Are You Ready To Compete With Facebook?

April 17, 2014 at 8:42 am Leave a comment

On April 17, 1978, the Wall Street Journal wrote a seemingly obscure article in its Money Matters column describing a trend in which an increasing number of investors were using “so-called personal computers” to model investments in what the paper described as a movement of professional money managers to utilize quantitative measures when making investment decisions.

Fast forward to today and computers are now basically doing the investing for the money managers and investment banks are investing billions of dollars to ensure that they can feed the latest data to their computers before everyone else does.  Times change. 

Often it is the obscure event that ends up having the biggest consequences, so for me the most intriguing article so far this week was published in the Financial Times on Sunday.  It reported that Facebook will soon be obtaining an e-banking license from the Irish government which will allow it to transfer money on its Facebook platform.  No one knows for sure what precisely Facebook is planning to do, but when you consider that about one out of every six people in the world use the social network, it has the potential to implement a cooperative financial structure on an industrial scale. 

For instance, let’s just say that Facebook simply wants to get a piece of the international remittance system.  The World Bank estimates that in 2011 alone there were $350 billion in remittances to developing countries.  Imagine how much money Facebook could make if it became the platform of choice for making these electronic payments?  The model is already being used.  In a previous blog, I talked about a mobile phone payments network, which is booming in Africa called M-PSA, which allows individuals to create electronic bank accounts on their phone and then transfer these funds.  Its use has exploded in the developing world.  It also enables individuals on the M-PSA network to make micro-loans to fellow network users.  

Let’s speculate a little more.  Your credit union does nothing more than act as a conduit for people who want to save money and people who want to borrow it.  Which brings me to the second most intriguing article I read this week, courtesy of my wife.  The article was about an 18-year-old woman who is starting a line of bras for young tweens and teens.  She obtained the money for her new business not by going to a credit union, or bank for that matter, but by going to a cite called Kickstarter — a crowd funding organization — and with the help of a video she quickly raised $42,000 that she used to launch her line. 

When Europe started the cooperative financial movement in the 19th Century, the idea of poor people leveraging their wealth outside of the traditional financial structure was a radical innovation.  While the cooperative structure still has many benefits, society is now connected in one big network.  Those credit unions that recognize that they are competing against not only banks but businesses, and have the willingness and foressight to organize and leverage that network are going to be around 36 years from now.  In contrast, those of you who stubbornly refuse to recognize just how interconnected finance has become won’t be.  In practical terms, this means the industry needs more cooperative ventures such as shared branching networks, not less.  It also means that since everyone is already in a cooperative, albeit an electronically created one, maintaining the credit union brand is crucial if we are going to get the next generation to borrow money from a credit union instead of a social network platform.

Entry filed under: General. Tags: , , , .

CFPB Extends Remittance Transfer Exception For Five Years Is Security In The Palm Of Our Hands?

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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