Google, the Mountain View giant, is likely to be a familiar name to many. However, its offerings extend far beyond just a search engine. From a web browser and email service to a news aggregator, calendar, contact manager and document development applications, Google provides a wealth of tools to make our lives easier. Furthermore, digital photo storage, video streaming, an operating system, smartphones, laptops and smart home devices are all part of its portfolio. Finally, the company also offers a range of internet services.
It was unsurprising that the tech giant decided to venture into the banking sector. Google and Citigroup Inc. have plans to offer joint bank accounts to their customers in the future. Furthermore, Facebook has already taken the initiative to launch their own cryptocurrency, Libra, and a payment software called Facebook Pay, as well as entering the credit card market. It is speculated that Amazon may be looking to enter the checking account market in the near future.
The introduction of entirely online banks has led to a great deal of competition due to their user-friendly online banking platforms and 24/7 customer service. The potential for further enhancements through the incorporation of consumer banking with other services provided by technology companies is immense. However, it is important to consider whether customers truly desire such convenience, and whether the benefits outweigh the potential drawbacks. This article will explore the pros and cons of Big Tech’s entry into the financial sector.
Con: It’s Easy to Use.
Uber, a well-known ride-hailing app, is exploring ways to make life easier for their users by introducing banking and other financial services integrated into their own apps and platforms. This move would allow customers to manage a range of aspects of their life from a single centralised app, creating a more personalised user experience. The app has already branched out into other areas such as food delivery, car monitoring and providing alternative forms of transportation, and these new services could add a further layer of convenience for customers.
Many Asian IT companies have previously released a range of services, and Grab, a ride-hailing service, is one such firm that has gone further and diversified into the financial sector. It now provides customers with the option of a variety of payment and credit solutions, as well as insurance. Furthermore, Grab and Mastercard have joined forces to introduce a physical and virtual credit card with no numerical value exposed – offering customers an extra sense of security.
Partnerships between leading technology organisations and banking giants are being established in an effort to provide customers with the finest of both worlds. Google, in collaboration with Citibank, is set to offer checking and savings accounts. This agreement also involves a Californian credit union. Goldman Sachs and Apple have partnered up to create the tech giant’s credit card. Furthermore, should Amazon ever choose to provide checking accounts, the company is purportedly considering a partnership with J.P. Morgan.
Whilst these collaborations are being established in order to help IT firms to transition into the traditional banking industry, they also bring advantages to customers. The financial institutions involved have the knowledge and expertise to provide services in the most efficient way. Consumers may feel more confident in entrusting their money to technology companies when they recognise the well-known banking brands associated with them.
In Favour Of: Broadening Access to Financial Services
Adults aged 18 and over who do not have access to traditional banking services are known as ‘unbanked’. There are a range of factors that may dissuade individuals from opening a bank account, such as the absence of nearby banking branches and an unwillingness to pay associated banking fees. For those without a bank account, certain services, like utility payments, can be difficult to afford without access to physical currency.
The Milken Institute Review suggests that Big Tech’s digital accounts might benefit the financially excluded in the following ways.
- Taking the need for a physical bank branch out of the equation
- Reduced fees for banking services
- Being in direct competition with conventional banks increases the likelihood that all parties will provide satisfactory services.
The Amazon Cash programme, as noted in the article, allows customers to make purchases on Amazon by depositing cash at participating merchants and kiosks. This is just one example of many such initiatives that the company has introduced to make online shopping more accessible to all.
Cons: There Isn’t Enough Oversight
Sarah Kocianski, the Head of Research at a major FinTech company, has recently discussed with CNBC the likelihood of large technology businesses continuing to offer services in the realm of banking, without taking on the responsibility of becoming full-stack banks. According to her, these businesses are unlikely to be willing to go through the effort and trouble of obtaining and maintaining a banking licence.
Regulatory bodies are eager to ensure that IT companies are subject to the same regulations as banks, as their practices are becoming increasingly similar to those of financial institutions. The Chinese government has made it obligatory for all tech firms to maintain 100% of their outstanding shares in reserve with the central bank and to link some of their online bank accounts to traditional banking accounts. The European Union has been at the forefront of debates concerning competition policy, which have included calls for more rigorous antitrust enforcement.
The Federal Trade Commission (FTC) has held numerous hearings about market concentration, and the Bank Holding Company Act of 1956 prevents commercial companies from owning banks. Therefore, it is likely that digital firms will continue to maintain their connections with traditional financial institutions.
Possible Economic Impact.
The implications of the increasing power of Big Tech in the financial sector are a source of concern for many. As reported by The Guardian, Big Tech is attempting to use its influence to try and avoid regulation, similar to how large banks have attempted to do in the past. In doing so, it is attempting to convince us that it should be given special allowances and be allowed to operate under distinct regulations.
The Financial Stability Board (FSB), an international regulatory body, has issued a warning with regard to the potential risks associated with the financial activities of technology companies. These dangers include the weakening of traditional financial institutions, as a result of increased competition, the potential failure of financial partners, and the consolidation of financial services in certain areas. The FSB has highlighted the need for careful consideration and assessment of the implications of these risks, in order to ensure the continued stability of the global financial system.
Downside: Sharing Individual Information
The potential misuse of personal data is a major concern when considering the use of Big Tech in the financial sector. Technology companies are keen to gain a better understanding of their customers’ behaviours and habits in order to be able to provide more targeted and relevant advertising. This often involves collecting data on when and where customers make purchases, how much they are spending, and what items they are buying. Ultimately, this raises the issue of privacy and the potential for companies to exploit this data for their own gain.
The advancement of technology businesses may be hindered by the apprehension surrounding the sale of customers’ data to advertising companies. A survey conducted by Morning Consult has reported that 63% of adults in the USA are reticent to accept free services in exchange for the sale of their personal data. This figure could be set to increase as people become more aware of the ways in which tech giants exploit their data.
Is Big Tech in Finance a Good Thing or a Bad Thing?
It is difficult to determine whether the use of Big Tech in banking is ultimately advantageous or detrimental. There is a lot of subjectivity involved in this debate. However, it is possible that the implementation of Big Tech in banking could have a positive effect on many people’s lives. The increased accessibility, stability of banking relationships with established financial organisations, and the possibility of financial inclusion are all potential benefits of Big Tech in banking.
It is concerning that these businesses may be able to escape regulatory oversight, disturb existing markets and make use of customer data without proper authorisation. Whether the advantages of this outweigh any potential drawbacks is yet to be seen and can only be determined by observing the longer-term effects.