Facebook soothe banks' competition fears

JAMES EYERS
Last updated 08:00 26/05/2014

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Facebook has eased concerns raised by Commonwealth Bank of Australia boss Ian Narev that it poses a strategic threat to the big four banks, after claiming it wants to grow users rather than create new banking services of its own.

Australian and international banks have been closely watching technology giants such as Facebook, Google and Apple for indications they might move into financial services and increasingly view them as competitive threats.

CBA chief executive Ian Narev has, on several occasions, pointed to the "strategic challenge" presented by the tech behemoths, suggesting they could harness their massive user bases to muscle in on payments or other banking services.

Such fears were elevated last month when the Financial Times reported Facebook was close to receiving regulatory approval in Ireland to allow users to store money on the site and pay and exchange money with other users.

Facebook told The Australian Financial Review on Friday it could not comment on this report.

However, Neil Hiltz, the global head of Facebook's financial services vertical, said moving into the payments business was not a focus for chief executive Mark Zuckerberg and Facebook had no intention to move into banking by holding deposits.

Rather, he said Facebook would remain an intermediary between its users and financial institutions, who are increasingly big advertisers on the platform.

"At the end of the day, no matter what we do, we are going to be underpinned and backed by the banking system," Hiltz said in an interview during a visit to Sydney.

"We might be a communication layer between [banks and their customers] but transactions are going to be drawing out of a current account or a card - it is going to be backed by the banking system."

FAIRLY RUTHLESS

Facebook is authorised to process some forms of payments in the United States for games developers and facilitated A$2.1 billion (NZ$1.3b) worth of transactions in 2013, the FT reported last month, citing documents filed with the US Securities and Exchange Commission.

The California-based company has 1.3 billion users around the world and 12 million in Australia.

Hiltz said Facebook remained "fairly ruthless at what we prioritise and what we want to do - and Mark [Zuckerberg]'s number one goal is connecting the world. We have 1.3 billion people on the platform and it is about what are we doing to get the next billion people on the platform.

"That is a weighty enough task in and of itself to then start thinking, what am I going to do with a regulatory framework that is incredibly complex [to become a bank]."

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Should Facebook enter banking, international banking regulation would be likely to require the company to hold capital against any funds held, as a safety measure.

In an interview with The Australian Financial Review in 2012, Narev called out the threat from companies, including Facebook, seeking to manage their own payments systems.

"Among the challenges CBA will face is the prospect, in this highly social digital world, of online giants deciding to manage their own payment systems and cut the banks out of these transactions," he said. "Whether it's Google, Apple or Facebook, the principle is there: they have high-technology capability, very strong brand appeal and low legacy challenges in terms of being a historic bank."

On Friday, Paul McCrory, Facebook's head of financial services in Australia, sought to assuage such concerns, saying Facebook was more interested in building partnerships with banks to enhance the delivery of advertising over the platform and indicated that Facebook wanted to promote the existing financial services infrastructure rather than create new services of its own.Good results

"We are on the path to supporting insurance companies and banks in making better use of what is already there," McCrory said. "That's how we have set the business up, we have had some good results, we have a lot of work to do, and that is our future."

Google and Apple are continuing to eye the payments space. Google Wallet, which stores card and account information and allows users to send payments, launched in 2011.

Meanwhile, Apple chief Tim Cook said in January he was "intrigued" by the mobile payments industry. Apple's iTunes store already holds credit card details of millions of people and accounts can be credited to pay for future services.

But it seems customers of the tech giants may be reluctant to conduct traditional banking through the platforms. In early 2003, CBA launched a Kaching app for Facebook, which allowed CBA customers to conduct their internet banking without leaving Facebook. However, it was a flop, and was closed by the bank after six months when only 180 customers signed up.

Hiltz said the Kaching app failed because it was oriented towards Facebook's desktop application at the time the social network was seeing a massive shift to users interacting through mobile devices.

"At the people level we have seen such a fundamental shift towards mobile that when you build these experiences into the desktop site there is just not a lot of traffic being driven there," he said.

He encouraged banks not to repeat the experiment. "If I had a dollar to spend on technology and had to make a choice between building out my app on Facebook, or building out my core mobile banking app, I would prioritise the mobile banking app."

Asked whether potential users of an integrated banking service within Facebook might have had concerns about the privacy of their information, the company's head of communications in Australia and New Zealand, Antonia Christie, said such fears should be unfounded, because "trust is at the heart of what we do".

- AFR

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