“Do you think that Google and Facebook will enter financial services ?”

This is a question that is in many people’s minds, whether they work in Fintech or in traditional finance.  And indeed, the arrival of the GAFA (Google, Amazon, Facebook, Apple) in finance has been predicted and expected for years – with great excitement by some, and much apprehension by others.

Are Amazon, Google and Apple entering finance?

The GAFA entered financial services a few years ago

From a strategic standpoint, it seems to make sense for the likes of Apple, Facebook, Amazon or Google to consider financial services with great attention. Each of these giants have a massive reach (more than 1bn users for Facebook and Google, 800 million iTunes accounts, 250 million Amazon customers) but more importantly compete with all other services to be at the centre of our digital lives.  Since finance and money also play a critical role in our lives, it is natural that their  business plans might intersect with Fintech at some point.

This is of course not new – I could have written the same analysis a while ago, although the numbers would have been much smaller. And indeed, the GAFA started their incursion into finance a few years ago. The most high profile initiative is certainly Apple Pay, although Google had first introduced Google Wallet in 2011. Facebook launched Messenger Payments at the begining of the year, and Amazon Lending was launched in 2012 to offer loans to their SME clients. And the result? So far, they have been underwhelming, especially considering the size of these companies. According to some statistics, the usage for Apple Pay has actually been declining since last year (or not? in all cases, the numbers are not huge). We haven’t heard much about Facebook Messenger Payments, Google Wallet didn’t seem to have much traction since 2011 (although Android Pay, launched 3 months, ago might see better results), and Amazon seems to have financed a “few hundred million dollars” of SME loans, a respectable number but clearly not a game changer for them.

The answer to the initial question is therefore very simple: Google, Apple, Amazon and Facebook have already started their expansion in financial services – from mobile payment to SME lending -, but the results so far have been underwhelming, especially for companies that totally dominate their own markets.

So we have our answer – or do we?

How strategic is finance for the GAFA?

There is in my opinion much more to it, and much that we can learn from these muted initiatives. First, even if you’re Google or Apple, it is still very difficult to single-handedly create a market when consumers are not ready. Although mobile payment has been tried for the last 15 years, US and European customers still find cash and cards easier to use, which explains why Apple Pay or Android Pay struggle to find widespread adoption – despite the huge marketing campaign and the simplicity of their products. Secondly, it’s a long game. Unlike Fintech startups with limited resources, those giants can afford to make long-term bets when they are core to their strategies.

Which is in my opinion the important question: is finance and Fintech an integral part of their strategies? In the case of Amazon, it would have to be a Yes. To simplify to the extreme, Amazon is the ultimate virtual supermarket, selling to consumers, and buying from suppliers. Which means that handling money and payment is part of its DNA, and offering financial services is a natural extension of its business – similarly to Walmart credit cards or Tesco Bank in the brick and mortar world. It is therefore not a surprise that Amazon Lending was extended to an additional 8 countries this year – despite having only financed a few hundred million dollars in its first couple of years. Or that they hired an ex-Paypal executive to lead their new payment projects.

For Google and Apple, the strategic decision to enter finance through the payment sector makes business sense (a $2 trillion market) and there are clearly huge shifts in consumer behaviour and expectations for innovative user interface, an area where both Apple and Google excel. If we add the trend towards digitalisation, and in particular mobile, then the case for Apple Pay seems obvious, at least as part of a long-term strategy. Although the figures for Apple Pay might not be as stellar as assumed by the initial hype, this is within that context of a long-term strategy and the development of a payment infrastructure for the mobile world that they should be seen.

In the case of Google, the rationale for Google Pay is as strong as for Apple, but for me Google’s strength has always been more in monetizing data, and less in charging for transactions. It was therefore interesting to see Google applying for the license to sell insurance, and the launch of Google Compare Insurance, a service that compares car insurance policies and makes money in the Google way – by charging a Cost Per Acquisition. The strategy of offering search focused on verticals could be even more interesting in a Fintech world where there is a proliferation of providers targeting particular niches such as lending, payment, currency transfers, etc. So in addition to the development of a payment infrastructure for mobile like Apple, Google is likely to be present in financial services not as a principal, but as an agent with access to the end-user. And it is therefore not surprising to also see Google as the largest corporate investor in Fintech

As for Facebook, it does not strike me that they see financial services as a strategic priority today –  because their model is mainly data monetization in a Consumer to Consumer environment, which can be less easily leveraged – profitably – for financial services such as payment or lending.

Because of these reasons, if I had to rank these companies from least to “most likely to be a major player in financial services”, I would have the following:

 

Amazon, Apple, Google, Paypal and Intuit partner to innovate in finance

And so perhaps it is not a coincidence that a month ago a group composed of Amazon, Apple, Google, Intuit and Paypal launched Financial Innovation Now, a “coalition that will promote policies to help foster greater innovation in financial services”. This is quite a remarkable initiative, because it’s the first time – to my knowledge – that the technology giants come together to advance their interests in financial services. Looking at their priorities, it is quite clear that the most important areas for them are : paymentlendingopen APIs and allocation of risk/cost with traditional financial providers.

There was amazingly little publicity for such a radical initiative – it was announced through a very ordinary press release – and it could almost be an allegory for the future impact of Amazon, Google or Apple in finance: we might not hear much about the tech giants disrupting finance, but it does not mean that they won’t play a significant role. But because financial services has a strategic importance for them, we should expect a long-term plan and an inexorable progression.

Now, if you prefer fast action and major Fintech disruption from tech powerhouses, then  forget Amazon, Google or Apple, and watch Alibaba or Tencent. Whether it’s online and mobile payment, personal lending, banking products, saving products, peer-to-peer lending, you name a financial service, they are likely to have launched it – or will launch it. Which is why Ant Financial, the finance arm of Alibaba, is valued $50bn.

 

Are Alibaba and Tencent showing the way forward?

 

To summarise, the tech giants such as Amazon, Google or Apple will continue their expansion into financial services and are likely to play an important role in the financial ecosystem – in the same way that Alibaba has done in China. More generally, the tech giants with a large user base might be tempted to benefit more from their direct access to offer complementary financial services – like Uber for example…

 

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