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Figure 1

The Inflation rate BoJ and government are fighting

Introduction

These graphs (see figures 1) describe the past and the possible future forecast trend of the Japanese inflation rate; the right hand graph represents the core Consumer Prices Index (CPI) and is mainly discussed here. The core CPI presents the change in the price of goods and services except for the food and energy sectors, which are quite volatile and therefore most market practitioners strongly believe they should not be included in such economic measurements. However, the headline inflation rate can be included in them, which seems to be the nominal inflation rate that best reflects actual people’s purchasing power.

Importance of Inflation Rate

Most economists believe that a rising Inflation rate can be important for a national economy because the nominal gross domestic product (GDP), which is defined as the real GDP plus the inflation rate, can reflect the national wealth. This means that if the GDP grows faster, people will become richer (and may be happier). However, Japan’s nominal GDP growth rate, which was almost zero, was slower than other countries, even other advanced economies such as in the UK and United States for about 20 years since 1995.

BoJ Challenge

The Bank of Japan (BoJ) and the jJapanese government have been struggling to increase the inflation rate (the core CPI) to the target rate (2.0%) by using monetary policies such as quantitative easing since April 2016. This is because Japan suffered deflation from 1995 to 2016. During this period, It is apparent from figure 1 that the trend of the core CPI or inflation rate (see figure 1) fluctuated between -0.5% and 1%. Owing to this, the target inflation rate could not be realized. In addition, the future inflation rate will still not reach the target within five years. This can be demonstrated by the current five-year inflation swaps rate which reflects the market expectation for the future inflation rate, when it is still below 2.0%. This means traders believe that even in the longer term the Japanese inflation rate is quite likely to be below the target.

Most market participants analysts agree with the view that the lower inflation rate can result in a lower bond yield because there is a strong relation between the inflation rate and government bond rate, which seems to be equal to the interest rate or deposit rate. In Japan, the lowest Japanese government bond (JGB) yield has actually reached a minus rate, for example, -0.1%.

Once Shirakawa, who was the former governor of the BoJ, took a position that they have no capability to control the inflation rate until April 2016. On the contrary, Kuroda, who took over the governorship of BoJ and Abe, who is the current prime minister of Japan, argued that BoJ can manage this rate using the monetary and fiscal policy, so called Abenomics, which started then and was supported by the “Reflationist” economists. However, they still could not control the inflation rate in spite of the fact that they took all measures they could such as purchases of private sector assets, in particular, the equity ETFs and JGB, therefore, some people, especially the anti-Reflationist economists criticized Abe, Kuroda and the Reflationist economists.

MMT and Economic schools

The answer of which school is more likely to be correct is further complicated by the existence of a new school called Modern Monetary Theory (MMT). The MMT school and the Reflationists argued that the government annual budget constraint might frustrate achievement of the target inflation rate. This is because they believe the government is fearful of deteriorating the primary surplus which occurs when the government taxes more than it spends.

Most mainstream economists said that If the primary balance worsened and became a deficit, uncontrollable inflation would occur due to the sharp increase of JGB rate, which means if investors are concerned about debt sustainability, they would never buy JGBs. In addition, they said that while the BoJ and government might be able to cause inflation, they could not control the rate. They also pointed out that at one time Japan experienced hyperinflation, which was almost 40%, only after World War II. However, the MMT school argued that as long as a country such as Japan, the UK and the United States borrows in its own currency and can do so, they will never fall into bankruptcy because they have a central bank and the bank can create money.

Japan and Europe’s Economic Situation

Japan is also concerned about aging and its population decrease, especially the labor force, which has already reached the peak. In addition, most pensioners may want there to be deflation. There are quite many and if inflation occurred, their purchasing power would decrease due to the lapse of the inflation slide of the social wealth system, which means even if the inflation occurs, the amount of a pension payment will not be counted in this situation immediately. In addition, some investors think in terms of the consolidated government, which is the state’s and the central bank’s balance sheet taken together, Japanese primary deficit has been almost balanced. This can be one of the main reasons hyperinflation has never occurred in spite of the fact that Japanese government’s primary deficit Is about 2% of GDP and government debt is huge, which amounts to about 200% of GDP. Furthermore, this is supported to the fact that the Japan 5 Years CDS value is 23.1 (as of 1 June 2019), which means the market practitioners believe there is only a 0.39% implied probability of default.

The low inflation rate problem is not only in Japan but also in the Eurozone, in particular, Germany. The German government bond rate reached almost zero percent, which is quite similar to the JGB yield. Some economists have recognized that the Euro zone, particularly Germany, Spain, Italy and France has been Japanizing. In addition, they do not have their own central bank, therefore, they cannot deliver the monetary policy separately which means fiscal policy is the only measure to stimulate their economy. However, the EU restrict countries’ primary balance, therefore, some European countries, especially Italy, having a huge primary deficit have almost no option to do so.

Now Japan has also the primary deficit then has a few measures to stimulate the economy, which means what Japanese government should prioritize in terms of spending can be important. They have planned to increase the minimum wage and to put up the consumption tax rate, which is quite similar to the value added tax (VAT), from 8% to 10% in October. In addition, Olivier Blanchard and Takeshi Tashiro, who belongs to The Peterson Institute for International Economics (PIIE), suggested they should spend money to raise the fertility rate because they calculated if increased in the fertility rate from 1.45 (current Japanese rate and about 0.2% higher than Italian and Spanish rate) to 1.80 (almost the same as British and American rate) GDP would be about 6% higher in 30 years and 17% higher after 50 years. This means the information rate can increase as the fertility rate rises.

Conclusion

Some people said that today Japan can be an experimental station for fiscal-monetary policy. If the Japanese government can manage the inflation rate, other countries such as Europe would also be saved.

Reference

Posted in Business, Start-Up, Design and tagged Business Start-Up Design

Cloud Computing could change cell phone business

Introduction

Figure 3

Today, information technology (IT) is changing society. After the invention of the Internet, society actually varied dramatically and People no longer can imagine their life without IT. However, IT is also still being improved. One of the main results of this development is Cloud Computing (CC). In the first place, what is called CC is defined by [the] National institute of standards and technology (NIST) as “a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources such as networks, servers, storage, applications, and services that can be rapidly provisioned and released with minimal management effort or service provider interaction” (Ramzan et al., 2018). This is mainly owing to the fact that a company used to attempt to enter this market, however, they require a huge investment and therefore they abandoned this investment. Although there has to be a large amount of investment in this way, the benefits of adopting this technology might outweigh this spend, and therefore could change this business environment. This paper will discuss the importance of automation, the merits, the limitations, and mainly argue the view that CC could change the cell phone business positively and also discuss the future development of the technology.

Most Important Technology

Figure 4

One of the most important technologies might be CC. This has led to in recent years, most high-technology firms, especially the United States top information technology companies such as Google, Amazon and Microsoft have been spending a large amount of money on this mechanization for research and development (R&D). In particular, Microsoft announced an investment of 90% of R&D in Cloud Strategy (Huang, 2016). Moreover, Sid Nag research director at Gartner pointed out investing in the technology now amounts to more than 20 percent of the whole IT budget for firms (Ranger, 2018). Therefore, such IT high technology firms released or have been developing their own services and platforms including Google’s Google Cloud Platform (GCP), Amazon’ Amazon Web Service (AWS) and Microsoft’s Azure. One of the main results of their R&D was that AWS accounted for 55% of the firm’s operating profit in Q2 2018, in spite of the fact that it contributed only 12% to the corporation’s net sales and 80% of companies were both running applications on or delivering with AWS as their favored cloud platform (Columbus, 2018). These show the major companies thought this innovation is the most prospective technology.

Market Rulers

Figure 5

These illustrations mean that companies which were able to invest a great deal of money into CC earlier can earn more revenue than other firms and therefore dominate in this market. Cases and statistics below also strongly support the view that this automation can be one of the most crucial technologies. There are three service categories which the innovation can supply for users. These models are infrastructure as a service (IaaS), platform as it (PaaS) and software as one (SaaS). They can bestow the right of connection to business on the Internet via a web browser (Ramzan et al., 2018). IaaS makes reference to the technology based infrastructure materials which are implemented to firms using cloud technology that assists corporations to construct and to maintain their servers networks, operating systems and data storage (Bernazzani, 2019). In addition, AWS is still the biggest Platformer in the IaaS wholesale market in 2017 and therefore AWS, Microsoft, Alibaba and Google dominated almost three quarters (73 percent) of the whole IaaS total sales (Ranger, 2018). Furthermore, Saas cites cloud based platform services which give software developers a framework which they can apply to create their own applications (Bernazzani, 2019). As for The enterprise SaaS market, Microsoft is the leading firm having a worldwide sales share of over 17% and this is mainly owing to its leadership in the rapid growth collaboration segment (Columbus, 2018). Furthermore, as for the cloud share, AWS, Azure (Microsoft) and Google Cloud Platform had 44%, 22% and 8% respectively (Stalcup, 2019). The revenues from them were $5.44 billion $1.9 billion $1.7 billion, however, the third revenue was counted on other applications including G Suite and Google Apps (Koetsier, 2018). These seem to support a firm investing a great deal of money earlier onto CC dominated in this market.

Benefits

Figure 6

CC can bring companies, in particular small and medium sized ones many benefits. The most unique aspects of the advantages can be mainly to cut operational and capital costs. This is due to the fact that it will allow firms or IT sections to focus on revenue oriented strategies, not to maintain the running of data centers (Huang, 2016). This merit affects primary Start-up or medium size firms because they do not have a large amount of money to run their business. Therefore, consumers can be served by more services firms provide and then the quality of those may increase due to high competition. The benefits are not only the cost cutting for hardware, software and skilled engineers but also scalability (Ramzan et al., 2018). Scalability can realize automatically sharing software updates, upgrades and new functionality with users immediately after they are available, which will increase corporate flexibility (Amato-McCoy, 2018). It will allow customers to operate the latest version of the business more cheaply and more widely than ever. Corporations used to be disrupted by physical limitations. One of these examples was that they might require a large amount of investment to establish infrastructure such as data centers. However, today they can enter foreign country’s markets easier than before the era when this technology did not spread widely. Therefore, consumers may be able to take cheaper and high quality service. Finally, these positive aspects of this might lead to higher quality of life for people via cloud based businesses. This is owing to the fact that they presumably are felt more comfortable and valuable by the high quality of that. In particular, most Americans buy books on Amazon or eBay, watch Movies on Netflix, and communicate with others on LinkedIn, Facebook and Instagram.

Security Issues

Figure 7

However, CC is facing some serious negative aspects, especially related to security issues including information leakage and improper access (Ramzan et al., 2018). These limitations can lead to the implementation of national and internal regulations due to privacy threats (ibid). Some people believe the privacy problem could have been one of the main reasons to enact the General Data Protection Regulation (GDPR) in the European Union. This law can be one of the examples of the international restrictions for the security and privacy matters. It will restrict the usage of that via cloud based technology and services. This is due to the fact that if someone has the unlimited right to access this virtual data storage, such a person can gain access to this about user profiles. One of the major examples, Cambridge Analytica, which was the political consultancy company, was accused of using the personal details of a great deal of Facebook users to interfere in the results of the United States 2016 presidential election and the UK Brexit referendum (BBC News., 2018). In these cases, the data-harvesting, which is a process where a small script was used to automatically extract a huge amount of that from the platforms (ibid). Another major negative aspect might be a fault or problem with the cloud system server. One of the most famous examples to support this is when on April 21st 2018, AWS United States East Region was disrupted and therefore this fault seriously obstructed many well-liked online businesses deeply depending on AWS for hosting such as Netflix (Cockroft, Hicks and Orzell, 2018). This means the technology itself and services based on that have a vulnerability for a server failure. Such negative aspects might be threatening people’s life unless corporations providing this invention or cloud based business pay deep attention.

Application For Mobile

Figure 8

Although adapting CC is not always easy and has some difficulties, if a firm resolves these matters, such a corporation may lead to an industry which the company belongs to. The portable network business which usually the telecommunication companies have could be such an example. This is because most practitioners in the industry believe that the radio spectrum is not fluent and difficult to use efficiently (The Economist, 2017). Once Alphabet, Google’s parent company tried to rapidly connect a large number of United States households (ibid). However, they realized that the physical infrastructure creation across to the east and the west coast is much more difficult than the construction of a large number of data centers (ibid). In spite of these difficulties in adopting this into the portable networks, The Rakuten Mobile Network may be the first telecommunication firm with a full cloud mobile system in history (Reichert, 2019). If they succeed, this Japanese e-commerce firm will become the fourth largest operator in this industry of Japan (Busvine, 2019). This full cloud model changes not only the network core into a virtual version but its radio system based on Cisco’s web system because they are one of the leading firms (Reichert, 2019). This is because they decided to introduce a cloud-native RAN rather than the conventional one (Reichert, 2019). Therefore, the cost to maintain the mobile net will decrease and then this firm can provide customers a cheaper price to use their chains than other competitors. Finally, the full cloud mobile corporation may lead to this network industry.

Figure 9

If their challenge succeeds, companies can easily expand their mobile network business because there will be no physical limitations to do so. In the near future, full cloud portable operators having a strong price competitive power will dominate the world market due to their scalability and flexibility based on CC. Recently, Affirmed Networks, a leader in such systems released a statement that “solution enables the Operators to quickly and economically deliver both 4G and 5G services over a scalable cloud infrastructure without requiring excessive capital investments” (Affirmed Networks., 2018). This is likely to lead the operators to cut their operational costs and, therefore, they can decrease the price for the usage of a cell phone. Moreover, they can also extend their chains to rural areas, where they are likely to be unprofitable. As a result, the users will benefit from the lower call charges and especially residents in extremely underpopulated areas can use mobile phones. This will allow almost all people around the world to have their own cell phone and then they can connect to cloud based businesses. It is the first time in human history that most of the world’s population can connect with each other.

Application For Other Industries

Figure 10

CC can change not only the mobile phone business but also other industries. According to the statistics, 60% percent of small and large enterprises purchases are supported on cloud services, and 30% of firms bought more than five businesses related to the one (Ramzan et al., 2018). In addition, More than $1.3T in IT investment will be directly or indirectly influenced by the switch to one by 2022 (Columbus, 2018). Moreover, If a person has a smart gadget, he or she can access the internet and then use the services. There are already 7 billion smart devices, and volume will grow to 50 billion devices in five years (Amato-McCoy, 2018). This means within 5 years half of the world’s population will be able to access such business. This means people and companies may expect the technology via a smart tablet will bring them high quality life. Furthermore, Amato-McCoy (2018) argued that the future stage of cloud-based services will concentrate on Intelligent solutions, such as Blockchain, biometrics, sentiment analysis and robotics. Some of the main reasons to support this argument are that Google and AWS are heavily investing in artificial intelligence (AI) because they believed it is the key to reorganize a business to incorporate the smart machine into what users do and then become a platform designed for analysis, the intelligent system and machine learning (Condon, 2018). This can be because these intelligent systems require a large amount of data to deliver the solutions. However, most companies could not establish the infrastructure for this purpose owing to the shortage of money. In the near future, an intelligent machine via this innovation as a platform will change people’s lives and the society. This can be because It might accurately predict human activity and recommend or suggest what they should do next. Amazon can recommend customer goods to use basket analysis, estimating other ones to use the idea that if some people add equipment for instance beers to their online shopping cart, they also might put products related to the furnishings which had already been put in the cart including side dishes for beer. To use a great deal of information, the accuracy can improve and therefore it may recommend to users what they truly want to buy but they could not realize.

Reference

Posted in Business, Start-Up, Design and tagged Business Start-Up Design

This is a modified version of the report for Enterprise in Action in Bath Full Time MBA Class of 2020.

Service Design Analysis of Monzo

Introduction

‘Every Company Will Be a Fintech Company’ argued Strange (2019). Some of the major examples are Shopify (web monthly subscription service for merchant) and Mindbody (fitness studio management assistant service), both of which earn a half of their profit by financial services (ibid). However, no single firm might be able to cover all of financial services infrastructure and therefore, they concentrate on each layer of that such as fraud, payment and data, which are offered as a service by them (ibid). One of the companies focused on the payment layer in financial services infrastructure is Monzo which is a digital bank that forcuses to simplify the process its users maintain their payment by enabling them to monitor spending, divide bills, transfer money and more on their mobile (CBInshight, 2020). One of major difference with other bank Apps is viewing real-time balances due to the fact that most of banks spend 48 hours to count their transaction on its user’s statements due to the cloud computing (AWS, 2020). This is primary because the cloud such as Amazon Web Service (AWS) can provide the banks with all IT infrastructures to run their business, which is quite cheaper (maximally 75% of whole IT budget is used) than when they purchase individually and thus they can spend the money to improve their services fully and rapidly expand the ones (Strange, 2019). This essay will discuss the service of the fintech company and recommendation for the improvement of the payment service including tax calculation of the firm in terms of service design method such as Ethnography, Script and Staging.

Ethnography (Fieldwork)

Ethnographic studies are required to clarify the salient attributes of the observed service experience (Fragnière, Nanchen and Sitten, 2012). The author participated the pretransition (verification process in the register one) and post transaction (user feedback process), both of which are called immersion episodes and used to identify the salient attributes of the payment service.

Immersion Episode 1: Pretransaction (Verification)

In the registoring process, after typed in the installed Monzo App on the mobile phone via its landing page and Apple store (or Google play), the user has to be verified. The firm selected two stage verification, which are required to the identification such as a biometric card (the author selected, other forms including passport or photo-card driving license are also acceptable) and short self introduction video with the statement (“This is [Username]. I have a Monzo account”). This process is only on the mobile app and therefore, the author felt some concern and fear about the data security in the process because no employees directly stay with him (which is the major difference between Monzo and retail bank including HSBC).

Immersion Episode 2: Posttransaction (User feedback)

Monzo opens the Monzo Community Forum to collect user feedback. After a new feature launched, the bank announce it to the customers on the online forum which is linked to its one of the landing pages named ‘Making Monzo’. The users can comment their feedback directly for the feature they used after created their own account and the employees repley to their one intarctively. All discussion has been saved and can be arranged in order of the timeline then every customers can read all of them. For instance, they do not export the notification as an evidence for the payment such as PDF, which is remarkable difference from retail banks because the screenshot of payment confirmation is unlikely to be acceptable for some institutions. This unenabled notification export problem has been alerted by a customer in the Monzo on the web community forum and the employees have responded and then they are struggling to solve the issue. Therefore, while there is still some difficulty and inconvenience of the Monzo services, the customers can communicate with the staff of Monzo on the web community.

Salient Attribution

Mental (or emotional) salient attributions has appeared through the immersion episodes and semi-directed interviews (see appendix) in this industory. They can be security (from episode 1), commitment and consistency (from episode 2). On the other hand, functional attributions might be emerged via competitor’s analysis, two major examples of which are Revolut and Starling (Lauren, 2020). The former provides free ATM withdrawals as far as £200 per month with 2% fee, which is marginally less expensive than Monzo (ibid). The latter has slightly less understandable overdraft charges than Monzo, which is set to 15% annual charge rate in comparison to limiting maximum of the charge fee to £15.50 per month and a £20 buffer. This may mean almost zero cash withdrawal cost and overdraft charge fee are functional minimum requirement as for the mobile banking consumers. This is because enabling the users to withdraw and overdraft itself seem not to lead to the competitive advantage and therefore, only implement of these services with cheaper price than the competitors tend to have a perceived value for the users.

Script (Blueprint)

The service blueprint highlights how different the customer journey, frontstage (touch points), back-stage and these interactions because it is quite structured and support to coordinate the roles of different functions (REASON, LØVLIE and FLU, 2016). However, Monzo operates above 1600 microservices on AWS (AWS, 2020). Therefore, the scope of blueprint is required to focus on their core business which is online payment on the mobile.

Blueprint of the Existing Service

Figure 1 demonstrates the customer journey and its interactions of their whole payment transaction. As the figure shows, a customer installed the app with registration to receive the debit card which enable them to purchase what they want via the card after they charge the money through their online account on Monzo. After payment, they can obtain the notification of the payment on the web or app (mobile) and then unlike most banks, they can confirm their balance counted on this transaction immediately.

Figure 1

Figure 1: The service blueprint of Monzo mobile payment service. * Dotted line: Line of interaction, Line: Line of visibility and Double line: Line of internal interaction

Monzo provides mainly free mobile account for the customers, however, recently has released the premium account called ‘Business Pro’ which costs £5 per month for small businesses and freelancers, the main feature of which is ‘Tax Pots’ that can calculate the tax based on their salary instead of an accountant (EPSTEIN, 2020). The tax calculation is used by third-party accounting software (O’Hear, 2020). Therefore, the blueprint of the payment service including tax calculation is seen in Figure 2.

Figure 2

Figure 2: The service blueprint of Monzo mobile payment service with ‘TaxPods’ for premium users.

Staging (Recommendation)

The issue of introducing the premium account with new features mainly ‘Taxpods’ is if the customers have the willing-to-pay (WTP). One of the methods to detect their WTP is theatre-based approaches which is based on the script (and role play) to envision the problem recommendation suggested by the service (Fragnière, Nanchen and Sitten, 2012).

Blueprint of the Improved Service

As a result of playing a role as a premium user, the most significant mental silent attributions can be consistency among of them. This is primary because Monzo is aiming to be ‘a bank that lives on your smartphone’ (AWS, 2020). This is likely to imply all payment transactions should be able to be delivered on the mobile for the consistency of their mission and therefore, the tax payment calculated by ‘TaxPods’ also should be able to be granted on the mobile. In addition, the tax payment tends to be done regularly and annually and therefore, it should be done automatically. Furthermore, the tax amount calculation is based on the customer’s annual income (EPSTEIN, 2020). Therefore, it might be required to restrict withdrawing a part of their deposit automatically in order to prepare the automatic tax payment because now the customer can deposit the money for any purpose in another pod in the same account by hand but they cannot do so automatically therefore it is important for mitigating customer’s pain and then it should be able to be confirmed and be noticed to the users as it is happened for the same reason of automatic reservation. Figure 3 shows the blueprint of the recommended mobile payment service of Monzo including the tax payment for the premium users. It is seen the customer is not required to a certain additional action for these improvements, however, they might feel they are going to prepare the tax payment by the reserve for the tax notification, which is likely to rise their WTP.

Figure 3

Figure 3: The service blueprint of Monzo recommended mobile payment service.

Future remark (Additional recommendations)

Tax calculation service (‘Taxpods’) was built as a result of customer surveys and feedbacks (O’Hear, 2020). In addition, the recommended service improvement in this essay are likely to increase WTP, however, how much they are going to pay for these services seem not to be verified sufficiently by the firm. Theatre-based experimental study might also provide the solution for the pricing issue. Therefore, the experiment should be designed for WTP and Price What You Want (PWYW). The individuals selected randomly from the certain target segment such as millenniums are required to choose the feasible given options, the examples of which are GBP 0 , GBP 2, GBP 4, GBP 5 , GBP 7 (Catenazzo and Fragnière, 2010). Although it depends on the result of the experiment, at least, the one might be able to conclude if the customers have WTP and then if they have, how much PWYW is.

Conclusion

This essay has discussed about the payment service of Monzo, especially pre transaction and post one of tax calculation which is offered for the premium users. Moreover, the recommendation for the improvement of the total payment service including tax calculation in terms of service design method such as Ethnography, Script and Staging. As a result of these analysis, the current tax calculation service seems to be not consistent with their mission and although they can reduce the cost the users hire an accountant or purchase an accounting service to integrate third party software with their service, there is still inconvenience and inconsistency. This is mainly because the customers have an obligation to pay the tax after the calculation, and they must reserve the certain amount of money for the tax payment. In addition, the service may not validate if the users have a willing to pay and how much they can pay for it. Theatre-based statistic experiments can answer both issues.

Appendix (The Result of Semi-directed Interview)

Figure Appendix

Reference