Co-op Digital newsletter: blockchain
The latest Co-op Digital newsletter was a good challenge.
The EU referendum result had come in a couple of hours before we published, and it couldn’t be ignored. But Co-op had no formal editorial position on the vote, and I’m representing Coop Digital rather than my own views. So I gritted my teeth and wrote something simple that looked forward. Then I went back to shouting hoarsely at the TV news for days.
It also had a piece on bitcoin, blockchains and the unfolding story of DAO (blockchain contracts, hackers etc). One of the things that makes bitcoin really interesting is that you have a sense that there’s probably something there a long time before you understand what it is. Perhaps like when you see something shiny flashing in a water fountain, and you don’t yet know if it’s a coin or something else, and then when you put your hand in to pick it up, it’s a lot deeper than you think due to the water’s refraction and… etc.
Here’s a bit, cut from the newsletter to keep it shorter, trying to neatly capture what they are:
What is Bitcoin? A decentralised digital currency, in which the transactions are between (anonymous) individuals rather than via an intermediary like a bank or VISA. It’s a decent medium of exchange (you can buy quite a lot of of things with it), but a volatile store of value (it goes up and down a lot in value against other currencies).
What is the blockchain? A public, distributed and continuously-growing ledger of between every bitcoin transaction historically, that’s cryptographically “hardened” against tampering and revision. In money terms, it replaces the credit ledger functions of a central bank. Bitcoin was the first blockchain-based digital currency, but there are other blockchains, such as Ethereum.
Why are blockchain-based currencies interesting? Because there are no financial intermediaries, transaction costs can be much lower. They may fill a gap for countries with under-developed banking systems. The proof of work mechanism authenticates the user in a relatively tamper-proof way, but introduces weird inefficiencies: it’s energy inefficient and it takes time.
I still don’t understand bitcoin or blockchains, but am trying to get there.
The newsletter itself is magic to work on. Strong, decisive team of good people at Co-op, great mission, and I’m learning lots. You can get it in your email here.
A dozen insurance policies at 450/month
Have you ever wondered how many insurance policies you have, what they cost, and whether they’re right for you? An “audit” of your insurance cover is a good first step in understanding where you are.
Here are some common insurance policies you might have:
- Life assurance - term or whole-life
- Critical illness cover
- Income protection
- Private healthcare, eg BUPA
- Dental plan
- Personal accident
- Pension term insurance
- Bank/card protection (or bank account fees which include an insurance element)
- Payment protection (the infamous PPI) or credit insurance
- Car insurance
- Breakdown cover, eg AA
- Travel insurance
- Phone insurance
- Pet insurance
If you’re a home-owner, you’ll probably have some of these:
- Buildings insurance
- Contents insurance
- Mortgage indemnity guarantee
- Boiler/central heating/electrics cover
- Appliance cover
If you’re a property landlord, you might also have:
- Guaranteed rent insurance
- Landlord’s legal assistance insurance
- Boiler/central heating/electrics cover
- Appliance cover
- Tenancy deposit scheme
If you run a business, you might also have some of these:
- Employer’s liability
- Public liability
- Professional indemnity
- Key man insurance
- Bank account fees which include an insurance element
And I’m sure there are some common ones I’ve missed out, and many uncommon ones.
Our family and business has over a dozen insurance policies and our monthly cost is more than £450 (and growing because I haven’t finished tracking eveything down).
Thoughts: The monthly cost is more than twice what I would have guessed offhand. I know that some of our policies are essential. But I’m not sure if we have the right amount of cover. I’m pretty sure that we are over- or under-covered in some areas. I don’t know if there’s any unnecessary overlap between the different policies. I’m sure that each policy made sense at the time it was purchased, but as time passes I’m less confident that our needs and our cover still match. So we have some homework to do.
Could all of this be easier and better? Definitely. It’s quite painful collating and understanding what you have today (even just doing an audit like this), and then it’s painful understanding any gaps and making decisions and thirdly it’s painful buying cover.
Needed: a trustworthy service that tracks what insurance cover you have, helps you understand what you might need, and makes useful suggestions.
Notes on late savers, banks, long-term planning
Working notes on long-term saving, some of which is from the perspective of what my bank account could do for me.
Retirement planning today: lagging
Demographic stats: we’re living longer, and the % alive in UK is skewing to retirees, so it’s safe to expect State Pension to drop in real terms and Defined Benefit employer pensions to go away. Stats on retirement numbers show there’s a gap:
- 12m working age people in UK face inadequate retirement income. “More than half of people in the UK either aren’t saving at all for their retirement or they aren’t saving nearly enough to give them the standard of living they hope for when they retire”. 15% of UK adults have used a payday loans service [MAS]
- 80% of Millenials (18-34) see themselves as responsible for ensuring they have an income in retirement, yet just 44% currently hold a pension. 21% of people (34% of Millenials) would invest more in their pension if they knew exactly where the funds were being invested [OnePoll/Abundance 2015]
- Since 2014 pension reforms, income drawdown contracts up 64%, annuities down ~75% [ABI]
- USA: 50+% of US households won’t be able to afford their current lifestyle when they retire [Northwestern Mutual], and one in three Americans have taken no steps to plan for their financial futures [NYT]. 33% US households have an IRA (pension), but 41% of households age 55-64 have no retirement savings, however 47% of 18-29s have some retirement savings [GAO/Fundreference].
Changing market/demographic context:
- For banking/investment incumbents: 7-day switching (interest paid and customer service attracting switchers), new banks, digital-first banks (Atom et al), PSD2, bank unbundling. Passive and semi-passive robo-advisors are taking AUM from managed/active funds, forcing fund pricing down.
- UK gov policy: squeeze on saver tax breaks 2014-2016? BTL squeeze 2015 may change attitude to property as investment?
- Demographic: baby boomers in retirement, Gen X are mid-career. Do millenials trust robos? Do they see banks as boring? non-aligned to their interests?
Why are we late savers?
We know we should look after our futures, but what explains the gap? My speculation:
- Complexity, distrust causes inertia: “I know I should but… it’s all too complex, where to get info, who to trust… what to do…”
- Urgent things displacing important but not urgent things: “I know I should but… there are priorities here and now″ Today vs tomorrow. Save for a house deposit. Student debt. Holiday vs pension.
- UK property will save the day? Easy to just rely on the house - trust property because it’s tangible, “always” goes up (more so in London?)
- We’re “wired for imprudence” [RSA]. Many other cognitive biases, but might summarise their effect as: the timescale, the complexity and the psychology make us think “I’ll get to that later when I have more time and have dealt with these really urgent things”.
- Fear: Job security/(perma)austerity?
- Fear: I just don’t want to think about getting old, about mortality. Need a personal finance Memento Mori?!
- Growing cohort that are self-employed may have less predictable income which makes it harder to plan ahead?
Start safe, now:
- a safe start that’s directionally correct is much more important than a perfect start. Optimise later.
- a Fear call to action: “Look at that scary salary drop when you retire!” - not many orgs doing this; perhaps fear isn’t well correlated with spending money on a finance product?
- a Greed call to action: “Look! Your savings could grow this much over period” - Nutmeg etc fairly good at this. Power of compound interest.
- Vanguard Lifestrategy and then forget about it
- One-click. What if a bank sent me the ISA forms pre-filled, told me how much it could put in it right now, how much it could automatically sweep into it every month based on my history, and asked me solely for a wet signature?
- Setting a goal. How we think about money. Why money’s important to us.
- Rather than economics lessons, useful guidelines, rough and ready measures
- Progress toward long-term goals rather than “your portfolio is down 0.02% today”
- Priorities: generally pay off debt before saving (but always exceptions, eg the return from your employer’s contribution to your SIPP pensions is significant)
- Different language
- Salary as the return from a time-limited asset, your working life/human capital. Remind me that at 40-something I might be in the second half of my working life in years, though hopefully not in earning potential. My job is to gradually turn human capital into asset capital.
- A mortgage is money you’re renting from the bank (time value of money). A credit card = “I value 70p now more than I do £1 next year”.
- Creating “floors” to make the worst case impossible?
Form good habits:
- Incremental learning about saving: “send money away” (ie save) monthly and see it come back larger (Santander123 statements are quite good at making this visible). Then do the same quarterly then annual then …, each time showing how longer commitments generally mean a better future return.
- Improve the visibility of your personal money, eg Sweep. Compare your Sky TV DD to a critical illness DD. Ways of showing cost that might trigger a better habit (£7 bottle of wine every night * 7 days = 2.5k+/year = holiday/goal/something = OK now I’m motivated)
- Using the data: comparing my account to those of others similar to me might be a step too far. But compare me to myself this time last year. Categories for history, and buckets for future:
- Sub-account level “buckets” (holiday, wedding, tax, like Briqs with goals, progress (33% of the way there). And show me how effective I am (“that 9,999 car only cost you 9,300”).
- Categories of expenditure, but compare my history
- Sizing: Your Amazon + Sky spend is now X% of your Tesco spend
- feeling noble about delayed gratification - habit feedback loops
Avoiding bad habits?:
- the unhelpful effect of stock portfolio apps on investing behaviour: the real-time red and green ticking up and down encourages you to act now, to buy or sell
- really, investment portfolio apps should look more like banks account apps: just show me the headline balance and the progress towards a target
- and vice versa: online bank accounts should look more instrumented - like stock market investing apps!
Convenience - simplify/automate:
- automated: direct debits. We don’t look at the Sky TV/car loan DD every month (a bad thing?), nor the pension contribution/critical illness payment (a good thing?).
- invitation to automate: anything reversible could just be automatically done or “click here and we’ll make it so”. Do it transparently, with a safety margin, and in a reversible at-no-cost manner.
- Convenience - Digit or Qapital: move “spare” cash into a savings account
- Why can’t we have Santander789?: instead of interest and cashback into my current account, why can’t my bank move it into a paired ISA, SIPP or something else more long-term? Perhaps True Potential Investor is getting close to this.
(Other things to investigate:)
- trust your family: “offset” retirement plans to manage debt of younger members vs savings of older? Could a co-operative do this?
- What does instant/delayed gratification look like when mapped onto Maslow?
- Banking apps and stock market portfolios should really look like each other!
- Why isn’t there a button on my online banking to download a self-assessment tax statement?!
- How can I be a trusted advocate for a friend or family member. Digital powers of attorney? (Security challenges everywhere, esp in emergency use cases!)
- What would make my bank much more trusted?
- On human capital and entire household balance sheet: here, here and here.
- Dig into these: World Bank Global Findex and here. Annuity map of UK via this. On UK bank switchers.
Sources for the numbers
New UK banking licences since 2013
(Data to Nov 2018, corrections welcome!)
New banks are being licensed in the UK. Most of them are boutique or corporate, but there are some interesting ones on the retail side.
New licences since 2013:
This list is banks newly incorporated in the UK, including cancellations of new banks. (And have added “banks incorporated inside or outside the EEA authorised to accept deposits in the UK” but only for Jun 18 onward.) Where a new bank licence is yet another one from an existing banking giant, it might not be on the list. All of that means this list is not complete, but the Prudential Regulation Authority’s lists of banks is the authoritative source. PRA’s monthly lists from Jun 17 and earlier are here. (This was also useful in Jan 2016, but will be dated now.)
- early 13? - Goldman Sachs - private banking
- Apr 13 - Axis Bank UK - corp banking for large cos and buy to let lending
- Sep 13 - FCMB (UK) - corp/institutional banking and Nigerian equity stockbroking
- Sep 13 - UBI UK, now Union Bank of India UK
- Feb 14 - Paragon - loans and savings. Parent co is a buy to let lender. See also.
- Feb 14 - UBA Capital (Europe) - corp/institutional banking and African equity stockbroking etc
- Jun 14 - Hampden (previously named Scoban) - private banking
- Jan 15 - Charter Court Financial Services - savings, has 0.5bn deposits, parent co does mortgages
- Mar 15 - Oaknorth, now OakNorth Bank - lending to businesses and property development finance
- Jun 15 - Crossco, now Atom. Has 135m in capital, 45m of which from BBVA in Nov 2015. Launching Dec 15 according to their marketing emails.
- Jul 15 - Habib AG Zurich UK - corporate (and private?) banking
Nov 15 - RNM Financial, trading as Tandem - looks like it will be a digital-first bank like Atom etc. Their announcement here. Cancelled in Apr 17 after they changed business model, but have since returned in Jan 18.
- Nov 15 - Ikano bank - sister company to IKEA.
- Apr 16 - Masthaven Bank - savings, (bridging loans?,) mortgages, digital only, aims to launch summer 2016.
- Apr 16 - First Global Trust - “a simple, narrow wholesale bank”, non-retail banking for investors like pension funds and insurance cos.
- Jul 16 - Starling Bank - “It hopes to launch in January 2017, and plans to offer only one product — a current account”, and which, like Atom, is excited about its logo. “A smarter bank for an ever-changing world”. Raised 48m capital in Jan 2016.
- Aug 16 - Monzo bank, previously called Mondo - “Finally, a bank as smart as your phone”. Notable for having already launched a service (1m spent by 3,000 testers in 4 months using pre-paid debit cards) and having crowdfunded 1m in under 2 minutes in March 2016. Has since grown to 30k pre-paid cards in use and is working more openly than most other neobanks.
- Sep 16 - BFC Exchange - money transfer and currency exchange.
- Apr 17 - Redwood Bank - “It’s about time” - banking for SME businesses.
May 17 - Civilised Investments Limited - banking for SME businesses. In June 2018 it cancelled its licence to give its technology platform “more time”.
- Jul 17 - Lloyds Bank Corporate Markets Plc - non-ringfenced investment banking subsidiary
- Jul 17 - HSBC UK RFB Limited - don’t know what this one will do. Perhaps the same as the Lloyds one above.
- Aug 17 - SBIUK Operations Limited, renamed State Bank Of India (UK) Limited in Sep. Retail and corp banking.
- Oct 17 - SMBC London [outside EEA], later renamed Sumitomo Mitsui Banking Corporation, London Branch
- Nov 17 - Agricultural Bank of China Limited London Branch [EEA]
- Dec 17 - Chetwood Financial Limited - vague but “design and manufacture digital products across financial services [for] customer segments that are currently underserved by the market”.
- Dec 17 - Baroda (UK) Operations Limited - retail and corp banking, “India’s leading Public Sector Bank”.
- Dec 17 - Shanghai Pudong Development Bank [outside EEA]
- Jan 18 - Tandem bought Harrods Bank (which had a banking licence) and has rebranded (see 12 above).
- Jan 18 - AS LHV Pank [EEA] - an Estonian bank
- Feb 18 - Kookmin Bank Co Ltd London Branch [outside EEA]
- Mar 18 - UBA Capital (Europe), banking services across Africa. (Unclear how this is different to UBA Capital Europe, above.)
- Jun 18 - N26 Bank [EEA] - another mobile-first retail bank, seems relatively, you know, modern.
- Aug 18 - Nordea Bank Abp [EEA]
- Nov 18 - Handelsbanken [outside EEA] - business banking notable for decision-msking residing with the branches, anecdotally good quality…
- Nov 18 - Zopa, a large p2p lending co.
Of the new retail banks, Atom, Monzo, Tandem, Starling have launched products. And obviously some (several?) already-licensed banks will launch new services and approaches to banking (Shawbrook, Aldermore, Renault-owned RCI Bank etc). N26 look like they mean business, advertising heavily in London in late 2018. Zopa will be interesting to watch - they’re one of three large p2p lending platforms in the UK.
Who or what wins?
Possible dimensions on which 20+ new banks may be compared with several existing banks: capitalisation, deposits or number of customer accounts (Jan 18), product breadth (current, saving etc), product quality, product value (market-leading deals), open-ness (Monzo), quality of insight/data provided to user, technology stack (Monzo and Lintel building their own?), brand/voice (Monzo and Tandem), quality of marketing. But probably not: logo (Starling, Atom). Expect a fair bit of consolidation in the next few years. Perhaps BBVA will buy the rest of Atom, and so on.
(And the following sections are probably out of date.)
Applying for a new UK banking licence:
Not applying for UK licence (?) but new and interesting:
- Fidor - German, internet banking with a community emphasis. Deposits not protected by UK’s FSCS but by Germany’s EdB.
- Holvi - Finnish banking/payment service for businesses, has “Payment Institution. Licence authorised for operations across Europe by the Financial Supervisory Authority of Finland (FIN-FSA)”.
- Monese - “banking on demand”.
Some of these may trade in the UK with European licences and deposit guarantees.
London Tube Map with Walklines now in London Transport Museum
In Nov 2015, the London Transport Museum opened its new permanent gallery London by Design, and they’ve included my Walklines map. It’s an honour to be in the same display case as the tube map’s creator Harry Beck.
Of course, a dozen years later there are real-time mobile services like Citymapper, but I still dream of maps that could switch between tube/walking, symbolic/geographic modes, while remaining on paper, foldable, pocket-stuffable…
Here’s my post from 2003, corrected for expired links though not for new stations and tube lines!:
###London Tube Map with Walklines: sometimes it’s quicker to walk
For some journeys it’s really not worth getting on the tube: it takes a long time, and costs you money. Sometimes it’s quicker and easier to walk.
For instance: Leicester Square is only 250m from Covent Garden; Charing Cross to Embankment is about 300m; Chancery Lane to Farringdon by tube requires two changes and 4 stations. Mansion House to Bank: change once, 6 stops - as noted by Bill Bryson in Notes From a Small Island (though you could walk to Bank District Line, aka Monument, and go in two stops, but his point is still well made). Possibly, even Finchley Road to Hampstead (change twice, 9 stops) could be walked in half an hour, although the standard tube map won’t tell you that it’s up a steep hill.
One of the very few weaknesses of the standard tube map is that its distortion of geography (a very successful attempt to present the different stations and lines more clearly) sometimes means that it’s not clear when the tube trip is unnecessary. This has been discussed on Edward Tufte’s site and in many other places, and there are many geographically corrected versions of the map.
But here’s a slightly altered map showing which stations are an arbitrary and as-the-crow-flies 500 metres apart from each other (there are many more stations 600, 700+ metres from each other). It doesn’t look great yet, and definitely reduces the readability of the standard tube map at the moment, which isn’t a good thing. So it’s not an improvement on the map, but it’s an interesting exercise.
The walk-lines are superb! Classics are rarely improved by tinkering, but the walk-lines are a genuine improvement to the Underground map. Bravo! — Edward Tufte
Why am I interested in personal finance, healthcare and technology?
We’re living longer. The average cohort life expectancy for a British person aged 65 in 1982 was 79 (male) and 83 female. The same life expectancy for someone aged 65 in 2012 is 85+ (male and female). And the same life expectancy for someone born in 2012 is 90+ (male and female). A third of children born in 2013 are expected to reach to age of 100 .
In healthcare, this demographic trend means the demand for good health care, social care and related support will grow in future. At the same time, it’s clearly getting harder for the public sector to fund and service that growing demand. The patient journey through healthcare is often uncertain, confusing or scary. Post-austerity, we can expect the NHS to be under permanent pressure to change, to do more with less. Software is ramming itself into every industry, turning many of them inside out. So innovation is both needed and inevitable, and we will see technology innovation in both the public and private sectors.
In personal finance, the story’s the same. Our post-retirement lives will be longer. In the UK, the state pension will fund less and less of your retirement, and those minty defined benefit pensions of your parents’ generation are becoming much rarer (not least because companies and governments cannot afford them when we live longer). So working adults will have to do more to provide for their own futures. Anyway, if you’re smart and have a decent job perhaps you feel a moral duty to provide for your future so that the social safety net can more easily catch those whose need will be greater than yours.
And here’s my personal angle: Yesterday - yesterday I tell you - I was 25 and felt immortal. Minutes later, here and now in 2015, I am in my mid-forties. If I’m very lucky, I’m halfway through my working life. I have experienced a few family and personal journeys through human frailty and medicine - sobering, thought-provoking, sometimes terrifying, occasionally joyful experiences. I have half of a financial plan worked out and a lot of things I wish I’d known when I was 25. What would I tell my 25-year-old self? What should I do next?
There are so many questions. How do we imagine our futures? How do we plan for the longer term? Why is it hard to plan ahead? What motivates us to put tomorrow’s needs ahead of satisfaction today? How do we know if we’re on track? How to think about risk? What to think about future-you? Where will you need help? What to do now?
I will explore these ideas, then perhaps some tools and toys, maybe even a business. If you’re working in these areas, let’s talk.