Throughout the year, we’ll be offering a deeper look at some of the biggest trends in fintech, which we believe will continue to impact financial services in the coming decade. This week, we’re taking a look at the expansion of the “Big Tech” firms into financial services. As always, if you have any ideas for us, or anything you’d like to know more about, drop us a note at email@example.com.
Over the past year, the world’s largest technology firms have taken a variety of tactics to move into (or deeper into) the realm of financial services. Once dominated by banks, lenders, and payments processors, the incursion of tech firms represents a significant challenge to the traditional FS sector — and has massive implications for its trove of consumer data. This week, we’re looking at why and how Big Tech is making this move, and what it might mean for the future.
So, what’s the big idea with Big Tech and financial services?
The expansion of non-FS firms into financial services is nothing new. Google Wallet debuted in 2011. Facebook Messenger rolled out a payments feature in 2015. Heck, Walmart tried to start a bank in the early 2000s, before Congress stepped in. Financial services represents a vast mine of consumer data related to spending, saving, credit, homeownership, etc., and firms have known for years that finding a means to monitor or control that data could be extremely valuable.
The change is that Big Tech’s efforts to expand their reach into your wallets have notably accelerated in recent months. The tech giants we know and
love — er, tolerate (looking at you, Zuck) — have developed new and significant financial products designed to get themselves closer than ever to your money:
- Apple → Released the Apple Card in August 2019. Apple Card is issued by Goldman Sachs and uses the Mastercard global payments network.
- Amazon → Launched the Amazon Credit Builder in June 2019. Credit Builder is a secured credit card offered in partnership with Synchrony Bank.
- Facebook → Announced Facebook Pay in November 2019. Facebook Pay is a unified, P2P payments system accessible across Facebook’s Messenger, Instagram, and WhatsApp platforms. (Oh, and it also made a thing called Libra).
- Google → Announced plans to roll out checking accounts for online users in November 2019. The checking accounts would be offered in partnership with Citigroup and a Stanford credit union.
- Uber → Announced the launch of Uber Money in October 2019. Uber Money offers certain financial services to Uber’s drivers, though indications are that they have broader ambitions.
Why should I care?
When Google rolls out Google Pay or Apple offers a credit card with appealing features, it’s not out of altruism; it’s because those offerings are tools they can use to gather more data about you, and data is valuable. When a company like Google or Apple processes a payment, they can see who made the transaction, what was purchased, how much it cost, and where and when it happened. In addition, they can run algorithms to correlate your other purchases until they have a scary-good model of your spending behavior, buying habits, and preferences. All of that data can be sold to advertisers and used to improve consumer targeting. And much of it is happening without your consent.
Big Tech companies know that consumers may be put off by the extent of their access to their data. Those companies also know that they’re competing with many other players for access to that data. For both reasons, Big Tech is engaged in an arms race of new offerings with appealing features like spending breakdowns (@Apple Card), credit recovery or establishment opportunities (@Amazon Credit Builder), and the promise of faster payments and greater inclusion (@Libra).
In an increasingly competitive landscape, Big Tech companies are looking to tighten their grip on their customers and grow new revenue streams, and opening new windows into customer financial data will help them achieve both.
What should I look out for?
First, financial data is not valuable only to Big Tech firms, which is why they won’t be the only ones expanding into financial services: We’ll be on the lookout for other customer-facing companies to complement their traditional offerings with financial services products and services that can increase the size and value of the data at their disposal (see, e.g., Grab and Uber).
Second, given the concern Congress has shown about the size and reach of certain Big Tech firms (*coughfacebookcough*), those firms should rightly be wary of coming under even greater scrutiny, whether it’s from privacy, antitrust, or banking regulators. The challenge for Big Tech is to get access to the kinds of consumer financial data held by banks without actually becoming one, thus avoiding some significant risks and regulatory burdens.
While we don’t see the FAANGs adding banking to their product stacks anytime soon, we do expect them to (i) roll out new financial products and services, and (ii) develop more partnerships with financial institutions to gain greater insight into consumer financial habits. Big Tech’s continued expansion into your wallet likely is inevitable. However, don’t expect smooth sailing!