Banking's future is Facebook? Really?

Commonwealth Bank of Australia explains why it's treading the Facebook banking path.

When Commonwealth Bank announced its intention to develop a banking app for Facebook, what was it thinking?

Putting the bank into Facebook, in the form of its Kaching payments app, certainly puts the bank in front of its customers, but it also represents a significant change to the bank's online security message.

It's no longer a matter of users checking the URL to make sure it's the bank's, and checking that the web browser displays the padlock icon that indicates an SSL-encryted connection. Anyone can sign up to be a Facebook app developer, and it's difficult for a non-technical user to see exactly where the different components of a Facebook page are being delivered from.

On this week's Patch Monday podcast, CommBank's general manager of online banking Drew Unsworth explained the reasoning behind the move to Facebook, and why the bank is so confident it's not creating security problems.

In part, the answer is about better data mining, exactly the kind of thing RSA executive chairman Art Coviello told us about in March. And this has been enabled by CommBanks billion-dollar real-time core banking system , something the other major banks have had trouble creating .

Unsworth also explained why the bank launched the Kaching for Android app, without a near field communication (NFC) system for contactless payments.

To put CommBank's banking strategy into a global context, we're also joined by Charis Palmer, editor of Online Banking Review.

Anyone can create a non-bank financial service using a licensed bank as back-end provider. Think of Virgin Money, Palmer said.

One possible threat facing banks is their retail operations being decimated by a phalanx of new competitors, leaving them to run the wholesale operations. It's a business structure much like the telecommunications companies.

To leave an audio comment on the program, Skype to stilgherrian, or phone Sydney +61 2 8011 3733.

Running time: 29 minutes, 28 seconds.