Facebook is partnering with banksOn the morning of Aug. 6, the Wall Street Journal published an eye-opening report detailing what seems to be an internal Facebook initiative to build relationships with banks. The article appeared to frame these proposed relationships as quid-pro-quo exchanges in which Facebook would receive banking information from potential partners and use it to boost user engagement within its services. In exchange, partnering banks would have Facebook users sent their way. As of Monday afternoon, Facebook has clarified inaccuracies in The Wall Street Journal’s report, but questions still remain about the nature of Facebook’s business relationships. Keep reading as we cover what’s known about the story so far and explain how the story relates to changes happening within the financial services industry.

Everything we know about Facebook’s plans

Despite Facebook’s rejection of The Wall Street Journal’s claim that the company is asking banks for financial data, it is true that the company has been and continues to be in talks with banks about implementing banking features and applications on platforms like Facebook’s Messenger app. It’s unclear how long Facebook has been engaged in building these types of relationships with banks, but Facebook already has similar applications running on its platform. These applications allow you to receive notifications about your balance, recent credit card transitions or other basic financial details while using Facebook services and are entirely opt-in, the company stresses. Facebook further guarantees that data from these applications won’t be used for targeted marketing or shared and sold with marketers.

Are there still concerns regarding Facebook’s plans?

Although Facebook’s plans appear to be nowhere near as aggressive or even as developed as the report by The Wall Street Journal would suggest, many are still skeptical and worried, given that the earlier half of this year was dominated by headlines detailing Facebook’s scandals surrounding user data. Regardless of how limited Facebook intends for its role to be in the financial services sector, just the simple fact that the company is daring to tread into an industry with rigorous security requirements has some upset. The company’s failure to secure even more basic types of personal data definitely doesn’t inspire any confidence in the idea that it deserves to manage financial applications in any capacity.

While these criticisms might be warranted, the truth is that the company has long had its eyes on the financial services sector. Both Facebook and Messenger have allowed users to make payments online for some time, and Facebook’s ongoing outreach to get banks to integrate basic mobile banking features with its platforms is merely an extension of what’s already offered by the company. It’s not likely that the apps Facebook is currently working on with banks will be risky to use, especially since the banks Facebook has approached have been extremely mindful about data security and privacy, with one purportedly even walking away from the company over its particular arrangement.

It’s important to note that these caveats don’t mean that this story isn’t newsworthy or that it’s without implications. First, this news confirms Facebook’s ambitions to expand beyond social networking. One of the biggest concerns this introduces is that it’s not apparent that any lines drawn today will hold in the future. Facebook currently rejects The Wall Street Journal’s claims that it’s asking banks for data, but we have no idea if this will change – if only because the company’s business model could evolve – or because, more cynically, Facebook views these partnerships as a stepping stone toward more comprehensive access to consumer banking data. While we don’t know which is the case, in a severely underreported story that was lost in the noise of the Cambridge Analytica scandal, it was revealed that Facebook had plans to get patient medical data from several major U.S. hospitals, intending to match it up with user data it had collected, and help the hospitals figure out which patients might need special care or treatment. There’s no reason, as of yet, to believe that its plans for the financial sector couldn’t be equally as ambitious. Among the company’s many patents are a method for inferring user income (which is probably already in use, given Facebook’s use of income-targeted ad campaigns), what appears to be a digital currency as well as a method for helping vet loan applicants, along with another method intended to associate users with their respective financial accounts in order to easily connect consumers with vendors they’ve purchased from before. Though patents don’t always illustrate a company’s motives, they can be indicative of general areas of interest for a company, and it’s clear that when it comes to finance, Facebook is at least conceiving of a role beyond the one it’s currently eking out.

Beyond Facebook’s ambitions

It’s unclear where exactly Facebook’s expansive cross-industry ambitions will lead the company, but its recent moves in the financial arena are illustrative of a growing trend. More and more companies – both traditional financial institutions, like brick-and-mortar banks, as well as technology companies – are using technological expertise and data to provide new types of financial services. This growing industry, sometimes referred to as financial technology or fintech, promises some truly innovative solutions to problems like making banks and even credit more accessible to everyone.

Despite the promise of fintech, there are some concerning developments. Aside from the privacy implications that unregulated data collection could have, there are worries that with access to more data, companies could raise prices for individuals or exclude them from financial services for arbitrary reasons. For example, an enigmatic metric called a “behavioral score,” which some banks supposedly use when issuing credit, might influence your credit much like a FICO score. This auxiliary metric, which is not accessible to consumers, could include anything from the businesses you shop at to how quickly you pay off your balances. One rather extreme case occurred in 2009 when a Georgia native had his credit limit steeply lowered with one of the justifications being where he shopped – presumably because of how it impacted his behavioral score. In other countries with far fewer civil liberties, the examples are starker, with startups using things like phone battery life or other mobile phone data to determine interest rates. While this might seem frivolous, the growth in the amount of data consumers produce has allowed companies to make inferences across a wide range of areas, especially in finance and insurance, something we’ve talked about before.

To provide an example of the types of inferences companies can make, consider phone model differences across the population. Apparently, it’s statistically likely that an iPhone user will be a better borrower than an Android user. If a company wanted to, it could take this inference and penalize Android users with steeper prices in order to compensate for the risk they are on average likely to present. There are currently no signs of these types of metrics being widely adopted in the U.S., but the concern still lingers.

Today, there’s no reason to be alarmed by Facebook’s interaction with banks or the present state of fintech, but it’s worth talking about both so that we’re aware of the way Facebook and the broader industry could change over time. Keep reading our technology blog to learn more about these types of developments and more.