How do you pay when buying groceries in stores or online? There are several options nowadays such as cash, credit cards, and online payment we can choose from. Some of which are not even released by traditional banks. For instance, Apple Pay and Google Pay launched in 2014 and 2015 respectively, have been both the options of contactless payment for smartphone users. According to Statista’s 2019 survey, both payments account for total 179 million users worldwide in 2018 and their users are expected to increase, especially under COVID pandemics. Since these technology companies have taken their first steps, do they aim for other financial services or even bigger dream?
One of their notable attempts is embedded finance, which means plugging in software with the financial service from startups to meet customers’ overall needs, such as banking to insurance, without banks as the intermediatory. For example, Amazon can let customers “buy now pay later” when they check out. According to Matt Harris, a partner at investor Bain Capital Ventures, embedded financial services reform traditional cross-sell concept and mainly benefit the embedded companies. Though established financial institutions might not be greatly influenced now, since most of the fintech companies have not yet grown big enough to share the market. Nevertheless, the development of embedded finance seems positive as Accenture indicated new entrants to the payment market have gained 8% of revenue across countries in 2019.
Despite embedded finance, different companies have also tried various approaches to engage in banking services. Apple collaborates with Golden Sachs to provide credit cards. On the other hand, Google has teamed up with Citi bank ready to launch the bank account, Plex. As CNBC concluded, one thing that both companies share is they have no plan to become regulated banking institutions. However, although obtaining permission to run financial business is not easy, these tech giants are indeed diving deeper in banking without a doubt. Take Facebook as another example, the company had gone through a failure to release Libra, its digital currency, but it is still preserved to raise another challenge like Facebook pay.
Compared to banking industry, technology companies are able to collect all kinds of our private data, from relationships, preferences till emotions, no matter we are conscious or not. Once they eventually expand their business to personal transaction, will it be an advantage or threat to customers? Gerard du Toit, a banking consultant at Bain reminded, “All of these players have quite bold ambitions to be the center of everyone’s life, where you just can’t imagine breaking up with them.” Becoming banks or similar financial institutions might be the target for tech companies to provide distinctive services that help increase profits or remain competitive. But as the customers, we can decide whether efficiency or diversification of risk matter us the most.
Nice blog! I like the topic of fintech companies and the growing power of parties such as Apple, Google and Facebook. Do you see these companies play a role such as wechat/alipay where banking is integrated into a platform like amazon with e-commerce and payments within 1 channel.
Another thing I was thinking about is: How about cryptocurrencies? Companies/coins such as Ethereum and Ripple are already offering “staking”, an interest percentage if you loan out your money to other users. Also smart-contracts are growing, with maybe even mortgages on these platforms in the very future. Do you think these companies will start to work together with the big fintech?
If you ask me, at least the whole banking environment is gonna collapse in the future through the disruptive innovation of cryptocurrencies.
Nice blog! I like the topic of fintech companies and the growing power of parties such as Apple, Google and Facebook. Do you see these companies play a role such as wechat/alipay where banking is integrated into a platform like amazon with e-commerce and payments within 1 channel. Another thing I was thinking about is: How about cryptocurrencies? Companies/coins such as Ethereum and Ripple are already offering “staking”, an interest percentage if you loan out your money to other users. Also smart-contracts are growing, with maybe even mortgages on these platforms in the very future. Do you think these companies will start to work together with the big fintech? If you ask me, at least the whole banking environment is gonna collapse in the future through the disruptive innovation of cryptocurrencies.