Facebook’s Fintech and Blockchain Movesby Fintech News Hong Kong February 12, 2019
The financial services industry is being reshaped increasingly by bigtechs, or the big technology players such as Google, Apple, Facebook, Amazon and Alibaba, which are leveraging data and consumer insights to offer a unique, personalized user experience to fully engage consumers, putting increasing pressure on traditional financial institutions.
Rise of the bigtechs
According to Laura Crozier, global industry director, financial services at Software AG, fintech companies are often be touted as a major threat to established banks but it is actually bigtech companies they should fear.
“The fintechs have changed the pace of innovation, but they have not really taken market share. The big threat is bigtech: Amazon, Google and Apple. Amazon is the one I keep my eye on the most,” Crozier told Computerworld on the sidelines of the Sibos conference in Sydney in October 2018.
“In many ways these companies have been sidestepping into financial services without taking the plunge, but now with the partnerships they are seeking to strike they are not trying to hide it any more. That is where the threat will come from. And these organizations are agile, they are digital-first.”
Bigtechs have redefined customer experience, profoundly impacting all sectors, including financial services. Built on a digital platform, these companies are efficient and have the know-how to reduce operational costs. With a strong focus on research and development, they have huge volumes of customer data to help them understand and predict behavior as well as vast cash reserves for new ventures.
One particular tech-powered success story is Ant Financial, the financial affiliate of China’s e-commerce giant Alibaba. Ant Financial provides payments services in the name of Alipay but also wealth management services through Yu’e BAo, lending services through its online bank MYbank and insurance services through Ant Insurance Service. It has also developed a social credit system called Zhima Credit which generates credit scores based on five dimensions of information: personal information, payment ability, credit history, social networks, and behaviors. Today, Ant Financial is the highest valued fintech company in the world and the world’s most valuable unicorn company with a valuation of US$150 billion.
Facebook’s fintech moves
While Alibaba has revolutionized the Asian e-commerce and financial services industries, tech-powered Western firms such as Amazon and Facebook are poised to make waves too through expertise in areas including customer experience, innovation, diversification and infrastructure.
Amazon has built and launched tools and services mostly focused on payments, cash deposits and lending. These services aim at increasing the number of merchants and customers in its ecosystem by enabling them to sell and buy more, and reducing any buying and selling friction.
Meanwhile, Facebook announced its payments feature in March 2015 which allows users to send and receive money over its Messenger messaging app. The social networking giant began expanding its financial services business overseas in 2016 when it registered Facebook Payments International Limited in Ireland, then Spain. WhatsApp, India’s most popular messaging app with more than 200 million active daily users, began testing peer-to-peer transactions in India in early 2018.
A report published in August 2018 by the Wall Street Journal (WSJ), unveiled that the firm has been delving deeper into the financial services business, now attempting to persuade banks in the US to share detailed financial information about their customers including card transactions, shopping habits, and checking account balances.
The idea is to have more banks offer services through Facebook’s messaging platform Messenger, sources told the WSJ.
Several financial institutions have already integrated with Messenger including American Express, Mastercard, MoneyGram, and PayPal. Brazil’s Banco Bradesco for instance is leveraging the Facebook platform to allow customers to conduct day-to-day banking from Facebook, relying on the social network’s customer data analytics to target users.
Focus on blockchain and crypto
One area in particular where Facebook has been focusing on is blockchain and cryptocurrencies. The firm recently hired a team of researchers from London blockchain startup Chainspace in a so-called “acqui-hire.” According to its website, Chainspace is involved in developing blockchain technology that facilitates smart contracts.
The news came less than a year after Facebook hired David Marcus, the former head of its Messenger team and former president of PayPal, to explore how the company could use blockchain technology.
“Like many other companies, Facebook is exploring ways to leverage the power of blockchain technology,” a Facebook spokesperson said earlier this month. “This new small team is exploring many different applications. We don’t have anything further to share.”
In late 2018, news broke that Facebook was working on a stablecoin, a cryptocurrency pegged to a fiat currency, for global payments on its WhatsApp messaging app initially focused on the Indian market.
Analysts have posited where Facebook could go with a dollar-based cryptocurrency, mentioning peer-to-peer payments, a “Pay with FB” option for online vendors, and also seamless payments for offline merchants via QR code scan.
They also noted that especially for emerging countries like India where mobile phone prevails, a Facebook dollar pegged stablecoin and digital wallet could represent both a universal mobile commerce system as well as a more stable store of value than their local fiat currency.
Facebook is just one of the bigtechs exploring how it could use blockchain technology. Amazon, Google and Microsoft all have recently launched some projects involving blockchain. Apple filed a patent in 2017 that hinted at its interest in distributed ledgers.
Featured image by www.thoughtcatalog.com via Flickr.