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Edition #44. Friday, 29 May 2020
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Good morning,
Planning to catch a flight? Then you’d better get ready for some new gear:
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All of us know, by now, that nothing will ever go back to normal. Be it small talk, or buying swanky, multi-million dollar houses virtually.
But even in a post-Covid universe, some things are unlikely to change. For instance, SoftBank’s utterly complex loan machinations that haven't even spared its own employees. Or India’s Unified Payments Interface—UPI’s—continuing land-grab against credit cards. Let’s dive into our last BFO for the week. And the month.
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The friction in frictionless payments
Arundhati
Lenders, mutual fund platforms, news publications, and just about anyone who wanted a monthly commitment from their customers just got their prayers answered.
India's retail payments body is putting the finishing touches on launching recurring payments using UPI, a near-instant digital payments system used by nearly 100 million Indians, MoneyControl reported.
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Digital payment players are setting the stage for recurring payments to start on UPI and doubling down on partnership with lending platforms to process their EMI payments. Payment majors like Paytm, PhonePe and Google Pay have already partnered with lending platforms like Bajaj Finance, Tata Capital, Indiabulls Consumer Finance and others to process their EMI payments.
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So far, only about 40 million credit card holders had the privilege of being able to make recurring payments in India. Companies like Netflix, Apple (Music, iTunes etc) work well because of their 'give your credit card once and forget you ever bought a subscription' premise.
In India, debit cardholders—some 900 million people—can’t sign up for subscription services that easily. Only a few banks, like ICICI, allow recurring payments. The other way to enable recurring payments is to give your bank “standing instructions” to auto-deduct payments for, say, rent or monthly instalments. That makes it hard to buy digital services on the fly.
Now imagine if you have a fully digital way to allow for recurring payments à la credit cards from your bank account
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While the current process is clumsy, the banker quoted above said that once recurring payments go live on UPI, borrowers will get a debit notification 24 hours before the debit happens and they have to just authenticate the transaction to go through. This will make EMI payments smooth.
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As transformational as that sounds, one should remember UPI has among the highest failure rates. Credit cards allow you to contest any wrong deductions. But what happens when money gets auto-debited from bank accounts? While for businesses this is a great way to collect money, borrowers lose the agency of having control over their bank accounts.
If the two-factor authentication way of making payments taught us anything, a little bit of friction goes a long way in protecting consumers.
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SoftBank, the accidental (and broken) Rube Goldberg machine
Rohin
Years later, we’ll look back in amazement at the curious creature that was SoftBank. The only analogy I can think of is a Rube Goldberg machine.
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A Rube Goldberg machine is a contraption that uses a chain reaction to carry out a simple task. It performs a very basic job in a complicated way.
Let’s look at an example. We’ll describe a Rube Goldberg machine that wipes a person’s chin with a napkin. That’s a pretty simple task, right? Well, wait until you hear how the machine does it!
First, a person picks up a soup spoon. This action pulls a string. That jerks a ladle, which throws a cracker, which shoots past a parrot. The parrot jumps for the cracker, and its perch tilts and drops seeds. The seeds land in a pail. The extra weight in the pail pulls a cord which opens and lights an automatic cigar lighter. This sets off a rocket that causes a sickle to cut a string. This allows a pendulum with a napkin attached to it to swing back and forth to wipe the chin.
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Now take the news reported by Bloomberg on Wednesday that SoftBank was considering axing 10% of its staff. A perfectly normal event these days for most companies.
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SoftBank Group Corp.’s Vision Fund is planning deep cuts in staffing after reporting about $18 billion in losses from the declining value of its startups, according to people familiar with the matter.
The reductions could affect about 10% of the fund’s workforce of roughly 500, said two of the people, who asked not to be identified discussing personnel decisions. The Vision Fund’s headquarters are in London, with additional operations in Tokyo and California. The cuts will be across all levels of staff, said one person.
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Except, SoftBank isn’t normal.
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The fund also set up an unusual compensation structure that includes a $5 billion loan to employees. The debt is swapped for equity in the fund and generates profit when deals make money -- and losses when they don’t, scaled by seniority, people familiar with the matter have said. The poor performance so far, along with the layoffs, may prompt some employees to look for other positions.
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In 2018, SoftBank is $7 billion dollars short of the mythical $100 billion figure for its first Vision Fund. So, it borrows $5 billion from banks, mostly Japanese ones. Which it then lends to its employees, at 5% interest, so they can use it to invest in the Vision Fund. SoftBank positions this as its employees having “skin in the game, even though most do not put down any of their own money. In return, employees get a massive profit upside, standing to make millions of dollars if the Vision Fund’s investments do well. But they also got a downside as a share of losses, if the fund were to perform poorly. And oh, “clawbacks” ranging from 7-20% plus interest.
With the state SoftBank is in today (it lost $17 billion for the year ended March 2020), if it fires its most highly-paid workers, what happens to the loans it gave out to them to buy Vision Fund stock? What happens to those still remaining?
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“One side effect is that the best people at SoftBank may exit to find better funds,” said Hirai. “If so, their fund business may become even worse, sliding down from a slope.”
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I can’t tell what’s the napkin and what’s the chin any more.
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The great digital divide
Jum
The Philippines’ Education department wants schools to reopen by August after being shut since the Covid-19 lockdown started mid-March, pushing for a mix of in-person and online classes.
Some camps support the idea, saying the government must take steps to continue children’s education. But others favour postponing the resumption by a few more months while the country looks for inclusive alternative ways of learning. They think digital classes will only widen the country’s education gap.
Millions, mostly the poor, do not have access to computers or the internet at home. Besides, Philippine internet speeds are among the slowest worldwide, making online classes unviable.
If online classes push through, dropout rates among poor children are likely to soar and they will fall behind. As it is, many poor families, especially in rural areas, are unable to send their children to school even if public education is free.
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A glaring nine percent of Filipinos aged 6 to 24 years old are not in school, or almost 1 out of 10. Despite a slight decrease since 2016, this still totals to an alarming figure of 3.6 million out-of-school children and youth in the Philippines.
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Fears that adding more online elements will deepen the education divide is not unique to the Philippines. These concerns are cropping up in Kenya and even advanced economies like China and the US.
If you ask Philippines President Rodrigo Duterte, students should not be allowed to go back to school until a coronavirus vaccine is available.
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Media independence
Jon
Covid-19 has accelerated the funding crisis within modern media outlets, which are redressing expanding financial gaps in their business through cost-cutting. Recent examples highlight the tension between independent reporting and making money.
A report from Courier News found that at least nine US TV stations ran a video package put together by Amazon as part of their news coverage. The segment—used in part by some channels and in full by others—promoted Amazon’s pandemic safety measures in warehouses.
Context:
- At least eight Amazon warehouse staff are reported to have died from Covid-19
- Amazon had its annual shareholders meeting this week
At least one station admitted that it was unaware the clip was fronted entirely by Amazon, which used its own presenter. In the rush to put together a show and with shrinking resources, a paid message snuck in.
In the UK, the Daily Mail Online last week published a post addressing how the government is working to help families impacted by the outbreak. The piece was paid for by the British government.
Unlike in the Amazon example, the Daily Mail labelled its sponsored content, but it’s still concerning. British media are currently reporting on a major scandal that unfolded after Dominic Cummings, a senior advisor to the Prime Minister, breached lockdown protocol whilst infected with Covid-19. For the Daily Mail, the subject of the stories is also a paying customer.
The conflict around retaining editorial independence in the face of business deals is not new, but, in these current times, the voice of the media has never been more important.
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A whole new ballgame
Seetharaman
At $471 billion, the global sports industry was bigger than Austria’s economy in 2018.
So it’s understandable that sporting bodies are desperate for their athletes to be back in action. They are proposing different ways of doing it while minimising the risk of spreading the virus. First, it was games in empty stadiums, with no spitting and other rules.
Now, there are proposals to restrict players to the venue for the entire duration of a tournament. England is scheduled to play two home series against West Indies and Pakistan over two months. The England and Wales Cricket Board (ECB) has proposed that after initial tests on the entire squad of around 25-30 players, they stay away at on-site hotels
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It would require a huge commitment from the players, who would be asked to assemble at the Ageas Bowl on 23 June and may have to then stay together until the proposed third Test against Pakistan at the end of August.
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England cricketers face biosecure tests in nine-week break from families, The Guardian
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Former Indian cricketer Rahul Dravid slammed the ECB’s plan, asking what would happen if a player tested positive during a Test match despite all precautions.
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“Even if ECB is potentially able to create a bubble and manage it in that way, I think it will be impossible for everyone to do it with the kind of calendar that we have, with the travelling that you do on tours and the number of people involved,” Dravid added.
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What if one player tests positive? ..., Scroll
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The ECB is hardly alone in wanting to do something like this. The NBA, among the world’s top sporting leagues, plans to restart its season at a massive sporting complex near Orlando.
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The plan would essentially move basketball to the Disney complex— a 255-acre campus with arenas and ample hotel space — on a full-time basis, with players and staff living, practicing, and playing there. Fans would not be permitted to attend games.
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The NBA might be returning this summer — in Disney World, Vox
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The Ultimate Fighting Championship plans to move to a private “Fight Island”.
Not surprisingly, criticisms of these “bubble events” have come in thick and fast. Comedian John Oliver laid out the complexities of pulling off something like this on his HBO show earlier this month.
As he points out, anything less than 100% adherence to the rules could throw a wrench in the works. If you’re not convinced, ask Heiko Herrlich, the coach of the German football club Augsburg. He missed his first game with the club after flouting quarantine rules to buy ... toothpaste.
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(Small) talk is cheap. Do we miss it?
Olina
The prospect of making small talk is often terrifying. If you're like me, you'd give "networking events" a wide berth. It's incredible then, how much its absence has uncovered. After all, in the midst of a global, life-threatening pandemic, a simple "how are you?" doesn't even begin to cut it
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So it speaks to the enormity of this moment that the coronavirus has completely supplanted small talk in our social contract. How can anyone fib through a compulsory “How are you doing?” in a time like this? Instead, the empty space at the top of my conversations has been replaced with an inventory of the many tragedies, mysteries and hopes brought on by the coronavirus news cycle and a more spiritual meditation on, in the words of my friends and family, “How crazy this all is.”
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Being liberated from small talk can be disorienting, says Luke Winkie in the NYT piece, because we're so used to brushing our real feelings under an ambivalent "I'm fine". Covid has pushed us to deal with the fact that we aren't and won't be for a long time. Daily Zoom calls is our way to cling to the form. But what we small-talk about, could change irretrievably.
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Deborah Tannen, professor of linguistics at Georgetown University...believes that human beings find an equilibrium by talking about nothing. It proves that we are willing and capable of being friendly with one another and that the parameters of our exchange will be limited to things we can agree on. No matter where you are in the world, it’s rude to express an existential uneasiness upon first impression. The pandemic has broken that golden rule.
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Buying property with a click in Singapore
Ben
Buying property is often a high touch process with multiple trips made to view and inspect the property before a decision is made. However, in these pandemic times, such trips have become impossible. Buyers are making purchases without even visiting the property, sometimes dropping as much as S$21.7 million on an old villa based on photos and location.
Real estate agents already use videos and virtual viewings to pique a buyer’s interest, but these mediums have become even more important as buyers now rely on photos and videos to make their purchase decisions.
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That’s a wrap for the day and the week. What do you think? Good, bad, or ugly, do let us know. And write in with your thoughts and observations on how this pandemic is reshaping the world around us. We will be back on Monday.
Stay safe and have a great weekend,
Savio
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Beyond The First Order is a daily newsletter on the far-reaching consequences of the Covid-19 pandemic. This newsletter is published by The Ken—a digital, subscription-driven publication focussing on technology, business, science and healthcare
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