Web Payments Community Group Telecon

Minutes for 2013-11-06

Agenda
http://lists.w3.org/Archives/Public/public-webpayments/2013Nov/0013.html
Topics
  1. Finance Innovation Forum 2013
  2. Federal Reserve Call for Papers
  3. Web Payments Response to Federal Reserve RFP
Chair
Manu Sporny
Scribe
Dave Longley
Present
Dave Longley, Manu Sporny, Joe Cascio
Audio Log
Dave Longley is scribing.
Manu Sporny: i'm in HK for the last two weeks, i've been talking to a number of multinational banks and govt's and other types of folks over the past 4 weeks at the united nations igf, etc.
Manu Sporny: we need to cover financial innovation forum in HK talk, and talk about the US Federal Reserve Payments Improvements paper submission
Joe Cascio: i read with great interest the use cases, that you put out from the working group, and it would be a great help for me at some point, maybe not during the call, to understand some more of the background and assumptions that went into the payswarm use cases document
Manu Sporny: yeah we can cover that at some point in the future
Manu Sporny: if you have any questions you can send them to the mailing list and we can get back to you asynchronously... and everyone will see them as well, these calls are better for planning and technical discussion
Manu Sporny: we'll be looking more into KYC and getting info like that into web payments and persona, etc. that stuff is deeply rooted in all the financial stuff we're doing, lots of banks interested in that, UN and govts and banks interested
Manu Sporny: banks are playing a lot of money right now for KYC clearing so they're really interested

Topic: Finance Innovation Forum 2013

Manu Sporny: forum happened yesterday, i gave a talk on web payments and the technology we're creating here, mainly focused on getting the message out to the financial community in HK about the existence of a group composed of people from payswarm, bitcoin, and ripple communities and from w3c to get payments built into the core arch of the web
Manu Sporny: many people surprised this was even happening and lots of interested from major banks in the work
Manu Sporny: can't say which ones because they don't want to be identified yet, looking on with great interest
Manu Sporny: HK is rated as the #1 financial system in teh world out of 62 for ease of trade
Manu Sporny: HK is a huge financial center, gateway into china, africa, india, US
Manu Sporny: all these major banks operating out of HK because of access it gives multinational banks and financial institutions that operate out of the area
Manu Sporny: all the major players here, place called central that holds almost all banks in the world all right next to each other (in buildings)
Manu Sporny: the people here are very interested in payswarm, the web payments work because it's an area they could lead in, they could do things like internationalization of the yuan, making it a competitor to the US dollar, and leading payments on the internet, the ability to do trade of the internet, when you execute a trade between companies, not only doing the payment immediately but having a manifest and all the tax info everything included in the txn is all really interesting to the financial communnity and the govt's in the area, that do txns through HK
Manu Sporny: the meeting went really well, i've had meetings every single day with various groups/players around the world
Manu Sporny: any questions on the financial innovation forum?
Joe Cascio: did you get any sense of what their interest was in bitcoin and how that might change the equation because one of the things that i noticed or thought i noticed in the payswarm use cases was this sort of built in tacit presumption that there's always a third party involved in making payments
Joe Cascio: and in the case of bitcoin that's just not true anymore
Joe Cascio: did you get a sense of what their sensitivity was towards bitcoin?
Manu Sporny: yeah, it's interesting, we were in SIBOS (world banking conference) a month and a half ago, the talk i gave there had 130 international banking corps in the same room, and patrick was there giving a talk, bitcoin was interesting but such a small thing right now, they weren't really that interested in looking into it in an any depth; the main thought i got was if you look bitcoin's marketcap now it's the same as what these international banks makes in an hour
Manu Sporny: because it's so small now, they're not really paying attention to it
Manu Sporny: so when you say bitcoin is a transformative tech because you don't need govt's or banks to do the exchanges, one of the first questions is "but where does the money settle?" and its the question/conversation that has shut down new ideas, banks are getting as "who is going to run the bitcoin exchanges when this gets big?" "how do you get the money out at the end of the day?" so the idea that there doesn't have to be a third party isn't necessarily true
Manu Sporny: the average customer would have to shift their local currency into bitcoin over the next 20 years
Manu Sporny: but if bitcoin becomes the standard way of exchanging in commerce
Manu Sporny: the banks haven't gotten there yet
Manu Sporny: their focus is the next 2-5 years, not 20 years
Manu Sporny: other players like Ripple are coming in, that actually do this third party getting money into/out of the system in fiat currency and they do it much better than bitcoin, etc.
Manu Sporny: to answer your question much more directly, the banks are interested in bitcoin as a curiosity, it's not a threat to them right now, and i kind of agree with that right now, in a number of years it may change, you still need to figure out how to get money into/out of the system, people still want fiat currency
Joe Cascio: yeah, that certainly makes sense from where they are sitting
Manu Sporny: and it changes where you are
Manu Sporny: that was the answer at SIBOS, at HK they point at china and say look what china is doing with bitcoin and say we need to get involved, they look at thailand and say that they have to avoid making bitcoin illegal
Manu Sporny: so it's interesting how each country, it seems to be on a country/country basis, not bank to bank, how they respond to it, it's very regulation driven
Manu Sporny: banks in thailand say regulations prohibit bitcoin so they aren't going to do it
Manu Sporny: different story elsewhere
Manu Sporny: we talked to many bank, 50-60 in one-on-one discussions and that has been the overarchign respond
response
Manu Sporny: any other questions?
Joe Cascio: nope

Topic: Federal Reserve Call for Papers

Manu Sporny: the US Fed put out a call for papers this year in september, and they were at SIBOS but basically hardly anyone knew that they had put a call out for this, most of the banks i talked to didn't even know, they did something interesting (the fed) and said payments arent advancing fast enough in the US, they need to be faster, need alternative mechanisms, need to wrok on the web, etc.
Manu Sporny: there are issues with banks not taking bitcoin and other currencies more seriously, etc
Manu Sporny: the main point that the US Fed is making ... through their paper, is that, "yeah we have a bunch of proprietary solutiosn that are very bank-specific, and there is lot of fragmentation so there won't be any ubiquitous solutions and that's a problem"
Manu Sporny: so that's huge, that's really great
Manu Sporny: first time US fed has said that
Manu Sporny: so this is really important because the stuff that they outline in the paper is exactly what we're working on in the web payments group, so the timing on this is perfect because it's right before we're going to have a workshop on this and this group needs to position itself to get the US fed coming in march and we get an invitation to come presnet this stuff in DC
Joe Cascio: Is there a link to the responses that have been filed?
Manu Sporny: when the time comes to review the paper, so there are two opportunities, one is to present to the US Fed and the other is to get the US Fed to participate in the work we're doign in the web payments group
Manu Sporny: so we have a pretty big opportunity to shine here, mainly because we have solid answers backed with working technology to many of the questions they ask
Manu Sporny: read the paper it's only like 4 pages (the meat of the questions)
Manu Sporny: any questions about what the US Fed is asking
Joe Cascio: do you have a sense of what the thrust of response from this group should be?
Joe Cascio: this group is going to be dealing with basically protocol issues, internet communication issues, which is critical, but not everything
Joe Cascio: all the ancillary information that has to go along with these you brought up earlier, so this group is going to be in a particularly strategic place to comment here because it comes from a standards point of view, at the same time it's not the whole problem, but often the technology leads or is the lead idea for solving the problem
Manu Sporny: so are you talking about policy issues as well, like identity, money service licenses, cross-border currency transfers, etc.
Joe Cascio: i was thinking more about like earlier in the call you talked to the banks about doing payments ... the invoice, any taxes, conveyances that have to be done as part of whatever they are doing
Joe Cascio: all of the other stuff
Joe Cascio: who knows, maybe the fed needs to just narrow it to the payments
Joe Cascio: when you say payment to a banker what are all those other things that pop up in their head
Manu Sporny: the terms that bankers tend to use .... there's b2b transfers where things like bitcoin and ripple could come in, there are the commercial banking mechanisms, like giving loans to large companies, there are digital contracts, there are straightforward customer payments to vendors (payswarm is mostly about this), there are cross-border issues, regulation issues, so payments are a fairly complicated series of transactions based on the environment in which you are doing the txn
Manu Sporny: a payment from one org to another, brings about a whole completely new type of requirements based on the entities doing the txn
Manu Sporny: you're absolutely right that there's more to it than just the payment aspect of it
Manu Sporny: and i think we're well positioned to comment on it because we're not just payments, we talk about taxes, mark up for products, technical solutions for all these things
Manu Sporny: for instance the fed paper talks about paper checks being made, billions per year, when we could be using electronic payment and what cna we do to switch businesses over to accept via electronic means
Manu Sporny: they've gone so far to say "maybe we should tax paper checks" to make people switch
Manu Sporny: people don't understand electronic payments are available, some businesses are just fine with paper and are ok with current system, but current system is slow paper causes delays
Manu Sporny: do they want input on invoicing and things of that nature? you're syaing ... and i still think this group is well positioned to make comments on that
Joe Cascio: yeah, it was just kind of a general question, what you just mentioned about slow electronic payment adoption... my own experience is that people are comfortable with checks because they know what they have to do, it's always the same process regardless of the bank, the problem a lot of people i think have with electronic payments is that they are all different, etc.
Joe Cascio: i think that's one area where this group could make a huge difference with standardization
Joe Cascio: so you know what's involved with doing it, you don't have to that groan and figure out how *this* works, etc.
Joe Cascio: this could provide some real help here because you could say "here's how you do it and it works for everybody" no matter what bank you go to you could use this
Manu Sporny: i absolutely agree, so the thing that we're proposing here is a world standard for doing this stuff, and the problem you point out is that every bank has their own way...
Manu Sporny: and the fed paper points out because of this there is no ubiquitous solution
Manu Sporny: and the banks are saying "we're already working on it" and the problem with that is that the banks aren't working on a universal solution, they are all working on a proprietary solution and hoping to get an advantage
Manu Sporny: and you don't wind up with interoperability, which is what we want and what we're doing here from a standards group
Manu Sporny: i think, especially because where coming from w3c, we are really well positioned, w3c has standards that apply to 2.4 billion people, etc.
Manu Sporny: banking standards only apply to 9000 member banks, etc.
Joe Cascio: not to mention separate corporate systems like paypal
Manu Sporny: yes, if we can create an open version of paypal that is a huge advantage to businesses everywhere, the fed, it's a huge reduction of costs for bill payment, no money spent on proprietary stuff, use solution that's provided, etc.
Manu Sporny: anything else on this before jumping into going down the list of questions ... at least the high level ones?
Manu Sporny: in the fed paper

Topic: Web Payments Response to Federal Reserve RFP

Manu Sporny: the paper lists the problems and the desired outcomes
Joe Cascio: Desired outcome 1: Key improvements for the future state of the payment systemhave been
Joe Cascio: collectively identified and embraced by payment participants, and material progress has been
Joe Cascio: made in implementing them.
Manu Sporny: specifically, there are a large number of questions at the bottom of the paper that they want people to answer
Manu Sporny: pindar had a very good set of input, which boils down to, let's not answer every single question but give answers where we have specific input
Manu Sporny: pindar's focuses more on IP trading on the web
Manu Sporny: couple of other folks have contacted me offline on what our responses should be that have to do with payment arch more than IP trading, etc.
Joe Cascio: Desired outcome 2: A ubiquitous electronic solution(s) for making retail payments exists that does not require the sender to know the bank account number of the recipient. Confirmation of good funds will be made at the initiation of the payment. The sender and receiver will receive timely notification that the payment has been made. Funds will be debited from the payer and made available in near real time to the payee.
Manu Sporny: our response to the fed won't be complete because everyone wants something different to be said, we're going to basically say, yes, we're working on this stuff, and give them links to read about it
Manu Sporny: and we'd love to come present to the US Fed to show it to you
Joe Cascio: Desired outcome 3: Over the long run, greater electronification and process improvements have reduced the average end-to-end (societal) costs of payment transactions and resulted in innovative payment services that deliver improved value to consumers, businesses, and governments
Manu Sporny: the blocker for desired outcome 1 is that without a universal standard it just won't happen
Joe Cascio: Desired outcome 4: Consumers and businesses have better choice in making convenient, costeffective, and timely cross-border paymentsfrom and to the United States.
Manu Sporny: so the main point we want to make about #1 is that without a universal standard and support for it, it won't happen, the US Fed has been hoping private industry will get together and do that it its own, but private industry is designed to create silos so the incentive is completely misaligned with the goal
Manu Sporny: some banks even view their network as their fundamental value add
Manu Sporny: when that's not really what it is
Joe Cascio: Desired outcome 5: The Federal Reserve Banks have collaborated, as appropriate, with the industry to promote the security of the payment system from end-to-end amid a rapidly evolving technology and threat environment. In addition, public confidence in the security of Federal Reserve financial services has remained high.
Manu Sporny: the system used is very old designed in the 60s, doesn't work on the web, a new system is required that bridges with the old systems, tech like what we're doing in the web payments group and bitcoin is the future, stuff that uses an open standard is the future not these proprietary solutions
Manu Sporny: point #2 has more to do with security and confirmation of funds, and has to do with better mechanisms to communicate between sender and receiver of money
Manu Sporny: again, this aligns very clearly with the web payments stuffw e're doing here, so the idea that a bank account number is a secret (or a CC number) is bad security and we need to do away with both of those things, bitcoin and payswarm both get rid of it, so does ripple, there are no shared secrets that are detriment to you
Manu Sporny: the other thing is that the recipients account numbers can be sent in an email without a downside
Manu Sporny: confirmation of funds available ... all happens in realtime with payswarm/ripple
Manu Sporny: so you always know that funds exist
Manu Sporny: not always true with paper checks (which is what that's about)
Manu Sporny: sending and receiver getting timely notification about payments being made, payments are made immediately
Manu Sporny: stuff happening in near realtime is all fundamental to the way these new systems operate... could argue bitcoin could be slower since it takes a little time to confirm, but layers could make it realtime
Manu Sporny: for desired outcome #3, "greater electronicification of payments"
Manu Sporny: the goal the US Fed has here is to reduce the overall societal costs of payments, which is what we've been calling frictionless or reduced friction payments, we want to make it easier to transmit money around the world, it shouldn't take days, it shouldn't cost a small fortune to do it, it should be fast and low fees
Manu Sporny: the goal there is to reduce the payment network cost so you cna have innovative payment services built on top of it, microtransactions, subscriptions, assigning budgets to vendors, etc. we have very good ansewrs and technical solutions that work today
Manu Sporny: you go down this list and it's everything we've been working on for the past few years
Manu Sporny: they are very concerned in the paper about giving the US a competitive advantage over other countries and this could backfire for us because what we're working is a global standard and what they are talking about is a US standard, although they do say in the paper they realize a global solution would be a big benefit to payments in the united states, it's something they want to accomplish, but it's not something that the US fed has any power over
Manu Sporny: so they are saying it would be nice to have a global standard but what we're working on doesn't have to be global just US, so i think they would react positively to use saying the US could use this but it could also be a global standard, the onyl way to achieve desired outcome #4 is with a global standard
Manu Sporny: and that global standards hould be built on top of the web
Joe Cascio: i think you could read this two ways, to me, it reflects a desire not to put the US at a disadvantage, that's how i read it, with timely cross-border payments to/from the US, it shows a sensitivity to the fact that if you make it difficult to do business with you you're at a disadvantage an di think you could take that from it too
Manu Sporny: yeah, that is an excellent point and our experience in HK and china is showing that
Manu Sporny: a lot of the people in HK and china have said "if we are serious about yuan internationalization" they want that instead of US dollars, they have to make it easier to do trade outside of the united states, for example if africa and china want to do trade, they will each use their own currency ... which is different from today where both have to go through the US dollar
Manu Sporny: they want native currencies to be used without the US dollar tax
Manu Sporny: the interesting thing here and the argument we could maek to the US fed ... is that the rest of the world is trying to get past the US dollar and they implement a standard that doesn't require the US dollar it puts the US at a disadvantage
Joe Cascio: well, i don't know, to me, it says to me that we lose the advantage that we currently have
Joe Cascio: it puts us on par with everyone else
Joe Cascio: this is another area where bitcoin is extremely interesting because it's kind of an alien currency that no one feels threatened by using, it's not like if you're using the US dollar you're politically cowtialing to the US... otherwise it's not a political thing and everyone just trades bitcoin you don't worry about all the other exchange rates
Manu Sporny: the question here is: "is the US fed concerned about other countries adopting tech that will allow them to more easily more away from the US dollar"
Manu Sporny: if they decide to not adopt a global standard it will accelerate that process
Manu Sporny: if they do ... its a level playing field and the US can use its other advantages
Manu Sporny: the US has a number of advantages that countries around the world don't have to stabilize and provide good value to the currency, etc.
Manu Sporny: the current financial crisis being one of the first times it's really seen any destabilization
Manu Sporny: answering that one is tricky because we don't to make it seem as if this an easy path for everyone in the world to move away from the US dollar as a reserve currency, that's not the point we're making, if the US falls behind in adopting it, and some other country uses this tech before the US and then it's easier to do trade with that country and the US is stuck in the old world and the new ones are moving on
Manu Sporny: desired outcome #5, the US federal reserve did a great job ... kind of patting themselveso n the back for doing the right thing, they are very concerned about the end-to-end secuirty of the payment system and they are concerned about public confidence in the Fed and they want to look good because they supported this brave new way of doing payments, internationalized standardized fast payments
Manu Sporny: our argument in that area is that the federal reserve needs to get behind a global standard and they need to make sure it's not proprietary and not patent-encumbered, it's an open standards mechanism like the w3c provides, and honestly no other tech out there fits their criteria (no tech other than what we're doing in webpayments with payswarm ,etc.)
Manu Sporny: even if you look at swift you have you have pay a lot of money
Manu Sporny: if you want to operate on the web/internet and all you have to do is implement the standard, that doesn't mean everyone will choose to interop with you, but as far as core basic interop is concerned it's baked into the protocol, tis' there you can do it
Manu Sporny: i think we have great solutions/answers here, we could just focus on the desired outcomes and point them to the wiki page and detail the response toe very question there by pointing at tech we've created or to specs
Manu Sporny: to indicate that we're not just pointificating, we've got tech and specs and solutions
Manu Sporny: any questions about how we should respond?
Manu Sporny: do we want to just talk about what's happened here on the call or go into detail
Joe Cascio: there are a lot of bullet points here on these questions
Manu Sporny: this isn't for the call, just to get a general feeling for how to respond and then work on answers to the questions, circulate to the mailing list and then submit our response finally when it's time
Manu Sporny: we'd take some of the best answers from the wiki and mailing list and put them in a high level paper to respond
Dave Longley: yes, the paper we should submit ought to be somewhat of a primer that indicates that we have solutions for all of the desired outcomes and if they want to get the details they can see our wiki and we'd also love to present to them

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