Most big Facebook headlines over the last few years have been fairly bad news, filled with privacy concerns and political intrigue. The latest announcement from Mark Zuckerberg and his crew of social media risk takers, on the other hand, contains alarming news for banks.
Facebook, along with partners like VISA, Mastercard, PayPal, Stripe and Uber recently rolled out a massive white paper detailing the launch of Libra, a new blockchain-based cryptocurrency, in early 2020. But before you write it off as another prohibitively unpredictable gimmick like Bitcoin, it’s important to look at who it’s made to serve (everyone) and who it’s meant to replace (banks).
“All over the world, people with less money pay more for financial services. Hard-earned income is eroded by fees, from remittances and wire costs to overdraft and ATM charges. Payday loans can charge annualized interest rates of 400 percent or more, and finance charges can be as high as $30 just to borrow $100. When people are asked why they remain on the fringe of the existing financial system, those who remain “unbanked” point to not having sufficient funds, high and unpredictable fees, banks being too far away, and lacking the necessary documentation.” That’s a direct quote from libra.org (the cryptocurrency’s official website), and it should serve as fair warning to banks of all sizes.
If you thought Venmo was shaking up the financial world, Libra is poised to crack its very foundations.
What makes Libra different than it’s temperamental older brother, Bitcoin? Facebook recruited a large group of very smart businesspeople and important, well-funded companies to join its braintrust, and the results show a concerted effort to learn from Bitcoin’s mistakes. Without going into too much detail (you can get as much information as you could possibly want on libra.org), Libra will be anchored to a set of stable investments including bank accounts, government securities and international currencies. This will be maintained by the Libra Association, an independent organization in which Facebook gets just one vote (out of many).
If you know anything about blockchain (and it is admittedly very hard to understand), you know that it is essentially un-hackable. Building on that, Facebook has engineered a disconnect between Libra and its own service. Hackers (or advertisers) will not be able to connect anything about the cryptocurrency to Facebook users or vice versa. You can say a lot of things about Mark Zuckerberg, but he is intent on learning from his mistakes – and the mistakes of others – and the care that seems to have been taken in the creation of Libra is impressive. The only possible crack in the armor is the open-source nature of the Libra blockchain. Inevitably some unsavory characters will use it for unsavory purposes, but it’s hard to stop humans from being humans.
What does all of this mean for bankers, especially community bankers? According to libra.org, “The association envisions a vibrant ecosystem of developers building apps and services to spur the global use of Libra. The association defines success as enabling any person or business globally to have fair, affordable, and instant access to their money. For example, success will mean that a person working abroad has a fast and simple way to send money to family back home, and a college student can pay their rent as easily as they can buy a coffee.”
This cryptocurrency may have been developed at a macro scale, but it was created with everyday transactions in mind. And that will almost certainly impact how people – especially young people – think of money.
Facebook is all about relationships. Consequently, it’s not hard to imagine Zuckerberg and his crew leveraging those relationships to promote Libra (in fact, it seems inevitable that they will also incentivize retailers to do the same).
What kind of relationship does your bank or business have with customers who are likely to adopt Libra?
If they see you as old-fashioned or technology-averse, then it’s time to get serious about updating your brand. Whether community banks and small businesses end up working with Libra or not, nobody can afford to get bogged down playing defense. While your older, more established customers aren’t going to dabble in cryptocurrency, they’re also probably not going anywhere. Serve them well, but redouble your efforts on customers under forty, or you may very well lose them.
And if you are a bank, that doesn’t mean that these customers will choose a competitor. If the Libra Association gets its way, they won’t use a bank at all.
I’m not saying this is the end of banking as we know it. But it might be the beginning of the end of banking as usual. So it’s time to transform from a “usual” bank into something more. A progressive bank. An innovative bank. A bank that adopts instead of simply reacting. A bank that focuses on giving up-and-coming customers what they want rather than simply handing them a list of services. And you don’t have time to evolve your services before evolving your brand. All of that change needs to come at one time.
Looking at Libra with fear isn’t going to change anything. Instead, look at Libra – or more accurately, at cryptocurrency and other financial innovations – as opportunities to grow your customer base. Huge national banks can take years to pivot. Community banks and small businesses can adapt much faster – if they choose to do so.
Fresh ideas about money give you and your bank or business a chance to refresh your own brand. Let’s roll up our sleeves and get started.