Facebook Inc. (Nasdaq: FB) is trying to cozy up with America's biggest banks.
Talk about a dirty hookup...
The social media behemoth has approached megabanks like Wells Fargo & Co. (NYSE: WFC), JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc. (NYSE: C), and others, hoping to sweet-talk them into sharing customers' card transaction history, their checking account balances, and other personal data.
Why? Because there's a ton of money to be made knowing how much people spend and what they buy. And there's even more money to be made developing platforms and applications that drive business to advertisers and make spending easy.
You don't need me to tell you why this is a bad idea - but I'll do that today anyway.
Plus, I'll tell you why it'll get done regardless.
However, as distasteful as it may be, there is a way to get yourself a piece of the pie.
A big piece.
Here's how to do it...
The Dirty Four
It's not like America's biggest banks are saints to start with.
Just consider what Wells Fargo alone is guilty of.
Then think about how much JPMorgan Chase, Citigroup, and all the other "Too Big to Fail" banks have paid in "settlements" to stay out of court.
They're all dirty.
Of course, Facebook is dirty, too.
They're selling personal data, and who knows what else, to real and virtual bidders they know nothing about, so they say, for another column on their income ledger.
Some of what they've done could fall into the fraud category under certain statutes.
Just thinking about Facebook and the big banks dancing together and whispering sweet nothings in each other's ears is frightening.
But this isn't just a thought experiment.
It's happening...
The Come-On
Facebook is reportedly asking banks for proprietary data related to where their customers are shopping with their debit and credit cards.
They already have a treasure trove of data on outside purchases bank customers make using Facebook Messenger. That service has some 1.3 billion monthly active users, according to Chief Operating Officer Sheryl Sandberg.
In a determined effort to stay ahead of competing mobile messaging services, Facebook has been hard at work trying to transform Messenger into a unique customer service and commerce hub. For example:
- Messenger already has a partnership with American Express Co. (NYSE: AXP) that Facebookers can use to contact the high-end card company's representatives.
- A year ago, Facebook cut a deal with PayPal Holdings Inc. (Nasdaq: PYPL) that allows users to send money through Messenger.
- And for some time now, Mastercard Inc. (NYSE: MA) cardholders have been able to place online orders with some merchants through Messenger using the card company's Masterpass digital wallet.
For Facebook, the magic elixir is getting all kinds of customers transacting through one of its commerce portals, which to date is primarily Messenger.
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By partnering with banks and seeing data, including credit and debit card spending habits and how much money and credit bank customers have access to, Facebook can lean heavily into boring-but-profitable banking businesses like payments.
It's obvious why Facebook wants to date big banks, but not so apparent why banks would want to dance with Facebook.
Here's the thing...
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Banks need to build relationships with highly used Internet platforms - i.e., Facebook - that they haven't been able to gain traction with themselves.
They're fighting hard to reach those billions of users and get some of them back.
A Messy Matrimony
When it comes to digital payments, which banks thought would be a natural progression for them, they've struggled, especially in all forms of mobile payments.
Mobile commerce is huge, and so far for banks a mostly missed opportunity. Payment platforms like PayPal and Square Inc. (NYSE: SQ) are eating their lunch.
Last year, to compete with PayPal's Venmo, a group of large banks connected their smartphone apps to money-transfer network Zelle.
So far, efforts have fallen far below expectations. Usage has risen this year, but many banks still aren't on the platform.
That's why big banks are considering Facebook's proposal. They want to get in bed with Team Zuckerburg, which has a monumental lead over all of them in all things mobile.
But, given banks' history of using and abusing their customers, and Facebook's history of using and abusing its customers' personal data, any such hookups would be problematic.
That doesn't mean it won't happen.
In fact, I'm betting it will.
That's because necessity is the mother of invention. While banks may hold the data, they're losing the battle for digital commerce and payments.
So they'll be more than receptive to Facebook's proposal.
Just because it's a frightening prospect doesn't mean it won't be a profitable partnership.
Facebook's got some atoning to do, just like the big banks all have had to do over the past decade. Facebook will get past all the scrutiny it's facing, pay any fines that might be levied out of petty cash, and move on, just like their big-bank beaus.
So, you can add this to the pile of reasons I've given you over the years to own Facebook. Add to your shares now that Facebook's trading at a discount.
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The post These Deeds May Be Dirty, but the Profits Will Be Sweet appeared first on Wall Street Insights & Indictments.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.