New technologies are changing everything. The rise of social media and smartphones have changed our consumption habits and our way of relating. Big technology companies know it and now they want to go for the financial system. We can already see the first signs that point to that. The economic crisis of recent years has made a dent in some banks and many, especially the younger ones, the so-called millennials, seem to trust more in the big brands than in traditional banking. We are talking about Facebook, Apple, Amazon, and Google. The bigtech needs to expand if they want to maintain their influence and, little by little, they have been delving into business models that in principle were foreign to them. While it is true that they were born with clear objectives, the privileged knowledge of their users allows them to open up to new business models such as, the financial sector.
According to a report by Funcas, 38% of the directors of traditional banking companies are worried about what the bigtech's income might mean to the financial system. The latest steps and the recent acquisitions by the technology companies, as well as the offer of new products, seem to arise concern among the directors of traditional banking. However, these big companies seem unwilling to feed this story, which is qualified by them as "myth." From Google, for example, they stated that they do not want to occupy the financial niche. For them, they don´t want to be a banking institution but a provider to the banking system with technological tools to better connect with the user. This could be the strongest point of these big companies when we compare them with traditional banking. The bigtech have been able to better capture the needs of their audience.
Some specialists doubt that the bigtech want to obtain a financial license as this would be a great responsibility for a highly regulated sector with low performance. For now, the bigtech have chosen to collaborate with banks. Apple has just reached an agreement with Sabadell and Bankia, joining Santander, Openbank, and Caixabank, which have already worked together with the apple´s giant.
But this has not been an impediment to banks to see their allies with some concern. Paypal, for example, has 227 million active accounts in the world and is a leader in the electronic payment system. Hence, many banks such as Santander, with Eurobits as a provider of banking aggregation systems, offer online financial services to compete in the fintech sector.
One of the keys to understand how the bigtech made its ways into traditional banking is the online interaction with the costumer. Its infrastructure has allowed a greater approach to the user and they know first hand their preferences to improve the final customer experience with their own products. In this sense, traditional banking seems to have lacked flexibility.
What can we expect in the future?
Although there is usually a large reserve by the so-called GAFA (Google, Apple, Facebook, Amazon), some indications show that the expansion of these companies is about to happen. For some experts, the next natural steps would be those related to the financing of credit cards and lending. Something that Amazon is already doing together with traditional banking partners. Amazon might have in mind to launch a regular bank account. The giant of commerce has already exceeded 3 billion euros in loans to small businesses in the United States, the United Kingdom, and Japan. Paypal is studying the possibility of consumer loans, as it is already happening in the United Kingdom.
In Europe, the possibilities for these giants to obtain licenses to perform the same operations as banks are already tangible. This is the case with Paypal, which can operate from any European country. Google or Facebook, with the licenses they currently have, could perform virtually all the functions performed by a bank such as, Robinhood of Google that performs activities of a financial broker;or TransferWise of Facebook that performs international transactions.
If bigtech will become the banks of tomorrow, it is something that we don´t know yet. Currently, with banks as partners, bigtech have greater freedom of action without the responsibility that comes with being a bank.
But things can change at any moment in the future.