Thanks, I actually follow her on twitter, but didn’t think to check the bio lol.
And then I think I’m good at OSINT
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It’s been posted above, but there’s only one post there (and it’s mostly placeholder so the posts page actually renders 
).
This has gotten such good reception, so I’ll be strongly considering writing more and putting it there. 
That could be one of the factors. Acquirers (the people who provide card payment processing services) typically have little to no collateral because money is typically always flowing inwards during normal times (minus a tiny percentage of refunds).
Some merchants and acquirers with high exposure to businesses affected by the current state of the world are for the first time ever experiencing more money going out via. card payments than is coming in. Many are just not financially set up for money flowing back the other way ever happening.
They’ll have to work it out, because there are many cases where they are required to make refunds that way.
You can see this kind of thing if you have a Stripe account, you can’t issue a refund on a transaction if you don’t have the money in your Stripe account to pay for it.
It’s certainly not the only factor though, I’d bet the business overall bleeding cash is more of a problem to them. If you issue cash refunds, you no longer have that cash to spend but if you issue vouchers, you don’t have to actually book it as a total loss at that point and can try to hold tight, hoping future profit will offset it (I am not an accountant, that’s just my understanding).
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That’s all really interesting, thank you.
As you say, there are a lot of moving parts in this, but it really makes you appreciate the logistical challenge that airlines and other businesses have right now and why it’s not as simple as handing everyone their money back.
Obviously these sorts of events are difficult to plan for, but I imagine a little more transparency on why issuing refunds is such an issue from the airlines, rather than removing the option from their websites, or issuing everyone who requested cash a voucher instead, would have gone a long way but hey, that’s another thread for another day!
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It’s somewhat of a double-edged sword. You don’t actually want people doing the airline equivalent of a bank run because that makes the problem even worse and a collapse more likely, which is bad for everyone involved.
If you as an airline tell people “we’re having trouble issuing refunds because we’re having difficulty moving cash fast enough”, most people would (somewhat rightly) panic and tell people to get their refunds back faster “before it collapses”, which ironically is what can actually cause a collapse so it’s a self-fulfilling prophecy (this is part of why I think the Financial Services Compensation Scheme is so important in banking).
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I’m not an accountant either, but I do have an MBA so a bit of knowledge, someone who is an accountant correct me if I’ve got this wrong (and this is also a massive over-simplification even of what I do remember!):
- If you issue a voucher, that is a liability. But you have the cash, so the liability and cash theoretically offset each other, but in reality, you have the cash, so it’s as if you’d taken out a (zero interest) loan. There are other factors in how you can account for unused vouchers and gift cards and stuff that vary, but just, we’ll pretend it’s an equal offsetting liability for simplicity.
- If you issue a cash refund you just don’t have money.
On the books, they’re equivalent (but not really, as noted), but in reality, having money to spend is good 
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Does the collateral amount fluctuate much?
In a normal, non-covid world, would you be looking at today/this weekend as payday for a lot of people and increasing it for the weekend because you’d expect more spending? Or are the tolerances built into it much bigger than that?
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Give post lockdown inflation a few years, that’ll be the price of tomatoes.
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In normal times, collateral is constantly reviewed based on what the data models say the worst case scenario is in the future and the end amount is changed after very careful consideration. We would be looking months if not years ahead.
As a wildly simplified example, if our model says we’ll gain ten times the number of customers in a year who will spend the same amounts by card as our existing customers, that is potentially ten times the volume of money being moved by card payments. This means we may need ten times the amount of collateral with that card payment scheme in a year to account for the growth.
I was also simplifying when I earlier said we might bulk up collateral ahead of a shopping season, because in normal times we would be predicting far further ahead and accounting for all possible situations. A one day shopping event would be a tiny expected blip compared to the scenarios we must be ready for.
Payment scheme collateral is just one piece of the puzzle, what you’d actually care about is overall liquidity (the overall amount of liquid cash money the bank has, rather than assets or liabilities). The very simple version of the test is “Do you have enough liquid cash to survive a financial crash of X scale?” and that is what the Prudential Regulation Authority is there to ask.
At this level, my head starts genuinely hurting when I try to understand what is involved here but thankfully, we have fantastic Finance Teams, Auditors, and Regulatory Communications people who handle the overall bank so that I as an engineer can focus on making payments work.
I only need to know how scheme collateral works for reconciliation purposes (making sure the sum of the payments we processed is equal to the bill at the end, meaning we haven’t missed anything). 
Fun thing I remembered, we briefly mention collateral on our website’s Ethics page!
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Brilliant, thank you for the insight!
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Can this be exploited the other way, as in getting into such a huge overdraft that it rolls over and you’re suddenly a millionaire? 
Does anyone have any info on which banks are storing their balances that way? 
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I know a bank that reached the upper integer limit on an account ID field a few years back in the database to one of their systems from the 70s… it was considered too much work to make such an adjustment to systems that they just copied the whole instance, wiped the database clean and started again running two of the same system.
An account number could therefore have two customers, so their “verification checks” turned into clues to help staff even find the account when a customer called.
Both systems still exist as the primary account system today.
Nothing surprises me with banking architecture.
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And people still go on denying that the high street banks will eventually run out of rope.
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Technically integers overflow both ways, so yes!
Although I wouldn’t recommend you test that 
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I’ve worked in a bank where somehow years ago they lost the source code of one of the internal tools - which kept running for a few more years since.
It very much ran under the principle of “if it works, don’t touch it” - which describes a lot of banking infrastructure out there.
In addition, some of the software running every single transaction then was built 20 years ago in ancient programming languages.
The original developers are dead or retired. Test coverage is near 0%.
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This is a totally fascinating read - thanks all for the contributions.
Our of curiosity, if you had £1bn in the bank and wanted to only have liquid cash (poor financial decision, sure), is there a way that could ever be protected? (thinking FSCS limits, etc) - there’s probably not enough banks in the UK to spread that around within the limits. Or
Looking at the list of banking groups, I only managed to protect £23 million (if we relied on the temporary upper limit of £1million for certain situations). After 6 months, that’d only leave £1.9Million protected…
I’m assuming most countries have a scheme similar to FSCS, if you were to distribute the money across all the banks of all the countries that have such a scheme you’d probably be around 100 million… still far away from the goal but at least closer.
However the question becomes that if there’s an incident that causes all the banks of all the countries to go bust, I am not sure the FSCS-equivalent schemes themselves will be in a position to pay out.
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I thought these sort of schemes are designed to always pay out, because they have government backing.
If necessary, the government would print new money in order to reimburse customers under these schemes - although that would have a knock-on effect creating other problems, like a risk of hyperinflation and devaluation of the currency. This doesn’t mean it wouldn’t happen if extraordinary circumstances demanded it though.
I think the point is that money, government, and probably law and order as we know it, would kinda be redundant if the world’s entire banking system dissolved.
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Yeah, it’s not something I would be keen to see “tested out”!