Crypto Currency?


As the year draws to a close and with the vast majority of the more than 2,000 tokens trading below their heights or ICO values, the aggregate market losses of 2018 have been absolutely surreal.  According to the current market value of the top 100 Cryptocurrencies as of November 2, 2018 is $207 billion –  down 75% from the height of $830 billion in January. Translated into “plain speak” – someone lost $623 billion on investments in Crypto currencies this year.

Add in the hundreds of millions of dollars in losses due to  this year’s two of  the top three Exchange hacks of all time;  Coincheck ($500 million) and BitGrait ( $187 million) both occurring this year, and it is safe to say 2018 has been a disastrous year for Crypto Currencies.  Yet the promise of the blockchain and decentralized secure –  and thus less costly financial services has not been totally shattered. A look at my T-shirt should give you a hint as to where I believe the industry should be moving.


Unsustainable Poverty

Two thirds of wealth will be owned by 1% of the human population by 2030.

Distribution of Wealth

American middle class

Sadly needed, political systems and political leaders to serve the people.

Such disparity of wealth is immoral, obscene and a sign of political failure. It should be the concern of all people empowered to do something about it. It wasn’t sustainable in 1789 and it will not be sustainable in 2030.   We need leaders who have the intellect, compassion and moral compass required to set aside partisan and self interests, earn the respect of the majority of citizens, and do what is right for all of humanity.  Leadership a quality in short supply in political circles.




Payments will be a $2 Trillion industry by 2025!

According to a recent study published by Boston Consulting Group, revenues earned by the payments industry  will grow to an astonishing $2 trillion by  2025.




Woopie you say, how can I get my share of this windfall? What the study fails to point out is that revenues of $2 trillion for someone also represent costs of $2 tillion for someone else.  The reality is that the bulk of this $2 trillion dollar expense will be due to our use of credit cards.  Generally speaking I thought there was a broad consensus  that we are already paying too dearly for the privilege of using  our credit cards so you would  have thought this report should have proven alarming.

I understand as we migrate from shopping in physical stores to shopping on e-commerce sites, there are some benefits of credit cards, however I’m pleased to more use of debit cards for online expenditures.  I also know there are even better way to digitize cash than tying it to our identities and certainly  better ways than tying to our identities and a financial product which is post paid.  Sure it’s convenient to put everything on plastic and being totally truthful here, I have to also admit I often fine myself totally devoid of cash in my wallet and coins are one of my pep peeves.  But be assured my fellow countrymen we do have a problem here?

The problem is the $2 tillion number along with the ugly realization that the  size of this number directly correlates to the number of places refusing to accept cash, which will only grow.  First it was gas stations who made it nearly impossible to purchase gas without a credit card, then it was car rental agencies, have you ever tried to rent a car by paying cash? Where will it all end, being forced to pay for every service and every good consumed with a credit card? Are we going to be satisfied with leaving little digital tracks of everywhere we go throughout each and every day. How big will  the number be $5 trillion, $10 trillion…. do I hear $20 trillion?  I worry about us as individuals being free of both big Government and big business. I ridicule those who are naive enough to believe a “Cash Back” credit card is a good deal. Maybe good to beggar thy neighbour if you escaped unswatched by annual fees and pay off your debt each month.   If I am forced to use a Credit Card for everything I purchase then I begrudge my loss of personal choice, my subjection  to increased risk of ID theft and yes I  feel the cost in terms of merchant fees is simply too large an extraction of wealth from each and every  human exchange or interaction.

My I suggest it may be wise for us all to pause for a moment and perhaps offer up some resistance to our collective urge towards this  “plastic pay later mentality”.  There are certain purchases I am now making on a credit card, which offer little more convenience and are being made at greater cost than cold hard cash. For example  I recently started to use the City’s parking app to pay for parking. Admittedly very convenient, but who among us takes the time to ponder the total ramifications. Is parking  my car soon to be yet another service I am forced to use a credit card?  In an not too distant past I slipped a “toonie” in the meter and parked with utter abandon. Now I must surrender by credit card details to some app (who knows where my name and number may end up or be used) but no the ramifications are even greater, the City which after all is me the taxpayer, is paying an extra 6% to collect my parking fee (and I already own and have paid for the damn meters) and another city employee, the guy collecting the coins, is now out of a job so the middle class shrinks yet again. Donald Trump should know about this as the app was probably written in Bangalore.


Speaking of Bangalore, I find it very perverse that India of all places, with among the highest per capita poverty rates in the world, would abruptly scrap 85% of it’s currency.  I rarely see eye to eye with Steve Forbes who called this callous act , “breathtaking in its immorality” in a recent editorial, but Steve was right on the money (couldn’t resist) for totally different reasons than he thought. Cash is a public good, created for and by the people almost every other payment method even though it most often has cash as its foundation is a private good  (Visa, PayPal,Wepay etc) controlled and own by private companies. When good intentioned government “kill off” cash for what may appear to be legitimate reasons; tax evasion, underground economies and money laundering, they will effectively forced all the decent law abiding citizen into the hands and control of those private companies who have already amply demonstrated a greedy propensity to excess profits. Let’s assume India keeps a few rupee notes for nostalgia and the money supply is only 5-10% of the e-cash in circulation, don’t they lose some control over monetary policy? Seriously Government have a responsibility to protect the citizenry and I for one hope some bright economist in New Delhi, and in every capital of every country is figuring out how best to create e-cash, or a digital currency, which we can all use and will firmly remain a public good.

Why it should cost much less

The cost of moving money, which has become as easy as moving “bits” on the internet,  should be much lower than the fee banks and card companies presently charge for the service. The banks have been slow to pass these saving on to their customers in an attempt to protect legacy pricing revenues. The current rate to move money by bank wire service, as a business, remains stubbornly high at $30-$45 even as the banks offer more competitive fees of $19-$15 to individuals due to increasing competition by non-bank financial service companies. There is absolutely no justification or need for such high fees and if banks attempts to justify these fees by citing regulatory compliance costs it is time to reexamine money movement regulatory frameworks.

In particular the cost and burdens of collecting and protecting client information, the so called Know Your Customer (KYC) regulations should be eliminated. I advocate totally scrapping KYC for any money movement under a reasonable amount and reasonable frequency. Any money transfer under USD10 K per day, or its foreign value equivalency, should be free of current KYC regulatory oversight, and KYC should be replaced by strong authentication of individuals which can both authenticate and at the same time provide 100% protection of individual privacy and thus the threat of identity theft.  The technology exists and moving money at the true costs of moving the bits representing the money benefits society at large. In particular moving money on a non-profit basis can play major role in financial inclusion and alleviation of poverty world wide. Essentially replace KYC by Know Your Merchant (KYM) and use anonymous multi-factor authentication of individual clients.

Here is an excellent paper on the impediment of innovative practices, mostly mobile money practices,  that arcane regulations fosters.    When a physical device is required to move money such as a mobile phone, it becomes one key or one token in a multi-factor authentication regime. Add a bio-token able to authenticate but not uniquely identify, and a knowledge token (PIN) and you have an acceptable secure method for authenticating and moving money without KYC.

What Security?

Who’s guarding the bank now that it’s on your mobile? Protect your identity at all cost.

When we entrust our money and our business to the global financial infrastructure as developed by the world’s largest banks and service groups such as SWIFTS we assume our transactions will be secure. Unfortunately  by having computerized most of our banking activity, from chip payment cards to online internet banking where the internet has become the staple of financial flows we see increasingly and alarmingly how naive our assumption has been.

I’ve recently been wiring funds overseas and it amazes me how intrusive the identity requirements are. Even purchasing bitcoins causes unwarranted risk and exposure of my identity.  Seventy-five percent of of companies in the world  now experience serious fraud incidences and listen carefully; more than 80% of these incidents are perpetrated by insiders. Remember this the next time you are providing personal information to wire funds overseas or when the telephone banking clerk asks you all of those personal questions to identify yourself. The current model and mode of operation relying on positively identifying the customer (KYC or Know Your Customer) is seriously flawed and no longer warranted. Identity theft is itself now a large part of the problem with with more than 45% increases in lost of identity year over year. Equally alarming is that 49 % of identity thefts were the result of theft from our governments, the very people we entrust with Social Insurance Numbers, Medical records and personal tax and benefits accounts. ID theft2 .

It is difficult to instill a fresh perspective and to affect change when the threat models evolve more quickly than the regulatory framework and/or the deterrence so why can’t we get our banks, card companies, department stores and our governments to stop asking us to identify ourselves with such easily stolen credentials?  In a world of cyber warfare when data breaches are occurring in everything from our income tax records to our voters lists it isn’t just our Credit Cards we need to protect. We are being forced to surrender our identity to so many agencies and services who repeatedly and blatantly allow this information to be stolen? Over dependence upon proof of personal identity is robbing us of privacy and personal liberty which are suppose to be the hallmarks of a democratic and free society?  If your identity hasn’t yet been compromised read this sample case to prepare yourself as it is only a matter of time before you will suffer the same fate.  Personal ID theft.

More than one million incidents of card scams, online and telephone banking and check frauds occurred in the U.K. in the first six months of the year, according to Financial Fraud Action U.K., an industry body funded by banks. That’s an increase of 53% over the same period of last year, meaning one such crime is now committed every 15 seconds, the FFA said.   Hackers and Fraud rings are resulting in major financial losses. Early in 2016, an international criminal syndicate was able to successfully impersonate bank officers at over 100 banks around the world to net as much as $900 million in stolen funds. Last year the Boleto Fraud Ring siphoned $3.75 billion from Brazilian banks. Throughout 2016, SWIFT officials have grappled with a series of cyber attacks. In February, attackers used SWIFT codes to break into the account of the Bangladesh central bank and send fake payment orders to the Federal Reserve Bank of New York, leading to the theft of $100 million. Some of the money has been tracked down and retrieved, but $81 million is still missing. Not disclosing your identity and using cash, as much as governments don’t like it, appears to be the safest bet.  AML and fraud deterrent costs are more than $8 billion and growing at double digit annual rates while the situation only continues to worsen.  Identity theft is growing at double digits rates and identity thieves will open new accounts and take over more existing banking and credit card accounts in 2017. Hackers will also be target other types of accounts especially those linked to credit cards, including iTunes, Amazon, PayPal and eBay. It is estimated that Cybercrime represents $575 billion in losses and fraud losses in general are 5% 0f global corporate income or 3.5 trillion. Regulations current and pending will be counterweighted by operational costs and customers’ rising expectations on the “speed” of commerce so a new model and fresh vision is required. It is very doubtful that the large banks or the regulators who both suffer from overly bureaucratic operational modes will be able to deliver.

This is especially damaging to our collective well being in that the theft or siphoning off of  such huge amounts of wealth goes unannounced and is simply absorbed into the costs of doing business – precisely because Banks are so profitable. In other words we all pay for these losses in higher fees and the Banks can continue to operate within the law and with impunity by protecting the status quo rather than becoming truly innovative more quickly because they are too big to fail.  We should have learned this lesson when we bailed out the banks in 2008 as the whole system teetered on the brink of collapse.  Rather than creating new regulations to attempt to get ahead of the fraudsters, (it’s not going to happen) our Governments should be taking a proactive stance and  force the Banks to act like,  or partner with Fintech startups, to  focus on increasing security via innovation rather than continuing present day practices of charging  excessive user fees to absorb these losses. We all rely upon a solvent and efficient banking system so before being forced to “bail” out the exceeding profitable bankers again let’s provide targeted tax credits for increased innovation to protect our communal asset.  Internet Fraud

The role of regulation in stifling innovation.


Certain jurisdictions get it!  For the Fintech industry to thrive and bring secure efficient and value added financial products to market the unholy regulatory regimes must be parked.  Anti money laundering and proceeds of crime legislation is certainly required and could even be improved to be more effective but what is NOT needed is to allow vested interests to create fear on the part of regulators to stifle competition from startups. Payments and money transfer are the very lifeblood of the global banking industry earning the major multinational banks 40% of their revenue.  The banks are by and large extremely profitable and very institutional so don’t expect them to embrace change and  offer simpler less costly methods of paying and moving money unless they and their current business models are threatened. Far easier to cry wolf and put regulators into a  frenzy then to dismantle systems which have proved enduring and profitable for many years.

The UK with their Financial Conduct Authority FCA   and Singapore whose Monetary Authority of Singapore (MAS) have also embraced the same type of policies to encourage young companies to innovate by “cutting FinTech start up some slack” in regulatory requirements. A huge impediment to young Fintech’s bringing new and disruptive models of Financial Services is regulatory risk. Study after study has shown the negative impact of highly regulated regimes when trying to introduce new financial service models. Take mobile payments as an example in those countries where regulations have been eased to allow Mobile Network Operators (MNO) to introduce mobile money product independent of banks they have generally flourished, whereas when regulators force the inclusion of a Bank partner to legitimize such mobile schemes they have largely failed. It is rewarding to see the loosening of regulatory frameworks in the UK and Singapore beginning to blossom and bear fruit. As examples look to Transferwise   in the UK, brought to you by some of the same people who disrupted the telecom industry with Skype or Fast-And-Secure-Transfer commonly known as FAST in Singapore which was developed and is operated by  Banking Computer Services Private Limited (BCS) and is now supported by all major banks in Singapore. It is also wonderful to see a bank such as DBS cleaning up on the rewards; recently being rated as the best DIGITAL BANK in the world by Euromoney magazine while at the same time also being rated the safest bank in Asia six years running.  Security and fast  innovation (sorry for the pun) actually go hand in hand and are not oxymorons.

It seems strange with all the AML/CFT regulations that the criminal side of money transfers continues unabated, perhaps it is because criminals are very resourceful and don’t abide by legal regulations anyhow.  In closing I’d like to share the following additional concern I have on over regulation of the FinTech sector which is the inevitable breach in our privacy.



Panama Papers

panamaft$32 trillion kept in offshore holdings

Surprise, surprise, the 1% has been hiding their wealth and legally or not avoiding taxes so the rest of us can presumably pay more to maintain the standard of living and/or be pushed into poverty. As the middle class all but disappears, in even wealthy and previously more equally  distributed income countries like America, this concentration of wealth has become a problem not too dissimilar to Global warming. Advancing perversely by themselves and difficult to reverse in time to save the globe from becoming too hot for human life, or destroying the very fabric of civil society. How to save the world from itself as climate change renders the planet we all call home uninhabitable and the unrestricted accumulation of wealth (greed)  causes the have nots to raise up and destroy the world order.

Let me begin by saying I have no problem with disparate incomes in principle. People who work hard to further their skills and knowledge and then apply themselves diligently in the pursuit of wealth deserve as much money as  they feel they need and/or they desire. The basic human right to enhance one’s well being legally over those who fail to work hard and/or have no ambition for a richer life in terms of material well being should be maintained and protected. Freedom to accumulate wealth provides individuals the incentive which invariable creates a higher standard of living. I don’t think anyone genuinely rejects William Gate’s or Edmon Musk’s right to be wealthy and by and large both of these gentlemen are net contributors to a better life for every human being on the planet.  Remember life is a game, and money as a system of barter and as a store of wealth, and the rules of the game we play were all created by us. There is nothing natural about money or for that matter for the political economic systems we have created. In a world of “Big Data Analytics” and “digital money flows” we the people should be better able to control and exploit this wealth (play thing)  to everyone’s mutual benefit. Change the rules of the game in a positive manner  and lives will change for the better and we may  not experience the current human outcome of wealth being accumulating and secretly hidden away for fear of taxation?

I also detest “big government” another part of the game and government’s propensity to over tax and often squander the tax receipts. In fact I’m not one of the 1%,  but I would wager a bet if one were to interview the super rich hiding their wealth  it is certainly their  honest belief that governments would “waste the money” taxed away from them which causes their somewhat rational behaviour.  Few people, rich or poor, would advocate zero taxes as everyone recognise a need for, and means for paying for, common goods. Most reasonable people recognize that it is neither sustainable nor just for 1% of the human population to control more wealth than the remaining 99% when a majority of the world still lives in abject poverty and millions of people living in poverty, due to circumstances beyond their control (for example being born into poverty) actually work harder every day of their poor lives than the 1% ever did. We all seem to understand the problem that the rich get richer and the poor get poorer and we should all be able to see an unhappy ending for this trend. So what is to be done? Change the rules of the game.

I believe the solution lies in “coached philanthropy” not forced higher taxation. My father always told me as a young boy, “From those according to their ability to those according to their needs” which seemed a pragmatic way to solve our dilemma but education and incentives for the 1% to follow the example of those relatively few noteworthy extremely wealthy people who have chosen to give of their time and their wealth seems a more appropriate method of correctly today imbalances. It seems so much more acceptable than yesteryear’s rant “to tax the rich and give to the poor”, and one only need look at supposedly communist China to see how well this philosophy of income redistribution works. China which has nominally been a communist country for 67 years (since 1949) has had a consistently higher Gini Coefficient  (0 represent perfect equality of income and 1 represents perfect inequality – one person receiving all the income) or less income equality  than Canada (my home) and most other wealthy G7 countries each and every year since 1949 in which it  has been measured and China’s Gini is still increasing.

What humanity needs I believe,  is a United Nations sanctioned multilateral worldwide tax on savings or “parked capital”,  regardless of which country in which it being saved (or which mattress it is hidden under).  This may seem heretical to many people’s ears, “isn’t a lack of personal savings part of the problem in America?”, but wait there are two caveats; only savings above a prescribed maximum amount “being the rainy day fund” a level of saving set by national governments based on the national cost of living would be taxed, and there would be heavy taxation on personal consumption.  Capital that sits and accumulates more capital into fewer and fewer hands simply by being held is a wasteful distortion or unintended consequence of the rules of the game.    Rather than causing exceptionally wealthy people to feel they need to squirrel money away I would advocate zero tax on worldwide incomes,  a slightly burdensome tax on consumption and an extremely burdensome tax on “parked capital”, that is money that is not being re-invested as working capital.

The $32 trillion which the Panama papers say is parked in offshore deposits, should be being spent to create income,  fueling rapid economic growth for the betterment of humanity and via a ripple effect increasing incomes worldwide. Only when capital is consumed, or money is spent for personal consumption on nonessential goods or services; luxury cars, travel, luxury homes expensive jewelery, alcohol and substances would it be taxed by governments which will be pared down and form a smaller and smaller proportion of the economy (and yes the work force) perversely because all this “parked capital” will be put to work building infrastructure (building roads, bridges, parks, hospitals,schools,  arenas) to create untaxed income.  The effect would be that very rich people instead of accumulating capital (money)  would begin to accumulate goods which have higher utility to humanity than parked capital. Why wouldn’t a rich person pay someone more money to try to create more income which is not being taxed ? Income is good realized profits are not. Just keep investing round and round we go with brand new rules of the game.

The rules will dictate and I advocate that this unprecedented rush –  this virtuous cycle of private money flowing through the veins of a supercharged healthy economy  be spent by the private sector who are much better equipped and skilled to spend societies excess capital (savings above the rainy day fund)  than would be any bureaucratic civil service. Let’s make money and increase incomes worldwide, no taxes on incomes for anyone.  Even the very wealthy will be relieved of their current deviant behaviour of hoarding money for the sake of hoarding money and will be pleased to keep money cycling through the economy, paying higher wages to make more income, for only when it is parked would it become taxable. What do you think is it time to change the rules of the game of life?


African Woman

Here is an excellent research paper on regulatory impediments to innovation in money transfer and financial inclusion.  ECONOMICS WORKING PAPER NO. 723   (see page 4) ” Heavy regulation is usually fatal to igniting mobile money schemes in a country. The key difference between the countries that clearly succeeded and clearly failed is stark. All but one of the eight countries that ignited and grew explosively had relatively light regulation on mobile money schemes.”

Know your customer or KYC heads my list of costly compliance issues. When my bank charges me $45 to transfer $500 via bank wire service from my corporate account,  I know I am paying far in excess of the true cost of money transfer. Money now moves with the ease of bits over the internet and numerous tech startups now move money free (e.g. Uphold   ).

When I complain to the bank, I get the poor excuse that the high fees help to compensate the banks for regulatory compliance costs. Not that I believe this, as I know to send the same amount of money to the same destination from my personal account with the same institution costs roughly half as much due to competition of non-bank money movers (PayPal , Western Union etc)  who somehow still manage to be profitable. Even Western Union will transfer the funds for less than the bank charges.  Not the point of course, which is only to say “If regulatory compliance cost are really the root cause of expensive money transfer, than the regulatory framework needs a major overhaul.

KYC not only introduces compliance costs of collecting and safely storing individual client’s personal data, but it also makes identity theft much more likely. It is unfortunate to see well intended alliances such as the “Better than Cash” alliance being subterfuged by groups like Visa International. Credit by its very nature (loan extension) requires that the debtor be known so that the loan can be collected. Unfortunately many of the mobile money schemes even in the developing world are being built upon the foundation of a credit card perpetuating a system known  not to be in the interest of consumers. This effort appears similar to “Big Tobaccos” re- focus on developing markets when health regulations and legal suites made the US market less ideal. Credit cards with their merchant fees (2-3%) and delinquent user fees  (24%) , represent usurious costs to society and we should all object when we see these practices being fostered on developing nations in the name of development or aide. The Boston Consulting Group estimates that the true cost of credit card acceptance worldwide in 2015 was $500 billion,  quite a number.  Compliance and management of KYC is part of the cost infrastructure of Credit and the extension of Credit requires both credit agencies and knowledge of the recipient of the credit.

The basic technology to efficiently and securely move real money already exist and is already in the hands of more than 80% of the world’s population. Fiat cash should become the core payment engine for all digital currencies and simply put we should NOT be using credit cards as the core payment engine of mobile money.  Far better to allow clients to use fiat currency to move real money, e-cash without any KYC costs, without any possibility of identity theft yet while nevertheless being positively authenticated. This is the way Yodo moves money. When a costly physical device such as a mobile phone is required to transfer money it become one key, or one token, in a multi-factor authentication regime. Add a bio-metric token which can authenticate, but not uniquely identify an individual, plus a knowledge token (or PIN) and you have a robust secure tri-factor payment and money transfer system. Require all three tokens to be present to effect a payment of money transfer and place reasonable limits on maximum transfer amounts and frequencies of transactions (velocity of money) and  it is theoretically impossible for organized crime or terrorist organization to move large quantities of money illegally.  Money movement can be democratized, low cost  (non-profit) since no traditional financial (bank) dependencies or compliance costs are involved.

The pedofiles of the money service industry

Money MartAs the American middle class is hollowed out, the payday loans industry has grown explosively throughout North America.  In  America it has more storefront locations than McDonald’s and Starbucks combined.

Unfortunately we appear to be moving backwards, the Canadian government recently (2008)  passed Bill C-26   exempting PayDay loans companies from Section 347 of the criminal code which had made it illegal to charge interests rates on loans in excess of 60% per annum.  Quoting from the preamble to the amendment,  “The expanding presence of payday loan companies suggests that some Canadians are willing to pay rates of interest in excess of those permitted under the Criminal Code for their payday loans.”  This is about as logical as saying “Some Canadians are willing to murder their Mother’s,  so lets amend those sections of the criminal code making murder a capital offense. Counter intuitively, the stated purpose of the exemptions  for Payday loan companies in Section 347 is to allow better regulation of PayDay loan companies, some of whom were found to be charging effective rates of 1200% per annum. Why didn’t the federal government simply press criminal charges under Section 347 if the Criminal code against those PayDay loan companies charging effective rates in excess of 60 percent ?

PayDay loan companies appear to be operating with impunity. A noteworthy example is Texas, where the maximum interest rate on a loan of under $250,000 is set at 24 percent APR and yet nearly every major payday lender continues to charge rates in excess of that cap. In a recent United States congressional forum on payday lending, the head of the American Consumer Protection Council recounted the story of a woman from Kentucky who paid over $1,000 in fees on a $150 loan over a six-month period without paying off any of the principal. Canadian regulations prevent the extending of loan due dates but not taking out a fresh loan to retire an existing loan.


Congratulations to the British Government who appear to be moving to curb the excesses of PayDay loan companies.  UK toughens Rules . Unfortunately illegal loan sharks are apparently filling the void but this then becomes a Police matter and present laws can and should be enforced.  It would be nice if the big banks would work cohesively with the government  and in combination with better consumer financial education and a more  progressive taxation system try to drastically eliminate the demand for these types of usurous loan.  We should be honest enough to admit that sanctioning PayDay loan companies is institutionalizing “loan sharking” and creating a highly effective first world poverty trap.  Governments everywhere should be strengthening and enforcing usury laws rather than amending the laws to create exemptions for PayDay loan companies as we have done here in Canada. SHAME.

Riba: what we can all learn from Islamic Banking


From Wikipedia – Islamic Banking ( المصرفية الإسلامية‎,  بانکداری اسلامی‎) is banking activity that is consistent with the principles of sharia and its practical application through the development of Islamic economies.

Arabic Sharia Banking

It is rare indeed that I find myself referencing a website such as Islam Question and Answers but full credit to the Muslim faith for maintaining steadfast on prohibiting Riba ( usury),   an aspect too prevalent in modern western economies. Devout Muslims still believe it is sinful to charge interest on certain loans which includes interest on credit card balances. Specifically credit cards are considered Haram (sinful) by traditional Muslims, even if the customer intends to avoid paying interest by paying off the balance when due,  as the credit card “contract is not permissible, because it involves riba which is the price of the card, and it also means committing to pay interest if payment is delayed.” ( )

It is not just Islam which forbids usury; most of the world’s main religions including Christian, Judaism and Buddhist texts also forbid the charging of  interest (or any fee) for the use of money. In Medieval Europe usury was synonymous with the “exploitation of the poor” and banned by the church.  In the USA, in a piece meal fashion, most States have Usury laws which make it illegal to “collect” debt on loans with interest rates above prescribed rates.  “Loan Sharking” persisted and the Federal government took a stand by passing the “Racketeer Influence and Corrupt Organization Act (RICO statute) which made it a federal felony to charge more than double a state’s usury rate.   To this day the government remains vigilant of card companies (exhibit the recent Durbin amendment to cap the largest banks debit card fees to 12 cents per transaction)  but generally where chartered banks and Credit Card companies are concerned the legislation now centers around enforcement of proper “disclosure” of true rates. Provided your debtor is properly informed, you can continue to exploit the poor.


All Banks may not have the grandiose “oil wealth” to manage that some Islamic Banks have but a lot of Western Banks could emulate Islam’s rulings on Riba it they were to work on curbing consumer’s appetite for credit and begin to reduce interest rates on outstanding balances which have reached rates which would have been considered forbidden (usury) even in western society very recently.

Barclays Reward Visa

Assume for a moment that the customer receives a $50 cash advance on the Visa card pictured above.  The fee of $10 effectively reduces the advance to $40 anyhow but now further assume that the advance is paid off at the end of the month, (unlikely for many poor people in need of a $50 cash advance) the interest charge is 25.24% APR which is deceptive to begin with, as the effective annual rate is actually 28.32% (see paragraph below) . In any case the interest paid in one month on the original nominal loan of $50 is $1.05. Calculating the return to the credit card company (R= [Vf – Vi]/ Vi) provides for a return of 27.62% per month or when annualized 332% annual interest.

Annual Percentage Rate or APR is how interest rates are  stipulated when banks or credit card companies loan you money and effective annual rates, or EAR is how interest is stipulated when bank pay you interest.  ( EAR=[1 + APR/n] ^n -1 ) . You probably won’t be too surprised to learn that effective annual rates , EAR are always higher than annual percentage rates , APR . Consumers should also be aware that credit card companies charge what is called a Penalty APR. As an example American Express charges two percentage points higher if you are late in making your minimum payment or a payment is returned. The penalty APR is effective for six months! Keep in mind for the average consumer, informed or not, failing to understand the true cost of such a seductive practice as “buying beyond your means” or making a late payment is commonplace.