I posted a tweet this week and got a lot of response. Interestingly, most of it non-public in emails and DMs, but why that is warrants another analysis.
— Duena Blomstrom (@DuenaBlomstrom) January 16, 2017
My tweet refers to an article I wrote many moons ago warning that brands will become banks if banks won’t become brands themselves, in light of this TechCrunch article highlighting Facebook’s newly awarded European Payment License, and the comment belongs to Christoffer who works for a bank I know intimately – Skandiabanken, which is the original challenger bank of the Nordics. By the way, when these guys say “digital ecosystem” and “disintermediate” they’re not using empty jargon like others might. They have been through the rings trying to understand engagement. Consider that they started as part of the group who did all the other components of long-term investment and none of the day-to-day banking before they created them.
Facebook is a bank
First of all, let’s get this out of the way: there’s no “will be” or “intends to be” about this. Facebook has acquired an e-money licence, PSD2 is happening and it is already doing in-app transfers in the US. Between these factors, there are no ifs and buts to be considered – that is a bank. Many fintech-years ago, we could afford to play naive and doubt it, but I trust these days anyone reading this knows that a banking licence is superfluous if you combine those elements.
Secondly, over the past few years, Facebook has made no secret about this being its next step. Take this article about the then-newly-acquired PayPal superstar David Marcus.
It’s the job of Marcus, a gently spoken 42-year-old French-born fintech guy, to turn a proprietary messaging app into this all-encompassing platform – essentially, an operating system on which third-party apps, and entire businesses, can be built in ways that lock them into the Facebook ecosystem. The Chinese have already shown what’s possible: social media giant Tencent enables 600 million people each month to book taxis, check in for flights, play games, buy cinema tickets, manage banking, reserve doctors’ appointments, donate to charity and video-conference all without leaving Weixin, the Chinese version of its WeChat app.
With that said, just because Facebook is a bank, it doesn’t automatically follow that it will succeed. As any other new entrant in any market, what it needs is:
- an audience
- a product
There is little to dissect about this. Facebook has the audience. Its numbers in terms of adoption and usage are unquotable – it’s now a model of customer acquisition that’s used in business schools as an example of successful platform building and relationship creation.
It’s also only from hereon that it’s starting to get serious about monetising on its huge numbers. Let’s face it, no one buys nearly two billion users if it doesn’t intend to make money off them – though of course, becoming a bank isn’t the way to do so.
Facebook isn’t the most beautiful digital product we use today, nor the easiest to navigate, nor the most surprisingly delightful. It doesn’t win in any of these categories, but it’s certainly in the top echelon of all of them.
Not only that, but Facebook is constantly (some would claim unlike Google) upping its own game product-development-wise, and features that we all would have thought would flop turn out to be polished and widely adopted. Just look at the ease of integration of Facebook Messenger into Slack. Do you know why that is? Because teams use it for work communication over serious/secure/etc competition such as Skype for Business. And if its features don’t win the consumer over, they’re certainly not afraid to go out and buy them ready-made from elsewhere, as it did with WhatsApp (though it claims to need them both).
Just because they haven’t yet made a big fuss about adding a “show me my balance and a few ideas of how to do better next month please, M” feature or you can’t see the “MyMoney” tab in your Facebook app’s menu it doesn’t mean it isn’t being cooked. If one looks at UK’s many heralded challengers, most are missing an evident offering as well so far and only time will tell who has come a longer way in designing the end product behind closed doors.
In fact, if we are to judge by the obscenely easy-to-use money transfer feature US clients are already enjoying, it is one worth waiting for.
In 2010, this was the tune to which we hated Facebook. Today, all (or at least most) of those have been either sorted, or the perception has changed, so the trust capital Facebook is building is on the increase. Not to mention it has the money and patience to wait out an entire generation of disbelievers if need be.
There is an interesting dissonance between how much people believe they trust Facebook when polled (not at all) and how much information they freely deposit into it through daily usage (GB of intensely sensitive data). The theories as to why this occurs all come back to how a cerebral privacy concern will not stand in the way of instant social gratification. In a way, it’s a subconscious identity value exchange. We’re aware our personal information is valuable and potentially misplaced, but the risk is worth it because the emotional reward is great enough.
Privacy concerns are nonetheless the main reason quoted as to why the Facebook Bank may not succeed. Who in the industry hasn’t heard the following reaction of incumbents when discussing this topic? “Oh c’mon, who wants to bank with Facebook?! I never even post photos of my kids!”
Generalisations aside, people do trust Facebook. Maybe not “your people” or “my people” – whatever segment you identify with – but enough people to make up one of the word’s largest banks overnight.
We choose to read the above as “94% of users do NOT trust Facebook”, but look at the first segment: 3%. What’s 3% of two billion? Two Lloyds banks is what.
On the plus side, banks already have by comparison an immense trust capital, even if it’s diminishing, according to EY’s latest findings.
Also on the plus side, banks could buy two billion users. Not with ease, and not likely, but conceivably a few of them could poll their resources and do so. Similarly, enough common conviction to spur that could also, hypothetically, power them to build a product that people truly wanted and enjoyed using. Hypothetically.
What can’t be easily matched, and what all banks new or old should fear, is this: banks are not brands. Facebook is a real brand – deeply life-embedded and intensely, emotionally relevant.
23% of the world’s total population uses it as the hub of their social lives. One in every five humans uses it as a primary communication method, a photo repository, a news outlet, a virtual shopping mall. It’s an intrinsic part of our everyday lives that highly matters to us, and is inserting itself deeper and deeper into our subconscious. Take the effect of the sentimental value that Facebook Memories (announced in 2015) is exerting over its users: it’s nothing short of monumental, and it will prove itself a cornerstone in Facebook’s unbelievably scintillating engagement strategy.
What could banks bring to the table to match that when they will not even take a close look at the customer’s data?
A common reassuring mantra about the Bank of Facebook one can hear in the industry is the old, “Why would they even want to be a retail bank? There’s no money in it!”, as if the social media giant has ever been instant-ROI-driven.
Facebook knows that being a retail bank doesn’t pay off in itself, but it also knows how intensely personal one’s relationship with their finances is, and how powerful an engagement play this is. And while it may not want to be our cashier, it certainly wants to be our life-management console.
Will my child be using this life console when he grows up, and implicitly be banking with Facebook? There’s no doubt in my mind. The only question is, will he be banking with HSBC as well? Maybe. Whether it will be ‘with’ HSBC or ‘on top of’ HSBC – a relationship partner or the invisible mechanism powering Facebook Bank’s experience is what’s at stake.
This is it, the year that a real brand becomes a bank. There’s no more time to waste to stay in the game.
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Photo: Fotos593, Shutterstock.com