Part three of a five piece series on emerging threats to banks from non-financial companies. For context on today’s piece, take a look at “For Banks, the Sky IS Falling” and “PayPal is Eating Your Bank’s Lunch” (aka parts one and two).
As banking becomes more mobile, companies that power our mobile lifestyle have emerged as real threats to financial institutions. While common in Europe — where Google, Vodafone and T-Mobile already compete head-to-head with traditional banks by offering mobile and web-based financial services — let me play out a scenario where Facebook decides to enter the banking space in order to remain relevant to its vast U.S. audience.
The New Math?
I recently shared the results of a TD Bank survey — one that shows millennials are banking online and on their mobile devices more frequently than in a branch. In fact, 90% of survey respondents said they use online or mobile tools for their everyday banking activities, such as checking balances or paying bills, and 57% said they are using mobile banking more frequently than they were last year. So add this idea to Facebook’s voracious appetite for views, visitors and preference data at a time when users are dialing back on status updates and not sharing candid photos on the site. The sum of these two parts? It might not be a matter of will; rather, when, Facebook stands up its own online bank in the U.S.
From Concept to Reality?
What I lay out above isn’t a radical thought; indeed, Fortune magazine ran a story on this very topic (Facebook Wants to be Your Online Bank). The authors opine:
Someday soon, Facebook users may pay their utility bills, balance their checkbooks, and transfer money at the same time they upload vacation photos to the site for friends to see. Sure, the core mission of the social media network is to make the world more connected by helping people share their lives. But Facebook knows people want to keep some things — banking, for example — private. And it wants to support those services too.
In a separate piece, Fortune shares “there remains a huge untapped market for banking services, including the exchange of money between family and friends living in different cities, and international money transfers between family in developed and developing countries.”
In fact, Facebook recently made the news when it announced plans to enable commerce from its social networks. According to a post on Pymnts.com (Is Yelp + Amazon the Mobile Commerce Game Changer?), Facebook is testing a “Buy” button that can enable purchasing directly from a promotion inside a user’s news feed. Now, I’m not getting into the social commerce conversation; simply pointing out that Facebook’s dive into traditional banking may not be as far off as some might think.
Banks as the New Black?
Facebook is already a licensed money transmitter, enabling the social media giant to process payments to application developers for virtual products. As much as it has the technological chops — and financial clout — to enter the banking space, its Achilles heal may be the very thing that banks are built on: privacy. Facebook relies on its members seeing and responding to their friends (and acquaintances) activity and updates. Noticing a friend make a deposit to the “Bank of Facebook” or take a loan from said institution might not precipitate your own business. The one thing I can see is an attempt by Facebook to acquire an online bank to jump-start its efforts to reach a specific demographic. In that case, it might be as simple as “the Bank” powered by Facebook. Regardless, I’d keep an eye on Facebook’s disclosures and press releases when it comes to payments, social commerce and financial services.
To comment on this piece, click on the grey circle with the white plus sign on the bottom right or send me your thoughts via Twitter (I’m @aldominick). Next up, a look at the threats posed to a bank’s business by retail giant Wal-Mart.