Banks in Brazil are feeling the heat unlike ever before. With an unprecedented recession imminent and the severity of the COVID-19 toll increasing, Facebook has gone and added to their woes with the launch of WhatsApp Pay.
This isn’t the first time Facebook has pulled a move that threatens the future relevance of banks, particularly for small and medium sized businesses (SMEs). Just last month they launched Facebook Shops, ostensibly to assist the recovery of small businesses suffering from loss of shop visitors due to the COVID-19 pandemic. The consequences of Facebook Shops’ success for banks is a gradual shift away from traditional payment methods to alternative methods controlled by the social media giant.
I say to banks now what I’ve been saying for several years: big tech is not your friend. The “innovative” partnerships with Apple AAPL et al. may provide a temporary public relations bolster but longer term, you’re simply handing your customers over on a silver platter.
In a market like Brazil, particularly, where many remain unbanked but have access to a mobile phone, it’s an obvious move to easily enable sending and receiving money via a chat platform. Big tech companies like Facebook have much bigger distribution power than banks. As they move closer to taking over everyday monetary transactions, they’re likely to increasingly gain customer trust in their ability to keep their money safe, too.
It seems everyone in the world, quite rightly, wants a piece of what banks have held the monopoly on for so long. I believe that we’re in the midst of what we’ll historically recognise as the disruption of traditional banks.
In Europe, under the revised payment services directive (PSD2) banks became compelled to provide access to accounts to licensed third-party providers. This opened up a myriad of opportunities for fintechs and tech giants alike. There are a raft of alternative cross-border and foreign exchange companies available now and they’re all competing against each other with better deals, faster transactions and lower fees, for example. Services like WhatsApp Pay, Facebook Shops and third party mobile payment applications further threaten the relevance of the banking system.
The card companies won’t escape unscathed either.
Right now, for the sake of convenience and gaining popularity for the services, many third-parties use a payment card as the connector to make their offering easier. WhatsApp Pay will require users to enter card details and every time a user sends a payment, WhatsApp will pay a small fee to the card company. The longer term strategy will be to get as many users on board as possible and monetise by charging competitive service fees to participating merchants and advertisers. But, it would be cheaper for the payment service providers, like Facebook with WhatsApp Pay to go directly to a bank account or in the future, to have your money stored with them. In Europe they could technically make this a reality but customer trust for storing money still seems, for now, to predominantly lie with the bank versus a social media company.
Is banking disruption an inevitability and will the largest disruptors be the tech giants? I believe this depends on the bank. In my home market of Norway, the banks combined forces to join the largest mobile payment scheme in the country in order to safeguard the customer relationship and their own payment channels. It took a comparatively long time for the likes of Apple Pay to enter the Norwegian market. While Apple doesn’t reveal any numbers on the use of Apple Pay in Norway, the industry experts know that the local schemes and services are dominating – despite all stores having been equipped with NFC capabilities for years.
Norway’s banks, as well as their Scandinavian cousins in Sweden and Denmark, enjoy the success of the Chinese model of mobile payments made famous by Alibaba BABA ’s Alipay and Tencent’s WeChat Pay. One model, two very different sets of beneficiaries.
In Brazil and everywhere else, in order to maintain long-term relevance for their SME and everyday banking customers, banks need to anticipate and provide what the tech companies are actively working on rolling out – easier ways to pay and get paid. Instead of waiting for disruption, banks must look at what the needs of these customers really are and work out a way to provide solutions while they still have – in many regions – the upper hand when it comes to trust.