Big tech’s adventures in fintech: the future or a fad?
Amazon, Google, Facebook, Uber and Apple are all getting involved in banking and fintech. Is the world ready for this?
Need to buy a niche kitchen gadget? Amazon’s got your back. Want to be nosy and look at a co-worker’s photos from five years ago? Facebook’s there. Hoping to cheat on the pub quiz? Google’s a tap away.
From e-commerce to online search, each of these companies has become tech giants by offering a service that the public can’t do without. But under pressure to stay relevant, grow their profits and unlock new revenue streams as they achieve market saturation, they are reinventing themselves and foraying into fintech and banking.
Encroaching into this sector could have huge ramifications for consumers, old-fashioned financial institutions and even major currencies. Here, we’re going to look at how fintech and banking could transform their business models and bottom lines – and whether it’s the future or a fad.
Could Amazon’s financial offering influence its valuation?
In recent years, Amazon has begun to offer an array of financial services without actually establishing a bank. According to CB Insights, its ventures have been driven by the simple motivation of increasing its base of customers and merchants and getting online shoppers to spend more. There has been aggressive investment in Amazon Payments, infrastructure which aims to reduce friction for transactions online and in brick-and-mortar stores.
This service reportedly had 300 million customers in the first quarter of 2017, and Amazon has been tight-lipped about figures since. Although the reduction of payment processing fees is definitely an attraction for merchants who use Amazon Pay, it’s fair to say that some businesses have been way about the data they might be passing on to the e-commerce giant. The company hit headlines back in March 2019 when it announced its technology is being integrated into Worldpay’s services – allowing customers to complete purchases using the details already stored in their Amazon account.
Other ideas that are at an early stage include “just walk out” technology that would allow customers in physical stores to simply pick up what they wanted and leave, all without going to a checkout first. This format was being trialled at 18 Amazon Go stores in 2018 – and reports suggest that thousands of locations could open over the next two years. Amazon is also catering to the unbanked and underbanked through Amazon Cash, which enables cash to be deposited to a secure account without a fee. A partnership with Western Union is even enabling shoppers in countries such as Kenya, Peru, Indonesia and the Philippines to pay for products in cash through a QR code – bringing its ecosystem to new territories and people.
Will Facebook’s Libra ecosystem get the approval it needs?
Last year, Facebook unveiled the white paper for Libra – a digital currency. The value of this “stablecoin” would be pegged to a basket of major currencies to eliminate the wild fluctuations seen with other cryptocurrencies. At the time, Mark Zuckerberg’s social network expressed hope that it could deliver financial inclusion for 1.7 billion people without bank accounts, and make it easier for friends and family to transfer money to each other across borders without incurring massive fees. This would be accompanied by a wallet called Calibra. A not-for-profit organisation called the Libra Association was also unveiled – featuring big names such as Visa and PayPal – which was designed to drive the network’s development.
It’s fair to say that the backlash to the project took Facebook by surprise. American politicians expressed fear that Libra could undermine the US dollar and even put the global economy at risk. Given the scandals surrounding privacy that have rocked the social network in the past, some regulators have openly questioned whether or not the company can be trusted to launch such an ambitious project. The resistance to Libra has showed no signs of abating, prompting Zuckerberg to admit that the project may never launch at all.
Google, Uber and Apple are experimenting with financial products too
Facebook and Amazon are not alone – many tech giants have, or are planning to, launch their own offerings. Google is set to team up with existing financial institutions to offer Google-driven current accounts next year – delivering “useful insights and budgeting tools” that customers struggle to access at the moment. Executives have stressed that they don’t plan to sell customer data, but simply want to offer banking that’s more digitally focused. Given it has billions of users and impressive levels of cashflow, this venture could end up posing a bigger threat to existing banks than smaller challengers such as Starling and Monzo.
Likewise, Uber is aiming to provide banking services to the four million drivers and couriers it has in its ranks – giving them the opportunity to get paid immediately after completing every ride or delivery. This, when coupled with free $100 overdrafts, seems to be an acknowledgement that it can be difficult for workers in the gig economy to make ends meet. Although this might not be much of a money-making venture for Uber, it certainly could help keep drivers loyal and prevent them from jumping ship to a rival ride-hailing service.
Last but not least, Apple has been looking to build upon its Apple Pay service by launching a credit card in conjunction with Goldman Sachs. Financial services are provided through an iOS app – and when purchases are being made at venues that don’t accept Apple Pay, users can rely on a sleek titanium card etched with the user’s name. As well as offering cashback, Apple says it doesn’t charge late payment fees like other banks – and stresses that it doesn’t store information about what and where products were bought. Alas, the business did experience missteps soon after launch – facing allegations of gender bias after a man claimed that he was given a spending limit 20 times higher than his wife, even though she had a better credit rating.
Will regulation and government scrutiny stop companies banking plans?
Mistakes and flops are not uncommon for each of these companies – and it’s undoubtable that some of their fintech ventures will fail. But, with expansive user bases and a reputation for delivering services instantaneously and without hassle, they have the opportunity to scale up their products quickly – especially as they enjoy high levels of customer loyalty. And, given how they have other revenue streams to fall back on, they might be able to weather increasing levels of competition than smaller challengers.
Perhaps the biggest issue that lies on the horizon will be regulation. Many countries have long struggled to keep up with the digital age, as proven with the endless hurdles that Facebook has faced getting Libra off the ground. Although the company has agreed to pause the project until US regulators are satisfied, this won’t be a quick process. Given how major banks have to comply with endless requirements to operate – ranging from enforcing anti-money laundering measures to completing stress tests to ensure they can withstand another financial crash – central banks will no doubt want to keep these tech giants in check. The question is whether these businesses will be willing to face such scrutiny.
FURTHER READING: Facebook unveils Libra's second roadmap