Welcome to another issue of CTPI Insights, your premium newsletter on technology design and policy.

Today we'll cover:

Airbnb's latest clash with local authorities;
Why you should incorporate public policy concerns into your business strategy;
How our team structures reasoning to bridge systems design and public policy, and much more.

These last two weeks were insane. And rewarding. Our team was focused on finishing the contribution document to the Pix Forum detailing how we believe the Brazilian Central Bank could increase the functionalities by simplifying the protocol of their Automatic Pix feature. Meanwhile, the saga to find reliable revenue streams has been weighting on more and more beloved startups. Following Twitter (X), Reddit, and HashiCorp, it's Unity's turn to deal with the fallout from their decision to review their previous commitments and start charging the key players of their ecosystem. We'll have time to discuss this trend some other time, though. Today, we'll turn our attention to what's been going on with Airbnb in NYC and what lessons we can draw from it.

Now, let's get to it.

M. and J.

Airbnb and the clash between public policy and business

By Roberto Vivancos

From Wired:

“THOUSANDS OF AIRBNBS and short-term rentals are about to be wiped off the map in New York City.

Local Law 18, which came into force Tuesday, is so strict it doesn’t just limit how Airbnb operates in the city—it almost bans it entirely for many guests and hosts. From now on, all short-term rental hosts in New York must register with the city, and only those who live in the place they’re renting—and are present when someone is staying—can qualify. And people can only have two guests”.

After a long dispute between Airbnb and New York City officials, the city's new short-term regulation came into force a little over a month ago. The new regulation fuels a worldwide discussion about the good, the bad, and the ugly of the expansion of short-term rentals in major cities.

According to The New York Times, NYC officials argue that “there were roughly 10,800 Airbnb listings as of March 2023 that were illegal short-term rentals” and that "the new rules would create a ‘clear path for hosts who follow the city's longstanding laws'”. From a broader policy perspective, the publication also raises the recurring topic that “renting those homes to tourists and visitors instead of New Yorkers exacerbates the city's acute housing shortage and makes it even more expensive to live here” and that “[r]esidents who live in buildings with short-term rentals have complained that transient guests bring a greater risk of crime, excessive noise, and cleanliness problems”.

Meanwhile, according to Reuters, Airbnb executives respond that the new regulation is NYC's "most extreme and oppressive regulatory scheme yet, which operates as a de facto ban against short-term rentals” and that "New York City's short-term rental rules are a blow to its tourism economy and the thousands of New Yorkers and small businesses in the outer boroughs who rely on home sharing and tourism dollars to help make ends meet”. According to Wired, the global policy director for Airbnb went to the lengths of saying:

“The city is sending a clear message to millions of potential visitors who will now have fewer accommodation options when they visit New York City: You are not welcome.”

There are many questions to be answered here. Is NYC's data about illegal listings accurate? Does data support the argument that short-term rental puts pressure on the housing crisis? Would the complaints from short-term rental neighbors only be resolved by an effective ban? Will the new rentals regulation impact the tourism economy and those who use home sharing to "make ends meet"?

However, for us explorers of the technology design and policy world, perhaps the most interesting discussion here is: why on Earth Airbnb continues to challenge local governments seemingly armed with the narrative that their services can do no harm. And whether that's the most effective approach to protect their bottom line.

From what we could gather from NYC and Airbnb's spokespersons’ declarations, NYC officials are concerned with (1) enforcement of previously existent local rules and (2) how the expansion of tourist and visitors’ accommodations puts pressure on the housing crisis and on residents’ day-to-day lives. Meanwhile, Airbnb's focus has been on (1) fruitlessly disputing local rules interpretation, including in court, and (2) highlighting how much good Airbnb does to the tourism economy and how much money hosts make.

In short: NYC policymakers seem to believe protecting the tourist economy has been harming the local economy in a way that demands immediate action. While Airbnb insists that their service is good for the tourist economy. Note that NYC officials’ point can still be valid if Airbnb can show that their argument is also true.

The issue here is one of balancing principles. In this case, we could say the two opposing principles are what is best for the tourist economy and what is best for the local economy. To reach the best solution, one has to find the right spot where both principles are compromised at the absolutely minimal extension possible to preserve what is core to the other. It requires debate, cooperation, and the belief that all parties are acting in good faith. This is where many tech companies, especially those in unregulated markets, make a crucial mistake. Instead of acknowledging public policy concerns and working to best incorporate those into their business strategy in a way that preserves their core value proposition to their customers, they often deny any responsibility and wrap themselves in the narrative of a righteous quest in the name of freedom.

Just last week, Airbnb CEO Brian Chesky was speaking at an event in New York City, according to Skift:

“After a tumultuous month in New York City that led to thousands of Airbnb delistings, the short-term rental giant is focusing on Paris and other European cities. (…)

I’m saddened; I’m disappointed,” Chesky said, referring to the New York crackdown. “I think that we always were willing to come back to the table if another side is — but we are going to be working with cities all over the world, and thousands of other cities have chosen to go a different direction.” (…)

Chesky said the company has worked with other cities on regulations that have led to netting $5 billion in hotel taxes, among other changes. He believe New York City was not as cooperative as it could have been.

“System by system, I think there are really sensible solutions,” he said. “I think, unfortunately, New York is no longer leading the way — it’s probably a cautionary tale.”

Notice that these words came after losing battles in the legislative, executive, and judiciary in NYC. Apart from NYC, Airbnb has in the past also sued Boston, Palm Beach County, Santa Monica, Boulder (CO), and San Francisco over restrictions and obligations cities impose.

Things in Europe may also not be so easy. Many European countries have been imposing hefty restrictions on short-term rentals for several years, including France, Italy, Spain, Germany, and the UK. Meanwhile, Airbnb has been experiencing "continued deceleration in nights and experiences booked”, according to CNBC.

The real cautionary tale here is this: taking a reactive approach to public policy concerns around a business or a technology greatly increases the risk of disproportionate reactions from policymakers. As guests, hosts, and admirers of Airbnb's business model, we hope Airbnb learns the lesson and starts working on a strategy to address policymakers' concerns around safety and housing in a way that is not so disruptive to their core business.

More on our proposal for the Automatic Pix specification

In the previous issue, we discussed some key points of the proposal we intended to submit to the Brazilian Central Bank in response to their call for contributions on Automatic Pix within the Pix Forum. We submitted our proposal last night, and now we are excited to provide you with an excerpt from the first section of our contribution document. Once the contribution deadline has passed, we will share the complete document in Portuguese.

We hope this excerpt gives you a taste of how we structure our reasoning when bridging state-of-the-art systems design with public policy goals.

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Firstly, we would like to extend our greetings to the technical teams of the Central Bank for their excellent work in creating the working group consultation. These meticulously crafted documents represent one of the most highly anticipated features since the inception of Pix. We have always held great admiration for the work carried out by the Central Bank, and this contribution cycle is no exception.

However, we have identified an opportunity to reduce development and implementation costs while expanding the potential applications of the new feature. Therefore, with all due respect, we would like to propose an alternative design for the Automatic Pix functionality for the Central Bank's evaluation. Please find attached the list of responses to the questions posed in the consultation.

(…)

CTPI's proposal is based on the fundamental premise of Pix as a protocol that is flexible enough to model existing and future payment methods. This guidance from the Central Bank has been followed since the beginning of the design work, resulting in the exponential potential of Pix.

The proposed alternative seeks to simplify and enhance Automatic Pix by leveraging existing specifications and adding two additional mechanisms. This approach would not only incorporate all the functionalities present in the current proposal but also introduce new functionalities and enable various additional use cases. Examples of these possibilities include the portability of automatic debit authorizations, the ability to make Pix payments without a smartphone, and an improved experience for Pix payments in mobile e-commerce.

The advantage of the alternative proposal is its greater openness to innovation, competition, value creation for end users, financial inclusion, and development of the Brazilian payment system. All of this can be achieved with lower implementation costs and greater operational efficiency. In summary, the alternative proposal is based on six fundamental concepts:

(1) The definition of two independent flows: the flow of future automatic debit authorization and the flow of debit requests via ICOM (the Clearing House's communications interface). These flows can be combined in multiple ways.

(2) In both flows, whether through a QR Code or by sending a debit request directly through ICOM, the Payer PSP must receive the dynamic QR Code URI of the charge from the Payee PSP. This URI contains the payload with the charge data, which can involve immediate settlement or a future maturity date.

(3) The specification of dynamic QR Codes and charges includes an optional field for Authorization ID, which expands the concept of "recurrence" to refer to "automatic debit authorizations" more broadly. This addition maintains backward compatibility with current versions of the dynamic QR Code.

(4) The Payee PSP schedules payments by sending charges with due dates according to the required advance notice. It is not the responsibility of the Payer PSP to determine the correct payment date. They simply wait for the charge with the maturity date to arrive via ICOM.

(5) Future debit authorizations are linked to the Pix Keys of both the payer and payee users, allowing for portability without affecting future charges.

(6) Both flows, automatic debit authorizations and debit requests via ICOM, are eventually consistent. Charges can be guaranteed to be idempotent through various means, such as a charge QR Code or sending a debit request via ICOM.

Throughout the document, we provide further details on the alternative proposal, its systemic consequences for the Pix rail, its advantages, and the use cases it enables. The final topics of the proposal focus on the necessary messaging details for implementing this design.

Airbnb NYC debacle and more on our latest proposal to the Pix Forum