Fintech Fantasyland – Raisin and Coinbase

In more innocent times once upon a time, I walked into a branch of Barclays opposite where I worked, showed them my staff pass card and 20 pounds to get the ball rolling, and walked out with a shiny new Barclays bank account. No passports, name rank and serial number proof, no pack drill, just me and them. They knew The Firm, they knew what a staff card looked like, and that was good enough. They knew their customer, in an analogue way.

Nowadays the process is grief-stricken and involves webcams picturing your driver’s license(sic) and all sorts of aggravation. I figured I should start to get a teeny bit better return on my cash than 0% as the amount started to creep up to Harry Browne regions, so I was tempted by Hargreaves Lansdown’s Active Savings, on the principle that I already had an account with them, so I wouldn’t have to go through all that customer ID crap. I stopped as soon as I read signing up for active savings means they will always send an SMS to log in, even for my SIPP. I am sick of this stupidity. It’s the easiest job in the world to slam your phone number to some ne’erdowell, particularly if you live in rented accommodation with a shared mail access. But it’s not that hard to do for everyone else.

We had/have a perfectly serviceable alternative – your bank card and one of those reader things to generate a one-time password. But no, it the general fetish to have everything on your damn smartphone, SMS messaging is a less secure alternative they are pushing. Because every bugger has a smartphone surgically implanted, FFS.

The advantage of Active Savings is that you have a single interface to the account, and they then let you save with a number of other organisations without signing up with those separately. Which is good, because the process of signing up for a bank account in the UK is absolutely horrible now with all the ID checks, I’m sick of it.

So I looked for an alternative, and Raisin seems to do the same thing. Given that I have a SIPP with HL, running with a separate FSCS institution seems a good idea anyway, and though I have to suck up the SMS bullshit at least I only have one sign up process to do.

The time to worry about bail-ins is before they happen

If you look at Raisin’s FSCS protection page, once you have signed up for savings account through Raisin, you get the FSCS (or Euro equivalent) protection of the destination institution. One of the biggest drags about savings is having to sign up with many institutions, the implication here is that you could break up your holdings below the 85k FSCS amount all through Raisin, provided you were careful where the destinations were.

There is some argument that holding more than the FSCS limit in cash is mad, unless you are really, really old. However, at current valuations I can see myself doing that for some time. Inflation is not the only hazard I see, and looking at what happened in Cyprus the FSCS limit is roughly where you become a tall poppy and a source of emergency bank funding of last resort.

So far so good, but though Raisin is associated with Starling Bank and I used Starling as a feeder account, it seems to be taking its time to happen – transferred about 10am and only got there 11pm. In general I expect better from Starling, my experience to date has been of quiet, understated competence, and blistering speed at posting details of transactions. Pay for something using the card, and by the time you have picked up the phone and opened the app that transaction is there to be seen in your account right away.  I don’t bother to ask for paper tickets for those card transactions because there’s no point.

For other Starling customers wondering what the hell their sort code is, Starling tell you there is only one: 60-83-71 at the time of writing.

I found Raisin confusing in operation. Some of this of course is that the nominee method of banking is new to me. For example I applied for a 32 days Investec notice account, paying 0.8% APR. Time to order some tiny fireworks, eh? So I get an email saying the Ts and Cs for the Investec savings account you viewed, and I think fine and dandy, to be treated to a pdf with 16 pages of solid cruft about Meteor Asset Management, with nary a peep about Investec. If you look at How Raisin Works you will see that Meteor Asset Management is the pool account front running Raisin’s customers, sort of analogous to a nominee account¹, which is how you don’t get to streetfight the onerous Know Your customer crap for each and every share line in your ISA.

I happen to have read the how it works page before getting this 16 page Investec Ts and Cs not mentioning a word about…Investec. I was more tolerant of this rum carry-on because I had already qualified Starling as a competent operation, but that sort of inconsistency is going to scare the horses in customers of a more nervous disposition.

Know Your Customer makes me grumpy

The Raisin experiment is the first part of a fightback, which avoids endless KYC checks, which I detest to the extend that so far I have been content to get zilch on cash, other than the Premium Bonds sort of interest, and NS&I’s Index Linked Savings Certificates that I bought long ago and rolled forward.

Signing up for a new financial service always makes me grumpy and wanting to kill someone due to the tiresome hoops. The delight of cash is that it is a bearer instrument, and the sight of all this know your customer meddling makes me irritable.

I was left pretty cold by Monevator’s Bitcoin article earlier this year.  Indeed, my hackles went up only a couple of weeks ago, but hey, I’m with JMK and I’m prepared to change my mind if a new perspective comes to light 😉 Fighting the government’s anti-money laundering bullshit with added SMS 2FA stupidity made me yearn for a better way, so mellowed me to the blandishments in Bitcoin for Bogleheads, an article Monevator linked in his more recent post. There’s also BankerOnFire’s Ethereum post for an honourable mention, which shows that crypto and Ethereum as a specific example of fintech may have interesting practical applications in the medium term future as a contract platform. The trouble, of course, is how do you keep bad actors out of crypto – Al Capone robbed banks because that was where the money was. The internet in general is only about 30 years old as a consumer service and crypto only about 10, this is very definitely the Wild West of rough and ready justice and bad guys are drawn to it like flies to cowpats.

I trialled Coinbase (affiliate link where you and I get $10 worth of BTC if you sign up and buy/sell $100 or more of BTC) and Paypal. Although I griped at Paypal’s fees when I disavowed crypto in the last post it seems that going in and out of it seems very expensive at about 3%, though there is no cost of carry as far as I can see.

I have only sported about £250 on this, I will see what nastiness crawls out of the woodwork, or not. Certainly buying BTC with fiat GBP is not a way out of the onerous KYC bullshit, that’s for sure. Although once you’ve sprung it from out of their walled garden (not a possibility with Paypal) you may get free of KYC bollocks, because crypto is a bearer instrument with theoretically anonymous background validation to forestall spending the same item twice².  In the same way you don’t have to show your passport and give your birth date once you’ve pulled cash from an ATM and spend it on some milk and spuds at the corner store.

I was tempted in this direction by the news that BTC fell 10%. though to be honest that’s not really news, for other examples see here, here, and here. There’s something peculiarly bonkers about El Salvador, a relatively poor country, trying to use BTC as a working currency.

I haven’t yet worked out how to break out my BTC into an independent wallet, the equivalent of digging gold into the garden, though perhaps easier to run with. I would say if the SHTF then BTC is going to be far less useful than gold, because you will have no transmission network to support the infrastructure, and as a store of value it is predicated on having a support infrastructure around it. That’s the essential problem with anything digital. Information may want to be free but you need an awful lot of preconditions, hardware and power to be able to see and validate it.

Cyprus syndrome

A serious haircut. Not a good look, eh?

Gold has the advantage of history and no requirement for infrastructure. But realistically, I am too old to fight the zombie apocalypse anyway. However, independently held BTC would give you protection against Cyprus syndrome ³, and it might give you some protection against government confiscation and inflation, though you need to be rich enough to integrate over long periods of time – don’t ever become a forced buyer or seller in BTC.

Somewhat shockingly there seems no mechanism to place limit orders on a crypto buy, which is a standard offering on a normal stock market account. The fact that the chart providers offer you a selection of the exchanges show that arbitrageurs probably skim a fair rake, given there are visible differences in the quotes, and combined with high transaction fees of 200 to 300 bps which would be laughed out of town on forex means you should really HODL this sort of ‘asset class’, although in an evil twist the very high volatility tempts trading! If you are going to go to the dark side then Coinwink will give you alerts. Lots of ‘em, given the shocking volatility of this sort of thing.

I am not convinced that cryptocurrencies have any real value, and it’s not really going to bother me to lose £250, but sometimes you have to pay to learn. If I followed AccidentallyRetired’s specifications I really ought to have a lot more in this, so its really an expeditionary force to scope enemy territory rather than an invasion. However, I do like the bearer instrument qualities, because I see straws of troubled fiscal times ahead. The downside is, of course, the shocking volatility – looking a year back there’s almost a three to one ratio between the highest and lowest prices. That would be considered heady in stocks and probably unheard of in developed world currency movements. BTC is not a productive asset like stocks, so it is closer to a currency IMO. Of note is that Monevator disagrees, which usually means i am probably wrong, he regards it as a store of value/investment like digital gold.

I believe Bitcoin has earned a role as an up-and-coming store of value. The potential becomes increasingly realised every day.

[…]

I’m less convinced by Bitcoin as a currency.

Bizarrely I am more drawn to investigate due to its potential as an out of band currency independent of rapacious government action. Perhaps it’s like the story of the blind men and the elephant, we all project our fears and hopes upon a blank slate. I find it hard to regard it as a store of value because of the horrific volatility. But I can see Monevator’s argument – after all we tolerate volatility in stocks and commodities, but generally regard these as a store of value of some sort.

I can’t get away from the feeling it’s essentially the greater fool theory. Pretty much all Charles MacKay’s objections and observations from 1841 in Memoirs of Extraordinary Popular Delusions and the Madness of Crowds apply. So I should beware of trying to avoid a 47% haircut on balances over £85,000 under market turmoil turning into a 66% haircut on the entire balance on the whim of the madness of crowds. We have seen this movie before, in tulip bulbs, dotcom stocks and US mortgage debt.

Another issue is the balkanisation of the cryptoverse. You get Bitcoin, Bitcoin Cash, Etherium, Doge and a long tail of also-rans. All writhing away in relative ‘value’ like rats in a sack. The obvious solution to this is a market cap index fund, which might actually stabilise values by diversification, though crypto seems to be heavily correlated.

It’s early days in this stuff. While Zerohedgers moan about fiat currencies being unbacked by hard assets, there is at least some action from large well-resourced actors to try and stabilise them. Crypto is backed by nothing at all. Yes, hard limitations on total coins issued makes a great story compared to the money printing in regular fiat currencies, but technical issues in the network have already split BTC and BCH, so unforeseen second-order effects in the network design could render something that looks good now less useful in future.

In the end I came to the conclusion Monevator was right

The good thing about buying something you’re not certain about is you have skin in the game. You pay more attention, and you panic less if the price rises. You do have to watch your total exposure to stay comfortable.

I am slower to change than him. I can’t say £250 in BTC and ETH will keep me awake an night. I learned something about some interesting potential tools, and I also hear a distant sound of thunder in the direction of haircuts, and these tools may yet have their day. For day to day keeping cash below the FSCS limits, however, I think Raisin is by far the easier win. It’s imperfect in many ways, and will only reduce one’s losses to inflation by about a third, but compared to the capricious Wild West of crypto it’s safe as houses, and this is where I will focus liquid cash holdings after Premium Bonds and NS&I ILSCs, which I am not allowed to take any further by National Savings limits.

Finally, the Oh FFS award goes to

Unrelated to the rest of this post, but relevant to all you retire early crew, you are stuffed. According to the University of Pennsylvania twits who assert that

“The sweet spot is a moderate amount of free time,” said Dr Marissa Sharif, a co-author of the study from the University of Pennsylvania. “We found that having too much time was associated with lower subjective wellbeing due to a lacking sense of productivity and purpose.”

Well, that’ll learn ya FI/RE sorts then. I’ve heard this baloney before, usually from people who lacked hinterland and couldn’t imagine life without work. I have seen people who retired and failed to fill their days, but it’s not universal, let’s just say that as long as you have curiosity and imagination you aren’t likely to run out of world to inquire into after five hours a day. Calvinist whazzocks.

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1. I know, you can have a personal Crest account, so in some ways Crest is a closer analogue of Meteor Asset Management and arguable Raisin is your broker using MAM as nominee. ↩
2. That element is needed because duplicating digital code is much easier than printing dodgy £50 notes. ↩
3. 47.5% of all bank deposits above €100,000 were seized in the Cyprus bail-in ↩