The Digital Financier The Digital Financier Update (DFIN.COM Update) provides a weekly commentary on important stories with significant financial, and or Internet implications. The purpose is to provide finance professionals and there staff with a timely brief synopses of recent and historic news events that best illustrates the changing digital economy. The stories will eventually impact all of us. Many of our stories may have received very little popular press coverage. The weekly summary is e-mailed at no cost to participating subscribers for distribution to staff and co-workers.
This publication is designed to be a quick read and the archive is a good resource for financial history.
The most common sources for the DFIN.COM Update include UP, AP, Fast Company, Business Week,The Economist, Forbes, Wired, Federal Reserve Bank Publications. The Wall Street Journal Interactive, MSNBC, L.A. Times, San Jose Mercury News.
1. San Jose, Calif.
2. Dallas, Texas
3. Los Angeles-Long Beach, Calif.
4. Boston
5. Seattle-Bellvue-Everett, Wash.
6. Washington D.C.
7. Albuquerque, N.M.
8. Chicago, Ill.
9. New York, N.Y.
10. Atlanta, Ga.
11. Middlesex-Somerset-Hunterdon, N.J.
12. Phoenix-Mesa, Ariz.
13. Orange County, Calif.
14. Oakland, Calif.
15. Philadelphia, Pa.
16. Rochester, Minn.
17. San Diego
18. Raleigh-Durham-Chapel Hill, N.C.
19. Denver, Colo.
20. Newark, N.J.
Postal Service Tests Online Sales, By MICHAEL WHITE, AP Business Writer, Info Beat, LOS ANGELES (AP) - The U.S. Postal Service plans to allow customers to buy stamps over the Internet and print them directly onto envelopes and mailing labels in a campaign to increase sales among small businesses. PC Postage marks the Postal Service's first big step into electronic commerce. The program is being tested by a select number of small businesses in California and the Washington, D.C., area. It could be available nationwide by the end of summer, Patricia Gibert, the agency's vice president for retail sales, said during a demonstration Wednesday. Rather than individual consumers, the program initially targets an estimated 8 million small business and home office customers who find stamps inconvenient, but don't want to buy or rent a mail metering machine. ``If we make mail easier, people will stick with it longer,'' Gibert said in an interview. ``We aren't trying to stop the tide of e-mail and it shouldn't be done, but ease of use is a big cost factor,'' she said. ``You've got to meet the customer where he is.'' Tests have been under way for more than a year. They are being conducted by E-Stamp Corp. of Palo Alto, Calif.; Stamps.com of Santa Monica, Calif.; and two makers of mechanical postage meters, Neopost Inc. of Hayward, Calif. and Stamford, Conn.-based Pitney Bowes Inc. The systems require customers to purchase stamps in advance using a credit card or debit card. Service fees are expected to run about 10 percent. Customers can purchase stamps for first-class, priority and express mail. Customers can use their own printer to create a postmark and bar code in the envelope's upper right-hand corner. Typically, the software allows customers to do individual or mass mailings. The Web sites preserve a log of all mailings and a list of stamp prices. And as an option, companies provide digital scales that will weigh larger letters and tell the customer how much postage is needed. ``It's really been great. Now I'm not peeling and sticking stamps,'' said J. Wingate Greathouse, office manager at Bowles Kendrick & Lemanski Architects in San Francisco, one of the companies involved in the E-Stamp testing. Wellington Wilson, whose Wellington E-Group is creating an online shopping mall, began testing the Stamps.com product in January. The system worked without a hitch in February, when he used it for a 500-letter mailing. ``The mere fact that I could just run the envelopes through the printer and fix the postage made it so convenient, the fact that I didn't have to go to the office and buy $200 worth of stamps,'' he said. Final testing has focused on ensuring that the systems offered by each company is secure against hackers and counterfeiting, Gibert said. So far, the 1,200 customers involved in testing have purchased more than $75,000 worth of stamps to send 46,000 pieces of mail. For now, at least, the system isn't suitable for big companies that send hundreds or thousands of pieces of mail per day. For large projects, metering machines are faster and more efficient. Though that could change if private companies create new software and printers, there are currently no plans to expand the PC Postage market beyond small businesses, Gibert said. ``Entrepreneurs being who they are and with the opportunity to take an idea and expand it, we can see products that might work for larger customers,'' she said.
NAACP to try to narrow the `digital divide' , July 13, 1999 ,
``The technological segregation known as the digital divide must be narrowed,'' NAACP President Kweisi Mfume said Monday.
Toward that end, Mfume announced that through the program AT&T will provide hardware, software and on-site support for technology in the centers.
``The centers will be open after the school doors close so parents and children can learn computer usage together,'' Mfume said. ``The old and the young learning together will help reduce that divide.''
AT&T spokesman Burke Stinson said today that sites for the centers will include Baltimore, Dallas, Miami, New York, Philadelphia and Seattle.
Ameritech Corp. and the National Urban League announced last week they will spend $350,000 to build five new Internet community centers in Aurora, Ill., Cleveland, Detroit, Indianapolis and Milwaukee. And 3Com Corp. said it will spend $1 million in donated equipment and training in 10 cities to help teach students to be computer network engineers.
Last week, a Commerce Department report, ``Falling Through the Net,'' said the disparity on the Internet between whites and black and Hispanic Americans is growing.
The report found about 47 percent of all whites own computers, but fewer than half as many blacks do. About 25.5 percent of Hispanics own computers, but 55 percent of Asian-Americans do. Asian families also are most likely to have Internet access, with 36 percent online.
The report also found a child in a low-income white family is three times as likely to have Internet access as a child in a comparable black family, and four times as likely as a Hispanic child.
Most troubling for government experts were indications these disparities can't be blamed solely on differences in income. Among families earning $15,000 to $35,000, for example, more than 33 percent of whites owned computers, but only 19 percent of blacks did. That gap has widened nearly 62 percent since 1994 despite plunging computer prices.
Mfume also announced a new national campaign that could involve lawsuits against entertainment industry giants to end the scarcity of black characters on television shows.
The newly formed NAACP Television & Film Industry Diversity Initiative will monitor how well the entertainment industry reflects America's multicultural base.
Aside from calling for congressional and Federal Communications Commission hearings on licensing and ownership of networks, the campaign could initiate lawsuits and boycotts of advertisers, Mfume said.
``Apparently color does not sell in the minds of some executives,'' Mfume said today on ABC's ``Good Morning America.'' ``We have consumer dollars and we really want to flex consumer power.''
Using the dearth of minorities in upcoming fall shows as a touchstone, Mfume said the NAACP is studying whether or not to file suit against the four major networks for violating the Communications Act of 1934.
The act says the airwaves belong to the public, and Mfume argued there is a ``virtual whitewash'' in new programming since none of the 26 new shows slated for the upcoming fall season have minorities in featured roles.
Privacy protection online is badly needed, July 12, 1999, FTC misses boat on fixing problem,
The principle at work, according to Reuters, which obtained the report Monday, is that Web operators increasingly see a good business case for following ``fair information practices.'' In other words, self-regulation will do the job.
Sure it will -- approximately one month after hell freezes over. Self-regulation would be a joke if the consequences weren't so serious.
There is a growing scandal in the rampant collection, trading, selling and other use of what should be your private information -- information that you should be able to control. This is not just an online problem. Abuses are rampant off the Internet, and in many ways more serious.
But the Net is bringing together databases of all kinds. It is giving Web sites and data-collecting companies unprecedented ways to follow your every move as you surf and shop. The failure to tell consumers how they're being observed, much less what's being done with the information, is outrageous -- and some Web outfits will never agree to any kind of self-regulation that protects privacy.
A huge industry has grown around the collection and trading of personal information. The industry's clout in Washington and state capitals has kept you and me -- mere citizens and consumers -- from having much influence in this debate. Unless you take the time to demand better from your elected representatives, your privacy will continue to dwindle.
Maybe you don't care today. You will, eventually, and by then it may be too late.
Week of July 4, 1999
China Internet users double to four million, July 4, 1999 ,
It said there were 1.46 million computers connected to the Internet and 40 percent of the 52,549 users questioned were aged between 21 and 25.
Some 85 percent of users questioned were male and 63 percent were single. Beijing accounted for around 22 percent of the users, with the eastern boomtown of Shanghai accounting for only 8.8 percent, the survey said.
It said most users spent six to 10 hours online each week and 59 percent of those questioned had university degrees.
The main gripes of users were slow surfing speeds, high fees and insufficient information.
China slashed telecommunication fees in March but ``the payment system still has room for improvement,'' the official Xinhua news agency quoted Chen Yin, director of the Ministry of Information's development and planning section, as saying.
Chen said the ministry was making efforts to improve the system and catch up with international Internet speeds, Xinhua said.
China may further reduce telecommunications fees in the future, Chen said.
Experts estimate that China's Internet population will balloon to 10 million by the end of 2000.
Europe's Internet at cucial stage, July 9, 1999,
``Europe today is where the U.S. was two to three years ago, with Net penetration rates of about 10 percent,'' Steve Winram, analyst at Morgan Stanley told reporters at a presentation in Madrid.
``This is the point where in the U.S. investor interest in the Internet story began to take off, along with Internet company valuations,'' he added.
In the presentation of a report published in June, the investment house said Internet penetration on the old continent was poised to triple to 100 million users by 2003, representing 35 percent of adults. This compares with 33.5 million users and a penetration rate of 8.9 percent in 1998.
Morgan Stanley said that the first companies to take advantage of the opportunities in the Internet business would be those to benefit most, given how quickly the medium is developing.
As an example, the report singles out the success of U.S. Internet book seller Amazon.com, whose on-line sales from its creation have been about 10 times of those of the Internet unit of long-established bookstore chain Barnes & Nobles.
``Next to being first, companies also need to have a well-established strategy for their Internet activities,'' Michael Steib, co-author of the report added.
Data transmission infrastructure providers could be the main beneficiaries of the coming European Internet boom, Winram said, naming French telecommunications company Alcatel as an example.
Companies seeking to bypass retailers to sell and distribute their products, such as airlines, act as main motors behind the growth of the Internet in Europe.
``The critical mass for Internet businesses to take off is at a Internet penetration of about one-third of the population, a rate that Scandinavian countries and the U.S. have already reached,'' Winram said.
Search engines not keeping up with torrent of accessible info, July 7, 1999, BY LARRY WILLIAMS,
The search engines that most people depend on to find Internet information are now indexing only about 16 percent of the publicly accessible Web -- down from about 34 percent in December 1997, according to the report from the NEC Research Institute of Princeton, N.J., to be published today.
The failure of search engines to keep up can have large scientific, social, economic and political consequences, noted Steve Lawrence, a research scientist at the institute, which does basic science research for NEC, a Japanese computer company.
Without good indexing, Lawrence said, scientists might accidentally duplicate work or work more slowly because they can't find relevant data. Online businesses could fail because customers can't find them, and social or political decisions could be biased by lost information.
The search engines are actually doing a better job than they ever have in mapping the Web, Lawrence noted. The problem is that the Web continues to mushroom. The publicly indexable Web now contains about 800 million pages, encompassing about 15 terabytes of data. It also contains about 180 million images.
The study shows that 83 percent of Internet sites contain commercial content and 6 percent have scientific or educational content. Only 1.5 percent of Internet sites contain pornographic content, Lawrence noted.
The Internet sites most likely to be indexed and found by ordinary users are those that have many links connecting them to other heavily traveled sites.
Businesses or individuals worried their Internet sites may be lost in the sea of information can request indexing from search engine operators, Lawrence said. But that indexing can be delayed for months.
Some companies turn to consultants to tweak their sites' language and make other adjustments so their pages will be visible to Web indexers or will even move to the tops of the lists produced by the most common searches.
Lawrence believes the problem of information overload on the Web will eventually be solved thanks to Moore's Law, which predicts that the amount of information that can be processed by a computer doubles every 18 months. Moore's Law says our machines will multiply in power for at least another decade but that the amount of information humans might load on the Internet is unlikely to grow as quickly.
Meanwhile, the NEC scientists have a couple of tips for overwhelmed Web browsers. To expand your chances of finding the right page, they suggest using so-called meta-crawlers, which combine the capabilities of a number of search engines. And be as precise and detailed as possible in your search request.
Signs of life in Tokyo, BY MICHAEL ZIELENZIGER, July 5, 1999 ,
The closely watched ``tankan'' economic survey still recorded a gloomy -37 rating among large manufacturers, but still, that reading was the most optimistic in a year and a big improvement over the -47 logged in March. And though economists had expected a slightly better forecast, the results failed to dampen the enthusiasm of foreign investors, who pushed the Nikkei 225 stock average up more than 1 percent, to 18,135.06.
It was the first time the Nikkei finished above the key 18,000 threshold since Sept. 25, 1997. The bullish activity, along with the record performances turned in by Wall Street on Friday, fueled market gains of more than 3 percent in South Korea and more than 2 percent in Hong Kong.
While foreign investors rushed to buy Tokyo shares, economists warned that the nation has not really begun to tackle the painful restructuring needed to make economic recovery sustainable. Many doubted that the worst Japanese recession since World War II was, in fact, ending. But many analysts said the ongoing bull market on Wall Street continues to power investors to take excess funds out of the United States and buy Japanese equities, lest they miss a major run up in prices.
``We will have a correction at some point,'' warned Ken Okamura, a strategist at Dresdner Kleinwort Benson (Asia) Ltd. securities. ``The problem is that the fundamentals do not justify the price levels right now.
``On the other hand there is a lot of liquidity chasing anything that looks even remotely reasonable,'' he said. ``You have an environment that is more favorable than it was six months ago, in that it is no longer contracting, but whether that justifies an 18,000-point level is more questionable.''
Added strategist Keiko Kondo of Merrill Lynch, ``It will take more time to see recovery.''
Nevertheless, Monday's positive developments are sure to strengthen the political hand of Prime Minister Keizo Obuchi, who has argued for a gradual reshaping of Japan's bloated economy, rather than the kind of massive downsizing and restructuring efforts some Japanese and many foreign economists say is necessary to make recovery self-sustaining. Obuchi must stand for re-election as head of ruling Liberal Democratic Party sometime before the end of September. Just two weeks ago, the government reported that the nation's economy grew at a surprising 7.9 percent annual rate for the first quarter of the year.
``It seems apparent than the economy is now bottoming out,'' said Takashi Imai, head of Keidanren, the federation of major Japanese industries.
Still, even the government does not think the economy can continue to gain ground without more stimulative boosts. Despite the nation's huge and growing fiscal deficits, Obuchi's chief economic planner suggested on television this weekend that the government will offer a supplementary package of public works spending in the fall to keep the economy from sliding further into recession.
The tankan gauge of sentiment released Monday reflects the opinion of more than 9,300 firms surveyed by the Bank of Japan. The index is calculated by subtracting the percentage of companies calling business conditions ``bad'' from those calling them ``good.'' The tankan survey last reported a positive reading in September 1997, but has been slowly improving since last December's reading of -49.
Apparently worried that the improving trend of the survey would cause a strengthening of the Japanese currency, the Bank of Japan also stepped into the market to sell yen, driving the currency above 122.40. A weaker yen strengthens Japan's leading exporters, as well as American consumers by making the prices of Honda's cars and Mitsubishi's televisions more affordable to those paying in dollars.
``A premature strengthening of the yen exchange rate is not appropriate,'' senior Finance Ministry official Haruhiko Kuroda said, confirming that the bank had intervened to push down the yen's value. ``Today we took action in the market.''
The weakening yen will also help Japanese exporters take further advantage of the surging U.S. economy, where stock indexes hit record levels on Friday before the July 4 holiday weekend. ``As long as the U.S. market remains strong, it will be good for Japanese exporters,'' Okamura said.
House, Senate Negotiators Face Stubborn Reform Issues , By Barbara A. Rehm ,July 6, 1999 , WASHINGTON - Sweeping financial reform is finally on the verge of enactment, but several stubborn issues remain to be resolved by House and Senate negotiators.
"Momentum is much too great for this legislation to stop now, but I expect it to be a very difficult conference," said Steve Blumenthal, a House aide turned Schwab Washington Research Group analyst.
The conference committee -- the lawmakers who are to reconcile the differences between the House and Senate bills -- is expected to be named next week. It must come to agreement on two issues that have dogged the legislation from the beginning.
"The principal areas of contention remain where they have always been: community reinvestment and operating subsidiaries," Mr. Blumenthal said.
The House bill, adopted 343 to 86 late on July 1, would make no changes to the Community Reinvestment Act and would split supervision of new financial conglomerates between the Federal Reserve and the Treasury Department. However, the bill approved May 6 by the Senate would lighten community reinvestment demands on banks and would hand regulatory oversight to the central bank.
The extensive consumer privacy protections included in the House bill present a third hurdle.
Privacy recently erupted as the dominant issue in the bill. The House bill garnered so much support mainly because it gives customers a chance to block their banks from sharing personal information with third-party marketing companies.
Many Democrats wanted to go further and let customers prevent banks from sharing data with affiliated companies. But Republicans argued that the impact of additional restrictions on bank operations must be studied.
"The bill before us represents the greatest expansion of privacy rights in modern finance," House Banking Committee Chairman Jim Leach said.
The Senate bill has no limits on information sharing, and Senate Banking Committee Chairman Phil Gramm has said he would like to tackle the privacy issue in separate legislation.
But most sources expect the conference committee to accept the House language.
"There is no question that privacy has a big head of steam," said America's Community Bankers president Paul A. Schosberg. "I don't think Phil Gramm is going to throw himself in front of that steamroller. He is going to find a way to accommodate it."
Most sources said they expect the overall bill to take more from the House version than the Senate's, which passed by only 10 votes.
"The House bill is where the industry is, it's where the administration is, and it's where the public is," said a congressional source who requested anonymity.
The White House had threatened to veto the Senate bill, arguing it weakens CRA and the administration's role in bank regulation.
Though pleased with his landslide victory, Rep. Leach was still cautious.
"Margins [of victory] aren't the be-all and end-all of lawmaking, but they are helpful," he said. "This is very difficult legislation. There are always pitfalls. I'm hopeful that this will produce a product that will become law, but I will not make any ironclad assurances."
"We face some very high hurdles, and negotiations will require a tremendous effort," Sen. Gramm said in a statement, "but I am ready to take the time and do the hard work."
Edward L. Yingling, chief lobbyist for the American Bankers Association, said he expects Sen. Gramm to give some ground on community reinvestment.
"The veto threat is not idle," Mr. Yingling said. "Everybody expects the CRA provisions to move more toward neutrality."
The Senate bill would exempt banks with less than $100 million of assets and would require banks to disclose payments made in connection with CRA pledges. Banks earning three consecutive satisfactory CRA ratings would be protected from most protests.
The consensus among industry lobbyists is that a financial reform bill will be on President Clinton's desk before Congress goes on summer vacation.
"There is going to be a law before the recess kicks in Aug. 6," Mr. Schosberg predicted.
"They will make a real effort to finish it up by the August recess," Mr. Yingling said.
With the House vote Thursday, both chambers approved financial reform in the same year for the first time. Both bills would repeal the laws separating banking, securities, and insurance.
Most sources expect that the Treasury Department and the Fed will agree that both should play a role in regulating the companies that emerge from this legislation.
"There are some very tough negotiations ahead, but there is a middle ground," Mr. Yingling said.
Though the conference committee has some tough calls to make, Consumer Bankers Association president Joe Belew ticked off many issues that have already been settled.
"Look at all the issues that are, if not completed, then mostly completed," he said. "I think you have to recognize just how far along this is on multiple fronts."
He added that the legislation validates what has already been done by the courts, the regulators, and individual institutions.
"Congress is trying to rationalize what is already going on," he said. "I think that's what's driving this bill."
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