Last week, prior to the release of Facebook’s Libra, prominent Bitcoin evangelist and educator Andreas Antonopoulos made a surprising comment. In a Q&A Youtube video, he quipped that the corporate cryptocurrency isn’t a threat to Bitcoin, but is instead a threat to Wall Street and traditional finance.
The educator attributed his comment to the fact that Libra will presumably cut fees to a minimum, dramatically reduce transaction times, and reach farther than banks can go.
On June 23rd, the Bank of International Settlements (BIS) gave a nod to Libra via an extensive report. And just as Antonopoulos predicted, the so-called “Bank For Banks” warned that Silicon Valley in finance could threaten the broader banking industry.
BIS Wary of “Big Tech in Finance”
For most of their lives, technology companies have stayed away from foraying into financial services. But, as Silicon Valley has looked to bolster its bottom line, firms have begun to take technology and combine it with finance.
Google has launched Google Pay; Apple has the Apple Card. And, as you are likely aware of, Facebook and its countless corporate partners (Uber, Spotify, PayPal, Visa, Booking Holdings, etc.) are preparing to launch a cryptocurrency based on a basket of assets deemed “stable”.
For the most part, these ventures are innocuous. They are ways to make business more efficient through reducing friction between a consumer and the end merchant. The BIS writes:
“Big techs’ low-cost structure business can easily be scaled up to provide basic financial services, especially in places where a large part of the population remains unbanked. Using big data and analysis of the network structure in their established platforms, big techs can assess the riskiness of borrowers, reducing the need for collateral to assure repayment.”
But, as the entity, a conglomerate of 60-odd central banks, points out, technology companies dipping their toes on finance may also pose a direct threat to “financial stability” and “data protection”.
The BIS explains that once Big Tech’s enticing financial services trap consumers, entry barriers can be raised and competition can be stamped out, creating a monopolistic system that may actually hurt mom & pop investors at the end of the day. This act would harm Wall Street institutions, potentially making such banks and funds useless in a world where technology executives have the keys to the financial system.
What’s equally as harrowing to the BIS is the potential for Big Tech to harness consumer data to further establish hegemony over everything. The Bank For Bank writes:
“Given their scale and technology, big techs have the ability to collect massive amounts of data at near zero cost. This gives rise to “digital monopolies” or “data-opolies”.Once their dominant position in data is established, big techs can engage in price discrimination and extract rents.”
Indeed, fintech programs have been proven to allow companies to leverage even more data than ever before. A perfect case in point is Robinhood, the no-commission startup brokerage that caters to a millennial audience. The company makes a large portion of its profit by taking the data from user trades, forking it off to high-frequency trading desks, and receiving some commission.
Although Facebook’s blockchain division has pledged that Libra will eventually go fully decentralized, many fear that a similar practice may come into use in this new cryptocurrency’s ecosystem. As HTC’s Phil Chen stated in a press comment:
“If you’re concerned with Facebook knowing too much or having too much access to your private data or social graph, the GlobalCoin will give Facebook even more direct access to your financial information. It’s not just access to the information of your transactions, it’s direct access to your wealth and capital.”