From: Sandy <72114.1712@CompuServe.COM>
Date: Thu, 20 Jan 94 10:29:15 PST
To: <cypherpunks@toad.com>
Subject: INTERNET BANKING
Message-ID: <940120181853_72114.1712_FHF96-1@CompuServe.COM>
MIME-Version: 1.0
Content-Type: text/plain


-----BEGIN PGP SIGNED MESSAGE-----

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
  SANDY SANDFORT               Reply to:  ssandfort@attmail.com
 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C'punks,

Michael C. Berch raised several issues about digital banking
which I would like to address.  Though his post was very
thoughtful, it had some imbedded common misconceptions.

He listed four concerns he had with digital banking--Security,
Convenience, Privacy and Credit.  He then wrote:

    No. 1, security, is a problem with anonymized, offshore,
    network banking.  Today we rely on a combination of
    reputation and regulation . . . But in a *nonregulated*
    environment, there will have to be private deposit
    insurance which could easily have some bootstrap
    problems in building the initial market.  [Emphasis
    added.]

For the foreseeable future, all digital banking will be conducted
from some national jurisdiction--just as with current offshore
banks.  Every world jurisdiction has some degree of regulation
which is specifically aimed toward client protection.

    . . . I envision transactions ending up in two big
    buckets: card services and "cheque" services. . . . The
    card system, insecure at it is, is fast becoming
    universal; . . . I find it difficult to imagine
    large-scale displacement of institutions like VISA,
    MasterCard, and Amex, simply because they do what they
    do (provide instant POS credit authorization, guarantee
    merchants quick payment, etc.) very well.

There is no need to displace current institutions.  When a credit
(or debit) card is issued by a bank in a privacy jurisdiction,
all financial information about the card user must, by law, be
kept secret.

    . . . Because of the degree to which strong financial
    privacy threatens government power (especially taxing
    power. . .) I can easily imagine that (1) banks doing
    business in or "touching" the US and most politically
    similar sovereignties will not be able to prevent
    themselves from disclosing identity and transaction
    information about their customers, and (2) people will
    probably be prohibited from dealing with these banks if
    they are in fact beyond the reach of legal process.

Currently, there exist thousands of banks that offer strong
financial privacy.  They have little difficulty in preventing
disclosure of customer information.  Why should a digital bank be
any different?  No Western countries now prohibit their nationals
from dealing with offshore banks.  With the advent of strong
encryption-mediated communications, anonymous remailers and, of
course, digital banking, any such future prohibitions would be
nearly impossible to enforce.

The last issue Michael raised was credit.  He wants a digital
bank that will loan him money without knowing who he is.  Don't
hold your breath on this one.  Those who wish to borrow money can
probably expect that digital banks will want exactly the same
personal and financial information that traditional banks require
today.  Such is the nature of business.


 S a n d y

>>>>>>    Please send e-mail to:  ssandfort@attmail.com    <<<<<<
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

-----BEGIN PGP SIGNATURE-----
Version: 2.3a

iQCVAgUBLT7J7E5ULTXct1IzAQG7fgP7Bzuu+wF4ESBy5WIS70BhMllxKDJiwG/e
VvJyCyRQH/F590WPnyewUf3sw6GucMjH862iHOaTdlSipB5Iw1RiNYnsj85YYMe6
7UhPw1ajE+vlAyxMD38D+t6zLdHb3wdrn/26TfEnit8PbkLWD6qhCN0f+3WeKZE6
HbixxfTb93M=
=2T+9
-----END PGP SIGNATURE-----