Banks need to be scared, really scared, from companies like Google
Banks, even big ones, may find themselves at the mercy of big tech companies with huge global followings and might actually become service providers to companies like Google, Facebook or Amazon.
We’re not there yet, but the signals are there.
How is Google, among others, a threat to financial institutions?
Google is the latest big tech firm to secure an e-money license after Lithuania granted subsidiary Google Payment authorization, Business Insider (BI) reported, quoting Bloomberg.
“At present, Google offers limited financial services through its Google Pay digital wallet, which allows users to store their card details to make payments in-store, online, or in-app,” said BI.
“However, the e-money license will significantly bolster its ability to provide financial services offerings. Ireland granted Facebook’s license in 2016, while Amazon Payments has obtained its permit in Luxembourg, per Bloomberg,” added BI.
The e-money license doesn’t allow Google to enter banking in full such as to offer core banking features like deposit accounts, loans, or mortgages, but it will be able to process payments, issue electronic money, and manage electronic money wallets.
A license to e-bank across Europe
Google Payment has joined a growing number of fintech firms that have secured permission from the Baltic nation to offer financial services across the European Union (EU).
The license, granted by the Lithuanian central bank, gives Google permission to operate throughout the EU, according to the Star.com.
Lithuania has granted a total of 39 e-money licenses, second in the EU only to the UK with 128 licenses.
“The end of this year reflects our efforts and experience of the past few years in actively developing a fintech-conducive ecosystem in Lithuania,” said Marius Jurgilas, a board member at the Lithuanian central bank.
Large technology companies, such as Facebook Inc and Amazon.com Inc, have been expanding into financial services.
“Google is also joining a crowded field that also includes a bevy of young financial technology companies such as London-based TransferWise, which offers foreign exchange services and multi-currency accounts, and Wirex, a cryptocurrency payment platform, according to Bloomberg.
According to NDTV, Lithuania, a nation of 2.8 million people, says Brexit has given a boost to its efforts to become a northern European hub for fintech firms.
“Britain-based companies fear they may lose ‘passporting’ rights to provide payment or e-money services to customers in the EU after Brexit in March 2019,” claims NDTV.
Lithuania’s fintech cluster now includes more than 100 licensed companies, according to the central bank.
This includes British-based Revolut which, according to BI, has opened over 3 million accounts, and has been using this license to offer a number of financial services, including Mastercard-issued prepaid cards that function like debit cards.
“Conceivably, the permit will allow Google to offer similar services as Revolut,” says BI.
A growing threat to banks
Google’s licensing highlights the serious threat posed by big tech to incumbent banks.
The head of the Bank for International Settlements, Agustín Carstens, said recently that Internet and ‘big data’ giants like Amazon and China’s Alipay pose an existential threat to traditional banks.
Carstens said the huge amounts of data that big internet companies gather on their customers, with better information on spending and lifestyles, combined with their technology expertise, meant they potentially have advantages over established banks.
BI says the size of the biggest FIs may or may not insulate them from significant disruption from fintechs, as these tech giants have the resources to take on incumbents.
Reuters said Amazon, Google, and other Big Tech companies could compete with banks in basic products and undermine their ability to offer free accounts, quoting Britain’s financial watchdog saying recently.
The Financial Conduct Authority published its final report on its study of retail banking business models, saying new payments services could attract retailers, like Amazon, into banking.
“In terms of where we think real challenges are going to come into this market, it will be potentially around the entry of Big Tech firms,” FCA executive director for competition, Christopher Woolard, told reporters.
“We suspect that many of those firms will not want to take capital on their balance sheets, they won’t actually want to become a bank as such, but they may well want to offer products that compete directly with banks, like simple lending products.”
Woolard said if Big Tech moved into banking, existing lenders could become more like a utility to support an Amazon or Google “front end”.