Tuesday, December 29, 2009

Are Mobile Payments a "Terrorist Dream" or Not?


Dave Birch of the Digital Money Forum blog has a recent post, "Are Mobile Payments a 'Terrorist Dream' or Not?", regarding KYC (know your customer) rules and anonymous payment products. I found it interesting because it has been a topic of ongoing concern since electronic cash dramatically burst onto the scene in the mid-1990s. Is the market adoption rate for "pure" digital money being stifled because of government-tracking initiatives and the fact that consumers do not want to lose privacy by going online? I believe that it is.

Dave is correct to point out that these restrictions are nonsensical for small payment transactions. But why stop there? If consumers currently enjoy an existing level of anonymity and privacy by transacting in 500-euro notes or $100 bills, then there is no reason whatsoever that we should lose that right with digital money. The terrorist argument does not hold water, because terrorists use the mail and the telephone and we would not blame the mail infrastructure and the telephone infrastructure for enabling terrorism. The monetary unit of account and its distributed privacy attributes are an infrastructure issue. Dave writes:
"I wasn't not arguing that we should have no KYC checks, but what I was arguing for was a sensible floor below which KYC checks are not needed. I happened to be in a local branch of national financial services organisation a few weeks ago when, for dreary reasons, I had to get into a queue. The person in front of me in the queue was trying to send fifty pounds to a relative in Liverpool. The clerk told him that couldn't, because he didn't have a passport and a utility bill. The chap complained that he had been sending this birthday money every year for decades. The clerk was unmoved. So who benefits from this? I didn't stop the 911 terrorists (who used credit cards in their own names) or the crotchbomber (who paid for one-way air ticket in cash) or the tube bombers (who were carrying identity documents). My argument was, and is, that we should decide where the balance should be in order to get the best result for society as a whole."

"My suggestion is that we fix on 500 euros as the breakpoint. People should be allowed prepaid cards, prepaid accounts, money transfer accounts or whatever with no identification provided that the maximum balance is limited to 500 euros (it is currently 150 euros) and a maximum annual turnover over 10,000 euros (it is currently 2,500 euros). This will lower costs and ease accessibility -- I might even go and get an O2 Money card -- thus achieving a variety of goals including social inclusion and reduced transaction costs for the poor."

For further reading:
"Mobile Phone Laundering: Fact or Fiction?", Saskia Rietbroek, March 2008

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