Tuesday, September 4, 2012

Edition #679

Today's Highlights:

Weekly Spotlight:

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Our Current Rates:

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1st Flash

Greatest Thing Since Credit Cards

A wise man told me over 15 years ago that we would, within our lifetime, see a day when money was no longer a physical entity. It would be strictly electronic.

Credit cards were becoming mainstream, so it was easy to visualize an electronic payment process. But replace it entirely? The thought was intriguing, but seemed way out there.

That day may arrive sooner than we think.

Over the last few months, PayPal, along with parent company eBay, have been making subtle moves toward that end. Last week's deal with Discover Financial may have just sealed the deal.

More than 20 countries around the world have made the switch to polymer currency. Plastic. Australia was the first to do so in the 1980s as a means to thwart counterfeiting.

The polymer versions feel only slightly different than paper currency. And they're much more durable. Plastic currency is expected to last at least two and a half times longer than its paper counterpart.

You may see polymer $100 and $50 bills in circulation here. But not in American currency. Canada is one of the countries using plastic. They'll release their $20 bill later this year and both the $10 and $5 in 2013.

But don't expect to see Ben Franklin's face encased in plastic anytime soon. Americans are trying to move towards a cashless society. The only plastic we'll use here for the foreseeable future will be a credit or debit card.

With that goal, eBay has been making subtle changes to its online auction channel to place itself front and center of what may be the biggest thing to emerge since credit cards.

First, we saw items offered at a fixed price. No bidding required. The old bidding process is still the anchor of eBay's offerings, but fixed price items align it to compete with Amazon.

Next, efforts were ramped up to enter the mobile market. Consumers are using smartphones and tablets to shop and pay for purchases. eBay Chief Financial Officer Bob Swan expects the company's mobile business to grow at least 100 percent this year.

Most recently is PayPal's move to provide payment services to brick and mortar establishments at checkout. A pilot program earlier this year with Home Depot was so successful that the original five-store test was expanded to almost 2,000 locations within six weeks.

PayPal will soon be accepted everywhere you want to be. Another 15 retailers were added to their program in May. You may have heard of some of them: Office Depot, Abercrombie & Fitch, Advance Auto Parts, Barnes & Noble, Foot Locker, and J.C. Penney among others.

Point-of-Sale technology allows customers to make purchases with a PayPal plastic card or mobile phone number and PIN combination at the checkout register. Partnerships with point-of-sale software vendors and terminal makers have enabled PayPal to integrate into the systems smaller retailers use as well.

The biggest coup to date is a deal reached with Discover Financial in late August. More than 7 million merchants already accept the Discover card. Starting in 2nd Quarter 2013, they'll be able to accept a PayPal card too, using their existing equipment.

The move puts PayPal clearly ahead in the mobile payment foray in a pretty crowded field. Google has been trying to make waves with its Wallet by partnering with several mobile carriers. Apple is being secretive about its plans, but already has the infrastructure in place with their iTunes platform.

Visa and MasterCard have their own initiatives underway. Retailers Wal-Mart, Target, CVS, Best Buy and others recently announced a joint venture to develop their own mobile payment network. Our nation's largest banks are working on their own, as well.

But PayPal is already at the starting line, ready to sprint when the starting gun fires. Their 110 million active accounts already process payments without asking customers to submit personal information. No need to enter or save credit card numbers, bank account numbers or complete a credit application. They've already been there, done that.

We have seen the future, and it is now.

By the way, the wise man I mentioned in the opening paragraph is now GCF's Acting President and CEO. He also writes the Financial Insights column of this newsletter.

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2nd Flash

Google It

Youngsters, sit right there on the floor with your legs crossed. You're gonna hear a story from an old-timer. Someone who went to school BEFORE the Internet was invented! (GASP!!)

Yes, it's true. When we needed to research something, we went to a building called a library. We opened the drawer of a card catalog, scanned index cards related to our subject of interest, and jotted down the location in the library where we would find the most relevant books on the subject.

A book is a collection of written pages bound together and protected by a cover. Usually leather. Never in my life could I imagine a time when I would have to define this.

I could never imagine a time, either, when a conversation with my five-year-old grandson would include him telling me "Let's Google It."

Internet searches in the early days were clunky. AltaVista was the pioneer. Searching text only, the results were not targeted. It was laborious to sift through them all to find those of relevance.

And it was slow. The industry was still in its infancy. And the ability to search for data at all was still cutting edge.

Along came Google. Its bare-bones approach made it an instant success with techies who merely wanted to feed a few keywords into the engine rather than trudge step-by-step through the multiple layers that search tools used at the time.

Folks were just learning how to use the Internet. Some needed more guidance than others. That's where Google excelled.

Today, Google is recognized as being one of the greatest innovators of our time. It's part of our daily vocabulary. No defining necessary.

It began the summer of 1995. Among the duties of second-year grad student Sergey Brin were showing computer science recruits around the Sanford campus and leading tours of nearby San Francisco. One obnoxious engineering major from the University of Michigan spent the tour debating everything imaginable, including various approaches to urban planning. Brin and Larry Page clashed relentlessly.

Yet their bond strengthened. Page chose Stanford for his graduate studies, and began his search on topics for his doctoral thesis.

Page was fascinated by this new World Wide Web. He could view a page and follow links from one to another, but wondered what pages linked back to it.

Academics build their papers on a foundation of citation. Each paper reaches a conclusion by citing previously published papers as proof of its theory. Knowing what pages supported a web page he viewed was of the utmost importance to Page.

His intent was never to build a search tool, but to rank the importance of the 10 million web pages available at the time. Thus began project BackRub, a method to count and qualify each backlink on the Web.

Brin, a math prodigy, was excited. The complexity and scale of the project fascinated him. The two built their first crawler in March 1996. They pointed it to Page's Stanford homepage and it worked outward from there.

Page realized the number of links were important, but more so the importance of those links. GCF Bank offers links to identity theft resources on their website. But those same links offered by the Federal Trade Commission would have more importance since they're espoused by the federal government.

Brin and Page created an algorithm that took into account both the number of links into a particular site as well as their importance. As a result, more popular sites rose to the top of their list and the less popular fell to the bottom. They called the algorithm PageRank.

Its Internet search function was a natural result.

At first, BackRub searched only page titles to rank results. Even then they were far superior to what AltaVista returned. They knew they were onto something big.

Brin and Page realized their engine would scale along with the Web. Since it worked by analyzing links, it would continue to get better as the Web grew. Hence the new name "Google" - the term for the numeral 1 followed by 100 zeroes (googol).

One year after the pair met, the first version of Google was released on the Stanford website. Full text search was added. The demand for computing resources skyrocketed.

Without money to buy new computers, they begged and borrowed to build a network lab. Page's dorm room was turned into a machine lab where the spare parts became computers. Brin's dorm room became an office and programming center.

The project became legend within the computer science department, at one point consuming nearly half of Stanford's entire network bandwidth. It caused the University's Internet connection to go down on a regular basis.

The rest is history. If you want to learn more, Google it.

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Financial Insights

Enjoy this reprint from the March 18, 2003 edition of GCFlash:

Financial Glossary:

PROSPECTUS: A formal legal document describing details of a corporation for a proposed offering or existing business.

Once you spot a fund that you think might suit your purposes, call the mutual fund company or your broker and ask for a prospectus. Every mutual fund is required to publish a prospectus and to give investors a copy, free of charge. The prospectus lists the fund's goals, restrictions, advisers, and fees.

You should examine the prospectus carefully before you invest. There are key pieces of information you should look for:

• The fund's investment objectives: Make sure that, at the start, the fund's investment goals are in keeping with your own investment goals and with your tolerance or risk. With mutual funds, as with other investments, the higher the risk, the greater the potential reward.
• The kind of securities the fund holds: Look for an account of the kinds of transactions the fund may execute, and the types of securities it can buy or sell. The portfolio may include money market securities, bonds, stocks, precious metals, options, warrants and hedge transactions. You may already know this before you read the prospectus, but it's wise to double-check and make sure the fund is investing in what you really think it is.
• Investment minimums: A stock fund usually requires an initial investment of $1,000 to $5,000.
• Sales charges and fees: Make sure the fund is no-load. A true no-load fund imposes no front or back-end sales charges. Every mutual fund, whether load or no-load, charges an annual fee to pay its portfolio manager and cover other fund expenditures. This fee is quoted as a percentage of the fund's average annual assets and is often called the fund's operating expense ratio. In addition, some funds take an extra bit to cover the fund's advertising and promotion expenses. Called a 12b-1 fee after the regulation authorizing it, this fee has no regulatory cap: some funds charge 1 percent or more. These fees are not paid directly by the shareholder but are taken out of the fund's current income before distribution to the shareholder. So the lower the fund's fees, the more the shareholder benefits.
• When earnings are distributed: Funds distribute dividends and realized capital gains either monthly, quarterly, semi-annually or yearly. It may not be a good idea to invest in a stock fund late in the year, since you could receive a large distribution of capital gains on which you would owe taxes very soon. Postpone investing if it would adversely influence your tax situation.

Bottom Line: Take the time to understand the risks before investing in a company. By reading a few pages, you could be saving yourself thousands of dollars.

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PURPOSE:

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