Money, banking & insurance

A bubble that’s waiting to burst

Britain is in debt. The level of personal debt in the UK now stands at GB £1 trillion. That’s £7,650 for every household in the country. The UK now owns over 65% of all European credit card debt and more than 20% of the total amount that’s owed is unsecured (ie, credit cards and personal loans). Moreover, much of this debt is owed by young middle-class individuals and families that have traditionally avoided ‘extreme debt’. Is this a problem? Yes, because if inflation (currently 2.5%) were to increase to 4.5% (due to a further rise in oil prices, for example) many households would simply be unable to make their monthly repayments. The result would be less consumption, slower economic growth, more unemployment and possibly a massive collapse in house prices (thus creating even more debt). The level of personal bankruptcies is already at records levels in the UK (up 37% last year) and even if there isn’t a crash today’s debts will last for a very long time. One of the more immediate implications of the debt pandemic in countries like the UK, US and Australia is that we will almost certainly see an increase in demands for transparency in terms of credit card charges and tighter regulation of lending.

Banking on the future

The year is 2020. You walk into your bank and someone you’ve never met before pulls you out of the queue, greets you by name and offers you a decent cup of decaf coffee. Having somehow guessed that you needed a car loan you are sent on your way clutching a leaflet with your name on it that also features a loan rate and repayment terms tailored to you personally. As you approach the exit an advertisement is playing on a plasma screen for car loans. Could this really happen? Certainly. Banks have traditionally been pretty uninspiring places. Sure they’re got groovy sofas and coffee machines but the service is hardly cutting edge. But this is about to change. Radio Frequency Identification (RFID) technology means that banks will be able to pick you out as soon as you walk in if you’re carrying an RFID equipped bank card. This will allow banks to tailor products and services (and speed of delivery) to your needs – at least if you’re a VIP customer. Targeting ads or leaflets to individual customers will then be relatively straightforward. Other ideas that are on the horizon include digital pens and signatures (HBOS are testing this in the UK already) and ATMs with finger print, palm print and iris recognition for ID verification (all in Japan already). There are obviously privacy and data security issues to be overcome but trading information for better service and products is one exchange many people will be willing to make.

From small beginnings …

The idea of micro-payment being ‘the next big thing’ has been around for years, but until very recently there was a very big problem with very small payments: there was nothing worth buying. Apple has changed all that. iTunes has doubled the percentage of web transactions under US $5 and while micro-payments represent only 2.8% of all e-commerce, the percentage is growing rapidly. Online micro-payments for digital content is currently worth US $14.1 billion in the United States but it’s predicted that this will increase to US$30 billion by 2007 and rise to US$60 billion by 2015, partly due to the convergence of online and mobile channels.

Risky business

What are some of the bad things that could happen to you and your share portfolio over the next ten years? According to Stephen Simpson (The Motley Fool) the list goes something like this.
1. War – the next ten years will almost certainly see an increase in regional and tribal conflicts. The India-Pakistan conflict could go nuclear or China could invade Taiwan or even Russia. Result? Chaotic energy and currency markets.
2. Terror – an increase in global terrorism will hurt global insurance companies.
3. Natural disasters – what happens if a big earthquake hits Tokyo or San Francisco?
4. Energy embargoes – what happens if there’s a repeat of the OPEC experience?
5. Breakdown of values – the economic impacts of social change.
6. Miscellaneous – take your pick from US trade imbalances, climate change, global pandemics and isolationism.

Security trends for 2006 and beyond

This is starting to sound rather pessimistic, but here’s another list of things financial that could go wrong over the coming months and years.
1. Phising – scammers will start to go after smaller targets.
2. The rise of the worm – expect a re-run of Zotob, the worm that hit VISA in 2005.
3. Insider threats – expect more data and information leaks from the inside.
4. Voice spam – expect to hear more of it as VoIP takes off.
5. Wireless security – the rise of cyber criminals stealing data from wi-fi users.
What are the implications of these trends? One area to watch is regulation. Legislation like the United States’ 2002 Sarbanes-Oxley Act to tighten corporate governance is already making network security difficulty and it’s likely that regulation will only increase in the future. Another likely change is the widespread adoption of laws requiring companies to disclose data theft or security breaches. We can also expect to see an increase in sign-in security (see SiteKey by Bank of America) and a rise in the use of biometric authentication.