As Facebook enters banking sector, debate over electronic citizenship emerges

As Facebook enters banking sector, debate over electronic citizenship emerges


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Most social media giants have expressed interest in entering the banking sector, but Facebook has now taken the step to come up with a concrete proposal for “data-trading” that would extend to banks an offer that they simply can’t refuse or accept.

According to the Wall Street Journal, Facebook is asking major US banks – JP Morgan, Wells Fargo, Citigroup, Bancorp – to share their clients’ data on card transactions and balances so that Facebook can become an “online till,” moving from advertising to sales.

The move indicates that online banking is here to stay as customers are already depositing checks and accessing ATMs from their smartphones, sending money on payment apps, and directly paying for goods and services. An increasing number of banks have closed physical branches to reduce costs and hi-tech countries like Sweden are moving swiftly towards a cashless economy.

The question now becomes how the banking industry renegotiates its online future as it makes the conscious decision to go digital. Social media platforms and technology giants are seeing an opening whereby they can work with or against the banking system. A prospect that could lead to a significant political disruption.

Facebook’s Pitch to the Banks

Facebook’s proposed model for the banking industry has remained the same since the company first began flirting with the idea of making inroads into the world of financial services.

The social media giant has proposed free services in exchange for individual data. In its drive to become a  digital wallet, Facebook hopes to deepen its engagement with its own apps including FB Messenger, which has 1.3 billion users worldwide.

Facebook has already built a partnership with American Express that allows users to send money via the app. The company is also deepening its cooperation with Mastercard to provide users with the option to make online purchase orders.

For the banks, the appeal of entering into a deal with Facebook centres around user outreach as platforms promise to develop applications working in tandem with services that include the ability to get instant account balance notifications and fraud alerts.

Why work with banks and not against them?

The greater appeal for banks working with social media behemoths is the so-called “opportunity cost,” or what happens when major platforms decide to go it alone. The fear of “disintermediation” by platforms that have harnessed online engagement will render the physical financial institutions irrelevant and disrupt banking.

There are, however, two significant barriers that would keep the banks from falling behind the curve. Banks have a charter and maintain a minimum level of capital while adhering to a series of regulations that differ from market to market. Culturally, technology behemoths live in a deregulated and global environment that often keeps them at odds with accountability and governance, two foundational components of banking.

Data managers often leak data, which would run risks for the bank. The knock-on effect of any sort of leak would damage trust in the banks’ ability to secure its services and weaken its position in the industry.

In the case of Facebook, JP Morgan has pulled away, unwilling to share its customers’ transaction data, according to the Wall Street Journal. Facebook has become somewhat of a pariah for many financial institutions after the former leaked the data of 87-million users to Cambridge Analytica – who, in turn, used them in the 2016 Brexit and Trump campaigns. The social media giant is now seen by many as synonymous with corporate abuse of power and has little credibility within the banking industry.

To enhance its credibility, Facebook is offering to embed clear history features on its platform, which means the user would theoretically have more control over his or her browsing history. Moreover, this would be an “opt-in” rather than an integrated service on Facebook.

Aware of its weaknesses, Facebook is working towards its own breakthrough by investing in blockchain technology with the view that if it has its own cryptocurrency, Facebook could push aside many of inhibitions of online banking by reinstating the anonymity of cash.

Pitching to Banks

Facebook is not alone in wanting to enter the banking market. For years, Google, Microsoft, Apple, and Amazon have also looked to carve their own niche in the potentially lucrative market.

Apple Pay is already a strong brand that requires little to boost their image. The company could soon launch a credit card in partnership with Goldman Sachs and is working on a partnership with investment banking platform Marcus.

Amazon’s virtual assistant, Alexa, is spearheading the drive pitch for future partnerships. Payments could be secured through the new generation of biometric data – “my voice is my password” – while the evolution of checking accounts could increasingly bypass the need to use banks.

Data leaks remain and technical challenge

Data leaks are common for online platforms and banks and calling on customers to trust their money with cloud services is risky. Moving sensitive data to a cloud is a precondition to being able to use artificial intelligence instruments that improve on user experience, both for retail customers and trading.

Therefore, the banks are moving to their own private clouds with or without an agreement with the established online behemoths. Globally, the banks could spend €10.3 billion a year by 2021 to develop their cloud ecosystem.

As soon as data becomes available, governments will require full access to confidential account information for regulatory and security reasons, which is already the case in China.

According to the BBC, the Chinese government has set up a social ranking system based on individual behaviour, which is expected to be fully operational by 2020. The integration of banking and social media makes this Chinese vision more feasible and, in time, a model for what other governments may consider as a top security tool.

The idea is that social behaviour will move up or down one’s social credit score. This will have a direct bearing on credit when taking out a loan.

A possible scenario under this model would see a person who smokes have their chances of buying a house reduced. Spend too much money on gambling or express a negative view of the government, and that person will face social credit issues that would affect their right to banking services or the freedom to travel. The fear is that the concept could become a form of low-tech blacklisting that could become a reality in China over the next two years.

Threat to Western Democracy

For the London-based advocacy group Privacy International, big data is becoming a major threat to civil liberties. The very definition of totalitarianism implies the end of the separation between the private and the public sectors, which big data could affect.

One of the key features of Privacy International’s proposals is the shift of focus from companies exploiting data – like Facebook and Cambridge Analytica – to data ownership.

Privacy International suggests that there is an urgent need to focus on data ownership, or risk nightmare scenarios, like banks rating a client’s creditworthiness by referencing their social connections. The first proposal by advocacy groups is to turn privacy into a fundamental right.

According to a July 2016 Eurobarometer study, more than seven in 10 Europeans say it is very important that the confidentiality of their e-mails and online instant messaging is guaranteed. However, only 37% of Europeans know that their voice and instant messaging communication can legally be accessed by private interests without their consent.

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