rules by July, as directed by the financial reform legislation. Any changes proposed by Republicans would take months to work through committee hearings and even if passed in the House they would also have to pass the Senate and escape a Presidential veto.

For now, the CFTC is operating under the new Dodd-Frank legislation, although commissioners and attorneys who work with the CFTC suggested that the legislation and the rules may be adjusted as they are implemented and users learn about unintended consequences.

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