The dismantling of bank brands by big tech
We’ve all heard the rumours. We’ve read the headlines. We’ve even been predicting it for years. Big tech is coming for financial services and if there is anything to learn from other sectors, nothing will stand in the way. In the last 18 months, Apple, Amazon and Facebook, among others, have made clear moves into FS.
Big tech has the resources and technology to deliver a rich banking experience. They have substantial user bases to get them off the ground too. But can they grow consumer trust in a sector with notoriously low levels of consumer confidence? And can they be trusted with their financial data to manage their financial lives?
Here at Equator, we looked at the moves the tech giants made over the last year to help established FS businesses understand what’s round the corner and what they can do to help mitigate this risk.
Apple and Amazon grow their presence
Apple launched a credit card in the US in partnership with Goldman Sachs, one that is likely to expand to Canada and other territories later in the year. Little is known about how successful the credit card has been to date. The system underpinning it, Apple Pay, is flying, with exceptional growth in uptake witnessed during the COVID-19 pandemic. With its loyal, high net-worth user base and a need to diversify revenue sources, Apple is only bound to deepen its footprint in this space.
Amazon, meanwhile, subtly entered the fray with Amazon One, its palm-print based payment system. The system does what it says on the tin, enabling customers to link their payment cards to their palm print, moving authentication to identification and simplifying the payment process. It is currently only available for use in Amazon’s Seattle stores, but a rollout is expected to see widespread adoption.
PayPal and Facebook re-up their game
On the other hand, Facebook, ran, stumbled, and fell with its cryptocurrency offering, Libra. Despite its initial failure, it is set to make a return in 2021. Following the loss of many banner partners and continuous privacy scandals, Facebook’s ambition to enter our wallets has only been curtailed for the time being.
Conversely, the oldest fintech in the game, PayPal has seen a renaissance since it parted ways from eBay. It now plans to deliver banking services through third-party partners and has already added support for cryptocurrencies, a Buy Now Pay Later functionality, as well as improving its Venmo offering.
PayPal has ambitions that mirror the success of Alipay in China, adding investments and savings, identity management and budgeting to the current payment, shopping and crypto platform. A super app’s benefits however can only be realised when the data flows freely through the system, allowing ML-powered toolsets and insights. And the data only flows when you have a critical user base. PayPal’s ambitions are a reminder that scale and data are the most significant success factors in being a digital financial partner.
The expected success of Google
All these efforts pale into insignificance when placed next to Google’s Plex platform, as well as a radical upgrade to the basic Pay app. This dual-fronted attack on finance is the most comprehensive integration of personal finance tools ever seen.
In Google Pay, a user can now make peer-to-peer payments as well as typical retail payments. Google has integrated payment options for restaurants, petrol stations and car parks. It aggregates and presents merchant offers, cashback and loyalty schemes, while built-in Barcode and QR scanning, make showrooming (searching online for a better price instore) easier. Finally, Pay taps into Gmail and Photos to search for, aggregate and attribute receipts to transactions.
Plex takes all the above functionality, hardwiring it into a Google-branded current and savings account. In a step echoed by its peers, Google isn’t entering this market on its own. Lacking a banking licence, Plex’s launch sits atop partnerships with 11 US banks and local credit unions, notably smaller regional brands.
Highlights of Plex accounts include fee-free banking, real-time alerts, and AI-powered financial insights, which is expected to be Google’s critical edge. With so much data at its fingertips, Google will offer best-in-class money management guidance and potentially appropriate products or services to support users. Critically, it is not using this insight for ad serving.
Whilst still a few months away from full launch, the platform is bound to be a reasonable success, and interest should be sufficient to grow business for all brands concerned. However, what is less clear is who the long-term winners in this arrangement will be.
As banks are already finding with Apple Pay and Google Pay, they’re losing many interchange fees from customer transactions. As well as this, they’re losing some visibility on the nature of the transactions too. In short, their role in the consumer payment relationship is weakening. When you consider further that there is no physical card anymore, the bank’s brand and emotional presence are further depleted.
Fast forward a few years into a customer Plex relationship, and the user will more likely associate their banking relationship with Google. Just as with Apple’s relationship with Goldman Sachs, the bank very much plays second fiddle in the brand stakes. This may be further compounded as Google could cement a wide range of Plex partnerships, including loan, credit card and investment providers, also dismantling the critical PCA relationship value typically held by the bank brands.
Looking at the moves these tech giants are making, it is only expected that traditional bank brands will feel uneasy. They're sitting on poor customer reputation statistics, outdated hardware and an expensive legacy of branches and staff. But they still have a place in society. And it is not too late to change their businesses.
Refocusing on creating better customer relationships is key. If they’re to stand a chance against the big boys of tech, they need to improve customer experience, deepen relationships, while lowering costs and creating greater personalisation. If the future of banking is increasingly virtual, these elements are vital in remaining relevant.
This article was contributed by Garry Hamilton, Group Chief Growth Officer of Equator