Will we shortly bid our local bank goodbye now that financial transactions are increasingly done online with an app on a smartphone, - not with banks but by technology-driven companies?
At the forefront of this revolution is Amazon, capitalising on its extensive database of buyers and sellers - providing a payment facility for the retail transactions of its own online marketplace with Amazon Pay. On the other side of the world in Asia, Alibaba is likewise spearheading the same move with a payment gateway called AliPay. Similarly, Google has launched Google Pay, as well as Apple Pay and Samsung Pay. PayPal is still the payment platform of choice for online shops, having started early in the game for e-commerce.
Retail banking is about to be disrupted, and banks are at risks of being swallowed by innovations in the financial sector. FinTech or financial technology companies as well as technology giants like Google, Facebook and Amazon are now driving how consumers and businesses handle money transfers, payments, lending, fundraising and loans – once exclusive the preserve of retail banks. There are about 8,000 FinTech startups in the US today, and more venture capital investments are poured into FinTech rather than into the banks that fund their digital transformations. A total of 36 FinTech unicorns now exist globally, and another 32 FinTech startups are on their way to unicorn valuations.
Mostly cannibalising the banking services that were once restricted to financial institutions, we now have a smorgasbord of apps that do that.
Apps like Moneybox, Oinky and Piggypot mimic that of a savings account for millennials.
Monzo and Moneylover come as prepaid cards yet offer current account features. There are also apps that give independent financial advice as well as those that connect you to peer to peer lending groups such as Funding Circle, Zopa and Rate Setter.
With the need for more efficient, accurate and independent digital ledgers to accommodate these financial innovations as well as streamline the way financial instruments are traded, companies like Overstock [OSTK] whose blockchain branch makes an interesting play. It has risen from $16 to around $30 in the space of a few months and its founder is something of a maverick in this fast approaching digital world.
It is this very reason why the likes of Amazon, Google and Facebook are aggressively considering the feasibility of entering the business of lending and loan intermediation. They have increased engagement with federal banking regulators on issues related to mobile payments, payment processing, financial innovation, and of course novel technology.
Now the historic legal parameters of banking and finance are being challenged and options explored as to what can or cannot be done.
Technology companies are assessing the extent of how they can manoeuvre themselves into providing banking services - leveraging on their vast quantities of consumer data to flex out the banks in their own industry.
Apple for one has been lending to its client base for years with its buy now pay later plans – and they understand that before they can expand their financial offerings, they must first understand the regulatory obstacles that exist for them as a non-financial institution.
One of the more amicable solutions provided for by the Office of the Currency Comptroller (OCC) is intermediation – where consumer data provided by the likes of Facebook and Amazon will be connected to a financial institution for a small finder’s fee. But more than this, FinTech companies and technology giants want a more proactive role in retail banking and may have to lobby heavily to convince regulators to force banks to provide access to their financial data through an Application Programming Interface, or API.
The API provides a platform for companies like Amazon and Apple to create an almost immediate and seamless connection to a bank’s transaction network – thereby allowing them to take over the face to face online dealings with consumers.
The proverbial battle between banks and technology companies in the race to dominate the digital era world has made rather an irony of contrast – where banks are in fast pursuit to be technology companies, while FinTech and technology giants are rather trying to be more like banks.
As the new slogan for Germany’s biggest lender, Deutsche Bank - coming on the heels of explaining that its new retail structure focuses on its digital offers and as a result will close 200 branches in the process to pursue a rather active online presence aptly puts it as, “New Times Require New Banking”.
Banks may just have to innovate painfully or die. And technology companies may as well conquer or lose.