The Future of Fintech Lies in Big Tech Ecosystems • The Register

Comment Despite all their differences, the biggest tech companies have one thing in common: they don’t like to stay in their lane.

In the more than 20 years we’ve evolved alongside Apple, Google and Amazon, and just under 20 years that we’ve lived with Facebook, each has branched out into different areas of their founding purpose.

Cloud services, e-commerce, hardware and advertising have arisen in various ways to replace the original companies, and in recent years the news has shifted to at-will discussions of whether big tech are looking to enter the financial services space.

While you probably won’t be depositing checks with Google Bank, Apple, or Amazon anytime soon, that doesn’t mean you won’t be using their branded services. And unlike real players in banking and finance, big tech can reap the rewards without taking the risks, some analysts say.

Silicon Valley Never Wanted To Get In And Turns Out Getting A Banking License Isn’t For The Faint Of Heart

Apple has a credit card, just like Amazon. These two, along with Google and Facebook, also offer payment services, but without all the mess and regulation that comes with offering checking and savings accounts.

The closest FAANG company to operating a bank was Google’s Plex (not the media streamer), which was a service that offered checking and savings accounts as well as a physical debit card. The idea was abandoned in October 2021 due to several missed deadlines and the departure of the Google Pay executive leading the project, the the wall street journal reported.

Much like other financial services offered by US tech companies, Plex would have relied on partner banks to do the financial legwork and risk bearing with Google’s role as a mere service provider.

Amazon also reportedly considered offering checking accounts, but abandoned that as well.

The same cannot be said for Chinese and Singaporean tech companies. Alibaba co-founder Jack Ma’s Ant Group obtained a wholesale banking license in Singapore earlier this month, allowing the company to do business with large organizations and other financial institutions.

In 2020, tech company Sea and ride-sharing app Grab, both from Singapore, were granted full digital banking licenses, allowing them to offer services to consumers.

“In China, big tech companies are the primary payment providers,” said Andrew Steadman, financial analyst, senior director at Gartner. The register. Think WeChat and Alipay, Steadman says, which together control more than 90% of third-party mobile payments in China.

In this situation, it makes perfect sense for Chinese tech companies to apply for a banking license — Ma’s Ant Group applied for one in China last year and got it, but things didn’t go well.

China and the United States are simply not in the same place, and events there do not necessarily correspond to action by American tech companies, Steadman says. “Does Apple really want to get a banking license? Honestly, I don’t know. But would it hurt their core business? Probably.”

The future of fintech is ecosystems

US banking regulation, like many US legal structures whose powers are shared between the states and the federal government, is complicated. Getting approved to be a licensed bank can take over a year and cost over a million dollars depending on the type of license. Because they operate across the country, tech companies would need national licenses approved by the Office of the Comptroller of the Currency, which can be expensive.

“There’s a big investment to be made in money and time. It’s not like I can do it next week by spending a lot of money on it, I have to put in place these processes, these compliance structures – all those things,” Steadman said. .

“You can also consider how focused regulators are on big tech,” Steadman says. “I think regulators could potentially step in and say, I’m sorry, we’re not even going to allow this. Not only would they control the bank, but the whole value chain. Governments might not be happy with that.”

Consider Amazon: it’s one of the largest companies in the world, and in the US alone, it was responsible for 41% of e-commerce sales in 2021, as of October of that year. Not only is Amazon an e-commerce platform, but also offers the widest range of financial services among US tech giants. If a company was about to apply for a banking license, Amazon probably would be.

Andreessen Horowitz partner Alex Rampell seems to agree: A CB Insights report on Amazon’s financial services ambitions cites Rampell as describing Amazon as most likely to try to enter the banking market. .

“Amazon is the baddest. If Amazon can make you pay less debt or give you a bank account, you’ll buy more stuff from Amazon,” Rampell said in 2017.

But CB Insights doesn’t think Amazon is getting into banking, even saying its findings make it hard to claim so. Like all other technology companies, CB Insights says of Amazon, “the company remains highly focused on building financial services products that support its primary strategic goal: to increase participation in the Amazon ecosystem.”

Google, Apple, Facebook and Amazon all control ecosystems that already include ways to pay for products and services – why complicate things when there are plenty of banking partners?

When Google Plex was canceled in 2021, a Google spokesperson told Engadget it was going to focus on digital activation for banks, rather than selling the services themselves. “This is the best way for Google to help consumers have better access to financial services and to help the financial services ecosystem connect more deeply with their customers in a digital environment,” said the door. -speech at the time.

Google’s statement echoes what Steadman says. “Whether it’s Apple with its wallet or Amazon through its merchant platforms, there is an opportunity for tech companies to work with financial institutions to start doing business to them using a different model,” he says. he.

Financial institutions can look to money earned through partnerships with tech companies as new sources of revenue, Steadman says The registerand which is almost entirely different from the ways banks monetized their licenses in the past.

Steadman thinks partnerships between financial firms and tech companies are what will really create value, and he says banks are starting to realize that. “We will see more and more relationships between financial institutions and big tech as they discover what works both ways.”

Ultimately, tech companies want things to be simple and frictionless for their users so they don’t leave. Open banking mechanisms, which allow third parties like Google to access banking data, have proliferated for years and are particularly popular in the United States, where consumers are more willing to hand over personal information.

“The big theme is integrating financial services at the point of consumption,” Steadman says. In other words, don’t expect Amazon to ask you to open a checking account — tech companies are far more likely to become the front end of your financial institution.

A day may come—soon even—where banks will simply fade into the background of “everything as a service,” becoming just another way for your ecosystem of choice to keep you engaged without absorbing risk. ®