The free market is the best way to curtail power of technology firms
Why does Big Tech want in on financial services?
This week Google and Facebook announced their further involvement in providing financial services. Google announced the development of a checking account, and Facebook announced that its digital wallet will be integrated across all of its services, including Instagram, WhatsApp, Messenger and its social media platform Facebook. Google, Facebook, Apple and Amazon have all entered the financial arena with differing strategies, even though they all have a common interest - enhancing their customers' behavioral profiles.
Enhancing behavioral profiles requires compiling and storing thousands of categories of data. This data can then be analyzed so that companies will be able to better influence buying behavior directly for merchandise or services offered on their platforms or sell access to this data to advertisers. By storing our financial data, companies will build comprehensive profiles for each of us that are more revealing than finger prints, social security numbers or pictures, and even more insightful than a lifetime of weekly sessions with a psychologist.
These data points provide each of these Big Tech companies with an ability to understand our shopping preferences, sexual preferences, religion, medical history and credit and payment history. These data points, along with DNA and biometrics data, personal gossip, political party affiliation, and secrets told and memories shared, are forever stored in Big Tech's memory banks. This amount of data has never before been available, and never on this scale.
This week Google announced that it's teaming up with Citibank and Stanford Federal Credit Union to offer a checking account. Google already has a digital wallet, Google Pay, an 'app' like PayPal (owned by eBay), which has nearly 100 million users and competes with similar payment apps from Facebook, Apple and Amazon. Facebook earlier this week reintroduced its own payments service Facebook Pay, which will be available to all its 2.5 million members across all its services. Also its Libra initiative intends to build a new payment infrastructure and offer a cryptocurrency through it. Apple has its own digital wallet Apple Pay, with nearly 140 million users. Apple has also teamed up with Goldman Sachs to offer a credit card.
Amazon offers Amazon Pay, a digital wallet that enables users to pay for goods from vendors other than Amazon. Amazon also offers Amazon Cash, which allows people to add money to their Amazon Balance at participating retailers (over 30,000 of them). The company also provides loans to small businesses and is planning to offer a credit card and checking account, and is reportedly in talks with big banks including JP Morgan Chase and Capital One.
When financial services are added, these internet platforms will make it possible to obtain and pay for goods and services anytime, anywhere, anyhow and through any means. But such access and enablement comes at a price.
The Big Tech companies know each of us by the devices registered by us and by our physical location as tracked by the GPS system through devices we carry or ride in. These billions of devices are activated through an internet connection. Information flows between the devices and the Big Tech companies, and every bit of it is stored in databases accessible by computers.
This technology and date have already been used for nefarious purposes in politics and affairs of state. Cambridge Analytics used Facebook's profiling data to attempt to affect voting outcomes. We have heard testimony related to Facebook's casualness in protecting its billions of clients' profiles from intrusive use. We learned that Google refused to assist the Pentagon with its technology initiatives while locating an artificial intelligence research lab in China.
Adding financial data on each of us into these databases will allow these companies to better divine our risk tolerance, understand our buying habits, track our shopping behavior and aggregate our loans and credit card exposures. New metrics would be possible to further segment markets, but for what purpose?
The FICO score (named after the company that invented the scoring model, Fair Isaac Corporation) is one metric that we should all be aware of. It determines the willingness of financial institutions to extend loans or credit. It gives one company the power over all of us in matters of significant life-facilitating events, such as car loans, home mortgages and credit cards.
New metrics that will certainly be developed by these companies will give them a different kind of control over all of us. They can allow variable online pricing by retailers based on payment history, wealth, return patterns, risk tolerance and accumulating credit exposure. New metrics can allow for establishing rates of interest on loans and credit that adjusts monthly based on accumulating credit exposures, change in employment, sudden medical expense increases and lapses or late payments of insurance policies.
Like FICO scores, these new metrics will be good for some and not so good for others. Like FICO scores, they will allow a few to control the many. We have to get our own act together - on privacy, security and control of ever accumulating profiling data - if we are to protect ourselves from the trade-offs between privacy and control and the allure of efficiency and convenience.
Allan D. Grody is president of Financial InterGroup Advisors, a strategy, research and acquisition consultancy.