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Will we ask for a mortgage on Facebook? All about the real banking panorama

In the near future, will we ask for a mortgage on Facebook? And will our checking account be on Amazon? Maybe on Google? It is not such a remote hypothesis; In fact, it has been circulating for some time. But now it seems that the thing is serious, with all the big technology opening front in banking services. And traditional banks start to really worry.

Banking and suffering: fintech comes as the solution

That the banking sector would end up suffering, sooner or later, the attack of technology companies is something that has been glimpsed for a long time. For years we have been talking about fintech to define the financial services revolution due to the massive use of new digital tools. A perfect example of this is the blockchain.

This challenge comes from small startups

Another very different that come into play global companies with billions of users / customers and a huge liquidity. It is not surprising that two-thirds of Western banks are convinced that there is a real risk of losing control of direct interaction with clients. Of course, feel compassion for banks, we understand, is complicated.

In addition, for merchants could be the opportunity to eliminate the intermediation of traditional banking circuits. That way they could directly manage their business from a financial point of view. The payment mechanism would be on the same platform where its customers are located, and where, therefore, it would be possible to make microinvestments in marketing and advertising.

The costs, way lower

Finally, the costs are much lower, because for Facebook or Amazon the main business is another. Basically, increase the information, the data, collected about its users. For the digital giants it is more important and profitable to know how much we pay, why and how much we have left in the account, or how much we invoice and invest, than to charge a small percentage of the transactions.

The ultimate goal is deposits and loans

Amazon has access to unique and real-time information about the products, sales and levels of customer satisfaction of the companies that use its platform. This information can be used to monitor businesses and customers and assess credit risk. A function that occupies the center of traditional banking activity.

In the United States, Jeff Bezos’ company is already studying a product similar to a current account for its clients. It offers a debit card: the Amazon Cash. And Prime Reload is a service that provides a 2% bonus to customers who transfer funds from a bank account to an Amazon card. A way to pay less commissions to companies like Visa and MasterCard.

The ‘Big Tech’ of the planet, especially Americans and Chinese, no longer want to limit themselves to electronic payment systems, whose importance is still relative, occupying 5% of global transactions. The ultimate goal is probably that of deposits, loans and, in general, all the most remunerative banking services.

The entrance to Europe

On January 13, the European directive 2015/2366 came into force. Better known by the acronym Psd2, the new regulation allows companies like Amazon or Facebook to connect the payment directly to the customer’s bank account. Prior, obviously, to the explicit consent of the user.

Precisely to take advantage of the opportunities offered by the new directive, Google obtained in January the e-money license of Lithuania. A few days before ‘Big G’, Amazon and Facebook did the same. One in Luxembourg and the other in Ireland. The European ‘tax havens’, in fact, are the gateway to the old continent for the giants of the network. However, it is still unclear if the licenses granted in one country will be valid in all EU Member States.

The fact is that Google Pay is now a digital wallet, which contains the credentials of the user’s credit and debit cards. It allows you to make purchases online, in the application and offline. The e-money license represents a possible radical change, since it allows Google to save and transfer the funds of its users electronically. Exactly as Paypal already does, processing payments directly, without relying on external payment cards.

The rest of the world

Similar payment systems are already active in the US Like Facebook Messenger or Amazon Pay. In China this line has been crossed for a long time. In Shanghai, Beijing or any of the Chinatown of the world, in the restaurants there are QR codes on the tables. The client sits down and scans the code with the phone through WeChat (owned by Tencent). Ask, eat and pay with Alipay. Everything inside the mobile. The waiter only brings the dishes.

If in the United States and China confidence in technology is much greater than that given to banks, in Europe the thing is not so clear. On the one hand, we have very old banks, whose reputation, already weak, after the 2008-2011 crises collapsed. On the other hand, however, large technology companies are perceived as increasingly intrusive and opaque. And they begin to accumulate a considerable number of scandals and fines.

Partnerships with banks

The so-called ‘GAFAM’ (Google, Apple, Facebook, Amazon and Microsoft) and the Chinese ‘Bat’ (Baidu, Alibaba and Tencent) will probably come to offer their own banking products. But it is very possible that, at least at the beginning, they do so in synergy with traditional banks.

In this way, the old financial institutions would have new and attractive brands such as Amazon Bank or Google Bank. A way to sell their products to younger generations, less ‘friendly’ with banks, but very involved in technology. For its part, the ‘Big Tech’ would charge certain fees, without the typical risks of the sector. And they would continue to focus on their core business: data.

In fact, Facebook is already working to create alliances with Jp Morgan Chase, Citigroup, Wells Fargo and US Bancorp. The idea is to integrate your banking services in Messenger and WhatsApp, as it already does with American Express, Mastercard, MoneyGram and PayPal. The social network of Mark Zuckerberg would be developing its own cryptocurrency, which would make WhatsApp a platform for payments and money transfers.

Amazon, for its part, already has a credit card and a synergistic collaboration with Jp Morgan. Finally, according to the Wall Street Journal, Apple would also be producing a credit card with Goldman Sachs. It would support the Mastercard circuit, be compatible with Apple Pay and use Wallet to show the balance and the details of the account.

Assuming the risk of overflowing the most vulgar populism, it is difficult to think that the banking sector, dented, but still very central, and the digital giants that dominate the world end up waging a war. The common interests are too many and to arrive at a direct confrontation would not be good for anybody. The hope is that it is also advantageous for all of us.

Alternatives to traditional banking

These large technological multinationals are not the only new agents whose emergence is expected in the banking sector. At the end of the year there will be a new protagonist in Spain with the launch of Orange Bank.

According to Laurent Paillassot, CEO of Orange in our country, the bet of the telcos must be focused on diversification and exploring new territories in order to anticipate the basic needs of customers and prepare future growth engines. “Within this line of work,” he says, “Orange has detected that mobile financial services represent an extraordinary opportunity.”

The CEO of Orange Spain added that the company wants to offer its customers “an alternative” to traditional banking, as well as a secondary entity to those seeking a simple and mobile-focused offer. Hence the launch of Orange Bank, which is the culmination of a process started in 2016 with the acquisition of Groupama Banque.

Also published on Medium.

Published inFintech

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