The net effect
of net neutrality

Net neutrality protestPerhaps you heard: A couple of weeks ago the FCC under chairman Ajit Pai voted to repeal the 2015 regulations. 

It all started in 2008, when the people at Comcast noticed a curious thing. File-transfer giant BitTorrent was consuming more and more Internet bandwidth. More, it seemed, than Comcast cared for them to consume.

Comcast’s solution was to “throttle” BitTorrent’s and other large users’ bandwidth. That is to say, they slowed down their Internet speed.

When the practice came to light, the FCC slapped Comcast’s wrists. Or, rather, tried to. The rules were vague then, so Comcast emerged with wrists intact, albeit with a bit of mud on their face.

The BitTorrent case and others like it eventually led, in 2015, to the FCC’s lumping Internet Service Providers (ISPs) in with telecommunications service providers. ISPs could no longer, as NPR put it, “decide which websites load faster or slower, or charge websites or apps to load faster.” 

Except, that wasn’t exactly true. ISPs have been allowed to do exactly that, and that’s not necessarily a bad thing. Moreover, the conversation may be less about ending neutrality and more about revising the rules.

Net neutrality matters for financial institutions

Having worked in the banking industry since age 17, I’m well aware of the burdens that overzealous regulators can impose. With banks in particular, it seems whenever Washington feels a need to regulate, overkill is part of the mandate. So I tend to look favorably upon any suggestion of simplifying or doing away with rules.

But net neutrality has implications for the banking industry. I probably don’t need to point out that digital banking rather relies on a fast Internet. Without net neutrality, banks could end up paying extra to ensure speedy transactions, which doesn’t bode well for institutions not in eager pursuit of increased overhead.

Note that I said banks could end up paying extra. No one is entirely sure just what the repeal portends. As recently as November 22, @Comcast tweeted this promise:

We do not and will not block, throttle, or discriminate against lawful content. We will continue to make sure that our policies are clear and transparent for consumers, and we will not change our commitment to these principles.

That should reassure. Unless, like Ars Nova’s Jon Brodkin, you’re concerned about wording changes in Comcast’s stated positions over time, past abuses, and the fact that …

… Comcast has drawn a distinction between “paid prioritization” and “anti-competitive paid prioritization.” Paid prioritization should not be banned entirely, but “anti-competitive paid prioritization” should be limited, the company has argued.

Those who want to keep the current rules, and those who want to revise them

Besides the lion’s share of consumers, those who argue to keep net neutrality include the likes of Apple, Google, Mozilla, Amazon, Dropbox, Facebook, Microsoft, Netflix, Snap, and Spotify, to name a few. Here’s an excerpt from a statement by the nonprofit organization Mozilla:

Our position is clear: the end of net neutrality would only benefit Internet Service Providers (ISPs). That’s why we’ve led the charge on net neutrality for years to ensure everyone has access to the entire internet.

Apple had this to say in its Reply Comments to the FCC:

The result would be an internet with distorted competition where online providers are driven to reach deals with broadband providers or risk being stuck in the slow lane and losing customers due to lower quality service. Moreover, it could create artificial barriers to entry for new online services, making it harder for tomorrow’s innovations to attract investment and succeed. Worst of all, it could allow a broadband provider, not the consumer, to pick internet winners and losers, based on a broadband provider’s priorities rather than the quality of the service.

But let’s not be naive. Apple, Google, et al have shareholders to please, which means we shouldn’t assume they have only the public’s best interest at heart. Indeed, the issue is not as simple as they make it sound. These companies enjoy serious advantages under current regulations, so it’s no wonder they would want to maintain status quo. A recent post by science writer Brian Dunning points out that

… from an infrastructure perspective, there is no such thing as a “fair” Internet. The biggest content providers—Google, Facebook, Netflix, Akamai, Amazon, and others—are directly connected to Tier 1 networks, the highest-level networks over which data flows worldwide without having to go through anyone else’s routing, negotiation, or settlement. You and I don’t have that …

… Facebook is already enjoying “king of the hill” status as a Tier 1 service. Theirs is an easy position to take from where they sit.

Not surprisingly, ISPs are keenly interested in revising net neutrality rules. And they have their allies in the press. Writing for Forbes, Nelson Granados observes:

… the internet as a neutral platform for content providers and consumers has pretty much remained so during three regulatory regimes: One with no specific rules of anti-discriminatory behavior, one with explicit rules, and 2017 with an FCC that had no intention to enforce the rules. So there’s no major reason to fear a doomsday scenario going forward.

However, he adds, “That doesn’t mean there are no reasons to worry in the longer term.” He goes on to name a few, including “a more competitive environment in industries that could clog the internet pipes, like video streaming services.” Moreover,

… since 2015 ISPs have increased vertical integration into content (e.g., AT&T acquired DirecTV and Time Warner; Verizon acquired Yahoo and launched Go90) and they have natural incentives to favor their own content.

The net has never been neutral

“Unfettered access” may sound pleasing to some, but in fact it’s not possible. One of the problems in conversations about net neutrality is that the subject is too often treated as an all-or-nothing proposition. Workable solutions to managing the Internet are to be found between extremes on more than one continuum.

The Internet is a limited resource for which demand varies throughout the day. Without some form of “traffic shaping,” highest level users would utterly consume capacity, such that there would be no so-called free access at all. To wit, Dunning addresses the ins and outs of Internet traffic, taking into account not just ideological and economic factors but technical ones as well:

Let’s look at the basic example of Internet on a plane. You buy the service, and you find out that streaming video is blocked. No YouTube or Netflix on a plane. Why not? Because you would suck up all the bandwidth, and nobody else on the plane would be able to check their email or work on a Google doc. It’s necessary for the airline provider to impose this restriction to keep the service more useful for more people. It’s an example of an absolutely necessary fundamental violation of net neutrality.

The airline example is a microcosm of every other Internet environment. Your neighborhood broadband provider has to do this too. They generally do slow abusive users, peer-to-peer file sharing networks, denial of service attacks, even streaming video. It’s called traffic shaping. It’s done on a dynamic basis all day long, and it’s the basic principle for maintaining network quality of service. Your home broadband service would be terrible if your provider was not, right now, prioritizing some traffic, and delaying other traffic.

To Dunning’s point, The Palmer Group CEO Shelley Palmer writes in AdAge that what we’ve been calling net neutrality for the past two years hasn’t been all that neutral anyway:

Under net neutrality there were fast lanes and slow lanes, and a loophole called zero-rating which allowed services like T-Mobile’s “Binge On” to exempt certain streaming services from its data counts. There were other loopholes written into the rules where specific clauses included phrases such as, “Subject to reasonable network management,” which basically meant ISPs could throttle traffic if they thought they had to.

What the real debate needs to address

It’s important to avoid treating net neutrality as a choice between two extremes. No one wants absolutely free trade—the need for rules is understood—and no one who is informed on the subject wants absolute net neutrality. The debate should not be whether or not to have rules. It should center around what the rules should be, how far they should go, and who gets to make them.

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In a hollow in the
snowy ground

winter-3017599_1280This time of year it’s traditional, and I am inclined, to offer a holiday thought. I admit to a bit of apprehension. Of late, what one says or fails to say has the potential to offend. I hope the spirit of what I wish to get across transcends.

I live in the Salt Lake Valley, where we have a number of lovely off-leash dog parks. One in particular sits at the feet of the majestic Wasatch Range, part of the Rocky Mountains. It is picturesque and, due to its elevation, colder than the rest of the valley at this time of year.

Which makes what I’m about to share all the more heartbreaking.

Last week when a friend—let’s call him Bob—was there, his dog sniffed out something I wish I could tell you was unusual. Some 20 feet from the main trail, hidden from view in a hollow in the snowy ground, a homeless person lay shivering, not quite conscious, clutching a ragged comforter.

Bob felt helpless. It was afternoon, the warmest part of the day, and only 40 degrees Fahrenheit. The man would most likely freeze to death that night. Yet what to do? The actions taken in the Parable of the Good Samaritan are easier said than done. Perhaps the man was dangerous. Even if he wasn’t, Bob had no pack animal to carry him out, and his care would have been beyond Bob’s and just about anyone else’s means.

Later that night as he pondered, Bob realized that though he wasn’t able to help that individual, he could at least help others like him. With some googling he found a shelter with the buying power to purchase eight times the food he could buy on his own for the same amount. The shelter is now part of his monthly budget.

My wife, three kids, and I—and, yes, our dog—have a nice home. It’s no mansion, but it’s a far cry from a hollow in the ground. We’re never cold. We never go hungry. Right now I am indoors, on a comfortable chair, writing on a Macbook Pro that retails for an amount that a food bank or shelter could turn into about $15,000 worth of goods and services for the homeless.

I only partly earned any of what I have. Sure, I’d like to think I have an iota of talent and once or twice put in some hard work. But it wasn’t my doing that I was born in an economy where I could pick up an education, gain skills, and join a thriving corporation. Neither was it my doing that the right combination of genes, upbringing, mentors, and random opportunities came along at the right times for me to capitalize on them. So there’s no way I can picture a man shivering in a hollow and think, He deserves it. Or, Why doesn’t he just get a job? I don’t know his story. All I know is his circumstance in the here and now.

Looking for a great idea for a resolution?

Where I live, it’s something of a year-end tradition to express gratitude for what we have. But it follows that some have less or even nothing. Maybe we can’t do as the Good Samaritan did—bandage wounds, transport unfortunates on a donkey, and leave them with an innkeeper—but there exist organizations that do essentially that. If you’re looking for a New Year’s Resolution, scaring up a dollar or two for them on a regular basis might be a great one.

Thanks for reading. My family and I hope you had a great Christmas Day and wish you a happy New Year.

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Captain Kirk and the
value of not working in
a (figurative) vacuum

Trek imageWe’ve come a long way since the 23rd century.

Back in those days, Captain Kirk’s “communicator” was nothing but a flip phone. Not only that. He used it to place voice calls, of all things. The ship’s computer answered to “Computer” and spoke in a monotone. Only in one episode did it sport a personality. The work of saboteurs, it was deemed a problem, if you can imagine.

One can only guess what Kirk would have given for a smartphone from three centuries earlier. No flipping the darned thing open, no knob to turn—just call out “Alexa” or “Hey Siri.” He’d have had instant access to humankind’s accumulated knowledge (who needs a ship’s computer?), delivered by a voice with at least something of a personality. He could have used it to shop. 

Best of all, he could have used it to better manage his Federation credits—his money.

That’s the problem with science fiction. The writers of “Star Trek” lived in the 1960s, when QWERTY keyboards accessing house-sized computers were cutting-edge. Magnetic tape had only begun to edge out punch cards. Gene Roddenberry et al had no basis to imagine portable devices, much less portable devices with touchscreens. And even if they had, leaping to voice-activated personal devices (obviating a ship’s computer), social media, and digital banking would have been too much to ask.

Yet the very inability to see into the future helps make today’s technological whirlwind all the more exciting. We cannot foresee what will launch next week, let alone next year, so there’s no anticipating the technologies that they may in turn make possible.

Not that foreseeing what will launch is the same as foreseeing what will catch on. Markets continue to surprise us. For instance, while marketers were sure QR codes would be the rage, consumers greeted them with a collective yawn; meanwhile, consumers are going nuts over fidget spinners, which no one saw coming.

Exciting or not, uncertainly can be expensive—and consequential. Financial institutions decide at their peril which technologies to invest in, which to ignore, and which to file under “keep an eye on this one just in case.” At the same time, bankers must carry on with the business of banking.

But now I must confess to having exaggerated.

It’s not true that “we cannot foresee what will launch next week, let alone next year.” Despite appearances, no technology is born overnight. There’s an inception period, a development period, a beta testing period, backing up and finessing, more beta testing, a market testing period, more backing up and more finessing and more testing, and finally, hopefully, a market release.

So while the outcomes of these processes may take markets unawares, those plugged into the process are never taken by surprise.

That’s one of many reasons it’s a good idea not to work in a vacuum—a figurative one, not Kirk’s vacuum of space—but to rub shoulders with outside fintech companies. Fiserv and others stay immersed in technological advances and keep close tabs on market developments. To do that would be a lot harder, perhaps impossible, if we were also trying to run a bank. Since we’re not, we can offer needful insights, perspectives, and products to those who are. (Full disclosure: I’m Fiserv’s Marketing Strategy & Innovation SVP.)

It goes both ways. We, too, know better than to work in a vacuum. That’s why we regularly partner with banks when we conduct studies. It’s why we share information with publications like The Financial Brand to help keep everyone abreast of what’s happening in this fast-changing world.

It’s a shame Kirk missed all that we’re doing these days. Imagine the innovations he could have brought back from the past to the 23rd century. Trouble is, his first and second trips back in time were, respectively, to the 1960s and the 1980s. If only he’d stuck around for a few decades.

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$11k and counting

Bitcoin skyrocketsLast week, digital asset broker Coinbase’s vice president and general manager of GDAX Adam White took the podium at the Consensus Invest Conference in New York City to extoll the performance of cryptocurrency. Later that evening, the news was everywhere: Bitcoin had surpassed the $10,000 mark.

Of course, that’s old news. As I was preparing this post, Bitcoin vaulted over the $11,000 mark.

About this time four years ago, Bitcoin made news by climbing past $1,000, up from $200 a month earlier. Then as now, pundits warned against investing in cryptocurrency. Representative of the cautionary side was this piece by Kerry Close, which ran last January in Money:

As bitcoin prices dominate headlines, you might be wondering whether you should invest in the popular cryptocurrency. Probably not: It’s just too volatile. The virtual currency is known for wild fluctuations in price … Those sudden ups and downs would be bad news for your portfolio … “You try to sell it, and by the time the order goes through, the price may have dropped,” said Matthew Elbeck, a professor of marketing at Troy University. “It’s really, really not worth it for the ordinary consumer.”

Or, take this warning from the UK as reported just three months ago in The Guardian:

The financial regulator has issued a stern warning against a speculative frenzy over initial coin offerings (ICOs) in cryptocurrencies such as bitcoin that have been promoted by celebrities including Paris Hilton.

The Financial Conduct Authority said anyone investing in ICOs should be prepared to lose all their money, with some of the schemes floated potentially outright frauds.

ICOs use the language of conventional initial public offerings (IPOs) and are designed to raise money for internet-based startups. But their similarities with IPOs end there.

The cautions are well-taken. Cryptocurrency is volatile by nature, in many ways more of a gamble than an investment. History bears out that rapid price acceleration can presage a crash. For instance, those not living under a rock or on Mars may have heard something about a certain real estate and investment bubble that burst in 2008. That Bitcoin’s gains are legendary is true enough. But Nassim Nicholas Taleb provides an analogy in his book The Black Swan that explains why predicting the future based on the past may be unwise:

Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race “looking out for its best interests,” as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.

Volatility aside, the utility of cryptocurrency suggests that it is here to stay. Blockchain technology, which underlies cryptocurrency, is transparent and incorruptible (although, per Taleb, I think it’s wise to hedge with words like so far). As Blockgeeks explains, blockchain technology functions by storing identical blocks of information across a network, so that no single entity has control over it, which ensures no single point of failure.

That’s why cryptocurrency has proven (again, so far) immune to counterfeiting, obviates identify theft dangers, reduces or eliminates transaction fees, speeds up larger transactions, does away with foreign exchange complications, and permits anonymous transactions. That last feature doesn’t hold much appeal for law enforcement and the IRS, which is precisely why it’s so popular, and not just among criminals: Many above-board people just don’t like the idea of having their activities tracked by government or any other third party.

Despite its promising growth in use and its meteoric growth in value, Bitcoin must overcome hurdles if it is ever to attain regular, household currency status. The whole concept of blockchains and cryptocurrency, not easy to conceptualize, can be daunting to the average consumer. Even “getting started” sites like this one, though friendly in language and design, can intimidate.

Bitcoin and other cryptocurrencies are a long way from universal acceptance. This presents something of a circular problem, namely, that Bitcoin will not be more widely used until it is more widely used. Still, such problems have a way of solving themselves, Apple Pay and Google Wallet being good examples.

As for blockchain, it proves itself useful beyond cryptocurrency. Nasdaq reports promising applications such as improved cloud storage, linking personal computers into supercomputer-like configurations, more secure transmission and execution of legal documents, and others.

Bitcoin and blockchain technology are here for the long haul. Much like the smartphone, they may turn out to be examples of invented-within-the-last-decade technology that change the world.

Meanwhile, Bitcoin’s price tag keeps skyrocketing. At least, as of this writing. By the time you see this post, things may have changed.

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Of placebos,
wine, and Eeyore

winnie-the-pooh-437940_1280 copy

Most people know about the placebo response. Tell patients to expect to feel better following what they don’t know is a sham treatment, and, often, they will. Less known but equally powerful is the nocebo response, where telling patients they’ll feel worse can be just as self-fulfilling.

Non-medical products can induce placebo and nocebo responses, too. Not long ago, researchers at Stanford and Cal Tech asked test subjects to undergo fMRI scans while sampling one brand of wine retailing at five dollars a bottle and another brand retailing at 90 dollars a bottle. Subjects said they preferred the more expensive wine, and their brain activity per the fMRI scans seemed to confirm it.

But the researchers had pulled a fast one. Both bottles, it turned out, contained the same stuff.

The moral is that our expectations influence how we are going to process our experiences. We all understand that at some level. Even our everyday rhetoric reflects it, in phrases like never underestimate the value of a first impression and dress for success. 

Right or wrong, an airline pilot in a crisp uniform makes us feel safer than would the same pilot in cutoffs and a tank top. A Mont Blanc pen makes an entirely different expectation than a Bic. A firm handshake evokes greater competence than a dead fish.

Likewise, a digital banking app that makes a positive first impression is more likely to deliver a better perceived experience. 

Mind you, basic mobile banking functions such as balance checks, transfers, bill pay, and check deposit do not set apart an app any more than an inventory of baked goods sets apart a neighborhood bakery. But step into a spotless bakery wafting that fresh-baked bread aroma, where the help sport clean aprons and actually smile at you, and chances are you’ll rate their products higher than you would have in a blind taste-test. 

I check out a lot of digital banking apps in my job. I have seen apps whose design, accessibility, and copy seem to call out the moment you open them, This is going to be great. But I have to tell you, I have also seen plenty of the other kind. The kind that, although equally functional, greet users with an Eeyore-like, Meh.

I’m not out to embarrass or offend, so I’m not going to name names or provide links to the meh sites. My goal is to encourage digital bankers to take a second look at their apps. An otherwise great app that fails at first glance to create a positive expectation risks an inadvertent nocebo effect, doing itself, the financial institution, and its clients a disservice.

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