The first ever automated census was conducted in the U.S. in 1890, using electromechanical tabulator machines. Their inventor, Herman Hollerith, later established what is now known as IBM.
A proper taxonomy is essential in every measurable discipline, and statistical economics is no exception. Suppose you wish to track what is happening with different branches of a country’s economy. In that case, you should define each branch, allocate some short labels or numbers to each branch, and then further subdivide for specific services or industries. You probably want this taxonomy shared between the statistical department, the central bank, the customs, and the tax authorities, at the very least.
One of the earliest attempts at that was made in the United States in 1937. The SIC (Standard Industrial Classification) allocated four-digit codes to each industry. Ranges (or first two digits) of codes represented a major division, with the full value providing a specific industry. For example, the range of 1000-1499 was allocated to mining, with metal mining having the code of 1000 and crude oil/natural gas having the code of 1311.
There are many other industry classification systems in existence. To begin with, the SIC codes system was supplemented by NAICS (North American Industry Classification System). NAICS utilizes up to 6 digits and allows for more hierarchy levels for different kinds of businesses but is, sadly, not backward-compatible with SIC. MSCI and S&P developed another standard called GICS (Global Industry Classification Standard). Reuters came up with RBSS (Reuters Business Sector Scheme), later sold and renamed to TRBC (The Refinitiv Business Classification). The European Union, of course, went its own way with NACE (Nomenclature Statistique de Activitiés Économiques), and the United Kingdom its own with UKSIC.
Due to the origin of card payments, it was the then-functioning SIC that was adopted by payment schemes to classify merchants.
The two biggest and oldest card brands in the world are Visa and MasterCard (I am purposefully ignoring UnionPay due to mistrust of inflated statistics). The tradition dictates that the other would follow suit on any excellent idea one adopts. Initially called “SIC codes,” the classification was later renamed “Merchant Category Codes.”
Finance Has Standards
The ISO (International Standards Organization) has many committees, including one for financial services, TC 68. Technical Committee 68 and other committees consist of representatives from participating countries, usually via a national standards body. In the United States, it is ANSI (via ASC X.9, its Accredited Standards Committee for financial services); in Israel, that’s the SII (Standards Institution of Israel), and so forth. For historical reasons, ASC X.9 also acts as the Secretariat for ISO TC 68.
An ISO standard is usually written by a Working Group, which follows specific procedures to review and approve it. Once approved, the standard is published, and it is up to each country or company to adhere to it.
In case when there are frequently changing parts of a standard, a Maintenance Agency is defined. It can be a group of representatives under the auspices of ISO itself or another body that volunteers to assume such a responsibility. For example, ISO 4217 – the standard for currency codes – is maintained by SIX, a consortium owned by over 130 financial institutions.
In cases (such as with the currency codes) when there are new values that the industry can request, an RMMG (Registration and Maintenance Management Group) is also assigned. It considers requests for new code values, and the MA ensures that the proper procedure is followed.
The card industry utilizes a dialect of the ISO 8583 protocol, which, in turn, has a field for MCC codes. The list of MCC codes was moved into ISO 18245, a separate standard.
For any decision, ISO guides its members and subordinate bodies to achieve a consensus before putting an issue up for a vote. So a typical process of adding, for example, a new currency code would go something like that:
- A request is submitted.
- Members of the relevant group discuss it.
- Any questions or reservations are addressed.
- A joint position of the group is registered using the appropriate procedure (possibly with a ballot).
- The new code enters the standard.
The process is so dominant and ubiquitous that very few active participants remember what is the order of action when no consensus can possibly be reached.
Considering the domain area, this is to be expected: just what kind of heated argument can there be around a new industry sector or a new currency?
Or so they thought.
Enter American Politics
In 2021, an activist bank, the Amalgamated Bank of New York, decided that the road to eradicating gun violence lies through proper coding and handling of gun-related retail transactions. Accordingly, they have submitted a request to the appropriate ISO authority to introduce a new MCC code for gun stores, separating them from the rest of the retail folk.
Now, there is a point on which the United States and the rest of the world (also known as “most of the humankind”) profoundly disagree, and that point is the importance of American partisan issues to humanity as a whole. While both the American economy and the American culture carry a lot of weight around the globe, the same may not necessarily be said about policies.
In our example, marking gun stores as a separate industry is not necessary for most countries in the world: weapon sales are heavily regulated in practically every country except the United States and possibly Switzerland.
Considering this little fact, and considering that the American members of ISO, being excellent and even genius standards people, weren’t too eager to get involved with politics, there is perhaps little surprise that the initial request was denied.
It took the bank a few months to submit an appeal.
Mind you, the ISO people are used to peacefully agreeing or politely taking a disagreement offline to resolve it. Having to reject a request is an exceptional process that few ever experience, but an appeal? That didn’t happen for years.
Consequently, by the time ISO dusted off its appeal process, the best and brightest of American politicians were already fighting gun violence the best they could. Senator Warren weighed in. ISO public relations team started getting calls from journalists, probably with good-taste questions like “why does ISO condone gun violence.” A typical article on this topic would mention “a Geneva-based non-profit” which resists decisions by gun control advocates and the “Swiss body known as ISO,” from which a socially responsible lender and investor had requested a new code. Because how dares an international body with 167 national members not to yield to a Newyorkean activist?
The Aftermath
Of course, the representatives of the United States in ISO weren’t at all happy about that. In fact, they found themselves between the hammer and the anvil and under tremendous and unexpected political pressure.
One can only hope their first time would also be their last, but I’m not holding my breath. And considering how many great ideas in the field of financial services came out of ASC X.9, it will be unfortunate if such politicization of technology will ever reoccur.
