News & Views - Savantor

Opening the flood gates?

Sunday, 16 June 2019

Facebook has announced its intention to launch a digital currency, Libra, to rival traditional banking and enable those without a bank account to make secure payments. 

This prompted a warning from the Chief Executive of Clydesdale and Yorkshire Banking Group for the banking sector to be ready for an onslaught from the tech company giants.

For some time, there has been the challenge within the banking industry to traditional banks from digital challenger banks, such as Monzo and Starling. These app-based digital banks have proved particularly popular amongst younger generations for their ease of use. Lacking the overheads of running a bank branch system and able to focus on key service offerings as opposed to the full spectrum of financial services, the challenger banks have been able to pose a strong challenge to mainstream banks.

Moreover, from April next year the traditional banks are to lose a major income stream with a radical overhaul of overdraft charges imposed by the FCA, whereby a number of ‘hidden’ fees and fees relating to unauthorised lending will be abolished. 

It is probably not a surprise to many that the tech giants are beginning to encroach into banking territory. The success of this infiltration has until now seemed more likely to be achieved by stealth involving a number of different initiatives, such Apple and Google Pay and the Amazon checking account, with differing success rates.

However the recent announcement by Facebook seems to be a more substantial challenge.

Whilst the immediate concerns that spring to mind with Facebook are trust and data privacy, especially with the company’s reputation to date in these areas, nevertheless Facebook has access to substantial funds and has gained the backing of some influential partners including MasterCard, Visa, PayPal and Uber and Booking.com. The company also has 2.3 billion active monthly users as potential customers. 

Whether Facebook is successful or not with its proposals for a new digital currency, nevertheless the announcement may open the floodgates to other similar initiatives launched by its rivals. The success or otherwise of the initiative is likely to have significant long-term implications on both the traditional banking sector and the banking sector in general.

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