Everyone's talking about Facebook becoming a bank in the future, but I don't believe it will happen.
Here's why ...
Just had a long discussion with a bunch of banks about potential disruptions to banking based upon mobile carriers upscaling and innovating, the launch of NFC payments via Android and iPhone, the possibilities of Google and Apple and brethren, and the likelihood of a Facebook Bank in the near future.
One of the bank folks asked: “who would control the infrastructure if they did these things? We would.”
The point being that all innovations in banking such as PayPal have been on the old bank plumbing in the past and it will be in the future.
I agree to an extent.
Banks are regulated and need licences and this is a key feature of the system from a governmental perspective in making them work.
But this maybe ignores a basic tenet of the internet: freedom.
So as we move into the melding of online and offline into real-time, we could see a major shift away from bank infrastructures such as Visa, MasterCard and SWIFT into new infrastructures provided by PayPal and even Facebook.
Now everyone’s getting excited about Facebook becoming a bank because of Facebook credits and the whole thing about virtual exchange of goods and services.
Even I’ve been getting that bug a bit.
And yes, it does get interesting if you think of a crowdsourced bank.
Could it happen?
But I don’t think Apple, Google, Facebook or Amazon will create such a thing.
The reason is that core transaction servicing of consumer accounts is not of that much interest.
It’s basic plumbing and you don’t make that much money out of plumbing.
Or, to put it another way, it’s train tracks.
And this is how our conversation ended.
Banks have traditionally run the trains for most countries.
They have owned the trains, the stations, the signal boxes, the tracks … everything,.
They’ve then been able to price their service as they wanted, as there was no competition over transport services.
Gradually governments deregulated and allowed companies to take over the stations and the trains, leaving the banks to look after the train tracks as that’s a safety concern and is just a utility
This is how banking is developing.
Banks have lost a lot of the interesting stuff – client servicing of high margin products from cards to pensions to savings to loans – and are left with the train tracks – transaction processing of core deposits and withdrawals.
Does anyone want the tracks?
So will the new disruptors in the form of mobile firms, Google, Apple and company just go for the stations and trains or the tracks?
Banks think just the former and not the latter.
My only comment back is that I don’t think the disruptors will go for the tracks – core transaction processing – except for the mobile firms who are performing transaction processing in emerging economies and will upscale over time.
However, there is a more significant threat to bank services than even this.
And that threat is the crowdsourced bank.
The crowdsourced bank would be like a Zyngbank.
Zyngbank is based upon the gaming firm Zynga, who recently gained 100 million users of Cityville in just six weeks.
If a gaming firm can get 100 million players in just six weeks, what would happen if we could seriously launch a debit and credit management system in Facebook from a credible source.
An app that was trusted by Facebook users.
What would happen is that you’d have a service as big as PayPal emerge within weeks that was global, unregulated and outside the banking system completely.
Now that really could be scary.
p.s. apologies for the mixed metaphors of plumbing and trains in this blog entry and the counterargument of going for the train tracks versus not going for the train tracks … it’s just a recollection of how our dialogue went and I thought the logic flow was best to be maintained rather than making this just pretty for the purposes of the write-up …