- Digital wallets are the leading payment method globally, accounting for $18 trillion in consumer spending.
- Tech firms Apple, Google, and PayPal are disrupting how consumers handle their payments through platform-based technology.
- Valuable first-party data is giving Big Tech an edge over traditional banks and financial services firms.
- Consumers want an all-encompassing, seamless experience to manage their finances.
The rise of Big Tech has been one of the most significant developments in the past decade. Tech giants, including Google, Apple, Amazon, and Meta, have changed how people globally search for information, communicate with friends, and even buy products online.
So, it is no surprise that they have banks and financial services firms in their sights and are already disrupting how consumers handle their finances through platform-based technology – from payments to money management, insurance, lending, and savings.
Indeed, digital wallets have emerged as the leading payment method globally, both in e-commerce and at point of sale (POS), according to the WorldPay FIS 2023 Global Payments Report.
The report adds that China’s Alipay, PayPal, Google Pay, and Apple Pay have a 49% share of global e-commerce sales and 32% of POS, accounting for $18 trillion in consumer spending. China has long been the global leader in the adoption of digital wallets thanks to the dominance of Alipay and WeChat Pay.
The report also notes that PayPal is now the leading digital wallet in European countries such as Belgium, France, Germany, Italy, Spain, and the UK and has a significant share in many other European markets. It adds that Apple Pay, Google Pay, and Amazon Pay are also popular in Europe.
“While APAC remains an outlier with the overwhelming majority of wallet share, digital wallets are now the leading e-com payment method in Europe (having taken the lead in 2021) and North America (where wallets passed credit cards for leading status in 2022),” the WorldPay FIS report says.
Banks in Europe, however, are also offering customers innovative ways to manage their e-commerce payments without a digital wallet. In the Netherlands, for example, the online payment system iDEAL enables consumers to securely pay for goods online through their banks.
Why is Big Tech eyeing financial services?
But why would Big Tech companies want to get involved in an industry dominated by traditional banks, financial services firms, and agile digital banks?
In Big Tech’s favor is access to a plethora of valuable first-party data, giving it an opportunity to boost its bottom lines in an industry worth trillions of dollars.
First-party data is the information that Big Tech companies collect from their customers, providing them with rich insights into credit card transactions, online shopping habits, geolocations, payment information, and online activity, among others.
In comparison, banks’ access to customer data includes credit scores, income, expenditure, repayment histories, and second-party data – for example, the information they gather from customers’ use of other services, such as using a bank’s app to pay for an Uber.
Consumers are also more willing to share their data with companies they trust. A recent survey found that if secure, nearly half of Americans would be willing to share personal information, including credit and debit card numbers.
Who are the leading tech companies already offering financial services?
Launched in 2011, Google Pay allows users to make purchases through their phones at checkout counters.
Apple Pay is a similar system, allowing users to spend money via their iPhones or iPads and receive rewards points through iTunes Store purchases, such as apps and movies.
However, the iPhone maker has moved ahead of its rivals and is now giving banks a run for their money in the US after announcing in March the launch of Apple Pay Later, which is based on the buy now, pay later model. It also announced last month a high-interest Apple savings account for American savers in partnership with investment bank Goldman Sachs.
The new services are operated through Apple Card, and the company has also set up a new subsidiary, Apple Financing, to oversee credit assessments and lending.
Amazon also has a credit card allowing US customers who shop on its Amazon Prime membership program to earn points, towards free products or discounts at Whole Foods Market stores or an Amazon Go store.
Are banks losing ground?
Traditional banks are losing ground to Big Tech firms that can adapt faster and use technology better. As a result, banks need to be more innovative and agile to stay relevant and retain customers.
The implications of the shift of Big Tech into financial services are significant: financial services firms that fail to adapt will lose out on business opportunities, while those that do will gain an edge over the competition in terms of customer experience, cost savings, and revenue growth.
Consumers want an all-encompassing, seamless experience
However, consumers want an all-encompassing, seamless experience via their smartphones –to shop and pay for items with a single click and manage all facets of their money.
They also want the same level of convenience from their financial services providers that they have come to expect from Big Tech, such as Amazon, Google, and Apple.
How can banks and financial services firms tap into the data ecosystem?
Financial services companies and banks also want to join the Big Tech consumer data ecosystem to understand their customers better and offer more personalized products.
To do so, they need access to data from other sources, such as partnering with third-party fintechs to tap into embedded finance and modernizing their core banking systems to offer seamless digital experiences across all devices.
This could help them to compete with Big Tech by, for example, offering loans based on consumer behavior rather than credit scores or bank statements.
What about regulations?
The International Monetary Fund has warned that the rapid and significant expansion of Big Tech in financial services and their interconnectedness with financial service firms are potentially creating new channels of systemic risks. However, it recommends the development of new – or updating existing – regulations to create a level playing field and offset any risks to financial stability.
“Careful consideration of longer-term effects is needed to develop new, or adjust existing, regulation to provide a level playing field for incumbents, fintech start-ups, and Big Tech, while mitigating risks to financial stability, market integrity, and consumer protection.” the IMF says in a report published in 2022.
“To achieve effective implementation and multiple objectives of financial regulation and supervision, a hybrid approach, combining a mix of entity and activity-based approaches, is needed.”
What does the future hold?
Big Tech is backed by big money and resources, which could give them an edge over traditional banks in acquiring new customers and building new products.
These companies have also been investing in artificial intelligence, machine learning, blockchain technology, fintech startups, and other areas that could help them gain market share from banks and other financial services companies – and it appears that many of these investments are already paying off.
Banks must be bold when it comes to innovation. Otherwise, they risk losing out on valuable customers who may decide they prefer using different services that Big Tech companies provide instead of traditional financial institutions.
To overcome these challenges, traditional banks and financial services firms should consider innovative initiatives such as a seamless user experience that offers personalization at scale, real-time decision-making capabilities, automated processes, and integration with third-party fintechs to help them manage their finances across several providers.
Big Tech has already proven its ability to disrupt industries like retail and travel. Now that it is moving into the financial services sector, banks must act quickly to stay relevant in today’s world.
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