Dangers of Facebook Banking and the Convergence of the Internet

The Wall Street Journal recently reported that Facebook approached multiple, major US banks, including Chase, Wells Fargo, and US Bank with a proposition to include customer financial data on Facebook. My first thought was how did Wells Fargo not see the huge upside in sharing fake accounts with Facebook? OK, that is a jab, but birds of a feather flock together. Now, it seems the (good) people at Facebook are already backtracking on this banking proposition. It appears the proposition included a trade of banking financial data for Facebook marketing opportunities (presumably to help the banks get more customers) and an offer to allow bank payments and alerts to be processed via Facebook Messenger. This reach, well, overreach by Facebook, should scare us all. It shows that data privacy, customer interests, and the treatment of customer data are poorly managed and are secondary to firm profits. It also shows the strong draw to converge the Internet into few and fewer operators. This last point, I find especially fascinating.

The convergence of the Internet has been happening, yet we have not really paid close attention to notice. In part this is driven by the winner(s) take all model of digital environments. Amazon dominates e-commerce and shows a continued march to add more and more merchants to its environment. It is not that Amazon has absorbed, bought, or even put out of business other merchants. Instead, it is that these merchants find it attractive to operate (primarily in many cases) on the Amazon platform. This convergence is driven, I think, by some critical features:

• Convenience – we prefer a few number of channels to get our news, updates, and product ordering done. Why are we so simple and well, lazy? It is really that hard to open another app to check the news? Yes, it appears to be the case. It reminds me of the over-promise of Yahoo! – all the Internet features at one portal. Is that the quest of Facebook, now, to be the single portal to the Internet, world, and metaphysical universe? Do we really want single portal lives again? Can anyone remember 2000?
• Back-end Execution – digital platforms don’t win just because they have cool sites (if so, Yahoo! would have been the winner). They win because the back-end execution is superior. Amazon does fulfillment and merchant marketing like nobody else. The analytics must also be in place to allow sellers to optimize on offerings and to buy into new advertisement opportunities. That attracts customers and sellers. The convergence follows.
• Value of Data Fusion – the Internet is converging because there is value created in bringing together data. In my book, “From Big Data to Big Profits: Success with Data and Analytics,” I call this data fusion. Combining banking data and social data on Facebook can help unravel many socioeconomic conundrums. For instance, why do some people with high incomes fail to pay their bills? Can your personal or social instability suggest an impending instability in your financial future?
• Form Factor - The convergence of the Internet is also driven by the form factor of the smartphone. With everything now an app and competing to have first page presence, it is challenging to be an app that does just one thing (well, Uber is able to do that). Apple has hopes of bring healthcare data onto its platform. Google maps is a great example of bringing location data (and history of locations) to its platform and aspiring to fuse with it all things that can benefit from location data.

The convergence of the Internet poses many privacy concerns and creates an availability of information that can harm consumers overtly. In my classes at Northwestern University, I ask my students if a bank should be allowed to use publicly available information from Facebook to manage one’s credit card or mortgage. Most people answer that such information is public and free for anyone to use. They add, that banks would not really want social media data anyhow. At first pass, they think the banks would be looking at their photos. “No, sorry, the Internet is full of beautiful young people doing embarrassing things. We at Big Bank Corp are not seeking more examples of fun frolicking. We want to know other things about you.” The indifference to privacy shocks me, frankly.

Then I pose a more specific question and responses change. If one goes to Facebook and tells their friends they are recently unemployed (seeking support, job leads, or maybe a hug here or there), can that information be used by banks? Such information about the change of income would be very important to the credit issuing bank. In this question, I get an astounding NO – no that social media data is not shared for the purposes of updating the banks on income of employment status. However, as a public declaration, it is not illegal for the bank to consider it.

Now, think about a darker situation. You tell your friends you have terminal cancer or some other health issue that will surely impact your ability to pay back debts. The ethical dilemma is more challenging, if not clearer. Should we deny people credit or reduce their access to credit because of their health prospects. Surely banks could show that ill people are bad risks. Of course, my students see the challenge and privacy risk, when the availability of data is posed this way.

The Facebook case also suggest a convergence in banking. Do we need Facebook messenger to pay bills? Maybe the future is just a Facebook credit card or Facebook bank! Why not bank with those people that sell your data without your permission. Consider the rewards packages!

When data is used against one’s economic interest, there is a natural aversion to that usage. Facebook has already showed us, in the Cambridge Analytica case, that its interests were (or still are) just in profits, not protecting the economic interest of its users. That is the problem with the convergence of the Internet. It maximizes profit for the firms, not the interests or utility of the users.

More on this topic to come…check back soon!

Professor Walker provides keynote talks, seminars presentations, executive training programs, and executive briefings.

Click here to learn more about his talks, references from clients, options for customized talks and programs, and details on scheduling a program for your organization.

About Russell Walker, Ph.D.

Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University. His most recent book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.