History’s Full of “Where Were You When?” Moments. Like Now, for Instance.
This is big news in a lot of ways, not the least of which is the fact that it likely epitomizes the future of financial services.
Pegged to the US Dollar and bolstered by the reach of Facebook’s enormous user base, Libra has the potential and likelihood of revolutionizing/disrupting banking as we know it. The blockchain-based cryptocurrency will transcend international borders and allow subscribers to effortlessly transfer funds back and forth, allowing Facebook to potentially become the bank of choice for billions of users across the globe.
Calibra will allow Facebook to monetize its new currency, providing subscribers with a platform to conveniently convert their hard-earned digital currency into products and services. Partners already include Uber, Lyft, eBay, PayPal, Visa, MasterCard and dozens of other tech-savvy companies.
Facebook is not the first social media platform to enter this space traditionally owned by the banking industry. China’s WeChat, the world’s largest stand-alone social media platform, pioneered a similar mobile payment platform. Today, this platform has more transactions across the globe than all credit and debit cards combined.
A large factor in China’s success is the fact that so few of its citizen’s (8%) have ever had a bank account, owned a credit card, or even walked into a bank branch. This means many Chinese have no preconceptions of what the banking experience is supposed to entail, which has allowed China’s tech innovators to bypass many of the legacy banking products that have come to define banking in the West.
In the US, estimated to be 5 to 6 years behind China’s mobile banking advances, online banking has largely meant taking traditional bank functions and simply making them accessible online. Instead of receiving bank statements in the mail or by visiting a bank branch, now customers could use their smart devices to monitor balances. Rather than visiting a bank branch to fill out an application, customers could now complete identical forms online, and sign with digital signatures. Although convenient, mobile banking in the US is still a high-friction endeavor, simply mirroring the traditional functions of a bank branch.
China’s mobile banking, by comparison, is largely “friction-free.” It doesn’t rely on routing numbers, forms and credit applications at its core, but instead uses biometrics (like thumbprints and facial recognition) to recognize its customers and utilizes easy access to reams of big data to analyze each customer’s spending and saving habits to determine creditworthiness in real time.
Also, rather than basing its model on banking products like American banks, China’s mobile banking focuses on the buying and spending behaviors of its customers and focuses on providing them with enhanced value.
For example, Ant Financial, a spinoff of the Chines tech-giant Alibaba, has made itself ubiquitous in the daily lives of the Chinese. It made its fortune (Valued at $60 billion) by providing customers with digital wallets they can use to manage their savings any way they see fit. It’s nearly impossible to define what kind of company Ant Financial is, because it is basically a hybrid of everything, allowing customers to manage their savings much like a wizard would use a magic wand. Ant describes itself as a “lifestyle platform.” Customers can use it to pay bills, build savings, and purchase everything from homes and cars to groceries and babysitters. It informs customers when they have money sitting idle and gives them the opportunity to easily slide spare change over to Yu’E Bao, its $266 billion Mobile Market Fund to earn interest higher than most banks provide.
In addition to the fact that the Chinese tech innovators are unencumbered by trying to bring its customer’s up to speed with traditional friction-producing banking products, another reason for the success of Chinese mobile banking is the wide-spread access to high-speed internet and exceptionally affordable smartphones. That, and the fact the regulators worldwide have had as much trouble defining exactly what kind of company Ant is as have the pundits, so many of the same rules that have applied to the financial industry have not applied to it.
However, less regulation rather than more is another trend that will take some getting used to, to the point that in the very near future, financial transactions, and institutions will not be bound and defined by international borders. Soon, the world community will be able to place its money in the institution or platform that makes the most sense to them—regardless of location.
In researching background information for this blog, I sourced a Guardian article quoting Joe Ngai, managing partner of McKinsey Greater China, referring to the Ant’s impact on the financial services industry. Ngai described its disruptive potential in no uncertain terms, “If Facebook started a bank, that’s kind of what it feels like,” he said. Of course, that was in 2018, before Facebook started a bank.
Now that it has, take a moment to take in your surroundings. That way, when the inevitable “Where were you when?” question is asked, you’ll have a vivid memory of this moment in history.