Readership
Oct
2
Clarity in charges for payment instruments
Stephen King | Leave a Comment
As Joshua notes, Australian banks have ‘reversed’ the interchange fee for debit transactions using the EFTPOS system. This interchange fee, which is charged by the customer’s bank, is passed through to a merchant by its bank (possibly with other fees and charges added). So now merchants are charged (more) when you use EFTPOS. This brings EFTPOS closer to the ‘scheme’ debit cards and to credit cards which have had this type of charging to merchants for a while.
The interchange fees and the way they are ‘hidden’ in transactions creates an economic problem. When a customer chooses a payment instrument then the customer imposes a cost on the merchant. But if the merchant sets the same price for all customers, then the customers do not see the cost that they are imposing and have no incentive to use cheaper means of payment. Further, the single price effectively means that customers who use low cost payment instruments are cross subsidising those using high cost instruments. Finally, banks have few incentives to keep interchange fees down as the customer does not see these fees so that competitive incentives are weak.
Overall, the payments system is less efficient and less competitive. It may only be a few cents per transaction, but added up over billions of dollars worth of transactions it is a very big sum. Read more
Sep
30
Debit card changes in the US (and Oz)
Joshua Gans | 2 Comments
Bank of America announced yesterday that it will be introducing a $5 per month fee on use of their debit cards.
Whether you use your card for one purchase a month or 20, you will pay $5 per month starting in 2012. It doesn’t matter if you select “debit” or “credit” at the point of sale.
If you don’t use your card at all, you won’t be assessed a fee, and you can still use ATMs as much as you want without getting hit with the new charge. Plus, customers with certain premium accounts will be exempt from the charge.
Why? Recent reforms in the US have halved the amount that banks can charge merchants for debit card transactions (from 44 to 21 cents). So the consequence that fees to customers would rise was an intended consequence of the reform. In a two-sided market like debit cards, it is the case that reducing the price that can be charged on one side (e.g., merchants) will increase the amount charged on the other side (e.g., to consumers). The real issue is whether this will change behaviour. After all, if merchants are competitive those cost savings will be passed on to consumers; especially where debit cards are used alot. Where they are not competitive, they can potentially pocket the savings in fees.
But what is interesting here is to speculate why the US government might have wanted to encourage fewer debit card transactions. Unlike their credit card counterparts, they don’t lead to more debt. But it could be that those paying with cash were, in effect, cross subsidising those paying with debit cards but at 44 cents the effect doesn’t sound too large. What this suggests is that this reform is, in fact, all about credit cards and part of a strategy to deal with that, much larger, issue.
[Update: serves me right for blogging after reading CNN but before ABC news but some similar things are happening in Australia.
Retailers will be now be charged a fee every time something worth $15 or more is put through on a debit card.
The company which runs eftpos, ePAL, says it needs to increase its charges so that banks can afford to invest in new debit card technology.
In other words, this is the exact opposite of what is occurring in the US. In Australia, merchant fees will rise but it is argued that this won't represent an increased margin for banks due to cost charges. That remains to be seen as the costs being funded are technology costs and it would be surprising if these were being charged as variable fees. That said, if they are this is something that is concerning. The big four banks and Coles and Woolworths own ePAL. If that charges are not cost reflective and them being passed onto merchants in this ways suggests something doesn't smell right (its 5 cents after you pay more than $15 or 0.33% at that point), then how can we be sure that this isn't a coordinated means of increasing payment system profits. Surely, this is the very thing the RBA should look at given its payment system management role?]
Sep
30
AFL and integration
Stephen King | 2 Comments
With the AFL grandfinal on tomorrow, an ‘off the cuff’ remark by John Faine (ABC radio Melbourne) got me thinking about the role AFL plays in helping new Australians assimilate.
John noted the variety of nationalities represented at Federation Square, supporting a range of AFL clubs. Why?
The AFL has had a mixed history of race relations on the field, but AFL plays a unique role off the field. First, it is an odd game that has a range of rules that regularly change in confusing ways. It is not played outside Australia and someone arriving from Mumbai or Shanghai can get to the level of knowledge of the average Sydney league supporter in about half an hour. This means that ‘outsiders’ can pretty quickly get to a level of knowledge where they can enjoy watching the game (it is a great live spectator sport) and ‘ignorance’ of the intricacies of the rules is the norm.
Secondly, at least in Victoria, AFL dominates ‘water cooler discussion’. But following on from the first point, a recent arrival to Australia can quickly get to a level of knowledge where they can participate in the discussion. A few weeks perusing the back pages of the local papers is enough to get the relevant education. Indeed, a lack of intimate knowledge can help discussion. There are always rabid supporters willing to educate a listener into the brilliance of their own club and the inadequacy of all the others (along with the latest injuries, umpiring mistakes etc).
Third, the discussion referred to in point two is amazingly light hearted. There is a sort of unwritten code in AFL that debate is good tempered. Unlike other sporting codes in other countries, supporters of different clubs rarely take the banter too seriously. So a new arrival can safely adopt pretty much any AFL club as their own without causing offense or reflecting their ethnic origins.
Finally, AFL support is ethnically and religiously blind. You can go to an AFL match in a burqa or a bikini, and so long as you show your team’s colors, no-one will turn an eye (OK – in Melbourne winter the bikini will turn an eye – but only because the person wearing it is violently shivering and turning blue).
So AFL makes it easy for new arrivals to our shores to fit in. And in many ways, that is all they have to do to ‘fit in’. They do not have to give up anything of their existing culture, and can easily adopt this rather odd game as their own – and be welcomed in doing so.
So why are so many nationalities represented among supporters? Because AFL is a unique tool of multiculturalism, and one we should be thankful for and be proud of.
By the way, the exception to the above are Collingwood supporters who are feral. But then I am a Carlton supporter so tomorrow I am supporting Geelong!
Sep
30
The Australian mobile app industry
Joshua Gans | 3 Comments
For some reason, the iTunes App Store has a “Made in Australia” feature this week. Take a look at the selection.
The selection is impressive. Many past and current hits in the game category. And all this without the NBN but then again this is for mobile stuff.
Sep
29
Announcing Digitopoly
Joshua Gans | Leave a Comment
Today, Erik Brynjolfsson, Shane Greenstein and myself launched our new blog site, Digitopoly. The site aims to bring an economic and strategic perspective to discussions of digital matters and technology. Regular readers of this blog know that that is a particular interest of mine and so this gives me a chance to explore that in a separate forum. You can also follow digital related links on Twitter @digitopoly.
What that will mean is that all my posts on technology and digital competition that do not have something to do with Australian economic policy will move to Digitopoly. I’ll still write here but the posts will be more selective; so no more Apple evangelism that I guess some people will be happy to see go.
Sep
28
My interview with Alan Jones
Joshua Gans | 11 Comments
Apparently upon leaving the country I am more of a media magnet. Click here to listen to my interview with Alan Jones on the NBN. He drops the whole 2020 picked thing but then I outrant him. Quite a treat.
Sep
27
Tea in Rome
Stephen King | Leave a Comment
Coming back to Melbourne after a great holiday, I immediately noted this article on coffee in Rome. Nice article, but for tea drinkers like my wife, Rome can be a problem.
We stayed near the Palazzo di Montecitorio – close to the Pantheon. And my wife was after ‘hot tea with milk’. To the locals this was clearly insane – particularly in 30 degree plus heat. We found one cafe happy to provide for my wife’s addiction – at 5 Euro for a cup of hot water and a teabag (milk on the side). So we searched further – including some unmentionable US fast food chains near the Trevi Fountain. But no HOT tea (iced tea was easy). After about an hour my wife (with very grumpy husband in tow) found a great cafe-cake shop-gelato bar with hot tea for 1.70 Euro (stand up price). It was (of course) about 100 m from our hotel – in the opposite direction to which we had been looking.
It took a little while to convince the staff that my wife wanted hot tea and milk (not lemon) – but we got there. During our week in Rome my wife became a regular. The staff would see her coming in the intense heat, shake their heads and start to fill up the tea pot.
Sep
24
Facebook moves to secure the platform
Joshua Gans | Leave a Comment
At its F8 developer’s conference this week, Facebook announced some very extensive changes. Steve Levy’s write-up covers the main details. All over the place, Facebook is moving to secure itself as a platform. Deep integration with application developers: most notably, integration with music services (Spotify and Rhapsody — where are you iTunes?), integration with news media (specifically, the Washington Post that looks set to reinvent itself in the social space) as well as gaming.
But I think, more significantly, Facebook are moving to leverage the installed base — not just of users but of their content. Facebook is set to get memory (that is, intertemporal search). All of that provision of links, contents and activity that you have been providing for immediate gratification will now become investment. Because all of this will be stored and reassembled for a picture of your life. And the longer you have been on Facebook the more valuable that will be. What is more, those assets will grow in value with every minute.
So if massive network effects were not enough, Facebook is going to add standards (an app developer platform) as well as switching costs to its arsenal of strategic strength. And with each of these, it draws consumers away from other entrants into the social space. Will you invest in Google+ if Google only holds your data for 18 months or, worse, may kill the platform if it isn’t highly successful?
Sep
22
Are we in a Golden Age?
Paul Frijters | 2 Comments
(cross-posted from Troppo)
It is easy to become absorbed in particular problems and in the disaster stories that dominate the daily media. Climate change, natural disasters, wars in Africa and Asia, Financial Crises, riots and food price rises: you would be forgiven for thinking the world is going to the dogs. Is it really, however, or is that just the gloom you get from staring at the problems and not smelling the roses?
The major indicators of how we as humans are doing are smelling exceptionally rosy. We are living in a golden age of progress and opportunity for humanity. Let’s list some of the big changes in recent times:
- Life expectancy is going up by a lot. Whereas the average Australian would not have expected to see 50 in 1885, the average Australian now can expect to live beyond 80. The same trend goes for both developed and developing countries. For the world as a whole, the World Bank reports that life expectation has thus crept up from about 52 in 1960 to 69 in 2009. And the increase is greatest in poorer countries, so there is even increased equity in terms of life expectancy by country.
- There are more of us every year, but the numbers are stabilising. According to this source, we used to be with no more than 50 million some 3000 years ago, reached 1,5 billion in 1900, now count close to 7 billion, and can expect to be with close to 10 billion in 2050 after which a reduction is expected. Whilst the increased number of humans, who can all expect to live longer than our ancestors ever could, is itself a sign of success, the expected peaking, due to reduced fertility levels virtually everywhere in the world, is also very good news because it means the old nightmare-scenario of a Malthusian melt-down is now highly unlikely.
- We are less and less violent. Trends in murders and homicide are at incredibly low levels from an historical point of view: whereas our hunter-gatherer ancestors were believed to kill off about 1 in a 100 every year, modern Western society sees one homicide per 10,000 as very violent, corresponding to exceptionally violent countries like the US. More normal levels are in the order of 2 per 100,000. Globally, the trends have even been going down in the last 10 years. Trends in armed conflict also speak of exceptionally peaceful times. The Upsalla Conflict Data Program thus collects statistics on how many combatants die in total in organised conflicts around the world. The basic facts are that the period just after WWII was easily 5 times as violent as the 1980s per capita, whilst the 2000s are easily twice less violent again than the 1980s. The trend for the last 10 years too has also been clearly downward in per capita terms.
- Less of us are poor and more have access to basic facilities (clean water, sanitation, literacy, etc.). Global output growth in 2011 is in the 2-3% range, the vast bulk of which in poorer countries. Great news for inequality reduction hence.
- We are getting happier as the poor amongst us are getting richer. As one can see from the World Value Survey, the relation between income and happiness is very robust by country and we furthermore know that countries who escape dire poverty also increase their happiness. So the world as a whole is almost certainly getting happier. Even within countries that are in an economic downturn like the US, the average life satisfaction is about as high as it was before the downturn.
And this is not even mentioning the Arab Spring or advances in science and gadgetry. Our ancestors could only dream of humanity having it this good.
Sep
21
Not quite sure what to use Foursquare for? Well, apparently the makers of CLOO “get social.” They want you to list your bathroom facilities on some new social network so that if there is a friend, or a friend of a friend, in need, they will have an option. What a wonderful idea?
Suffice it to say, it seems pretty much doomed. I know it seems unfair to dump on them before they get the chance but call me a septic sceptic. I just don’t think people’s social networks are dense enough in any location to make this happen relative to the public bathroom options out there. And even if they are. Will they be home? Will people want to open their doors to acquaintances in distress?
That said, I don’t know and am more than happy to see how the experiment works out. After all, you can’t argue that if this is what social means then there is likely to be some social value or social capital created.
All that said, what a shame we can’t put a market on this? People offer their facilities for a price that is transacted without worry from an app. Maybe an AirBM type concept? Of course, someone is going to argue that that is the definition of repugnant transaction.