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TECHNOLOGY BLACK SWANS IN FINANCE

The mobile wallet is finally a reality.

Facebook is making $1 billion per year in payments income. Google+ is offering a social network with enhanced privacy and grouping technologies. Artificial intelligence is used in stock trading. Biometrics are finding their way on to financial mobile apps. Payments infrastructures are changing.

Telcos are beginning to behave like banks. Paypal will let you deposit checks by scanning them on your phone. WalMart’s Money Card is gathering more traction. Apple’s integration of Twitter into the iPhone operating system will allow seamless phone to phone payments through Twitter.

The common thread amongst all these is the leveraging of Scale + new I.T. to enter the payments business, thereby posing a threat to the tradition interchange system. Technology is being used against itself in finance.

A recent Guardian Analytics survey noted 2 amazing facts: 1) 56% of businesses reported experiencing payments fraud in the last 12 months, and 2) 43% of businesses said they have moved their banking activities elsewhere after a fraud incident. This is a threat and an opportunity. For instance, “mobile hijacking” is where a cybercriminal places a signal box near a mobile customer, pretends to be his mobile network, and grabs his data. “Phishing” schemes abound in email to gain passwords. Criminals leave flash drives in parking lots, and when a curious person finds it and plugs it into his machine they are infected with a virus. Employee badges are being scanned with cel phones to gain social security numbers.

A new threat seems to pop up every week. The common thread between the competitive and security threats is the emergence of new technologies and their unintended consequences in the financial system.
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