Facebook Bank,
& Trust Issues

Calibri et alBy the time my youngest is old enough to ask me what a bank is, you can bet I won’t have a concise answer. Were I to give it a stab right now, it might go something like this:

“That toy pig on your shelf, the one with a cork in its belly, that’s a bank. That building over there? That’s a bank, too. Except, a bank doesn’t need a building. Or a pig. It’s a bank if it stores or moves currency, or something that isn’t actually currency but acts like it. This app here on my phone, for instance, is a bank. So is this website. Except, they’re not banks in the physical sense. But they function like banks, so we sort-of call them banks. Or non-banks. Or fintechs … You look confused. Are you sure don’t want to ask me something that’s easier to talk about? Like, say, where babies come from?”

Likewise, I’m not sure I’ll have a ready answer for, “What’s social media?” For Exhibit A, I submit Facebook, which just announced plans to add bank to its existing definition, a place where you upload pictures of food, comment on and share articles after skimming the headline, and tell advertisers more about yourself than you realize.

I refer, of course to Facebook’s soon-to-be launched subsidiary, Calibra. According to its website, Calibra promises to be “a connected wallet for a connected world,” a “new way to save, send and spend,” and a “new currency for the world.” Moreover, Calibra promises smooth, secure, near-instant worldwide P2P, along with limited access for small merchants. 

It appears that the claims are not mere hype. Calibra may actually be and do all of these things. The secret sauce behind its speed, international capabilities, and security is its proprietary cryptocurrency Libra, which, according to the Calibra website …

… is a global cryptocurrency built on the foundation of a blockchain (the Libra Blockchain). Libra is fully backed by the Libra Reserve, a collection of currencies and other assets used as collateral for every Libra that is created, building trust in its intrinsic value. 

Money deposited in or transmitted through Calibra is converted to Libra. When withdrawn or delivered, it’s converted back. As of this writing, Calibra plans to charge “low-cost and transparent” transaction fees, “… especially if you’re sending money internationally. Calibra will cut fees to help people keep more of their money.”

According to Finextra, Facebook will “… manage the payments internally rather than relying on payment processing partners as it has done in the past.” It adds that Facebook’s global currency backers include …

… Visa, Mastercard, Paypal, PayU and Stripe; e-commerce companies eBay, Booking Holdings, Farfetch, Lyft, Mercado Pago, Spotify and Uber; telecoms companies Iliad and Vodafone; blockchain services Anchorage, Bison Trails, Coinbase and Xapo Holdings and a number of venture capital firms and NGOs. Notable absentees from the roster of backers include Google, Amazon and Apple and incumbent banks which are reportedly concerned about logistics and regulation.

Though Calibra is a Facebook subsidiary, it will operate independently. That’s smart operations and smart marketing, given recent scrutiny of Facebook regarding data collection and distribution, security, voting manipulation, and other issues. It’s also smart from a regulatory standpoint. As PYMTS.com reports:

Facebook’s Tuesday (June 18) news of the launch of its Libra cryptocurrency was heard around the world, and the Group of Seven (G7) nations definitely noticed, with the coalition calling for an investigation into the supposed risks of cryptocurrencies and how they would affect the current financial system, according to a report by The Financial Times. The G7 wants to create a working group that will investigate how to make sure that there are proper controls against the threat of money laundering with cryptocurrencies as well. Also participating in the working group will be the International Monetary Fund.

Not everyone is ready to sing Calibra’s or Libra’s praises. “It’s shady as hell,” writes deputy editor of The Verge Elizabeth Lopatto in her well-written, well-researched, enjoyably sarcastic-as-hell if not overly negative analysis. She spends some time debating whether it’s technically correct to call Libra a cryptocurrency, finally concluding, “… there is no stable definition of ‘cryptocurrency,’ so I am going to just call Libra a cryptocurrency for the sake of ease and keep it moving. If you’d like to put an asterisk on that, I can’t blame you.” Beyond that, her main concerns seem to be that Calibra will likely return a profit to Facebook (um, that’s kind of the American way), that she’s not so sure she trusts the technology, and that she doesn’t much care for Facebook founder and CEO Mark Zuckerberg. 

University of Chicago Law School professor Eric Posner isn’t terribly encouraging, either. Writing for The Atlantic, he warns, “Libra will almost exactly replicate all the problems generated by Facebook’s social network. Those problems can in turn be traced to the central paradox of Big Tech: The technological innovation that is supposed to liberate us from government ends up subjugating us to a handful of corporations.”

Yet surely Lopatto’s and Posner’s concerns have occurred to and will be looked into by the G7, not to mention by Maxine Waters, who chairs the U.S. House Committee on Financial Services and recently announced new task forces on financial technology and artificial intelligence.

Calibra will certainly have an ace up its sleeve come launch time in the form of 2.4 billion Facebook users, a number that’s likely grow between now and then. Most Facebook users appear unfazed by concerns raised by the media and the United States Congress, as shown by their continued, blithe uploading of food pictures, sharing articles after skimming the headline, and telling advertisers more about themselves than they realize. When (if) Facebook becomes a bank, there’s little reason to expect that to change.

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The unbanked,
the pre-banked,
and the underserved


Are we overlooking anyone?

It’s no wonder that to many consumers a bank is a bank is a bank. A regulated banking environment all but disallows substantial differentiation. Setting apart a financial institution in consumer minds is no easy thing. 

For a while, rewards programs presented as a would-be panacea, but these days such seem largely to have morphed into lookalike programs. Moreover, frequency and loyalty are not synonyms. If a compelling rewards program can hold a client, a more compelling one can pull a client away. That’s not loyalty.

Real loyalty is an emotional attachment. One way to foster that kind of attachment is through the personal banker-client relationship. But on that, digital banking is taking an increasing toll. Loyalty also results from longevity, for we humans are creatures of habit. We tend to stick with what’s comfortable and familiar. But, how to create longevity? Rather implicit in the word is that it tends to need a certain length of time to unfold. It relies on landing clients at the outset of their lifetime as a financial services client.

There may exist a new longevity opportunity with the unbanked—a number that Business Insider puts at two billion—and with the underserved.

In many cases, “unbanked” is something of a vicious circle. A good number of the unbanked have little or no money or assets, so it’s not surprising that banks wouldn’t actively pursue them; yet one of the reasons they haven’t much in the way of assets is that they’re unbanked. Business Insider continues:

Financial inclusion has been seen as key for reducing poverty: bank accounts have an important part to play in the founding and expanding of businesses, making transactions more efficient, secure and transparent and managing savings.

Helping the unbanked prosper is a noble goal in its own right. But it may also present a longevity opportunity, that is, a loyalty opportunity with a population historically overlooked by financial institutions. For that matter, “unbanked” doesn’t necessary mean “no money.” A good number of unbanked have plenty of money but simply transact in cash.

Among others, JPMorgan is rising to the call. According to Reuters

JPMorgan Chase & Co on [March 18, 2019] began offering checkless accounts with access to its mobile app, branches and ATMs for $4.95 a month and no minimum balance. The accounts come with debit cards, digital payments and free check cashing, but do not allow overdrafts … Thasunda Duckett, chief executive of Chase Consumer Banking, said she hoped the new accounts will attract more low-income individuals and people who have never had bank accounts.

Another unbanked, or, technically, “pre-banked” population is teenagers. The not unreasonable assumption that teens eventually become adults suggests that an opportunity resides within that population for initiating a relationship and building longevity. Consider the forthcoming app, Step. As reported by Finextra:

The brainchild of Gyft co-founder CJ MacDonald and Square veteran Alexey Kalinichenko, Step is building a mobile-based bank account—held with Evolve Bank—specifically designed for teens that is interest bearing and has no hidden or overdraft fees.

Step has already racked up a waitlist of over one-half million eager teens. Linked to Mastercard, the app “… lets users send and receive money instantly, shop online or in-store as well as use Apple Pay and Google Pay.” Parents are looped in and have oversight.

Step’s timing is interesting, given that JPMorgan just bailed on Finn, similarly targeted to teens. Yet the financial giant hasn’t jettisoned the teen market. Rather, according to Market Insider, the plan is to “focus on attracting millennials through Chase, its primary consumer brand. The existing Finn customers will be transferred to Chase accounts.” Sankar Krishnan of consulting firm Capgemini, as quoted by Forbes, agreed that “… the Chase mobile app has excellent features and functionality and has enjoyed considerable success” and, therefore, “it does not make sense to operate two parallel apps and that could be one reason for ending Finn.”

Meanwhile, Amazon and Synchrony Financial have joined forces on a new, secured Amazon Credit Builder card for people with lower credit scores. Cardholders deposit $100 to $1,000 dollars, which is refundable, and which determines the card limit. Finextra reports, “The card could bring millions of people into Amazon’s orbit. According to a Fico survey, 11 percent of Americans has a credit score below 550.” The unbanked are not an exclusive or possibly not even an intended target, but surely a good many unbanked exist among those millions and may in the end prove grateful and loyal.

Another population that isn’t necessarily unbanked but could use assistance is people with limited use of fingers and hands. To them, touchpad apps are a challenge whereas voice payment technology can be a godsend. I’m not suggesting that Amazon and others at the forefront of voice payment technology have the disabled in mind, however, there are some 30 million in the United States alone who “… have a disability in their hands and/or forearms, including paralyzations, orthopedic impairments, either congenital or injury related.” Again, this is an underserved population that may prove loyal to the first financial services provider that makes life easier for them.

Some services target the traditionally unbanked and underserved, while others not specifically targeting them may reach them incidentally. In an ideal world, the culmination will be an overall rise in prosperity.

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Reasonable imitation of empathy

Facing BriansI worked for a man who stopped by a drive-up coffee hut each morning on his way to the office. Upon seeing his car pull into the lot, the barista set about preparing his coffee so it was ready when he reached the window. The barista greeted him by name. Every eleventh cup was free, but knowing my boss didn’t like punch cards, the barista kept track for him.

More than once my boss wondered aloud how to get our organization to consistently deliver a like level of personal service across the board. The answer was, we couldn’t. The coffee hut was a one-off business, the barista was the owner, and she cared about customers the way only owners do.

It is the bane of every growing business—how do we get hundreds of employees in hundreds of locations to care the way the boss cares? The traditional approach has always been to invest in training programs and hope they work. (“Why not just hire polite people?” a training video scriptwriter of my acquaintance asked. The HR director replied, “When you need to keep over a thousand teller positions filled, you take warm and breathing and hope you can teach them manners.”) 

But zeros and ones may be poised to deliver a reasonable imitation of genuine customer care. I refer to MasterCard’s recently announced Innovation Engine. It …

… serves as a hub for the enablement of varying digital solutions, the first of which provides highly personalized and contextually relevant cardholder experiences.

In plainer English, Mastercard’s new software can quite literally know when your car is on approach, remember how you take your coffee, and keep track of your rewards points for you. Indeed, a photo in Mastercard’s press release shows a customer, fresh coffee in hand, viewing a text that reads, “Looks like this is your favorite spot. Want to make your coffee free every morning using your points?” 

Mastercard created the Innovation Engine in collaboration with Flybits and Kasisto. At its heart of is “… contextually-relevant and personalized digital engagement and servicing.” According to Mastercard,

The data contextualization capabilities of Flybits, and the conversational capabilities of Kasisto enable personalized offerings and experiences to be delivered to the right customer at the right time, providing value to today’s digitally-savvy consumer while also helping issuers and merchants reduce costs.

A Flybits press release quotes Kasisto CEO Zor Gorelov:

Kasisto’s differentiated digital conversation platform helps banks and merchants personalize how consumers explore and understand the rewards and benefits tied to their card.

The Innovation Engine promises to let consumers use any payment card on any device, make near-instant P2P and other disbursements, access trend and sales data faster than government and other services, measure digital media campaign effectiveness, and rate transactions as to likelihood of fraud.

The concept of machine-enhanced labor has been around since 1875 England, when mechanized looms took over work until then performed by artisan weavers. This led directly to the rise of the Luddites—rhymes with “Bud Lights”—a secret society whose mission was to destroy machinery. Today, Luddite is used to refer to anyone opposed to technological advance of any sort.

But great customer service has always depended on the ability to put Oneself in The Other’s shoes. In short, empathy. It takes empathy to understand a customer’s point of view, infer needs, sense moods, and discern the intent behind a question in order to respond appropriately. Empathy is a hallmark of social creatures like humans, canines, cetaceans—even vampire bats!—but to date it eludes even the most powerful AIs. 

But given sufficient data, it’s possible to correlate most-common behaviors with most-common needs and preferences, and to correlate most-common needs and preferences with most-common desired responses. 

Like, for instance, having your coffee ready for you when you show up at the window and keeping track of your points. 

Which, from the customer’s view, can look a lot like empathy.

Who knows? Technology may yet meet my former boss’s challenge. It might not be a stretch to suggest that Mastercard’s Innovation Engine aspires to simulate caring as if it owns the place.

But I cannot resist taking it a step further. The day is probably not far off when consumers will dispatch AIs of their own to do business on their behalf. I wonder if consumer AIs will be able to tell they’re dealing with merchant AIs. 

It could be a whole new level of Turing Test.

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Will A.I. kill bank
industry jobs?

Help (Not) WantedCrowing about the need to bring jobs back from across the ocean makes for powerful rhetoric, but technological advances account for the lion’s share of lost jobs in the U.S. Financial Times pointed out:

The US did indeed lose about 5.6m manufacturing jobs between 2000 and 2010. But according to a study by the Center for Business and Economic Research at Ball State University, 85 percent of these jobs losses are actually attributable to technological change—largely automation—rather than international trade.

Technology now appears poised to take its toll on banking jobs. How much of a toll depends on whom you believe. Estimates vary from zero to one-half of jobs.

More and more, the culprit of choice seems to be Artificial Intelligence, or AI for short. According to Forbes:

Over the past decade, the digitalization of customer services has led to a decline in the need for front-of-house staff in banks and the subsequent closure of many branches. Similarly, one of the primary areas where banks are implementing new AI solutions is customer services.

As I wrote earlier this year, AI has its artificial fingers in many a financial services industry pie. Examples include day-to-day transactions, online queries, better-informed investment services, fraud detection and prevention, and more. These are not new tasks; they are tasks heretofore performed by humans. 

Hence the UK’s Independent reported former Citigroup CEO Vikram Pandit’s prediction that “developments in technology could cut the number of banking jobs by 30 percent in the next five years.” That was about 20 months ago. If he was right, we should know in about three years.

Consulting firm Opimas seems to agree with Pandit. Last week, Finextra reported:

Opimas believes the asset management industry—already under tremendous pressure due to declining management fees and slowing asset inflows—will see some of the greatest cutbacks in the workforce, shedding about one third of its headcount.

The Bay Area’s Mercury News appears even less optimistic:

Advances in artificial intelligence and automation could replace as many as half the nation’s financial services workers over the next decade, industry experts say, but it’s going to take a big investment to make that happen. James D’Arezzo, CEO of Glendale-based Condusiv Technologies, says that’s where things are headed.

More sanguine is Paula O’Reilly, international consulting firm Accenturemanaging director. Responding earlier this year in American Banker to the notion that AI will lead to “massive job loss,” O’Reilly minced no words, stating, “That mindset is wrong.” Moreover,

Banks looking to successfully deploy AI will need to rely on a vibrant workforce that is retrained and refocused to work in tandem with AI … AI will take back the rote functionality that occupies too much of bankers’ time, unleashing them to use their inherent creative and dynamic abilities.

Allowing that “…The World Economic Forum projects that 5 million jobs will be lost in the top 15 developed economies within the next 24 months,” O’Reilly counters,

More accurately, AI will displace jobs in some areas while creating an equal amount of new jobs elsewhere. The losses will be largely among the transactional workforce, while the direct gains will be in skilled AI-related positions.

It’s true enough that whenever technology obviates hands-on jobs, it creates new jobs in or relating to AI. But there’s no basis for predicting the creation of an equal number of jobs. Regardless of how many workers successfully transition into other positions, AI’s taking over certain jobs, no matter how tedious, will necessarily create redundancies. When that happens, economy demands downsizing.

O’Reilly addresses that concern, writing that Accenture’s “… recent discussions with more than 1,200 banking leaders indicate that more than 90 percent expect these shifts and plan to retrain and redeploy their workforce as needed.” That figure may speak more to the PR skills of 90 percent of CEOs than to reality. Last month, according to Business InsiderAccenture offered less encouraging news:

… while 54 percent of executives in banking say the skills gap will influence workplace strategy, only 3 percent say they plan to increase investment in reskilling over the next three years, according to consulting firm Accenture.

It would be naïve to think that everyone who loses a job to AI will simply step into an AI-related job. Some workers are more retrainable, and some less, than others. Ageism may rear its ugly head in the case of older workers. And while it’s pleasing to talk about freeing workers to perform tasks requiring a human touch, it’s important to remember that not all humans are created equal when it comes to skills. Sometimes there’s a reason certain employees are kept working as far from customers as possible. 

In an article for ForbesQuantexa CEO Vishal Marria seems to land somewhere in the middle:

… one of the primary areas where banks are implementing new AI solutions is customer services … J.P. Morgan uses AI to answer customers’ questions and anticipate what their future needs are likely to be, while UBS’s virtual assistant is powered by Amazon Alexa. These products are the ones that are most likely to replace jobs. 

Aside from chatbots and Robotic Process Automation … the way that banks are currently using AI is not a considerable threat to their employees’ jobs … In these instances, rather than reducing the need for human input, the AI-powered systems have alleviated time pressures on existing investigators and afforded them the time to investigate each case in more detail.

Throughout history, technology has wreaked havoc in terms of job loss in industry after industry. Smartphones alone have cut deeply into a host of products such as video and digital cameras, scientific calculators, bicycle speedometers, encyclopedias, and CD players, to name a few. Significant job loss has been associated with each. I am not unsympathetic. I wish I had a solution.

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Why contactless payment
for NYC transit is a big deal
(and something of a risk)

tap-screen-brandsBy the time you see this post, New Yorkers will be covering fares on selected subway routes by means of the city’s new, contactless payment system. 

In accordance with governments’ propensity to come up with acronyms, the city has named the service OMNY, for One Metro New York.

Whether New Yorkers embrace OMNY remains to be seen. My figurative money says they will. Meanwhile, the city’s Metropolitan Transportation Authority (MTA), Visa, and Chase have put literal money on it.

You may wonder why I consider MTA’s jumping aboard the contactless payment bandwagon newsworthy. After all, with contactless payment having attained some ubiquity by now, opt-ins by various verticals and major chains have long ceased making headlines. Another merchant accepts contactless payments? Yawn. Tell me something I don’t know.

Why it’s news

MTA’s going contactless is news largely because the expression “in a New York minute” has some basis in fact. 

A minute comprises 60 seconds in most places. But a New York minute, as the late comedian Johnny Carson put it, is “the interval between a Manhattan traffic light turning green and the guy behind you honking his horn.” 

Nowhere is time a more precious commodity than when you’re trying to board a New York subway. If you don’t believe me, I invite you try this experiment: Stand at a turnstile and fumble with your wallet for a few seconds. Chances are a chorus of protest will swell behind you in … well, in a New York minute. As PYMNTS.com editorialized, the New York City mass transit system is …

… an unforgiving environment where people are famously told not to look too long at other riders, so you can imagine the frustrations in store if those payments should fail while someone is trying to catch a subway to work … according to Visa statistics, 67 percent of riders have missed a train while waiting in line to reload a fare card. In addition, 83 percent of consumers said they’ve had trouble getting their fare cards to work at turnstiles, and 66 percent have left funds on transit cards (the definition of leaving money on the table).

Which means that OMNY had better work, and work right, the first time, or mayhem may ensue. To minimize the mayhem risk, plans are not to roll out OMNY across all subway stations and bus routes until October of next year. For the time being, MTA is slated for a small-scale test run beginning on May 31. 

MTA’s chief revenue official Al Putre, reports AM New York, is all too aware of what happened in 2013 when the Chicago Transit Authority—the transportation organization, not the band—launched contactless payments system-wide without first testing small: 

Chicago essentially flipped a switch, transitioning to a similar tap card payment model, which led to mass confusion, a host of bugs and other payment failures. The snafu resulted in the Chicago Transit Authority granting almost a million free bus and train rides in the first weeks of the launch, according to the Chicago Tribune. “I don’t want eight million people tapping right off the bat,” said Putre … “They did this in Chicago. They almost fired the mayor!”

OMNY is driven (so to speak) by software developed by San Diego firm Cubic Transportation Systems. Cubic also designed Chicago’s system. Unlike Chicago’s system, however, MTA will be the first U.S. transit agency to use Visa’s Global Transit model. This Visa describes as …

… a back-office framework to manage contactless payments regardless of transit operators’ size or fare structure. The Visa model enables operators to offer a range of flexible fares, including fixed fares, distance- and time-based fares, and multi-modal fares, as well as features like fare capping, concessions, and delay refunds.

Riders can use OMNY in a variety of ways. Downloadable apps will allow riders to tap smartphones and wearables to cover fares. Or, riders can tap a Chase-issued Visa contactless card. Chase was a major player OMNY’s development. According to Bloomberg, there is no shortage of Chase contactless cardholders:

Today, about 20 million Chase customers have Visa contactless credit cards …That will also include debit cards for Chase Secure Banking customers, a low-cost bank account that opens Chase accounts to even more New Yorkers and public transit riders.

OMNY is set to launch on May 31, so, again, by the time you see this post, we’ll have some indication as to how well New Yorkers accept it. You could call May 31 a “soft opening.” Besides limiting access to a few test locations, MTA has wisely placed “TEST PHASE” on OMNY terminal screens. The hope is to iron out wrinkles on a small scale for a wrinkle-free rollout in October 2020. As Putre said, “You only get one chance to get this right.”

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