Delivered on 06 April 2021 by Justin Pyvis. About a 3 min read.
Westpac, one of Australia's 'big four' banking giants, has started renting out its licence to "allow banking outsiders to provide banking services in competition with Westpac and other banks". Not to be confused with SaaS (software as a service), BaaS – 'banking as a service' – is all the rage in Australia, as it's one of the few financial frontiers where competition is permitted.
However, that's a generous use of the word 'competition', as:
The emerging wholesale fintech strategy is a big strategic bet by Westpac that it will be able to win deposits – and ultimately mortgage referrals – from start-ups seeking to embed financial services into their applications. Westpac has decided getting exposure to the trend is worth the risk of giving up customer engagement to the technology players.
The emergence of 'buy now, pay later' providers such as Afterpay, which capitalised on regulatory arbitrage to carve out a niche not currently served by the incumbents, caught the banks by surprise. One reason is because Australian banks, due to their large size and heavily regulated existence, tend to gravitate towards bureaucratic, centralised and risk-averse decision-making, which can inhibit productivity-enhancing innovation.
By renting out their banking licence while handling the more bureaucratic functions internally (such as appeasing regulators), banks may be able to have their cake and eat it too. More risk-tolerant firms can try – some might fail, but that's the idea – to innovate on customer-facing banking services inside their own apps, with no risk to the solvency of the bank or Australian financial system. Interestingly, Australia's largest bank – CBA – "is investing heavily in its own technology to enhance personalisation of its app and engagement with its own customers". It'll be interesting to see how that works out.
Note that none of this is particularly revolutionary but any consumer-welfare improvement in banking, no matter how small, is welcome.
Facebook hacked... in 2019
The personal data of 533 million Facebook users from 106 countries – including the Zuck himself – was published, for free, "in a low level hacking forum on Saturday":
It includes their phone numbers, Facebook IDs, full names, locations, birthdates, bios, and – in some cases – email addresses. ... While a couple of years old, the leaked data could provide valuable information to cybercriminals who use people’s personal information to impersonate them or scam them into handing over login credentials, according to Alon Gal, CTO of cybercrime intelligence firm Hudson Rock, who first discovered the entire trough of leaked data online on Saturday.
You should assume that if you use Facebook, nothing you give it is ever private. If it hasn't been stolen from Facebook's servers, Facebook has probably sold it far and wide enough that it may as well have been.
The Morrison government is really starting to flex its totalitarian tendencies. Not content with forcing the likes of Google and Facebook to pay a convoluted cross-subsidy to their legacy media mates disguised as a 'link tax', they're now "considering forcing users of social media platforms like Twitter, Facebook and Instagram — as well as online dating platforms like Tinder — to upload 100 points of identification in order to use them":
In a nutshell, it would remove the anonymity for those who use such platforms to bully, harass or intimidate other users.
But it would also mean social media giants — many of which have suffered serious privacy breaches in the past — are holding even more precious information about its users.
Thankfully, this one will not pass the pub test. The government got away with the fake link tax because it stuck with the crony capitalist playbook, keeping the benefits visible and concentrated with the costs opaque and disperse. However, requiring 100 points of identification to use social media has no benefits other than the usual 'think of the children' fallacy, with very real and visible costs to every social media user – i.e. most Australians.
Talk about misreading the crowd – the social media backlash was swift, with #SovietScott trending on Twitter shortly after the news broke. Attention ScoMo: more vaccines and less undermining people's privacy, please!
Delivered on 29 March 2021 by Justin Pyvis. About a 4 min read.
Facebook, through prepared remarks delivered by Mark Zuckerberg, said it wants Section 230 – the part of the US Communications Decency Act 1996 that protects platforms from the content its users upload – to be changed:
Instead of automatically being granted immunity, platforms should have to show they have adequate systems in place for identifying unlawful content and removing it. A "third party" would decide what constitutes an adequate system and it would be "proportionate to platform size," suggesting smaller companies with less money would have easier standards to meet.
Facebook already employs around 30,000 'content reviewers', more than any other platform (Google/YouTube employ about 10,000, Twitter just 1,500). You can bet your bottom dollar that Facebook will already comply with whatever becomes the definition of an adequate system "proportionate to platform size".
There are many, many unanswered questions about how the thresholds would be determined, given Facebook ≠ Twitter ≠ YouTube ≠ some new potentially disruptive platform. Platforms come in many different shapes and sizes – will Facebook's proposed change also apply to eCommerce platforms such as Shopify? What about blogging platforms such as Wordpress? Or newsletter platforms such as Substack? It could even affect messaging platforms including encrypted, open source services such as Signal. What about the Fediverse, a federated, decentralised collection of publishing platforms, many of which are operated by a single person?
The only certainty is that amending Section 230 to include some kind of third party arbitrator mandating 'adequate systems', i.e. higher costs, to any 'platform' (however defined), would further entrench Facebook's status as the de facto social media platform.
But if you're after more regulation then never fear, for the UK's Competition & Markets Authority is on the job:
We've found that Facebook's completed purchase of Giphy raises competition concerns in relation to digital advertising and the supply of GIFs.
Is there nothing more important to be doing than writing papers on "competition concerns in relation to... the supply of GIFs". Really? REALLY? Tax dollars well spent. Sigh. 🤦♂️
Australia's 'news bargaining chip'
Alan Kohler laid out what has become of Australia's news media bargaining code, of which we have been highly critical (see here and here):
Mr Morrison and Mr Frydenberg were standing behind the publishers with bulging tattooed arms folded and cauliflower ears, while their cigar-smoking bosses said: “Nice businesses you’ve got there. Pity if something were to happen to them”. ... But why are the victims of this shakedown – Google and Facebook – happy to be coughing up?
Because their core operations of Google search and Facebook news feed have been quarantined and their monopoly rents untouched.
Google is paying publishers to appear in “News Showcase”, which is a very hard-to-find separate website, and Facebook is paying for “Facebook News” which doesn’t exist, but when it does it will also be off to the side.
None of that is surprising. In economic terms, this is a textbook case of rent seeking, with the Australian government – remember, the Treasurer is best buds with Ryan Stokes, son of the billionaire boss of Seven West Media, which greatly benefited from this code – succumbing to a strong lobbying effort from a large, politically influential industry. But what was surprising was the frankness of Rod Sims, the Chair of the Australian Competition and Consumer Commission (ACCC):
"It doesn't matter a toss what the money is paid for", [said Sims].
At an on-the-record Q&A event in Melbourne last week, Mr Sims said: "For reasons of their own, Google and Facebook strongly don't want to pay for news on search and news feed. Fine. The news media companies don't care what the money is for. So I just think it's a perfect outcome." ... "The problem we're addressing with the news media code is simply that we wanted to arrest the decline in money going to journalism. That's what the code is about – getting more money into journalism, and I personally think the money going into Seven and Nine, what's been publicly reported, which is north of $30 million, will make a big difference."
So the government worked with the regulator and media companies to concoct some fantastical justification for a 'link tax' for no other reason than to siphon off a bit of Google and Facebook's revenue to subsidise said media companies, presumably so the government could avoid the uncomfortable position of trying justifying the subsidy to the electorate.
It was a good old fashioned shake-down, nothing more, nothing less. The attitude of Rod Sims is particularly disturbing, as his comments make it appear as though his agency was completely captured by the legacy media companies (how does an arbitrarily determined – the power to 'designate' a company is at the Treasurer's discretion – heavily interventionist and intellectually dubious cross-subsidy "strengthen and supplement competitive market processes", exactly?).
Kohler finishes with:
The News Bargaining Code now sits on a shelf waiting for these three-year deals to come up for renewal, when presumably it will be taken down and waved around a bit to make sure the deals are, in fact, renewed.
In other words, Facebook and Google must now pay a ransom to a few billionaire owners of local media conglomerates every 3 years or get out of Australia. No doubt Australia's Treasurer, Josh Friedenberg, will have a cushy job waiting for him at Seven West Media when he's eventually bounced from Parliament. Well played.
The German government Wednesday agreed to allow secret services to listen in on conversations via encrypted messaging services such as Messenger or Whatsapp as a means of tackling terrorism.
This is happening in, of all places, the home of digital privacy regulation – the European Union! It turns out that an "individuals' fundamental rights and freedoms, particularly their right to protection of their personal data", are not so fundamental after all.
Hypocrisy aside, this is yet another reason not to use any 'encrypted' service that isn't open source, such as WhatsApp or Facebook Messenger. They may well be encrypted but you can never be sure the cryptographic keys haven't been handed over to some authority, somewhere. If there's a backdoor it also means there's a vulnerability: it's only a matter of time before some bureaucrat is socially engineered or simply throws out an old computer with the keys on it.
Google's privacy theatre
Google plans to phase out cookies. No, not the delicious dessert but third-party tracking 'cookies' collected by an individual's browser. Fewer cookies means less tracking which means more privacy... which is good, right? Wrong:
For years, Google has been gradually scaling back its use of tracking cookies, announcing earlier this month that it will not establish an alternate system for tracking users on the web. But critics of the company — including the Electronic Frontier Foundation — have criticized those efforts as self-serving.
As usual, the 'do no evil' company has ulterior motives. Cookies are usable by anyone and serve an important purpose, such as helping you stay signed into websites or tracking referrals. Instead of using cookies to track people, Google will now do it directly in Chrome, making advertisers even more dependent on Google.
You see, its internet browser – Chrome – has a dominant market share close to 65%:
Moving away from cookies will hurt Google's competitors far more than Google itself. It's a self-serving move dressed up as altruism. If you use Chrome, consider switching to Firefox (with the uBlock Origin add-on)!
The Clubhouse fad
You may have heard of the latest craze in Silicon Valley, Clubhouse:
Clubhouse is a new type of social network based on voice—where people around the world come together to talk, listen and learn from each other in real-time.
Backed by big hitting venture capital firm Andreessen Horowitz (a16z), Clubhouse quickly attracted the who's who of celebrity life, including Bill Gates, Elon Musk, Mark Zuckerberg and even Oprah. It's still invite-only – what fad isn't? – but since day one I've had concerns about its potential longevity.
For instance, celebrities are busy and their time is not cheap. Are they really going to deliver live content day-in, day-out, once the 'new kid on the block' effect wanes? Throw in some Facebook-level privacy issues and it went straight into my scrap heap.
Building on that concern, Shaan Puri recently stormed a long twitter thread hypothesising about how Clubhouse might evolve (do read the whole thing). The oft-made comparisons to Twitch – a live game streaming service – were particularly interesting, as the comparisons are flawed:
1 - twitch creators are live ~40 hours a week. Our best creators do weekly shows. ~3-4 hrs a week max. The game makes content creation easier
2 - Twitch is vertically focused (gaming). Clubhouse is horizontal. You need "great content" across EVERY category.
3 - On Clubhouse, if you join a convo 45 minutes late, you missed the best talking points and might be lost. But with Twitch, the "game stores the context". No matter when I join, I look at the game and I know what the player is doing. So it's "live" but not "urgent".
Puri predicts Clubhouse will evolve into a place to "chill", essentially a "Discord for Douchebags". No thanks.
Huawei, patent troll
With its hardware now banned in many parts of the world, Huawei is pivoting into patent royalties:
Huawei Technologies Co. will begin charging mobile giants like Apple Inc. a “reasonable” fee for access to its trove of wireless 5G patents, potentially creating a lucrative revenue source by showcasing its global lead in next-generation networking. ... Huawei will be flexible in negotiating rates on different 5G products -- everything from water meters to smart cars, according to Ding. “One thing for certain is that the $2.50 cap is set on smartphones,” he said.
Huawei's smartphone market share fell from around 20% at the start of 2020 to below 10% by the end of the year, following pressure from the United States to ban phones and other hardware made by the company as part of its trade dispute with China. The company had to do something, and that appears to be a doubling down on research and development – and the potentially lucrative royalties that may entail.
The stated goal of the trade war was national security. In reality, it was a revival of long-discredited mercantilism thinking to bring manufacturing back to the United States – 'Make America Great Again'. It achieved neither: the United States' trade deficit widened, Huawei's hardware was replaced by hardware produced by different companies (a lot in China!), and China's move towards the development of advanced technology and independence from the United States was accelerated.
Delivered on 15 March 2021 by Justin Pyvis. About a 4 min read.
Beeple – the alias of artist Mike Winkelmann – auctioned a piece of art last week that eventually sold for $69 million. Sums of that magnitude are not unusual in the art world, although this certainly was. You see, no art was actually sold: what was exchanged was a non-fungible token – or NFT – on the Ethereum blockchain.
This is CryptoKitties all over again, which are back, by the way: a flying Pop-Tart meme cat recently sold for $600,000.
At the end of the day, Beeple retains the original piece of art and the copyright to it. The buyer, an anonymous crypto investor who goes by the pseudonym MetaKovan, now owns a digitally autographed version of it. He reckons it's "worth $US1 billion":
When you think of high-valued NFTs, this one is going to be pretty hard to beat. And here’s why – it represents 13 years of everyday work. Techniques are replicable and skill is surpassable, but the only thing you can’t hack digitally is time. This is the crown jewel, the most valuable piece of art for this generation.
The GDPR – the European Union's 'General Data Protection Regulation' – is a bureaucratic behemoth of a regulation. So the UK is getting rid of it:
[Culture secretary Oliver] Dowden said that under the regime 'too many businesses and organisations are reluctant to use data – either because they don't understand the rules or are afraid of inadvertently breaking them'.
While its stated goal was to protect people's privacy in the wake of a serious of scandals involving the likes of Facebook, in practice it's so encompassing that it's nearly impossible to comply with unless you have an army of lawyers on staff.
At least 10 countries including Italy and Norway reacted after Austria, and later Denmark, raised concerns over the possible side effects from two batches. While Europe’s medicines regulator said there was no indication of issues, it led to a spate of suspensions stretching as far as Thailand.
Politicians have done an atrocious job at selling the AstraZeneca vaccine. When they all lined up to get their jabs, they of course got the Pfizer vaccine. Germany's Chancellor Angela Merkel, in classic German prose, said "I am 66 years old and do not belong to the recommended group for AstraZeneca [65 and younger]".
Really, Angela? That sends a clear message to the German (and other) people that some vaccines are better than others. It was a similar story in Australia, with the 52-year old Prime Minister Scott Morrison opting for the Pfizer vaccine to "by my own example today... to say to you, Australians, it's safe, it's important".
Bu*****t. If Morrison was actually interested in showing Australians it was safe and important and not just selfish queue jumping, he would have opted for the AstraZeneca vaccine, given the public trepidation surrounding it and the fact it's what his government decreed the majority of Australians will receive.
To be clear, the evidence suggests while the AstraZeneca vaccine is less efficacious than Pfizer or Moderna, it is perfectly safe (about 30 incidents from a group of around five million, which could just as easily be explained by bad luck). But politicians could not have done a worse job at conveying that information if they tried.
Myanmar's first satellite is being held on board the International Space Station following the Myanmar coup, while Japan's space agency and a Japanese university decide what to do with it.
The $15 million satellite was built by Japan’s Hokkaido University in a joint project with Myanmar’s government-funded Myanmar Aerospace Engineering University (MAEU). It is the first of a set of two 50 kg microsatellites equipped with cameras designed to monitor agriculture and fisheries.
Human rights activists and some officials in Japan worry that those cameras could be used for military purposes by the junta that seized power in Myanmar on Feb. 1.
The Trade Wars didn't die with Trump
Those hoping for a change of tact with a Biden Presidency appear to be out of luck:
The Federal Communications Commission (FCC) on Friday designated five Chinese companies as posing a threat to national security under a 2019 law aimed at protecting U.S. communications networks.
The FCC said the companies included Huawei Technologies Co, ZTE Corp, Hytera Communications Corp, Hangzhou Hikvision Digital Technology Co and Zhejiang Dahua Technology Co.
The Biden administration has informed some suppliers to China’s Huawei Technologies Co. of tighter conditions on previously approved export licenses, prohibiting items for use in or with 5G devices, according to people familiar with the move.
The 5G ban is effective as of this week, according to the people, who asked not to be identified to discuss nonpublic communications.
The rules create a more explicit prohibition on the export of components like semiconductors, antennas and batteries for Huawei 5G devices, making the ban more uniform among licensees. Some companies had previously received licenses that allowed them to keep shipping components to Huawei that the Chinese company may have then used in 5G equipment, while other companies were already subject to tighter restrictions.
The unintended consequences of the US administration's war against Chinese tech – Huawei in particular – are already emerging, with Qualcomm "struggling to keep up with demand for its processor chips used in smartphones and gadgets":
Demand for Qualcomm's chips has soared in the past months as Android phone makers seek to win over customers abandoning phones produced by Huawei Technologies Co Ltd due to U.S. sanctions. Qualcomm has found it hard to meet this higher-than-expected demand, in part due to a shortage of some subcomponents used in its chips.
In time, supply chains will adjust. But trade sanctions are not a free lunch. Biden looks set to pick up where Trump left off.
A record amount of VC dry powder is propelling prices higher. VC funds amassed $70.9 billion last year as low interest rates and a sharp rebound in tech stocks attracted institutional investors looking to back the next Airbnb or Zoom. The cash surplus means young companies, particularly in hot sectors like fintech and social media, are raising a similar amount for Series A rounds as they might have in the past but at higher valuations. ... These deals demonstrate how venture investors are increasingly willing to overlook some conventional growth benchmarks like sales or even user growth. When Andreessen Horowitz won a competitive deal to lead the Series A round for social audio app Clubhouse last year at a $100 million valuation, the app only counted a few thousand users.
Baked into these high prices are investor expectations that users and eventually revenue will follow.
The Bank for International Settlements (BIS) released its March 2021 Quarterly Review last week. It noted that:
Such [low] interest rates reduce corporates' debt servicing costs and encourage economic activity, thus leading to higher expected profits and ultimately higher equity valuations. Moreover, if low interest rates are the symptom of accommodative monetary policy that seeks to reduce the likelihood of steep losses on the equity market, then they would go hand in hand with low risk premia and, thus, high valuations. Overall, to the extent that corporate profitability and investors' attitude to risk are predicated on monetary policy, stock valuations would respond strongly to news about this policy.
With interest rates at zero and 'accommodative monetary policy' expected to continue indefinitely, virtually any valuation can be justified. Combine that with gigantic fiscal stimulus and you get a recipe for disaster when the fiscal impulse eventually fades at the same time as economies open up post-coronavirus and inflation starts threatening those lofty valuations.
Jack Dorsey, the billionaire co-founder and CEO of Twitter, a man who stans bitcoin right on his Twitter bio, is attempting to sell his very first tweet as an NFT [non-fungible token] — a digital good that lives on the Ethereum blockchain. ... As you would rightly expect, bidding is already north of $80K. As of Saturday morning, the highest offer for Dorsey’s tweet was $2 million, from tech entrepreneur Justin Sun. By Saturday evening, the high bid was $2.5 million.
Remember CryptoKitties? This is basically the same concept, with people buying and selling "a digital certificate of the tweet, unique because it has been signed and verified by the creator".
Now buying a tweet is silly – all you're getting is bragging rights from your Silicon Valley buddies (which is apparently worth a few mil to these people). The company known as Twitter Inc still owns the tweet. However, blockchain-based NFTs do have real world potential. For example, one day you might be able to use them to secure property titles, which given their trustless nature could eventually replace less efficient government systems as society's formal register of property and land information.
Consumers always pay
France and Spain recently imposed a digital tax on profits. In response, "Google has told customers that it will raise the rates for advertisements on its French and Spanish platforms by two percent from May", to "...cover a part of the cost of conforming to laws concerning taxes on digital services in France and Spain".
There is no free lunch. When a tax is levied, it has to be paid – but not necessarily by the people or organisations on which it is levied. Frequently new taxes will flow down to consumers through higher prices, which in this case are the businesses that rely on Google for advertising (advertising accounts for the majority of Google's revenue). Those businesses will have to respond either by reducing the amount of advertising they buy or by raising their prices as well.
France and Spain's 'Google tax' is a tax on their own businesses and consumers – not Google.