64 Finance & economics The EconomistOctober 26th 2019
21such as Denver in Colorado. It has become a
“tech giant”, says Betsy Graseck, a bank an-
alyst at Morgan Stanley; last year it spent
$11bn on technology. Investors approve. Its
share price has doubled since 2016, while
that of Wells has floundered (see chart 2).
boa’s assets, deposits and market capi-
talisation have also leapfrogged those of
Wells. It too is scaling up, but by expanding
into areas of previous weakness, such as by
lending to mid-size companies. It has also
cut its cost-to-income ratio from a decent
51% to just 45% over the past year.
Specialist investment banks are also
treading onto Wells’s turf. In 2016 Goldman
Sachs launched Marcus, a consumer arm
that has gathered $46bn-worth of deposits.
The bank has partnered with Apple to
launch a credit card. It is also drumming up
commercial custom. “Goldman is used to
doing business with the C-suite,” says Ms
Graseck, “now they also want to do busi-
ness with the treasurer.” Morgan Stanley,
meanwhile, has doubled down on wealth
management. In February the bank paid
$900m for Solium, a firm that manages
share-vesting programmes at technology
companies. These customers are less
wealthy than its usual well-heeled clien-
tele, indicating that it too is expanding its
customer base.
All this means a more fluid competitive
landscape. Mr Scharf will soon need to de-
cide what kind of bank Wells should be. His
rivals’ strategies show that he has several
options. Wells could try to go global, like
Citi. It could shoot for a wealthier clientele,
like Morgan Stanley, or bulk up in invest-
ment banking, like JPMorgan. But the most
obvious approach for Mr Scharf is to double
down and aspire to make Wells a leading
tech-focused consumer bank.
He has form: at both the firms he has led
before, bnyMellon and Visa, a payments
giant, he invested heavily in technology
and cut costs. Shortly after his appoint-
ment was announced, an analyst asked Mr
Scharf whether compliance, efficiency or
digitisation would be the priority. He said
that all were, and that solving them togeth-
er was a “virtuous circle”. Wells is already
dominant in many parts of the country, es-
pecially the west coast. And while other
banks are bolstering their technology, it
has led the pack. It pushed for the creation
of Zelle, a payments system that competes
with Venmo, a popular platform. Wells’s
banking app is one of the best rated by us-
ers, with only JPMorgan and Capital One
doing better.
Other new ideas are bubbling. Wells
wants to “tokenise” digital credit-cards so
that there is a different number for each
transaction, making them more secure. In
a “digital lab” former tech workers research
other futuristic prototypes. Shari Van
Cleave, who runs the lab, says technology
can help give customers more control.ThecatchisthatforWellstobecome
America’sleadingtech-savvybankforcon-
sumerswouldrequireittohavea highde-
greeoftrustfromcustomersandregula-
tors.Insteada deficitofbothisMrScharf’s
toxic inheritance. Wells’s bosses have
changedits direction before. MrScharf
mustdecidewherethewagongoesnext. 7GoingnowhereSource:BloombergShareprices,January4th2016=10022016 17 18 1950100150200WellsFargoCitigroupBankofAmericaJPMorgan
ChaseO
n june 18thFacebook announced Li-
bra, a new global payments system and
currency, to be launched in 2020. Dubbed
the “Zuck Buck” by Brad Sherman, an
American congressman, the plan was to
employ a mix of entrepreneurial daring
and the technology underlying cryptocur-
rencies to shake up the world’s financial
systems. Money would move at the speed
of a smartphone-swipe, even across bor-
ders. Libra would lubricate life in the rich
world and revolutionise it in poor coun-
tries, where basic financial services are
dear and often scarce. After all, as the firm
points out, 1.7bn people have no access to a
bank account. Besides further expanding
Facebook’s empire, Libra would bring them
into the financial fold.
In the subsequent four months, Libra
has had a bruising time. Many of its partner
firms have got cold feet. Politicians and
regulators around the world have made
disapproving noises. On October 23rd Mark
Zuckerberg, Facebook’s boss, spent a lonely
few hours in Washington, dc, fielding
mostly hostile questions from American
politicians on the House of Representa-
tives Financial Services Committee.
One problem, as Mr Zuckerberg admit-
ted, is Facebook itself. Maxine Waters, theCalifornian Democrat who chairs the com-
mittee, began proceedings with a litany of
its misdeeds, pointing out that it is subject
to antitrust investigations in 47 states (see
Business section), that Russia has used it to
meddle in American elections, and that it
has been fined $5bn for deceiving consum-
ers. Nydia Velázquez, a Democrat from
New York, accused Mr Zuckerberg of lying
to European regulators over the firm’s
merging of user data from WhatsApp, a
messaging service bought by Facebook in
2014, with those from the rest of the com-
pany. Why, the congresswoman wondered,
should a firm like that be trusted with
something as important as a currency?
Mr Zuckerberg pointed out that Libra
would be administered not by Facebook,
but by the Libra Association, an indepen-
dent body that includes other companies
and is based in Switzerland. But the associ-
ation is already not what it was. Of the 28
original members, a quarter have left. Pay-
Pal, an online-payments firm, departed on
October 4th. A week later eBay, Mastercard,
Mercado Pago, Stripe and Visa—another
group of payment firms—jumped ship, as
did Booking Holdings, a travel company.
PayU, a Dutch firm, is the only payments
firm still in the association. Other remain-
ers include two ride-hailing firms (Uber
and Lyft), a pair of telecoms companies (Ili-
ad and Vodafone), a gaggle of venture capi-
talists and a handful of charities. The asso-
ciation’s head of product, Simon Morris,
left in August.
Other questions concerned users’ pri-
vacy and Libra’s potential attractiveness to
money-launderers. Mr Zuckerberg prom-
ised that Libra would not launch until it
had permission from America’s alphabet
soup of financial regulators. But for a cur-
rency with global ambitions, placating the
Americans will not suffice. France, Ger-
many and Italy have already said they may
block Libra; ministers in India, which hasFacebook’s planned digital currency
has had a miserable few monthsLibraThe Zuck Buck
ruck
Stuck?