While FinTech start-ups have been showcasing their rapid dynamism and proving themselves to represent a real threat to traditional financial institutions, in recent years, and even months, it has become increasingly difficult not to address the elephant in the room. Big tech companies such as Amazon and Google, have been dipping their toes into the financial services space and showcasing their ability to launch a range of financial products.
In just the past few years we can pinpoint several moves by tech giants which reinforce their intentions:
- Amazon – 2011 saw the launch of Amazon lending, a program offering short-term loans to Amazon sellers and the role out of Amazon business into various countries. In June 2019, Amazon has launched a co-branded credit card with Synchrony Financial, called Amazon Credit Builder targeting underbanked consumers
- Google – In January, Google received authorisation from the Irish central bank to operate as a payments institution, opening the door for Google to expand its financial services offerings across the EU, and in late October 2019, Amazon acquired Fitbit, providing it with access to wearable hardware and also Fitbit Pay. Google also announced in November that it is intending to offer checking accounts in the U.S in 2020 (in partnership with Citigroup and the Stanford Federal Credit Union)
- Facebook – June 2019 saw the announcement of Libra, a stablecoin scheduled to go live in 2020. Fast forward to November 2019, and Facebook has announced the launch of Facebook Pay, designed to facilitate payments across Facebook, Messenger, WhatsApp, and Instagram
- Apple – in August 2019 Apple launched its own credit card in the U.S., in partnership with Goldman Sachs
The advantages of big tech
While FinTechs and incumbents have been looking at greater collaboration to provide mutual benefits, e.g. agility, scale, etc., big techs are seemingly already armed with a well-rounded package. They have the brand awareness and deep pockets that FinTech start-ups so desire, yet also benefit from the nimble, technology-centric structures (including cloud-native systems) and mindsets that many incumbents lack.
Data is also an advantage for these companies. Big tech company user bases far exceed those of incumbent banks and with that, provides access to a phenomenal amount of customer data that many incumbent banks could only dream of.
Barriers for big tech
It’s no wonder financial institutions are on edge given the vast abilities, reach and ultimately impact that these tech giants could have in the future. This has also led to big techs catching the eye of regulators due to the potential for them to create an unfair playing field and unstainable industry, much like in China. Earlier this year, Facebook’s stablecoin Libra hit a bump in the road when several high-profile partners, including PayPal, Mastercard, and Visa, withdrew from the project following significant political and regulatory opposition, specifically from France and Germany in Europe.
There are also concerns surrounding the sheer volume of data big tech companies can access and how these companies intend to use it, or potentially sell it. This is a hot topic for customers and regulators alike. Last year, Facebook was in the firing line over its handling of sensitive user data and an attack on its computer network exposed the information of nearly 50M users. Meanwhile, a 2018 report by The Wall Street Journal revealed that the Google+ social network exposed the personal data of 500,000 users and that Google tried to hide it from the public.
It remains to be seen if people are ready and willing to provide even more data to big tech companies and rely on them for their financial needs given some of their track records.
The future for big tech
So, is it likely that we see big techs at the epicentre of the financial services industry any time soon?
Probably not in the immediate future but they could come to play a greater role in the future, albeit if consumers, businesses and regulators support this.
A recent move we have seen in the big tech companies’ playbook is to work in partnership with traditional providers, for example, Google’s partnership with Citigroup to offer checking accounts in the U.S. and Apple’s partnership with Goldman Sachs to issue the Apple Card.
These partnerships are providing a route to market but are they also a play to develop the knowledge and potentially the capabilities to go it alone in the future? Only time will tell.
In the East, most notably in China, we have seen big tech companies have a significant impact on the financial services space and disintermediate incumbent banks. For example, Alipay and WeChat’s money flow is through digital systems that do not require any bank support. These two firms also now control more than 90% of the mobile payments market. Although China is a very different and unique market, it does serve as a warning to the impact that big tech companies can have when the stars align in their favour.
We do however expect with great certainty that big tech companies will intensify their focus on the financial services space, expand their partnerships with incumbent providers and remain a key watch out for many incumbent providers.