My article last month took up China’s efforts with digital money and banking. I confess that I enjoyed mocking some of the tech media for suggesting that Beijing’s new digital yuan or central bank digital currency (CBDC) had somehow stolen a march on the United States and the West in general. Far from “leapfrogging” the West, as some suggested, China’s effort looked more like catch up for the digital arrangements long since developed by private actors around western currencies. As if to confirm this perspective, Google and Facebook recently announced deals in digital money and payments facilities that enrich the dollar’s already existing and extensive digital arrangements.
Google says that it will offer checking. The arrangements will include partners Citibank and a small credit union at Stanford University, which evidently has historical links to many Google employees. Citibank will, of course, provide all the technical and operational support. Google will effectively market the digital checking arrangements under its name. Facebook aims to enter the payments services world. This venture, which by the way is entirely separate from Facebook’s Calibra Wallet and Libra network, also has partners, mostly credit card companies who had walked away from Libra but seem committed to providing the technological and operations platform for Facebook’s payments offering.
These arrangements build on an immense complex of networks, systems, and applications that have over time almost completely digitized the use of money in this country and the developed world generally.
They add yet another layer onto the layers and layers of digitization that have already occurred in this country, Japan, Europe, and a few other paces and certainly have nothing that needs to fear China’s digital yuan. Quite the contrary to some media claims, it is China that is playing catchup. But if these and other tech-associated financial arrangements have long since outstripped China’s digital plans, it is fair to ask, what is it that the parties to these two new ventures hope to gain from them. Of course, no one, either at Facebook or Google or their more conventional but still technologically advanced partners has made such a statement, it nonetheless seems clear that the profit propositions involved have less to do with pushing back frontiers – of technology or finance – and more to do with enhancing the way each partner has long made money.
For Citibank and the credit card companies involved respectively with Google and Facebook, the arrangements allow them to leverage their already existing facilities with a new range of customers that they might not otherwise have acquired. The mystique of technology and the connection to one of the leading firms carrying that mystique promises to bring in people who otherwise would never have graced a Citibank or MasterCard account application, even those fully digitized. Since Citibank and the credit card partners have already largely incurred the costs of the necessary technological and operational infrastructure – checking in one instance, payments in another – the market expansion promised in these prospective ventures speak to almost pure profit. In this, Citibank could be described a stealing a digital march on JP Morgan, which uses many more brick and mortar branches in gathering customers.
This leverage, no doubt, was exactly why Goldman Sachs has already partnered with Apple to run the tech giant’s new credit card. Given such motivation, it does seem strange that Goldman objected so strenuously to Apple’s marketing claims that the card was “designed by Apple, not a bank.” The claim, of course, is nonsense. The Apple card works just like other cards, and with Goldman behind it is supported in conventional ways. If Goldman’s complaint got to the truth, it nonetheless worked against its interests in partnering with Apple in the first place. It wanted the tech mystique and so should have happily taken a back seat. In the Google and Facebook deals, no one has suggested downplaying the identities of the partners, and indeed Google promises to place Citibank prominently on the venture’s marketing materials. But given the purposes of Citibank and Facebook’s credit card partners, they, too, should happily take a back seat to the tech face selling their capabilities.
As for Google and Facebook, their profit proposition has long been advertising and salable data. Especially the latter is the motivation here. The arrangements surrounding these partnerships promise a proverbial goldmine. Knowing to whom people are making payments, whether in checks, wire transfers, or credit cards, is something for which vendors will pay handsomely. To be sure, both Google and Facebook separately have assured all – including regulatory bodies – that they will scrupulously protect the privacy of their customers. No doubt, given the history, some will voice skepticism about whether these firms will do that. But they do not need to violate people’s privacy to glean a treasure trove of salable materials on developing buying trends, for instance, regionally, by zip code, or even by neighborhood. And this valuable array of information concerns only the most obvious sources of salable data.
Simply because everyone’s interest rests on long-established avenues for profits, that is no reason to dismiss these ventures and others like them as falling short of technology’s promise. The fact that these firms have a reason to work together offers promise in itself, if not an especially well defined one. Much economic research, in both academia and especially at the Federal Reserve Board, suggests that such collaborations, just by exposing different players to technologies and alternative perspectives often result in applications that neither party envisioned when they first began to work together. These ventures, whether between Google and Citibank, Apple and Goldman, Facebook and credit card platforms, hint, even if it cannot guarantee, that new and more revolutionary ways of moving money and wealth will emerge, even if those next steps cannot be characterized as revolutionary.