Bern: Mark Zuckerberg is about to become the head of a very big bank based in Switzerland. Libra is Facebooks’ new cryptocurrency. Imagine sitting in a room thinking about what else you can sell to your 2.4bn people (including some bots) backed by a $1bn in guarantees from companies as wide as Paypal, Mastercard and Uber. This has the opportunity to severely disrupt existing financial transactions markets but also the deeper psychology of trust of our collective financial systems, collective expectations for what currency can and should do and also our personal relationships. For example, please pay me to socially post positive things about you. Just drop me some Libra.
Research last year told us that 28% of major companies (like Facebook) are sucking up over 72% of all the economic, brand value and process changes from the way they are digitally transforming themselves. If these companies sustain this leadership for three more year’s they will have sucked out over 50% of all growth in their segments. They will be bigger, far more valuable, more dynamic and even more set up for success than before. The one scary fact we found was that they will also be far more confident (65% more) to go and do very new things in their sector. This is an example of that shift. Here are three things this story tells us about digitally transforming decision making and the massive ripples that could occur.
Crypto and blockchain are now established newbies (in digital time) to the world of creating new market opportunities. Add in 2.4bn users, make the code available to certain big partners (like What’s App) and offer it for fractional, near instant and protected transactions and you have magic. You then tie it to a guaranteed asset base, and you remove some of the potentials for extreme volatility that has held the idea in check for a while. This is the perfect example of the partial destruction of the age-old barriers to entry to the consumer finance markets. Technology has never been able to make such a radical potential impact on everyday lives, across the globe in pretty much one giant leap. That last statement is almost impossible to question and that makes it an incredibly powerful move that will shake the potential ways that we think about banking. We have had other attempts at micropayment systems over the last ten plus years. None have bought all these components together so readily. We are about to enter a world in 2020 where the majority of the workforce in the world will be Millennials or younger. Will they have the same sense of institutional loyalty to banks or even currencies I had when I entered the workforce decades ago?
Remember that two recent NFL players asked for their contracts to be done on Bitcoin and not dollars.
Apparently, Mark Zuckerberg has met with the head of the Federal Bank in the US and the head of the Bank of England. I hope it was a more polished affair than his presentations to various government bodies over the last two years. The reality with the change in banking population (Millennials), our declining trust of historical institutions like governments and frankly banks (just look at these banking Net Promoter Scores) the scene is well set for a sea change in how money and those that govern it will be perceived. Any financial institute not rocked by this type of shift and does not have a plan in place to be part of it is probably one that will not survive in ten years’ time. I am constantly mocked by all my friends for going to an ATM for cash. I never write more than one or two checks a month and everything else is paid digitally. Yet I shop (too much my wife tells me) 24/7/365. I know who my bank is like I know what the brand of tires is on my car. My bank is of little importance to me and I resent the ATM fee I get charged for by others and also the annual fees we get charged for basically doing nothing that I can see.
Possibly Facebooks’ Libra will help bring that debate to the front but there is little doubt that the new term; would you like to be paid in Libras’s or dollars could be commonly on the lips of future generations. Trust is the underlying currency of any institution or transaction. Just look at what it says on any bank note. Then moments, when that historical trust is severely questioned (just go back to the financial crisis of 2008), is also a moment for new areas of trust to be built. Facebook recognizes that it has taken a battering in the last few years. This could be a rocket launcher to being seen as a new governance body in a totally different area of trust, our money.
If we do not trust our banks, if we have diminishing trust in our institutions yet we transact more and more each day with forms of full or fractional payments in platforms that can be managed with one button or something on Facebook, then how we think about money and what it can do for us is rapidly evolving too.
We need to ask the same thing about the very basic nature of the businesses we are in. That is the fundamental question that sits at the heart of digital transformation. How do these technologies transmogrify the very underpinnings of what we do, how we do it and what customers, new or old or yet defined could see from us?
There is a DNA to successful digital transformations that sits at the heart of the Wall Street Journal (maybe Wall street goes too) book, The Digital Helix. Only 28% of major corporations are asking that question at this deep level. Facebook’s news today should be pinned on your desk or wall as a fundamental question you should be asking yourself today.
This move was not unexpected and there will be more and more of them to come. It does though show how our trust models of the past are not going to naturally transfer to the trust needs of the future.