As I mentioned earlier, payment options within the Caribbean have developed slowly; however the speed of innovation has increased dramatically within the past decade. The major banks in the region – Scotiabank, CIBC FirstCaribbean, Royal Bank of Canada – and many of the large national banks and credit unions now offer online banking services for account-holders. These services allow for online payment of bills, mainly to utility companies and larger businesses, such as insurance companies.
We are now beginning to see the roll out of mobile banking applications from these same entities. These tools allow even more ease of use and mobility of payments, swift balance checks and transaction reviews. More importantly, the banks are now registering these transactions in real-time, with minimal error and delay in remitting funds to the billing entities.
This development works well for the established account-holders, but what of those who do not have accounts? What of those who simply wish to store and use their money safely without using or holding cash?
Putting aside these questions for a moment, let us consider the regulatory and security framework for digital finance. There is a real sense in traditional finance circles that the technology companies introducing digital financial tools and services are not being scrutinised in a manner sufficient to temper fraudulent or criminal activity. Digital finance options could conceivably grant accounts to persons without requesting confirmation of identification - provided that transactions and sums deposited or withdrawn remain below anti-money laundering limits. The ability for criminal entities and organisations to manipulate such policies into a labyrinthine maze of -in anti-money laundering terms - structured, layered accounts.
Furthermore, use of digital finance solutions – especially those based outside of the region – may result in the loss of funds with no recourse for consumers. Many such ventures do not qualify for any form of national deposit insurance from Caribbean countries and governments should inquire as to whether any such entities have even requested coverage or submitted reports on funds held specifically belonging to account-holders. Indeed, digital finance alternatives also need not follow the stringent liquidity/capital rules imposed on traditional financial institutions. This imposes further risk of total loss in the event of litigation or corporate bankruptcy.
In this train of thought, we must question the economic robustness and risk mitigation strategies for these technological firms in the case of fraud or electronic theft of deposited funds. There is no current commercial insurance requirement specific to these funds nor is there a unified policy on fraud remediation. Even if the account-holders individually do not have significant deposits, any loss of such funds is still immeasurable and painful; more so in the case of those who cannot enter the traditional banking system.
Our governments must also investigate the thorny issue of how to treat digital currencies, a significant portion of current digital finance solutions. Digital currencies allow for the conversion of cash into electronic, non-fiat funds and vice versa, typically for a specific use case such as a game, cell phone minutes or airline travel points. New digital currencies, particularly those derived from blockchain technology such as Bitcoin, allow further flexibility and general-purpose use as they are increasingly being recognised as separate currencies deserving of semi-official, recognised exchange rates.
As I alluded to earlier, cell phone minutes have rapidly become digital currency with the ability to easily purchase top-ups and send or request credit from persons. While transaction records are often maintained by current digital currencies, the ability to track fraudulent and/or criminal behaviour is far more difficult due to the reduced information requirements and the frequency of smaller transactions via/to multiple accounts that could be realised only through meticulous analysis. Such transactions also increase the difficulty of investigating the sale of illegal goods such as drugs or guns, or payment for illegal services.
Aside from the ways that such currencies further complicate the task of detecting criminal behaviour, we must sincerely consider how these assets should be treated by our taxation bodies. Should the purchase of digital currencies such as Bitcoin be considered similar to the purchase of shares in a company or credit union? In such a case, taxation – whether income or value-added or sales tax – would come solely after the conversion of bitcoins back into fiat currency. Additionally, given the capital gains taxes in place around the world, we must consider whether such a conversion could reasonably be taxed at the same level as income. Without further research and informed decisions, these digital currencies could quickly become conduits for tax fraud, thereby weakening government inflows and impacting on services.
Finally, there is the all-encompassing issue of information security. Governments, financial institutions and technology can all fall prey to intrusions, ranging from trickery in the form of e-mail phishing attacks to directed, highly-technical attacks on servers and infrastructure. The Swift debacle that led to the loss of US$81 million and the more recent ransomware debacle that crippled the National Health System in the United Kingdom are now being traced to a certain nation which has a reputed cyber warfare unit. Such electronic, digital assaults will only increase, notably against banks and other financial entities as seen by the release of the Panama Papers and the rash of card skimming attempts by transients within the Caribbean.
Additionally, there must be recognition of the potential scrounge of identity theft, particularly if government and parastatal repositories such as national insurance schemes, licensing authorities or even wait-lists for welfare assistance are breached. Such identity fraud would allow the theft of vital benefits, along with loss of savings and other funds as well a crippling inability to ever again interface with the local economy. Without evolving, responsive guidelines and best practices for cyber security, all three sectors are gambling with the populace’s lives, financial standing and goodwill.
Despite acknowledging the possibilities of damage, we must not panic! Do not turn on each other with a suspicious eye, as the solutions cannot come from one mindset alone. All of these considerations are too much for any one government or company to tackle. Next week, I offer a few suggestions to begin addressing these issues.