Monday, January 26, 2015

Visa Credit Card Security

It's becoming increasingly more common that when you ask people about the security policies and what they think is secure or not, everything security related becomes someone elses problem.  Last week, I posed a loaded security question to Visa Canada where I asked whether something was considered secure given a scenario where something clearly goes wrong in the hypothetical situation. 

Given what I was asking, I had an expectation that someone would either a) think, that maybe it was worth looking into the problem further to see if the hypothetical situation could be plugged, or b) go into a state of denial.  What actually happened was neither - instead, Visa tried to distance itself and put the onus on it's card issuers.  

After a little back and forth (them pushing for info and myself resisting), they issued a statement that said "Our Client financial institutions (the banks) issue cards and are responsible for all billing and account management issues. Visa has no access to or jurisdiction over accounts. Accounts are confidential and proprietary information between the issuing financial institution (the bank) and the cardholder."

This is interesting because it suggests the credit card company is not watching the card issuers (the banks), and at the same time the customer is invisible to the credit card company.  

Put another way, there's no safety net when the bank messes up as Visa puts all the onus on the banks, further there's a blind spot as Visa can't see you either. 

Wednesday, January 21, 2015

Thoughts On Canada Interest Rates at 0.75%

Today, the Bank of Canada dropped it's official rate from 1% to 0.75%.  This is just the day after Obama stepped up to the plate and announced "Tonight, we turn the page," and following on with "The shadow of crisis has passed, and the State of the Union is strong."

If the shadow of crisis has passed and the Bank is dropping it's rates, what's going on?  Quite simply, it's all a game of media posturing; There's an old Indian phrase that runs along the lines of "If everyone tells you that you're sick, go and lay down" this same psychology can be used to rally people into believing that "The economy is not sick, so get up and spend!".

So why is it Obama is saying everything is fine, yet the Bank of Canada is reducing rates, Europe is getting ready to inject more printed money, all the shops have been in permanent "Sale" mode for over six years and many North American car manufacturers are still pushing "employee pricing" to normal consumers?

To understand what's actually going on, we need to take a step back and look at the bigger picture by getting above the viewpoints of Canada and the USA, and looking at it through neutral eyes of someone like the BIS.

If you've no idea who the BIS is, a quick history recap follows:

In layman's terms (not 100% accurate, but good enough for the purposes of this article), the BIS was a bank that was setup to deal with Germany's reparation debts after WWI.  It was a central bank to a number of nations that made sure payments went where they needed to go, and because of Switzerland's neutrality in most international affairs, it was located there in a place called Basel.  

As time went by, the BIS superseded that initial role and now it has more member countries and it still tries to keep everyone's money in check between nations - not just the original members money.  This groups largely keeps quiet, but on occasion it will notice that the banking systems in the world are getting a bit screwy, and it makes a recommendation.  These recommendations are not law - they're just impartial advice to banks on how to avoid trouble that doesn't take into account politics.  It's pure economics.

The first recommendation was after the 1974 liquidation of the Herstatt Bank in Cologne, and it was known as the "Basel Accord".  It basically stipulated that in the same way you need to keep money in your account to cover your mortgage whilst your latest pay check clears, banks need to keep a certain amount to cover time differences like when dealing with New York as the counterparty banks still need to be paid on time during the settlement processes if the money hasn't arrived at it's destination yet.  As you can guess, this was before the Internet and we still had to stuff big bags of money on planes and trains, hence the delays.

Then the BIS went quiet again.

The second recommendation was in 2004.  The BIS knew what was coming with the reckless lending that was happening, and basically told banks to shore up reserves to make sure they didn't go under.  This was known as "Basel II" - a term I'm sure you've seen mentioned in the news.  Many banks had trouble meeting this goal, and then the crash of 2008 put the wind up these banks so fast that they quickly locked down all lending and magically "found" the money needed to not go under.  The money was so locked up in this fear, that governments had to print new money to get liquidity going again.

The third recommendation was in 2010-11 as a response to what had happened with the deficiencies found in the financial crisis.  Known as "Basel III", the timeline to implement this started in January 2013.  It's purpose was to increase how much the banks need to hold onto, and to make sure they stand up to a stress-test.

So, now you've got a bit of history explaining how we got to where we are, let's go back to the Bank of Canada.

If we have a low interest rate, this should spur people into borrowing more money.  If people borrow money, they spend it on goods and services, generating income for people, and they owe it back to the lender with interest, generating income there too. This much is common sense.  However, we've had several years of cheaper cars (remember the additional gov rebate to get you to ditch your old cars and get a new one to stop the auto industry collapsing?), and several years of cheaper electronics, and several years of perpetual retail sales.  And many people have moved and got new mortgages using these lower rates. 

In other words - people have bought pretty much everything they want - this leaves very few items (food being a major one) whose prices have not come down as demand has not gone away.

There's one thing missing from the picture so far:  Oil.  

Whilst Alberta makes money from Oil, everyone else buys it.  However, they buy it well in advance of when they need it by locking in a price that they think will reflect the market when it comes time to deliver the oil - this is known as a "futures contract".  So, now everyone in places like Ontario is manufacturing with Oil bought a year ago or 6 months ago at higher prices, and is making things that are coming down in price to try and get demand going again.

And that strategy is just not working - and it hasn't worked for the past 7 years.

So, given that the economy isn't generating the revenue it needs, someone has to do something.  Unfortunately, the only two things they can do is:
1) Print money to devalue the dollar, in the hope that we can export more stuff to other countries because it looks cheaper....
2) Lower interest rates to spur people into borrowing money to cover this slump.

Out of those two options, #1 is not really an option as the dollar is already quite low compared to the US Dollar which international trade is most often done in.  This leaves option #2.

This can go two ways:  It works, which is highly unlikely in my mind because the demand slump problem doesn't go away.  Or, it fails.  This failure is what I think will happen.  We'll see some investment in new facilities, new economic action plan items, etc, but all this does is create more debt that has to be paid back - stretching what little money is available to start with.  

It's basically adding to the problem and then kicking that problem down the road a little bit.  That is dangerous.  There's a pretty good explanation as to why.

The one thing that we don't hear about these days that used to be common sense is the idea of the business cycle.  About every 7 to 8 years we see a slump in the economy, then it rebounds.  We crashed in 2008 - we should have recovered by now but haven't.  

2015 is the next dip in the cycle.  What is the worst that could happen?  Well, here it is in a nutshell.  With the oil so cheap, many nations don't generate income, which means they can't repay their debts - which means other nations go without too.  If everyone tightens their belts, the USA is the biggest victim in a downturn of global spending.  

In Canada, we're highly influenced by what goes on next door (As the joke goes, "the USA sneezes and Canada catches a cold"), but this time around it's quite a lot worse - like orders of magnitude worse.

I'm not going to be surprised if we see a zero interest rate in Canada, and possibly a negative one before this is over. 







Friday, January 16, 2015

The CIBC dialogue opens up.

Most people who read my blog know that I have traditionally had a horrible time dealing with CIBC. It does appear however that after the recent issue with the IVR system raising it's head again, we finally have a form of ongoing dialogue.  This past week I dropped them a 7 page PDF of issues, and followed that up with an email containing some more items to do with server issues, footholds and such.  Already, I've had confirmation that these more recent items will be corrected.  That's good news.

The flip side is that in looking into these issues and documenting them again, I discovered some things that really didn't sit well.  In showing CIBC that I could prove my hypothesis with concrete examples that would understand, something became apparent to me as I did more thought experiments; CIBC and Bell Canada have similar issues.

In the case of Bell Canada, I'd shown Sheilagh Malloy (Bell's privacy person) that there's a security problem back in May 2013.  When I handed them evidence that there was a problem, they sent me a note saying not to "hack" into their systems and closed off the dialogue.  Ironically, this left Bell's customers in a security loophole because restricting me from showing Bell that a key works in a keyhole does nothing to address where Bell is losing the keys.  Naturally, Bell Canada customer accounts are still being compromised some two years later.

In the case of CIBC, a similar issue has come to light, where no amount of intrusion detection or technology can fix what I've found.  I'm not going to document what I've found here, to give CIBC the chance to evaluate and fix what I've shown to be problematic, but I do appear to have uncovered a sort of negative feedback loop - the more things I prove to be an issue, the more I see things are broken and in proving those items, new items come to light, and so it goes on.

I'm not a security expert, but I do have an interest in maintaining my own security and I have an interest in making sure my banks maintain my security.  This comes with the added benefit that it also improves everyone elses security too.

Whilst I'm traditionally the type of customer that CIBC would have put on a dartboard, it may well turn out that my constant harping on about things could improve CIBC in ways that no amount of firewalls and filters ever could.

It will be interesting to see how this pans out, but ultimately it depends on dialogue being maintained.