Big Tech: Opportunity or threat?

Bankers have long kept a wary eye on Big Tech, and for good reason. Apple, Google, Amazon and Microsoft have all offered financial services products to consumers, sometimes directly and sometimes through banks or credit unions.

“The technology giants have certainly offered innovative, elegant products, and there is the potential for them to become even more interested in financial services,” says Nicole Lorch, president and COO of Fishers, Indiana-based First Internet Bank.

But while there’s no doubt that Big Tech players are getting into the financial game, is their interest a threat to banks? Will they in the future go more directly to offering services on their own? And if they collaborate with banks, will consumers associate the product benefits with the tech companies rather than the banks? Would that perception affect consumer loyalty?

There’s no consensus among industry observers on whether Big Tech’s actions have lived up to the hype. Bob Ruark, principal of financial services strategy and fintech leader of KPMG U.S., says tech companies don’t want to become financial services companies but rather want to partner with them. The headache of regulation alone causes them to be cautious in their involvement in the financial space.

“Their plan is to provide information and technology to support bank offerings,” Ruark says. He notes that most tech companies do not want to go through the effort of getting licensed as a bank and dealing with related paperwork and compliance issues. Partnering with banks allows tech companies to focus on core systems and let banks deal with compliance. That provides an opportunity for banks, he says.

But some see a real threat. For example, Lorch says time will tell. “I’m not sure how committed they are to this market,” she says. “I definitely see a potential threat, but at the same time it is not clear whether they will get into financial services directly and stay in.”

Still others, such as Gaurav Bose of Cognizant, believe that Big Tech has already invaded banks’ turf, particularly in providing services to the unbanked and to small businesses.

Apple’s announcement in mid-October that it would partner with Goldman Sachs to offer savings accounts has Bose curious about Apple’s intentions. That partnership allows Apple Card holders to deposit cash into a high-yield savings account held by Goldman Sachs and manage their savings directly in Apple’s wallet app.

Bose, chief product architect for banking and financial services at Cognizant, notes that several years ago, when Apple introduced Apple Pay, financial services firms still played an important role because they issued the cards that were central to the payment.

“Once Apple got volume, it became more active in financial services,” says Bose, noting that this latest deal provides evidence that Apple is interested in this space. Bose notes that about one-third of iPhone users now use Apple Pay—giving Apple a huge customer base to market additional services to.

An additional concern for community banks could be that the Big Tech companies tend to partner with large national banks that have the resources and scale to attract technology companies. This could leave community banks out in the cold.

“It’s often difficult for community banks to compete. These tech companies can provide innovative offerings that community banks cannot always adopt effectively, and they may feel threatened,” says Lorch.

Ruark believes community banks have an opportunity to partner with technology companies, but not always through direct partnerships. He believes many small and midsize banks can work with tech companies through processors such as Fiserv or Jack Henry. Bose adds that banking consortia often provide smaller banks with an opportunity to partner with tech companies as part of a group.

In addition to Apple, Amazon is a company to watch, Bose says, particularly with regard to small-business banking. Amazon has been able to support the small businesses that operate on its e-commerce platform by underwriting loans, he explains. This lending could eliminate the need for small businesses to secure bank loans.

And even with bank partnerships, tech companies can use data and insights into consumer behavior to develop attractive offerings to gain consumer appreciation. “The customers care about ease of use and the experience,” Bose says. “If the tech companies can give them compelling offerings, the banks are now in the background.”

Lauri Giesen is a BAI contributing writer.

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