The Economist USA - 26.10.2019

64 Finance & economics The EconomistOctober 26th 2019

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such 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.

The catch is that for Wells to become

America’s leading tech-savvy bank for con-

sumers would require it to have a high de-

gree of trust from customers and regula-

tors. Instead a deficit of both is Mr Scharf’s

toxic inheritance. Wells’s bosses have

changed its direction before. Mr Scharf

must decide where the wagon goes next. 7

Going nowhere

Source: Bloomberg

Share prices, January 4th 2016=100

2

2016 17 18 19

50

100

150

200

Wells Fargo

Citigroup

Bank of America

JPMorgan

Chase

O

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, the

Californian 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 has

Facebook’s planned digital currency

has had a miserable few months

Libra

The Zuck Buck

ruck

Stuck?