Trust co-opetition is the key to avoiding disintermediation

Much has been made in the press recently of whether people still trust banks with their money. Yet few stop and consider where that trust came from in the first place. It is true that the question of trust is considerably more difficult than the broad brush stroke approach of ‘do you trust this company or not’ but the simplest answer for banking is that trust stems from the checks and balances imposed by regulatory bodies – whether self-regulatory or Governmental.

The retail banking industry is traditionally well regulated to ensure that it retains the trust of the general populus. Whether this is the EMV and PCI PTS standards that card terminals must adhere to or the Capital Requirements Directive, legislation is put in place with the aim of limiting risk and exposure and to protect the economies of those reliant on banking. With the paring back of some legislation during the noughties and the subsequent collapse of entities sitting on the cusp of legislative adherence, public trust in banks has been severely damaged, but this framework of infrastructure trust remains still a saleable commodity. It is this legislative trust that is at the heart of cards projects such as prepaid cards and cobranding, enabling the banking infrastructure to be leveraged to reinforce the financial offer of a non-bank – in essence a form of co-opetition.

However, many see social internet companies, particularly Facebook, as the future providers of financial services and the infrastructure providers for payment services. However, is it true that these new web and social organisations are really trusted? For example, I trust Facebook to give the messages that I type to my ‘friends’. I trust Facebook with the login details to my Yahoo email account. I trust Google to synchronise my calendar between my work PC and my Android mobile. However, do I necessarily trust these companies to handle my financial dealings? More often than not, the answer is no, because they are not proven to be reliable in this highly sensitive area of my life.

Even in the last week at least four of my friends have been link-jacked in Facebook – whereby their accounts start spewing malicious links onto the walls of their friends. Imagine if this was a financial account where your precious earnings were being spewed into the accounts of other people?!

Google’s latest venture into the payment space (after the failure of Google Checkout to ignite the market) ‘Google Wallet‘ is in essence the same prepaid card scheme being piloted by many banks around the world. Of course, Google have added their own loyalty and advertising twist and are financing the infrastructure rollout – but still, they’re using Citibank and MasterCard to provide the payment elements and that is where the financial relationship remains.

So it seems that Citi have set a potential template for banks wishing to avoid disintermediation in the payments space – a co-opetitve relationship with a provider that engenders public trust for other activities. In essence, they are lending out their legislative trust to Google and in return they maintain relationship with their customers. Unlike PayPal, which despite its banking license has not move forwards in the trust stakes, Google will build theirs through relationships. This same model was repeated in the Netherlands, where leading social provider Hyves partnered with Rabobank to provide payment services to its members. So it would seem that the race would now be on to provide similar services to Facebook, Netlog, LinkedIn and the other ‘they could be your bank’ social information services and ensure that healthy co-opetition drives the market forwards.