Friday, October 31, 2008

The end of the personal check - what do we do now?

Donald Knuth, a famous programmer, writes about why he's stopped using checks:
eKnuth: Recent News

... due to an unfixable security flaw in the way funds are now transferred electronically, worldwide, it is no longer safe to write personal checks. A criminal who sees the numbers that are printed at the bottom of any check that you write can use that information to withdraw all the money from your account. He or she can do this in various ways, without even knowing your name --- for example by creating an ATM card, or by impersonating a bank in some country of the world where safeguards are minimal, or by printing a document that looks like a check. The account number and routing information are all that international financial institutions look at before deciding to transfer funds from one account to another...
... More and more criminals are learning about this easy way to acquire money, and devising new schemes to conceal their identities as they steal the assets of more victims...
So what's new about this? Check forgery is an ancient crime; after Emily's check book was stolen we stopped carrying checks. That's when we learned that people who lose checks are legally responsible for all losses against the account -- and closing the account is no protection. (In practice, of course, banks grumble but eat the losses. Otherwise, checks would have died a just death years ago.)

What's new is the same process that turned credit card fraud from a small time crime into a vastly profitable criminal enterprise. Yes, I was at ground zero for that transition too.

Sometimes I feel like a punching bag for history.

The fraud isn't new, and the security systems haven't become suddenly worse. What's new is globalization, accelerated knowledge diffusion, and facilitating technologies.

Globalization means that it's easy for the criminal to operate outside of legal boundaries. Knowledge diffusion and social networking, which work as well for bad as good, mean that effective techniques evolve rapidly and spread worldwide. Facilitating technologies support knowledge diffusion, automated attacks, and cheap forgeries.

The portable checkbook died at least ten years ago. Now we've moved to the next step, and it's good-bye to the baby sitter check.

So how shall we pay for services? For now we use a fair bit of cash, but it's a bit clumsy. PayPal is the obvious alternative, but I have no love for either eBay or PayPal. I know they're trying to clean up their act, but I'll hold my grudge a bit longer.

Google Checkout isn't as close to Microsoft Wallet (Remember that from IE 3? Almost nobody does, there isn't even a good Wikipedia entry) as I thought it was, but clearly both Google and Microsoft are ready to replace the check. They should be able to buy a lot of banks very cheaply right now.

I liked Amazon payments when it first came out. My confidence was shaken when they set me up with an identity confusion bug that they couldn't fix. Still broken, two months after I reported it.

See what I mean about the punching bag bit?

So I'm not that keen about Amazon payments.

So Amazon is showing a worrisome competence gap. Google has been holding back from this domain. PayPal has a shady past. Microsoft has Monopoly baked into their DNA.

So what do we need?

We need government and the market working together. We need law, regulatory frameworks, rules to prevent monopolies, and then we need Microsoft, Google, Amazon (please slap them a few times) and even PayPal to compete.

Of course to get that kind of government, we need to do something first.

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