The news had the impact of a real bomb, and its splinters reached the facades of the world's leading banks.
Google, the Internet giant, rushes the steps to go out with its own fintech to offer current accounts to millions of users. After the announcement, the financial market shook. He agreed with the Citigroup and the Stanford Federal Credit Union, the savings cooperative of the powerful Stanford University to delineate the first draft of "Cache", name with which he baptized the initiative.
In fact, he already has experience in the field of digital payments with Google Pay, his virtual wallet that allows payment in thousands of stores in the US, Europe and Latin America. But now he wants to redouble the bet by capturing the savings of crowds, a longing for many but no one has been able to achieve.
It is precisely in the technology sector where these plans become strong. There are several "bigtech" that set their sights on the banking business: stumbling blocks, Facebook advances with its currency; Apple added a credit card to its mobile wallet; Amazon has a pack of financial products and Uber a fintech sector for drivers and users.
Although its approach differs, the big technologies share a goal: to become indispensable for their clients. In that sense, they build ecosystems so that they move within their limits.
It is clear that the entry of Fintech and Bigtech into the financial system changes the way of doing business. According to a report by the international consulting firm Finnovating, the profitability indexes of banks worldwide will be compromised in the face of the emergence of these new technological actors.
Strictly speaking, the profitability index on own resources (ROE) of banks worldwide in 2024 could fall to 4.6%, taking into account that the average profitability of world banks was 9% in 2018.
This reduction in profitability is a mixture of several factors such as loss of market shares and decrease in profits due to lower sales, increased expenses or a combination of both factors.
On the other hand, KPMG argues that bigtech do not show interest in attracting deposits, but in certain segments of financial activity.
In a report, the firm emphasizes that at least two out of five users would be willing to hire Google, Amazon or Apple for their services, and another 47 percent would open an account with one of these companies.
Despite the overwhelming results, he considers that "they should not be a great threat", since, at least for the moment, "they do not seem interested in engaging in the traditional, complex and low-yield banking business."
The year of the Bigtech
2019 was definitely the big year of the bigtech in the financial segment, thanks to two ads that made headlines in the world.
- One was the Apple Card, the titanium card of the Cupertino firm, which expanded its offer of payment services with a product that generated more comments than the iPhone 11
- The other was Libra, the digital currency powered by Facebook and a consortium of heavyweights that included several of the world's largest ecommerce and payment firms.
However, the promise of a true financial revolution proclaimed by Mark Zuckerberg seems to deflate like a Zeppelin in free fall. Libra still did not go to the "tracks" and has already lost the support of Mastercard, Visa, Paypal and Mercado Libre, among others, who moved away from the project until there are no details on the direction it will take.
In the case of the Apple card, it is already operational in some markets around the world. But its adoption did not accompany the massive expectation that it generated in the previous one: for now, most of its users do not find added value in their daily use, beyond the 3% refund of the payment in selected locations and other benefits.
It is that, beyond the paraphernalia that accompanied your ad, this type of products has a hard time competing with the benefits already offered by banks, ranging from significant discounts, sum of points and accumulation of miles, a highly valued extra by consumers
At the same time, the authorities have expressed growing concern about the gaps in the supervision of transactions, as there is increasing financial activity outside of traditional banking.
In the midst of this scenario, Google bursts in. For now, the web giant has a wide field in front of it, since in the United States the payment services offered by the big technology companies represent only 1% of GDP, according to data from the International Payment Bank .
By way of comparison, in China that figure amounts to 16% of GDP, by the hand of giants like Alibaba, with its branch Ant Financial, and Tencent, which offers the "Chinese Payment Market" with its mega solution WeChat Pay.
For Ignacio Carballo, director of the program in Fintech & Digital Banking of the UCA, the phenomenon of digital transformation of the so-called 4th Industrial Revolution "is mainly characterized by a drastic reduction, and in some cases the absolute elimination of intermediaries."
In addition, he adds that "what is left over is data, and there is increasing efficiency to transform it into information. What was always a theoretical utopia for economists (markets with complete information) today is a feasible promise for technological advances. Whoever drives better information, better provide financial services. "
Therefore, he says that technology companies (accustomed to these methodologies for years) "have comparative advantages to enter the credit market. It is logical to see them enter to compete with traditional banking and fintech of specific verticals."
The banks, allies for now
On the Citi side, the alliance means the gigantic possibility of entering a highly consolidated ecosystem, such as Google / Android, which represents approximately 80% of the global mobile market.
For now, the dynamics between traditional banking and large technology are rocked in different alliances that allow the latter to offer financial services without becoming banks, since this not only entails a dense network of regulations, but also a lower return to that of your traditional business.
For the US firm, in addition, the association translates into a more agile way of adding deposits than the combination of channels currently offered in the markets in which it operates. Even if Google, in one way or another, takes a significant percentage of its profits.
Carballo believes that new technologies "bring back the obligation to traditional banks to adapt, to transform, as they have done in the past."
In his view, the advanced bigtech does not constitute a threat to banks: "I see new business models. The risk of banking is to lose profit margin if it does not adapt, but at the end of the day the fintech silver rests on some Bank. Let's take Mercado Libre: its common fund is in BIND, its card is from Patagonia, its CVU's in Citi ".
Perhaps the segment that has more repairs regarding the advanced technology firms is not that of banks but that of fintech, which compete more directly since they also offer tech-based products.
"The main risk in the debate" fintech vs bigtech "is to replicate the mistakes of the past. I think the first ones have as a challenge not to be displaced by the technological ones, since the main danger is that the new digital financial market in gestation is not, again, one dominated by a handful of companies, "notes Carballo.
Privacy, a key axis
An item that raises doubts among industry analysts is what refers to the privacy of user information, especially in a segment as sensitive as that of financial activity data.
To develop a complete profile of anyone, what Google needs - more than anything else - are specific financial insights that show the money that goes into your account and how it is spent.
Thus, the Mountain View firm could understand much more about its consumption patterns and the precise breakdown of all its discretionary revenues to enhance other services of its wide range of products. However, the most obvious use of all these new data is to package them to sell highly targeted ads.
For example, if the company analyzes user data in their checking account and realizes that a person spends a significant amount of money on a particular product or service (for example, restaurants), they could target their ads there, which looks even more effective than search advertising.
With the start-up stipulated for 2020, the project advances and polishes details. Success will ultimately depend on the robustness of the proposal. Apple and Facebook already know: in finance, a strong name and a "disruptive" product do not guarantee immediate success.
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