Fintech’s future lies with Big Tech’s ecosystems • The Register

Comment Despite all their differences, the biggest technology companies share one thing in common: They do not like to stay in their lane.

During the more than 20 years we have evolved with Apple, Google and Amazon, and the slightly less than 20 years we have lived with Facebook, each has branched out into areas that are different from their basic purpose.

Cloud services, e-commerce, hardware and advertising have emerged in various ways to displace original businesses, and in recent years the news has shifted to will-they-do-not-want discussions about whether big technology wants to enter the financial sector.

Just because you are not likely to deposit checks with Bank of Google, Apple or Amazon anytime soon does not mean that you will not be using their branded services. And unlike the actual players in the banking and finance sphere, large-scale technology can reap the benefits without taking the risk, say some analysts.

Silicon Valley would never enter, and as it turns out, it’s not for the faint of heart to get a banking license

Apple has a credit card, as does Amazon. These two, plus Google and Facebook, also offer payment services, but without all the clutter and regulation of offering checking and savings accounts.

The closest one of the FAANG companies has come to running a bank was Google’s Plex (not the media streamer), which was a service where it offered checking and savings accounts as well as a physical debit card. The idea was shelved in October 2021 due to several lost deadlines and the departure of the Google Pay leader who is leading the project, Wall Street Journal reported.

Just like the other financial services offered by US technology companies, Plex would have relied on partner banks to do the actual financial legwork and risk assumption with Google’s role as a pure service provider.

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

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

In 2020, the technology company Sea and the ride-hailing app Grab, both from Singapore, were awarded digital full bank licenses so that they can offer services to consumers.

“In China, large technology companies are the largest payment providers,” says Gartner financial analyst Andrew Steadman. The register. Think WeChat and Alipay, says Steadman, which together controls more than 90 percent of third-party mobile payments in China.

In that situation, it makes perfect sense for Chinese technology companies to apply for a banking license – Ma’s Ant Group applied for one in China last year, and was awarded it, but things have not gone smoothly.

China and the United States are simply not the same place, and events there are not necessarily the same as action by American technology companies, says Steadman. “Will Apple actually get a banking license? I honestly do not know. But will it degrade their core business? Probably.”

The future of fintech is ecosystems

U.S. banking regulations, like many U.S. legal structures with authority divided between state and federal governments, are complicated. Getting approved to be a licensed bank can take well over a year and cost up to a million dollars depending on the type of license. Because they operate nationwide, technology companies will need nationwide licenses approved by the Office of the Comptroller of Currency, which can be expensive.

“It’s a big investment to make in money and time. It’s not like I can do it next week by throwing a lot of money at it, I have to build these processes, structures for compliance – all these things,” says Steadman. .

“You can also consider how focused regulators are on big technology,” says Steadman. “I think regulators will potentially go in and say, ‘I’m sorry, we are not even going to allow this. Not only would they control banking, but the whole value chain. Governments may not be happy about that.”

Think of Amazon: It is one of the largest companies in the world, and in the United States alone, it was responsible for 41 percent of e-commerce sales in 2021, from October of the same year. Not only is Amazon an e-commerce platform, but it also offers the widest range of financial services among US technology giants. If a company will be ready to apply for a banking license, Amazon will probably be.

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

“Amazon is the most formidable. If Amazon can give you lower debt payments or give you a bank account, you will buy more things on Amazon,” Rampell said in 2017.

But CB Insights does not think Amazon is getting into banking, even saying their findings make it difficult to claim. Like all other technology companies, CB Insights says of Amazon, “the company remains very focused on building financial services that support its strategic core goal: increasing 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 many banking partners out there?

When Google Plex was canceled in 2021, a Google spokesperson told Engadget that it would focus on digital activation for banks, instead of 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 its customers in a digital environment,” the spokesman said at the time.

Google’s statement reflects what Steadman says. “Whether it’s Apple with their wallet, or Amazon through their trading platforms, technology companies have the ability to partner with financial institutions to start doing business for them using a different model,” he says.

Financial institutions can think of money earned through partnerships with technology companies as new revenue streams, says Steadman The registerand one that is almost completely different from the ways banks made money on their licenses in the past.

Steadman believes that partnerships between finance companies and technology companies are what will actually create value, and he says that banks are beginning to realize this. “We will see more and more relationships between financial institutions and big technology as they find out what works both ways.”

At the end of the day, technology companies want things to be frictionless and easy for their users so they don’t leave. Open banking mechanisms, which allow third parties such as Google to access banking data, have spread for years, and are especially popular in the United States, where consumers are more willing to disclose personal information.

“The big issue is building the financial services of consumption,” says Steadman. In other words, do not expect Amazon to ask you to open a checking account – technology companies are far more ready to be the front end for your financial institution.

A day may come – soon, even – when banks simply disappear into the background of “everything as a service”, and become another way for your preferred ecosystem to stay engaged without absorbing risk. ®