The tech giants that already know everything about you, and now they want to be your banker, too. What could possibly go wrong?
Both Facebook and Google announced plans to jump into the finance business on November 12.
Facebook, already reeling from its much-criticized—though still kicking—Libra cryptocurrency kerfuffle, announced Facebook Pay. That payment service will roll out on both the social media network and its Messenger app this week, with the WhatsApp messaging service and Instagram gaining access “over time,” said Deborah Liu, Facebook’s vice president of marketplace and commerce, in the statement.
Meanwhile, the Wall Street Journal reported that Google is teaming up with Citibank and a small Stanford University federal credit union to offer checking accounts directly to consumers through its Google Pay digital wallet.
The announcements signify Facebook and Google “are ready to take the war for payments to the next level,” said Mati Greenspan, senior analyst social trading and brokerage firm eToro. “Facebook, Google, Amazon, Apple, they all just want to be like messaging giant Tencent, [whose WeChat Pay service] has been dominating Chinese payments for nearly a decade.”
These moves are the latest example of big tech’s push into the banking business, said Igor Pejic, author of “Blockchain Babel,” and head of marketing for BNP Paribas Personal Banking.
The announcements by Facebook and Google are just more proof that “Silicon Valley giants have had payments on the top of their agenda for quite some years now,” Pejic told Modern Consensus via email.
The reason, he said, is simple.
The payments business “is the window to the $134 trillion finance industry,” said Pejic. “It is the number one interface people have with banking—they [use] it multiple times a day.”
What’s happening, he added, is that “[t]ech firms are targeting the end of the supply chain—the customer interface—[which] is the most profitable part. Thus, banks risk being pushed to backend suppliers that in the future can partly be replaced by new technology.”
That is where blockchain comes in, Pejic said.
“In a first step, they try to take the customer interface by collaborating with banks,” he explained. “This establishes them as a viable and trusted finance player in the eyes of customers and regulators. Also, they collect experience in the industry and get a better feeling for the market.”
At the same time, “they are working on blockchain technology,” said Pejic. “When the technology is mature enough to do parts of the functions banks do today, they will be able to insource these parts of the value chain. Thus, banks risk becoming redundant.”
The big question surrounding Facebook Pay, Greenspan pointed out, is that it is “still unclear whether this is supposed to be a pilot for Libra or a complete replacement.”
Pejic’s money is on replacement.
“Though Facebook Pay and Libra are technically separated, I believe the former is a market test for the latter,” Pejic said. “Before Facebook takes on the seemingly insurmountable regulatory backlash against Libra, it seeks to gauge the need and acceptance of the product.”
If Facebook Pay is successful, said Pejic, the company might “try to enhance profitability by implementing their own cryptocurrency and getting rid of financial providers such as credit card companies.”
Google, however, is actively trying to be a good partner to banks. For now, anyway.
Google executive Caesar Sengupta told the Wall Street Journal that the bank brands will be front-and-center on the Google Pay checking accounts. Beyond that, he said Google was open to adding more bank partners to what it is calling Cache accounts.
Still, Google will likely run into the privacy concerns that elected officials, regulators, and customers around the world have expressed about Facebook’s Libra stablecoin. Government pressure forced Facebook’s biggest financial Libra partners—including Mastercard, Visa, and PayPal—to withdraw from the project.
That said, Google’s reputation on privacy is far better than Facebook’s, according to an October survey by McKinsey & Co. It showed 58% of Americans would trust Google to handle their finances, while barely a third felt that way about Facebook.
Sengupta was clear in the Journal interview that Google won’t sell Cache checking account data for advertising, noting that it doesn’t mine its current Google Pay customer data for advertising.
Not everyone buys that.
“All Google is really interested in is your financial data,” said Greenspan. “[F]or that, I’m sure they’ll be willing to slap a kickass [user interface] and possibly a bit of value add as far as fees and rates are concerned.”
He pointed to a Tencent earnings report also released on November 12. It “seemed to contain just as much valuable insight into the Chinese consumer [as] it did the actual company,” Greenspan said.
For his part, Pejic said Google’s promise not to sell individual customer data is irrelevant.
“They can analyze anonymized, aggregated data,” he pointed out. “Combine that with data on search behavior, data from Google maps, etc. and Google knows more about [banks’] customers than [they] do.”
Then Google can use that data “to build an unbeatable sales machine and cross-sell other products to customers,” Pejic said. “This is not the often-quoted ‘end of banking,’ but it [does] eat away a sizable chunk of their profit margins.”