Google have just announced that they will offer US consumers personal banking accounts by 2020. It plans to partner with banks and credit unions (reportedly including Citigroup) using Google Pay. The service will allow customers to add Google's analytic tools to traditional banking products. This is just the latest move by big tech to focus on the financial services sector:

• In August, Apple launched a credit card in conjunction with Goldman Sachs (who have their own ambitions to dominate retail banking through their Marcus brand).
• Amazon has offered small business loans since 2011 on its Marketplace platform, estimated at over $3 billion since launch; it also launched a credit card with JP Morgan Chase in 2017 and in June partnered with Synchrony Financial to launch a credit card for shoppers with no credit history or bad credit.
• This month, Facebook launched a new payments system named Facebook Pay. It will be available across Facebook, Messenger, Instagram and WhatsApp, and is designed to facilitate payments across Facebook’s social networks and apps. In addition, Facebook has set up Libra, its cryptocurrency association, although the major financial institutions involved - Mastercard, Visa and PayPal (there were no banks) - have now left.
• By comparison, US big tech looks late to the party. China is well ahead with Alibaba's Ant Financial and Tencent's WeChat accounting for roughly 16% of China's GDP - compared to less than 1% in the US - according to BIS, an organisation backed by 60 of the world's central banks.

Major threat or partnership opportunity?
There’s no doubt consumers like the experience of engaging with big tech and having them deliver financial services is very appealing. Banks struggle to match them due to legacy systems and a risk-averse culture. However, big tech companies do not want to be full-service banks due to all the regulatory and compliance overhead that comes with it. It’s estimated that banks have to deal with five times more regulation than their Silicon Valley counterparts. Hence, Google’s desire to partner with traditional banks via a ‘white label’ approach so the established bank brand is at the forefront and they avoid the regulatory hassle. Google put it slightly differently: "We believe our partners' regulatory and financial know-how is a great complement to our experience in building helpful tools and technology for our users." However, officials have expressed concern about increasing gaps in financial oversight as big tech activity occurs outside of the traditional banking arena.

The big tech strategy is for their platforms and ecosystems to dominate the financial services sector, even if it is ‘behind the scenes’ via traditional bank channels. It will also provide Google and Facebook more information for their huge advertising businesses. Banks are well aware of this and it has created an uneasy relationship between the two communities, with each wary of the other but knowing there are major win-win opportunities available for both sides.

Can we trust big tech?
A major issue is trust. The Cambridge Analytica scandal seriously damaged Facebook’s reputation and consumers are reluctant to hand over more data to such a business. This also explains the strong resistance from regulators to Facebook’s Libra initiative. (Personal note: I think what Facebook is proposing on Libra makes sense; I just doubt their association will be the one that actually launches it.)

Apple has recently faced criticism that Goldman Sachs’ credit card algorithms are biased as women are receiving less credit than their spouses who share their income and credit score. Even Apple co-founder, Steve Wozniak, claimed he can borrow ten times as much as his wife on their Apple Cards.
Of the largest fines handed out by the EU to technology giants, Apple was top ($14.8bn in 2016) and Google was second ($5bn in 2018) and third ($2.7bn in 2017).

The good news is that big tech activity in the financial services sector will keep the incumbents on their toes. Banks will need to offer a customer experience that is on a par with that of the big tech companies. Whatever happens, the customer should benefit. However, one thing is for sure: this issue is not going to go away anytime soon. It’s getting serious.

Read Avanade’s research on how banks can adapt to market dynamics and become Future-Ready. Now.