IVR Deconstructed

Currency is whatever we decide it is. Or actually what the central authorities decide it is. But it’s almost always based on something real. Or it used to be.

Bitcoin is a completely virtual currency created by what turns out to be a virtual programmer, yet you can use it to get real things. (It’s actually fairly complicated, and I’d suggest going to Bitcoin.org if my brief explanation falls short, which wouldn’t surprise me…it’s weird stuff.)

But what Bitcoin is to me more than anything else is a very real exercise in bucking the system—the system that failed us in 2008.

In a nutshell, Bitcoin is digital currency controlled not by the central authorities but by the cryptography of a software program. Superprogrammer (or programmers) Satoshi Nakamoto (real name or names unknown) created it to replace traditional currency controlled by the fallible institutions that hosed us so bad.

It’s a fascinating story. The New Yorker has a great article about it in the magazine’s October 10 edition titled “The Crypto-Currency: Bitcoin and Its Mysterious Inventor” that I highly recommend (I only touch on a portion of it in this blog).

According to the article, Nakamoto wanted a new currency that was immune to “unpredictable monetary policies as well as to the predations of bankers and politicians.”

He basically created software that releases new pieces of virtual currency (Bitcoins) about every ten minutes through a kind of lottery. Computer engineers with fast computers can “mine” Bitcoins by being the first to grab them (like eBay). Some are even making Bitcoin mining a career. Or anyone can buy them (credit card, cash, PayPal).

It’s weird. But a bunch of currency exchanges formed. On the exchanges, people can trade Bitcoins for traditional currency (dollars, euros). Nakamoto designed the software to continue to release Bitcoins until there are 21 million of them (over the next 20 years or so).

The convenience of being able to go online on either your computer or mobile device for banking is undeniable. Especially on mobile devices.

I remember having to double-check my bank account and make sure I sent all my bills (by snail mail) before out-of-town trips. I don’t do that at all anymore. If I need to, I pay my bills on my phone while I’m waiting for my flight or whatever.

So far it’s been really easy to access accounts, but that may change with the recent hack into Citibank. In fact, the hack calls into question the security of online banking in general.

This is sketchy…ABC News reported that online banking hackers are getting so sophisticated that they’re now ahead of the bank security measures.

I guess that’s obvious given Citibank’s breach, and also alarming. Supposedly hackers got into over 200,000 of Citibank’s accounts, not getting to vital information such as social security numbers, birth dates and card security codes but getting in nonetheless.

According to Reuters, the banking industry has put off implementing tighter security measures for the last few years because of cost and inconvenience to customers. Well, I’m fine if they want to rethink that now.

Okay, the extras steps are a little inconvenient. My primary bank always requires an extra code I need to put in. But I’m fine with it. I’m not fine with someone hacking into my bank account.

Not too long ago I had someone get my bank account number after buying something online. They charged a bunch of weird stuff and my bank called me and took care of it.

Everything turned out fine, but it was still unsettling. So if the banking industry starts making us all jump through a few extra hoops, I for one am fine with it.

Yesterday, the Senate effectively took $12 billion or so away from the banking industry and gave it to the retail industry by rejecting a delay on the implementation of caps on debit card swipe fees.

Banks charge fees for every transaction using credit or debit cards.  Those fees earned them about $17 billion in 2009, so it’s no small change. For months retailers and bankers have opposed each other over whether Congress should put limits on how much banks can charge retailers.

Proposed legislation would cut fees by 70 percent, which could cost the banking industry about $12 billion a year while saving the retail industry that same amount.

It’s easy to see why the two sides are opposed. Banks don’t want to lose the money they earn from debit card swipe fees while retailers would love to have that money back.

On Tuesday, a group of senators from both sides of the aisle introduced legislation to delay implementation of the cap while the Fed took a closer look at what the fees should be.

That proposal was voted down 54-45 yesterday in what is a big blow for banking and a boon for retail. Sixty votes would have carried the measure, so they weren’t far off.

Some analysts have said that, despite the loss, the vote shows a resurgence in banking’s efforts in the fight. It could mean the debate will heat up even more.

The Senate is expected to vote today on a bill that would delay a decision on debit card swipe fees.

Just like with credit cards, banks charge a fee to vendors for every transaction using a debit card. According to the Washington Post, those fees added up to almost $17 billion in 2009.

For months now retail lobbyists have been trying to enact legislation that would put a cap on how much banks can charge for swipe fees. The Post reported that the proposed legislation could cut fees by 70 percent, putting a cap at 12 cents per transaction.

While the retailers have been working their side of things, the banking industry has, of course, been trying to stop them.

Currently, credit card swipe fees are much higher than the proposed debit card fees.  Those fees will not change as a result of any legislation on debit cards.

Part of the debate surrounds the smaller banks that can benefit from higher fees. Proposed regulations would exempt banks with under $10 billion in assets, while capping the fees the big banks like Bank of America and Citibank can charge.

The debate took a possibly big turn on Tuesday, with a proposal to delay a vote for six months while the Fed and other agencies take a closer look at what the fees should be.

So today’s vote could be a small victory for the banking industry by delaying implementation of the fee caps. Even in just six months, the delay could amount to billions of dollars for banks.

The Federal Reserve system is the United State’s central banking system, created in 1913 as a response to financial panic.  Over time, the system has evolved in both form and function, becoming the ultimate governing body of the US’s monetary policy.  The Federal Reserve supervises and regulates banking institutions, maintains the stability of the financial system, and provides various financial services to banking institutions.

In times of great financial crisis, the Federal Reserve can be a huge factor in regulating inflation, deflation, and revaluing the currency.  The Federal Reserve currently addresses the problem of banking panics, manages the nations money supply through monetary policy, and maintains the United State’s financial system by containing systemic risk.

One primary function of the Federal Reserve is to regulate deposit accounts (saving, checking, money markets) .  In the post-Great Depression Era, the Federal Reserve System, put into place by the ratification of the Glass-Steagall Act, provides deposit insurance for member banks up to $250,000 per depositor per bank.  7,723 institutions are FDIC insured.

At the height of the financial crisis in 2008, there were 25 banks that became insolvent and had to be managed by the FDIC.  These toxic assets have lead to bank failures, and made banks often times unable to raise additional capital and work their way out of bad debt.

For new customers trying to figure out what type of accounts to establish (savings, checking, money markets, or CDs) versus uninsured accounts (Stocks, bonds, mutual funds, and money funds)  and trying to ascertain whether their banks are FDIC, the process can be overwhelming.  An interactive voice response system could go a long way in streamlining the process.

Instead of having to surf the web trying to find the relevant information (which can be a tedious process) or stopping in to each bank and trying to ascertain all the necessary information (which can be even more tedious) customers could call in to an IVR system in order to hear about all of their options.

By placing a simple outbound call in to this type of system, customers can select their location, find out information about the type of account they are looking to establish.  Find out specifics about minimum deposits and interests rates, and figure out if their selected institution is FDIC insured and to what max.  This could be a streamlined banking system that could help customers do research and allow banks to free up their time for their most pressing clients.