Apple's CEO, Tim Cook, said on Monday, March 25, 2019, in Cupertino, California,
Noah Berger | AFP | Getty Images
When Apple released its credit card last month with a lavish announcement, Goldman Sachs was the main reason behind it. But you did not know that based on where the bank's executive director stood.
David Solomon was not on stage in Cupertino, California, and he shared the spotlight during the release of the product on March 25th. Instead, Tim Cook announced his efforts as the most significant change in the credit card experience for 50 years. Chief Executive Officer of Goldman Sachs stood in crowd with other viewers. The 150-year Wall Street Bank – responsible for the current credit card part of the credit card – was just a footnote in the presentation.
The role of bourgeois is something that big banks may need to get accustomed to. As tech giants begin to go into consumer finance, they will need someone to deal with the critical and complex banking aspect. The banking industry faces the dilemma of accepting the back seat or losing what can be a valuable partnership with tech giants that have hundreds of millions of users.
"Banks and financial services companies are aware of the threat from major technology companies," said Gerard Du Toit, a bank consultant at Bain. "It's a dilemma of a classic prisoner – they do not want it, but if technology companies become an important source of distribution for them, what else will they do?"
At stake in the North American financial industry is up to 40 percent of the $ 1.35 trillion in revenue that could migrate to tech companies like Amazon or to be lost in price competition, according to Mexico City. The risk to the rush-hour banks is that technology companies will have customer relationships and branding in these deals, by keeping the most profitable parts of that relationship, according to the consulting firm.
Technical giants, such as Amazon and the Google Parental Alphabet, are already taking steps to compromise banks' tanks in areas ranging from small business lending to payments. This is due to their need to increase fuel revenue to new verticals and to strengthen their control over existing businesses. Big American technology companies are also preparing for a global battle: Chinese tech giants such as Alibaba and Tencent have already become unsuccessful in paying and investing thanks to their mobile payments applications.
Apple's new card, supported by Goldman Sachs and MasterCard, usually works with Apple Pay, a mobile wallet that allows users to pay with their iPhones. This feature is increasingly important for Apple, because it relies on revenue from services to offset slower iPhone sales.
Google, on the other hand, has Google Pay, a similar online system that allows customers to buy things in the app store or touch to pay on Android devices. Facebook, which allows users to make payments through its messenger function in certain markets, too supposedly works in a way to use crypto to make payments through WhatsApp.
Du Toit said Google and Facebook appear to be engaging in payouts to make it easier for customers to continue shopping on the basis of advertising. For example, Facebook offers a feature through Instagram that allows users to buy products directly in the application. The data from such transactions can be helpful to prove that advertisers worked and the buyer actually bought something, said du Toit.
And then there's Amazon, which has a small business lending arm that has eased more than $ 3 billion in loans to more than 20,000 from the merchants of its e-commerce platform. It has a debit card as a product called Amazon Cash, which allows users to place money in a wallet in Amazon and buy online without a credit card. There's also Amazon Pay, which allows consumers to buy things on other sites without turning over their credit card information.
The game of Amazon seems to be aimed at building a system with a closed loop and cutting down another middle man, said du Toit.
"There's huge cost savings that we do not have to pay for an exchange of buyers – there are urgent savings behind that," Bain consultant said. "But second, it begins to deepen in customer relationships and fulfill the mission to be able to sell something that you might want to buy online."
"We are not trying to be banks"
Despite pressure in financial services, American tech giants have ceased to become banks themselves, partly because of the historic wall dividing banking and commerce. From the Glass-Stegal Act of 1933, companies involved in trade also could not become banks because of the fear that a hybrid company would make irresponsible loans for itself or unfairly deny lending to competitors.
Walmart, the world's largest retailer, has been trying for nearly a decade to break that barrier by establishing its own bank. Whether he tried to buy a local bank or apply for his own charter, every time a giant was stuck by a consortium of regulators, lobbyists, parliamentarians and security guards. In the end, she gave up, withdrawing her request for a charter in 2007.
"We are not trying to be banks," said Brian Peters, executive director of Financial Innovation Now, an alliance of companies, including Amazon, Apple and Google, who advocates e-commerce technologies. "We approach customers in the way we usually approach customers as technology companies and do everything that is best with the financial partners we have. For some time, that's the way it will be."
Even the road to partnership can be complicated in the United States, which has stricter regulations from Europe and Asia. Amazon reportedly wants to cooperate with JP Morgan Chase to begin checking accounts, which will give the e-commerce company even more customer data and allow him to evade transactions. But according to a January report in the Wall Street Journal, regulatory issues complicate the project. It's unclear whether Amazon will go ahead with JP. Morgan or any other bank, the newspaper James, citing people who know the negotiations.
However, the partnership model can be mutually beneficial to both parties.
"Banks are uniquely qualified to understand asset management, compliance and credit risk management," said Nigel Morris, co-founder of Capital One Financial and now partner in venture capital firm QED investors. These areas may be difficult to match the great technology. Technical companies, meanwhile, "are only capable of originating customers, giving a great user experience and selling innovative products that consumers want," he added.
That does not mean that the bank's executives do not consider the technical giants as a threat. When asked about the Apple Card at a banking conference this month, Bank of America CEO Brian Moineahan said he was worried about the risk of being violated.
"All of us are a threat," Mojihihan told CNBC. "I wake up every morning paranoid about who is trying to wipe us out, but I think they are threats that we can handle."
As a result, the banking industry is still not sitting. In 2015, CEO George P. Morgan Chase, Jamie Dimon, warned in his annual letter to shareholders that the "Silicon Valley Comes" to try lunch in the industry.
Thus, in the past few years, large banks are preparing for drives by building their own applications, reorganizing their technical personnel for innovation faster and partnership with finte companies.
By offering their own technology solutions, banks are hoping that outsiders – whether big tech companies such as Amazon or Finteh, such as Square – will not be able to get their customers out.
Last year, JP. Morgan introduced YouInvest, his response to the free Robinhood commercial application. Citigroup and others issued digital banking applications, and Bank of America plans to disclose a financial coach named Life Plan in the autumn, the CNBC announced this month.
Through these moves, traditional banks admit that in this era of blurring the boundaries between industries, everyone is a competitor.
Amazon and other tech companies have at least one significant advantage over banks: Customers enjoy more to use their products.
Based on what is known as "net promoter results", customers much prefer Amazon to banks. E-commerce giant earned 47 in the result that measured the likelihood that the customer would recommend a company's services, according to a September report by Bain. National banks reached 18, while regional banks reached 31.
Amazon consumers can be open to potential invasion of their wallets. Bain asked 6,000 US consumers in 2018 if the company launches a free online bank account that received 2% cash on all purchases of Amazon if they would register to try it. About two-thirds of the prime minister's members said yes.
"When major technology companies choose to go into banking, they already have a brand reputation and have the distribution," says Karen Mills, senior associate at Harvard Business School and former Administrator of the Small Business Administration. "Customers have proven that they will reach the one who will give them a better experience."