Weekly FinTech Tip: Collaboration is Key to Competing
Last week, we discussed the introduction of Facebook’s crytocurrency, Libra. It is expected out in 2020 – though they have already run into regulatory issues – and if all goes well, they plan for their Facebook users to have access to what they call the Calibra wallet. Once they have this money in that account, they can then spend it. The partners that are part of their consortium are likely to be the first people to accept Libra. Their consortium currently includes PayPal, Lyft, Uber, Stripe, MasterCard, and Visa.
What are they planning to do? Well, one of their stated plans is to do cross-border payments. What happens with foreign exchange? What happens to the rates? How does that all work, and where does that leave us when that money is depleted out of our accounts or if there needs to be a return or a fallback?
If you’re a credit union, one of Facebook’s plans directly conflicts with your charter. They have stated that they want to help the underbanked. One of the reasons that credit unions exist is to help the underbanked. What happens if Facebook takes that on? Can we partner with them? Where does this leave us?
The payment system is a closed loop system. In other words, no one can get into it without talking to the consortium. This is very different from Bitcoin. The economics of Bitcoin are that everyone in the world can mine, but in the Facebook crypto world, particularly with Libra, the only people who can mine are presumably the 27 entities who are part of the consortium at the moment. This means you can’t participate in the economics of this particular system, and it also means that as merchants come on, you’re going to have to fight your way into that space.
It also appears that Facebook is positioning themselves to become a digital identity provider. They’re planning on doing KYC (Know Your Customer) and AML (Anti-Money Laundering), which are the linchpins of identity resolution for the financial system, at least in the United States.
I find it interesting that of their 27 consortium partners, there are no banks, or at least none that I recognize.
In conclusion, every system that allows a user to withdraw money, deposit elsewhere, and depletes your depository reserves is a threat. I want to be clear, I don’t think Facebook Libra is a bad thing for the world at large. I think they should have rolled it out differently and I wish it were more open, but those are things that can change. What I’m more worried about is its impact on what I consider to be the backbone of our financial system, which are our small to medium-sized financial institutions.
Let’s take a spin into the future. What if they start suddenly saying, “Hey, you can earn interest on your account”? What if they say, “You know what? We’re going to give Facebook loans. That’s right. We’re able to use the data we have from Facebook to make better decisions than banks can because we believe we have more information about you, what you do, your habits, and your ability to repay this loan than a bank”.
These are all things that have the potential to change the landscape of the financial industry. The only solution that I can find? Collaborate, or die trying.
That’s right. None of us have the girth or the space by ourselves to compete in this market. We’re going to have to find ways to compete together, and that means potentially looking at an organization that we consider to be a competitor and deciding whether they are as big a competitor to us as a Bank of America, a Wells Fargo, or a Facebook, or if we need to work with them for the greater good.
I think it’s the latter, because after all, this is just the beginning.
Thanks for listening. This has been a FinTech minute. My name is John Best, and I am the author of Breaking Digital Gridlock. If you are interested in learning more about how to break digital gridlock in your organization, you can buy my book on Amazon or anywhere you buy books. To check out the courses we offer or if you’re interested in learning about our consulting group, how we help people collaborate, and how we help people work through their digital transformation, visit www.big-fintech.com.
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