Digital money

How soon will Big Tech disrupt the banks?

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Hold your horses, Google. Source: DPA

The recent news that Google will roll out its Google Pay service for German customers has set off alarm bells in Germany’s financial industry. Although the internet giant is collaborating with several German banks, the move has increased anxieties that the big four US tech firms could soon muscle in on the financial services market.

The banks fear that this powerful quartet — Google, Amazon, Apple and Facebook — could turn their massive user bases into financial service hubs. Given their vast customer numbers and piles of money to invest, these tech titans would be well-positioned to capture the banks’ current business. And at best, this could render traditional banks mere service providers to the companies who stole their client base.

Bafin, the country’s financial regulator, shares these concerns. Felix Hufeld, the organization’s president, recently warned that banks and insurance companies could lose a large proportion of their customers to tech companies entering the financial services market. Small and medium-sized banks were particularly at risk, he said.

But many regard the threat as exaggerated. If Big Tech wants to conquer the financial services market, it seems to be doing so in a remarkably slow and half-hearted way. There is little sign that they yearn to become banks in their own right.

Why, skeptics ask, would Google or Apple want the hassle of serving small savers? Not to mention the fiendishly complex banking regulations standing in their way. Furthermore, the financial services industry is still heavily dependent on national legal frameworks, another potential nightmare for international entrants. This may be the reason why Apple has yet to launch Apple Pay in Germany.

The fintech hysteria

It is true that Big Tech companies have been dipping their toes into financial services. For example, Apple recently announced a joint credit card with Goldman Sachs. But Apple and its weighty rivals test-market all kinds of new services, in many different sectors. Many of these fail and are swiftly abandoned; one new credit card hardly represents a strategic shift.

Anxieties over a tech invasion sound much like the recent hysteria about financial services startups, known as fintechs. A couple of years back, the talk was about how fintechs would inevitably kill off traditional banks. However, it quickly became clear that fintechs could barely survive alone, and desperately wanted to partner with existing banks, not supplant them.

Germans are also notoriously conservative, risk-averse financial consumers. A recent survey by marketing agency Brand Trust obtained by Handelsblatt confirms that German banks still enjoy a high level of confidence in their brands. By contrast, only 9 percent of consumers say they would trust Amazon with financial services. Facebook registers a mere 3 percent (see chart below).

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This may explain the big four’s tentative approach to financial services, especially in Germany. To use Google Pay or Apple Pay, customers need to have an existing bank account and credit card. Users can send cash through Facebook Messenger, but the service operates in cooperation with existing payment services like Paypal and Stripe. And as yet, none of the Big Tech companies have applied for banking licenses.

Of the four, Amazon has traveled furthest down the road towards financial services. But its financial facilities are all closely linked to its own retail business. Thus, Amazon Cash allows customers without a credit card to buy online, while Amazon Lending offers credit lines to traders selling on the Amazon platform.

China is the future

The Wall Street Journal recently reported that Amazon intended to launch something approximating a bank account, in collaboration with JPMorgan Chase. This prompted more speculation that hundreds of millions of existing Amazon customers could form the core of a new bank. Partnering with an existing bank would allow the Seattle-based company to avoid the hassle and expense of day-to-day banking.

As with many other online services, China points the way to a possible revolution in financial services. Chinese payment services provider Alipay has garnered a user base of over 600 million customers, with rival WeChat Pay not far behind. Prior to online payment services, banking in China was slow and highly bureaucratic.

The Chinese example shows why German bankers cannot dismiss the Big Tech threat forever. Disruption may not come today or tomorrow, but when their margins shrink in their other businesses, Google, Apple et al. may turn to financial services to drive growth.

Until that day comes, German banks will keep a close watch on Big Tech’s forays into financial services. If nothing else, technology companies can teach the banks what their customers expect these days — speed, accessibility and seamless service.

Elisabeth Atzler has been a banking correspondent of Handelsblatt since 2012. Brían Hanrahan adapted this article into English for Handelsblatt Global. To contact the author:

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