The trend of big tech companies getting into the banking industry has been getting increased attention recently.
In November, Google announced it would begin offering checking accounts to customers, partnering initially with Citigroup Inc. and a small Silicon Valley credit union to run the accounts. Called Cache, the service is scheduled to launch in 2020.
Six months ago, Facebook announced Calibra, a digital wallet that will store Facebook’s digital currency and allow users to transfer funds and make purchases all over the world.
Five years after introducing Apple Pay, Apple has launched its Apple Card, which works in tandem with iPhone-based Apple Pay. Apple Card claims to be an innovative credit card not created by a bank, although the card is backed by issuing bank Goldman Sachs.
Are tech companies like these aiming to supplant banks, or are they moving into the realm as partners with established banks to help banks improve their efficiencies and even their appeal to customers?
Nathan Snell, chief innovation officer at Wilmington-based nCino, sees potential upsides in tech companies’ entry into banking.
“Every time a tech giant debuts a new offering or makes a big announcement, traditional financial institutions can’t help but worry about how it will affect the financial services industry,” he said. “I actually view these challenges as an opportunity rather than a threat – they create strong incentives for banks and credit unions to find new and innovative ways to meet customer expectations by providing best-in-class technology, services and experiences.”
Financial technology companies like Wilmington-based Apiture are working with financial institutions to help them address the challenge from big tech, said CEO Chris Cox.
“These types of bank/fintech partnerships can be helpful for both [partners],” Cox said recently when asked about Google’s entry into banking services. Citing Google’s partnership with Citigroup and the Stanford Federal Credit union, he added, “Banks need new sources of deposits, because that is what fuels a bank’s growth. Google is looking for more services to offer to customers to extend the value it provides. Banks can use [tech companies’] huge marketing footprint to attract new customers.”
Snell suggests that the trend toward ever-more-sophisticated technology in banking isn’t going to reverse itself.
“We can all agree that disruption is transforming banking, and as large tech players move deeper into financial services, it’s becoming clear that financial institutions need strong technology partners who can help them retain customers and provide delightful digital experiences,” he said.
Customers’ level of trust might be a differentiator, Cox said.
“Banking is all about trust and convenience,” he said, adding that tech companies and financial tech companies “can focus on convenience, but they also need to focus on the trust part.”
As an example, he cited industry questions about what Google might do with the data it gathers from its banking customers, and the need for those customers to be wary. But Cox also sees advantages to Google getting into checking.
“It’s changing expectations around how people engage with businesses,” he said. “It’s convenience, like what Apple just did with the Apple Card. It’s still just a traditional banking service, but the real innovation is around the consumer experience: how the consumer does banking and makes payments. Taking little bits of the chain, [tech companies] can often provide services better than the financial institutions can themselves, because [tech companies] are focused on specific functions.”