
OpenTransact a tiny payment standard - pelle
http://stakeventures.com/articles/2010/02/11/opentransact-a-tiny-payment-standard
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kiwidrew
Unfortunately, there's a reason why banks and other financial institutions
tend to batch transactions together and settle them overnight: liquidity
requirements.

Basically, the shorter the settlement period, the more cash the banks need to
keep immediately accessible. The increased liquidity requirement carries with
it the opportunity cost of keeping that cash available at-hand instead of in
more productive investments. With end-of-day settlement, each bank only needs
to transfer the _net_ amount (outgoing transfers minus incoming transfers),
which is -- barring a really nasty run on one of the banks -- an order of
magnitude smaller. So there's a tradeoff between settlement speed and
transaction cost.

But this doesn't prevent the bank from immediately notifying the recipient of
the funds that a transfer has been made. It's just that the funds aren't
available for use until after settlement.

For some interesting details about the tradeoff between settlement delay and
transaction costs, I found <http://ideas.repec.org/p/bca/bocawp/06-20.html> to
be an interesting read.

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pelle
You are absolutely right about that. Which is another reason why traditional
banks are a not likely to jump on this straight away.

Liquidity is not an issue for most of the applications I hear planed using
OpenTransact as they typically operate with 100% reserves.

I am very particular personally to the Narrow Banking
<http://en.wikipedia.org/wiki/Narrow_banking> ideas as a replacement for the
traditional monolithic multipurpose banks, where again this would not be an
issue.

Taking a hypothetical narrow banking world to it's extreme using OpenTransact
a typical everyday bank consumer needs could be split by functionality into 5
different narrow companies with each their function:

* A financial supermarket end that only resells financial services to replace the traditional bank branch * A narrow banking cash account structured as a cash mutual fund. 0% interest, 100% reserve. * A money market mutual fund for savings * A card issuer linked to your cash account offering a visa debit card service * One or more exchanges for transferring funds between banks instead of ACH

I am not even mentioning credit here, but credit and insurance can all be
offered by different institutions like <http://prosper.com> again using the
Narrow banking model.

Obviously the above example assumes that our financial needs are all going to
be the same as today. More than likely we will see financial products that are
completely different than what we see today. In particular because the
existing banks are not likely going to give up their existing revenue sources.

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joshu
I'm not sure what problem this solves.

Go look at the spec for FIX. This is what's necessary to specify modern
financial transactions.

I'm not sure that naming endpoints is really that helpful to any particular
problem. You've replaced a CUSIP with a URL, I guess.

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xal
Very clever. I hope this works out.

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freetard
Some nice demos of how it works:

<http://www.opentransact.org/usecases.html#simple>

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sern
Too simple. The banks will never adopt it.

~~~
pelle
Innovators dilemma. If the banks want to adopt it then cool, if not more
opportunities for innovators.

The regulators though are the real issue, but we have some ideas for dealing
with them as well.

~~~
freetard
This is awesome work, congrats. Have you been in contact with some banks about
it already?

~~~
pelle
Thanks. I am probably not going to talk directly with banks, but I know there
are people from the traditional banking and payment card world on the Agile
Banking list and I'm hoping one or two smart banks might use the economy as an
excuse to innovate.

