“There are numerous segments within financial services with which these tech giants could vertically integrate new product offerings”
Technology conglomerates like Google will make a “grand entrance” into the financial services sector via introduction of large-scale financial products, major acquisitions or “profound partnerships” in 2019, according to Seattle-based market data specialist Pitchbook.
The company pointed to Google owner Alphabet’s 14 fintech investments in 2018 –Salesforce made 10 fintech investments, and Amazon made 6 – and a post-financial crisis of eroded trust in established financial institutions that has ended previous stickiness.
Robert Le, Senior Analyst, Emerging Technology at Pitchbook said: “This environment has created a battleground for new, non-bank competitors to enter the financial services sector. We believe that the most formidable of these are the large, public technology conglomerates including Facebook, Amazon, Apple and Google.”
He added: “While we are not necessarily predicting that “Google Bank” or “Amazon Capital” will launch imminently, there are numerous segments within financial services with which these tech giants could vertically integrate new product offerings that fit their existing portfolio of products and services.”
Google Leads the Charge
Google in particular has been making various forays into financial services. This includes the launch of a peer-to-peer payments service (Google Pay or formerly Google Wallet) and more recently, investing in two tranches of Oscar Health’s (a fintech health insurer) Series G round in 2018 through its Capital G growth-stage venture arm and Verily Life Sciences research arm.
Notably, CapitalG has also co-led funding rounds for rapidly growing payments service Stripe; now widely estimated to be worth over $20 billion and underpinning mobile payments services for UK e-commerce retailers ASOS, Missguided and Under Armour among others.
Google and Apple, in particular, have for years been expected to emerge as dominant in the online payments space, but thus far not shown much likelihood of achieving this goal.
This contrasts starkly with their Asian counterparts, where some of the biggest names in APAC tech, such as Alipay, Go-Pay, Grabpay, T-Cash and others, backed by Asian tech titans such as Alibaba, Grab and Go-Jek are taking over contactless and mobile payments in a major shift to a cashless society.
As Ted Chwu, who heads law firm Bird & Bird’s Global Technology & Communications Sector Group, puts it: “The remarkable thing is that for consumers in many of these jurisdictions, the jump from a predominantly cash-based society to one that is entirely cashless, has happened within the span of one tech cycle.”
He adds: “Entire financial industries around personal cheques, credit cards and store credit have been skipped. With a huge and eager consumer base, innovation in this space is being driven by the Asian tech companies to the extent that mobile platforms are now being used – with success – to deliver sophisticated financial products.”
They are also competing a huge surge in challenger banks and financial services providers in the UK already, ranging from increasingly popular Monzo, which crowdfunded £20 million in 24 hours this month, to retail challengers like Goldman Sachs’ “Marcus”.
On 14 September 2019 two of the most controversial elements of PSD2 (the updated EU Payment Services Directive) may shake the market up further, however. One in particular may open up opportunities: by the date above, “Account Servicing Payment Service Providers (ASPSPS)”, such as banks, are expected to give technical details on access to the payment accounts that they maintain, so that Third Party Providers (TPP) can access those accounts to provide services to customers, including account aggregation services and payment initiation services.