How Net Neutrality Threatens Banks

Tom Wheeler is being credited for being the twenty first century’s Senator Joseph Kennedy.Tom_Wheeler_FCC

Last week, Tom Wheeler, Chairman of the Federal Communications Commission (FCC), publicly announced his support for Net Neutrality.


1219px-FCC_New_Logo.svgNet Neutrality is the name of the principle that all internet service providers (ISPs) should provide equal access to the their content providers. Proponents of Net Neutrality claim that it is this principle that has enabled many small content providers, social networks and economic platforms to flourish. Without continuing a policy that implements this principle, the next developing the next big thing will be so expensive that it won’t happen, at worst, or will happen in other economies, at best. Also, proponents are argue that a tiered service would amount to content discrimination. Proponents include Yahoo!, eBay, Amazon, Microsoft, Lawrence Lessig, Steve Wozniak and, even, President Barack Obama.

Those against Net Neutrality argue that the current system hinders financing the development of better telecom infrastructure, customers, especially lower income customers, are subsidizing large bandwidth heavy content providers and effectively lowering the service quality they receive. Those against Net Neutrality include major telecommunications providers, internet service providers and free market types. (Sadly, the names against Net Neutrality just aren’t as well known as the proponents, thereby making it unnecessary to enumerate.)

Both sides are correct.

Net Neutrality logoCurrently, Net Neutrality is in place. This means that when most people go online to do bandwidth heavy activities, such as listening music on Spotify or Pandora, or watching videos on Youtube or Netflix, no additional charges are incurred. If Net Neutrality was done away with, either the customers or the music and video providers or a combination of the two will have to pay for the heavy bandwidth. Seems more expensive?

Well, imagine if you are one of those creative types who are trying to develop something that will compete with YouTube, one of the groups of people proponents would like to protect. Because your competitor is providing their service for free, no one wants to go to your site. You are ten years behind and whatever great idea you have is very unlikely to get the notice to effectively compete with the established players. Customers are getting a great experience with existing industry players but they are missing out on potentially others.

There are more ways to think about what the alternative universe would look like in a world without Net Neutrality. One can even look at other developed economies to see how their industries have fared without Net Neutrality. Most common example is the United Kingdom.

How Net Neutrality Threatens Banks

Banking on both retail and investment side are being done more and more on the internet. Banking was one of the first industries to adopt internet technology. this makes sense since banking is a transaction system. Anything that helps to reduce the cost, increase the speed and better secure transactions would make an industry player more competitive.

Banking industry has experienced two major transitions in the last century. First was the transition from currencies backed by precious metals to fiat currencies. Second was from fiat currencies to digital currencies. Today, nearly all of the $2 Trillion in currency transactions per day are done digitally between computers. Despite the fact that the US Dollar and other currencies are government backed, in nature they aren’t much different from cyber-currencies like BitCoin. (There are some significant differences but those primarily have to do with the capabilities of the currency types, which, at this point, are not relevant for this discussion.)

Cyber-crime is performed in two primary ways. The “old school” method is to email or otherwise contact a person, deceive them in some way, and steal valuable information, which then can be used to “legitimately” tap into customer accounts. The more sophisticated method is to write codes that would do steal information or take over the processing capabilities to tap into customer accounts. These codes are, in many sense, the same as content. in order for Youtube to provide you with free videos, YouTube must develop code to do so. So, effectively, everyone is subsidizing the dissemination of cyber-crime.

Banks have been working very hard to secure themselves from both types of threats. Protection from phishing, the “old school” cyber-crime, banks require registering computers (via IP addresses) before entry into bank accounts. For institutional clients, this might be much more sophisticated than for retail customers but it is essentially the same.

To protect customers from code attacks, which are generally attacks directly on bank infrastructure, banks have hired technologists to develop hardware and software that protect servers.

Net Neutrality is a subject most people do not understand the nuances of, and, usually, favor without understanding the ramifications of its perpetuity. I am not taking a stance on either side of the discussion, but I think knowledge would do it great service.

About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.