BIS economic adviser and head of research Hyun Song Shin discusses the entry of bigtech companies into the financial services industry and the new challenges this poses for financial regulators, consumer protection and data privacy. https://www.youtube.com/watch?v=ngbmhAazqLA
Chris Skinner, chairman of the Financial Services Club UK, discusses the opportunities of TechFin. https://www.youtube.com/watch?v=GiAhDk0IwKQ
Representatives from Business Insider, Dankse Bank, Erste Group Bank AG, Paypal, Frontier Economics and UniCredit Group discuss how bigtech companies’ roles in finance is likely to evolve in the coming years. https://www.youtube.com/watch?v=o2gvi7C2n5A
Bigtech companies are everywhere, but is their expansion putting them on a head-to-head course with antitrust legislation? https://www.youtube.com/watch?v=c5tFFXo3HFQ
Collectively, the top 5 bigtech companies generate over USD 8 billion in revenue each year, more than the country of Saudi Arabia. But how do these companies make their money. This infographic digs in to show us.
Amazon, Apple, Facebook, Google and Microsoft are five of the most valuable companies in the world, earning the monikers “The Big Five” and “The Frightful Five”. Take a quick look at how these companies have developed their huge market shares and whether or not it might be time to consider breaking them up. https://www.youtube.com/watch?v=3cuILtoQbZE
In this excerpt from a panel on mass automation, three CEOs discuss the impact of digital companies’ actions on the financial industry and what it means for traditional players. https://www.youtube.com/watch?v=I3tPD05TX6M
With a lower-than-ever-before barrier to entry, bigtechs are starting to see the financial sector as a highly-profitable way to expand their businesses and give consumers even more. In fact, there is evidence that bigtech Amazon is even considering offering a checking account service to consumers. This should be setting off alarm bells in traditional financial institutions as such a move could cost them up to USD 100 billion. The fact is that consumers seem to trust bigtechs more than traditional financial institutions. For example, 65% of Amazon Prime customers said they would sign up for a bank account with Amazon, and 43% of non-Prime customers and 37% of non-Amazon customers said they would do the same. With bigtechs increasingly encroaching on their space, traditional financial institutions must act now if they are to remain relevant in the future. They must work to quickly adopt a data-driven and customer-centric mindset. This includes using their data to truly reach consumers and provide them with amazing experiences – all at the touch of a finger. They must work now to build and maintain meaningful relationships or risk being just another outdated company unable to keep up.
New players, so-called BigTechs, are entering global financial markets and capturing new market niches by taking advantage of their technological innovations and huge customer bases. As these companies slowly begin their penetration into Kazakhstan, financial institutions in the country will need to choose one of three paths forward:
Internet company Ozon has announced the launch of its own card. The MasterCard World PayPass card serves as a payment instrument as well as gives users access to a loyalty program that includes cashback (in the form of points) for purchases made anywhere in the world. The card is linked with Ozon.Card Internet Bank, where users can pay for services, transfer money, replenish balances and view card statements. The card can also be linked to both Google Pay and Apple Pay. Ozon hopes that the card will increase purchases and help develop a closer relationship with clients through more personalized offers.
Kazakhstan’s Ministry of Economy has announced the launch of an anti-monopoly investigation into Google. The announcement follows a number of complaints received after the internet giant began to block the ads of companies offering non-official repairs for equipment such as mobile phones and computers. All information is currently being studied in relation to the country’s current legislation on the protection of competition.
A proposed merger between Yandex and Tinkoff is being heralded by many as a move that will greatly benefit both sides. For Tinkoff, they will gain access to an expanded customer base, and Yandex will benefit from the ability to integrate credit and financial services into its vast digital ecosystem. Currently, Yandex, the largest internet company in Russia, is in a partnership with Sberbank; however, there are reports that the partnership is not a happy one. It should be noted that there have been no known official talks of a merger between the two or how such a merger would work, but the most likely scenario is that Yandex would purchase part of Tinkoff’s stake in TCS Group. Should such a merger eventually happen, it will be interesting to see what Tinkoff, a relatively small bank with about 10 million customers, is able to do with access to the more-than 60 million Yandex users.
Telecom companies and banks benefit from cooperation in the field of mobile finance, especially in regard to transfers and payments. In Kazakhstan, mobile finance is only at the beginning of its journey; however, there is enormous potential as mobile finance transactions amounted to KZT 65 billion last year. Most of this was spent on transportation (i.e. users paying for the cost of public transport from mobile financial sources). This is expected to continue to grow in Kazakhstan, especially as the state pursues its Digital Kazakhstan program. Beyond this, the National Bank has also been working to introduce a system of easy payments and transfers using nothing more than a phone number. As mobile finance continues to develop in the country, it will be key for communication efforts to effectively promote these services and their ease-of-use.
The St. Petersburg International Economic Forum hosted a discussion with the heads of Yandex, Tinkoff and Severstal, during which the three discussed ideas on the development of technologies. Highlights of the discussion are presented below, with more details available here.
Russia’s Sberbank has a plan to create a fully-functional online ecosystem that combines banking services and non-financial services by 2024. To do this, the bank has been spent more than RUB 60 billion on a number of efforts. These include working with established companies, buying out companies and creating their own online services from scratch. Here are a few highlights of what Sberbank has been working on:
Russian bank Sberbank is planning to launch a music streaming service in the near future. Currently, the bank is looking for a partner and is reportedly in negotiations with Yandex, Mail.ru and Zvooq. While representatives of all the aforementioned companies declined comment, Sberbank has reportedly been eyeing the streaming market for some time and plans on using streaming as part of its effort to build an online ecosystem. The ultimate success of such a service in a highly-competitive market will depend largely on how well the bank is able to execute a sound strategy that takes advantage of and further develops what users are familiar and comfortable with.
Facebook has announced a plan to launch its own cryptocurrency (Libra) next year. In fact, what they may be doing in launching Libra is actually creating a new financial system that could replace traditional currencies in many emerging economies. Here’s everything you need to know about Libra. What is it Libra will be a stable coin, i.e. a cryptocurrency tied to a currency basket and low-risk securities. This should enable Libra to avoid the foreign exchange risks other cryptocurrencies encounter. Initially, Libra will be used for fund transfers via the WhatsApp and Messenger apps. Facebook also plans to launch a series of ATMs that will be able to sell the cryptocurrency in an offline manner. In time, Facebook expects that Libra will become a universal payment system. To this end, the social media giant has partnered with 28 international partners (including Mastercard, Visa, Vodafone, PayPal and Uber) to create a Geneva-based entity that will govern the new cryptocurrency. How does it work Facebook has created Calibra, an independent subsidiary, to facilitate Libra-based transactions. Calibra will also offer users a digital wallet in which they can save, send and spend Libra currency. Links: Libra White Paper Facebook plans to launch 'GlobalCoin' currency in 2020 Facebook's cryptocurrency ambitions face privacy concerns, political backlash Authorities' responses The Bank for International Settlements (BIS) has stated that the launch of Libra could pose a number of risks to the international banking system and is likely to be met by a speedy response from policymakers around the world. The U.S. Congress has already stated that Facebook should delay Libra in order to give lawmakers and regulators time to investigate the ramifications of Libra on the stability of financial systems. Mark Carney, the governor of the Bank of England, has stated that Libra will most certainly be heavily-scrutinized by the U.K.’s central bank, which will work closely with other countries as well as the Bank of International Settlements, the International Monetary Fund and the Financial Stability Board. French Finance Minister Bruno Le Maire cautioned that Libra should not be seen as a replacement for traditional currencies and called on the Group of Seven (G7) to examine Libra in great detail. G7 representatives themselves have already spoken out, emphasizing that Libra raises serious concerns and must be regulated as tightly as possible in order to ensure that it does not upset the world’s financial system. On the other hand, European Central Bank board member Benoit Coeure was more optimistic, stating that “a global stable coin for retail purposes could provide for faster and cheaper remittances, spur competition for payments and thus lower costs and support greater financial inclusion.” Links: Facebook's Libra cryptocurrency 'poses risks to global banking' Top Democrat calls for Facebook to halt cryptocurrency plans until Congress investigates Bank of England Governor Says Facebook’s Libra Crypto Will Be Scrutinized Facebook Token Runs Into Instant Political Opposition in Europe G7 urges tough Libra regulation, agrees to tax digital giants Other responses Libra was the one of the main topics of discussion during London FinTech Week. The majority of participants there felt that such initiatives need strict regulations to govern them or there could be a risk to financial stability the world over. The Libra announcement has also forced the People’s Bank of China to step up its research into creating its own digital currency as Chinese officials believe that Libra could potentially pose a challenge to Chinese cross-border payments, monetary policy and even financial sovereignty. In a bid to compete with Libra, retail giant Walmart announced its application for a cryptocurrency patent. Walmart hopes to create a little-to-no fee place for users to store their funds, which can then be quickly and easily redeemed at selected retailers or partners. Links: Facebook’s Libra forcing China to step up plans for its own cryptocurrency, says central bank official Walmart Is Trying to Patent Its Own ‘Libra’ Like Digital Currency Critics Nobel prize-winning economist Joseph Stiglitz is highly-critical of Libra, citing concerns over how it could cause a boom to shadow economies: “the last thing we need is a new vehicle for nurturing illicit activities and laundering the proceeds, which another cryptocurrency will almost certainly turn out to be.” Weiss Ratings considers Libra to be akin to PayPal or Apple Pay: “the primary difference is that there's a new asset that would be issued, and it uses blockchain technology. And in the West, governments that mandate what kind of technology tech companies can or cannot use could be crossing some dangerous constitutional lines.” Facebook co-founder Chris Hughes cautions that Libra could shift monetary clout to private companies: “if global regulators don’t act now, it could very soon be too late,” while Lawrence Wintermeyer, chief executive of the non-profit organization Innovate Finance, believes Libra has no real chance of success due to the lack of consumer trust and confidence in Facebook, especially regarding privacy matters. Links: Thumbs Down to Facebook’s Cryptocurrency Gov’t attacks Facebook Libra; proves value of decentralization Facebook co-founder: Libra coin would shift power into the wrong hands What it could mean Some believe that Libra could spur other tech giants to follow suit and develop their own cryptocurrencies, while others think that Facebook could eventually become the largest bank in the world, pushing out many banks and credit card companies. Links: After Facebook Libra, Should Other Tech Giants Develop Their Own Cryptocurrencies? Facebook Plans to Become World’s Biggest Central Bank? Who Will Trust Facebook Bank? Big Banks vs. Big Tech: Are internet giants poised to take over the financial system? London Fintech Week: Libra, Regulation and the Key to Start-Up Success An interesting postscript Facebook representatives are still somewhat uncertain about the future of libra. In its second quarter report, the social media giant cited “uncertain and evolving” legislation surrounding cryptocurrencies, investigations from regulators around the world and a general lack of “significant” prior experience with cryptocurrencies and blockchain technology as the main reasons why, for all the hubbub, Libra may never see the light of day. Links: Libra crypto may never launch due to regulatory scrutiny, warns Facebook
With Apple Inc. starting the rollout of its brand-new Apple Card and its availability expected to reach more than 40 countries by the end of the year, we wanted to take a moment to give you a brief overview of this new payment device. What is it Apple Card is, first and foremost, a virtual payment card. This means that it is capable of completing payment transactions via contactless payment points or online. How it works Apple Card works through your smart phone or any other Apply Pay-supported device. At a system level, the card connects to a user’s Apple Wallet via his/her Apple ID, meaning that Android users won’t be able to use Apple Card. Apple is also providing users with a physical card to use where contactless payment is not an option. The titanium card is much more secure than traditional credit cards as it only has the user’s name on the front and a strip on the back (i.e. no card number, no CVV security code, no expiration date and no signature on the card). The physical card is activated by synchronizing with an Apple device (e.g. an iPhone), much in the way that Apple’s AirPods work. How can you get it The Apple Card requires an Apple device running on iOS 12.4 or newer to work. To apply for an Apple Card, a user must simply open the “Wallet” app. How to pay an Apple Card balance To pay the balance on the Apple Card, simply execute a payment from a bank account linked to the same Apple ID or use existing Apple Cash funds available in the “Wallet” app. Cashback The Apple Card offers cashback rewards for every transaction:
U.S. banks are projected to lose as much as USD 43 billion in revenue if mobile payment apps become as popular in the U.S. as they are in China. This video examines how cheap and easy phone-based payments are threatening one of the banking industry's most profitable businesses. https://www.youtube.com/watch?v=SJh_Uir5EMI
At a meeting of the financial heads of G20 countries in Southwestern Japan, a discussion was held on developing a new tax system for large internet companies such as Google and Facebook. Specifically, the financial heads discussed implementing a tax policy under which such companies would be taxed in each country instead of just the one in which their head office is located. Taxes due in each country would be based on turnover in each country. It is estimated that such a move would add a total of EUR 224 billion to state budgets throughout the world.
On the surface it may seem the China’s WeChat is a social network like Facebook or WhatsApp. But with more than a billion users and a plethora of functions, it has become a social ecosystem with unlimited possibilities – a messenger, a payment system, an identification system, etc. For most users in fact, WeChat knows: family, friends, topics of discussion, bank details, addresses, bills, purchase histories and so much more. It can even recognize faces and other biometric data. This obviously has enormous potential for making life easier, but it is also an enormous risk for users. While Western companies like Google, Amazon, Uber, Twitter and Instagram all keep data, they are separate companies that store data separately. WeChat has all this data in one place. This is scary in and of itself; however, when coupled with the fact that Amnesty International scored WeChat’s data privacy level a 0 out of 100 (in comparison, Facebook received a score of 73), it means that there is great potential for data to be used against people in unreasonable/unethical ways (be it by WeChat, the government or hackers). Moreover, the government is pushing for the use of WeChat data to create a social credit system that will reward “trustworthy citizens” and punish others. The real question then becomes: what is the real cost of convenience in a highly-digital world?
With concerns of a BigTech “invasion” into financing reaching an apex, it seems appropriate to examine BigTechs’ interest in the financial sector:
So far this year, Hong Kong's Monetary Authority (HKMA) has issued virtual banking licenses 8 different groups, including BigTechs, as part of an initiative to promote financial innovation, enhance consumer experiences and increase financial inclusion. The entrance of BigTechs into the financial sector is expected to push established financial institutions into greater innovation, especially as nearly one third of consumers indicated their desire to explore BigTech financial products and services. At the same time, some are worried that the entrance of BigTechs into the financial sector could also push established financial institutions into assuming greater risk, while others are worried that giving BigTechs access to so much data could lead to them having a data monopoly that eventually harms consumers. Good or bad, BigTechs have begun their march into Hong Kong’s financial space, and the end results should show us a lot about how the financial sector will look in the not-too-distant future.
Android users in India can now make instant peer-to-peer (P2P) payments via Amazon Pay through a government-backed unified payments interface (UPI) platform. The new service will also allow customers to make direct payments to local stores from their bank accounts or even to Amazon delivery associates on their doorsteps via a UPI QR code. Multi-factor authentication (involving the customer’s phone number, SIM details and UPI PIN) is used to ensure security. As a launch incentive, Amazon – which is lagging behind P2P rivals in India – is offering its users up to INR 120 (USD 1.73) in cash back rewards. Amazon is also piloting a business-to-business (B2B) inventory supply and management program in three Indian cities as part of its efforts to serve the country’s 12 million small independent stores. If successful, the program will be expanded across all of India in the near future.
According to Christine Lagarde, head of the International Monetary Fund (IMF), the entrance of BigTechs into the financial market could adversely affect overall financial stability. Ms. Lagarde specially mentioned concerns over confidentiality and the potential for such giants to eventually drive out competition. Instead, IMF is looking to help member countries take advantage of opportunities to quickly develop financial technology and manage inevitable risks in a responsible way. To this end, they published a 12-point policy agenda in collaboration with the World Bank.
Competition in the Asia-Pacific region is intensifying between established financial institutions and the technology and e-commerce disruptors that threaten to carve up the payment solutions market. According to a report by Temenos, BigTech companies like Google, Facebook and Apple as well as major payment players like WeChat Pay, Alipay and PayPal are viewed as the biggest threat by established financial institutions in the region (60%), followed by neo-banks like Volt Bank, Varo Money and Monzo (25%). With these treats in mind, established financial institutions in the region are starting to see mastering digital marketing and enhancing digital engagement as their top strategic priority. The report also found that emerging regulations in areas such as data protection and digital taxation will have a significant impact on the banking sector, although this is likely to vary by country as each country is being driven by different players. In Australia for example, the government is driving initiatives to increase competition within established regulatory frameworks. In other parts of the region (e.g. Singapore) however, players themselves are driving initiatives as a way to remain competitive. In China, tighter licensing and data protection rules are set to diminish the power of Alipay and WeChat Pay’s duopoly.
Chinese tech firms are moving into the banking sector in a much different way then their Western counterparts. Whereas Western BigTechs like Amazon and Google seem content in serving financial institutions with cloud features and advertising, Chinese ones like Tencent and Alibaba seem far more interested in competing with financial institutions. For example, Tencent’s WeBank was China’s first private digital-only bank, one that made a net profit of USD 210 million with a return-on-equity of 19.2% in 2017, just its 2nd year of operation. In fact, a recent stake sale of the bank valued it at USD 21 billion, making it one of the world’s largest “unicorn” companies. At the same time, Alibaba’s Ant Financial offers a number of products and services, including: Alipay, the largest mobile wallet in the world; Yue’Bao, the largest money market fund in the world; MYBank, an online lender for small businesses; Ant Fortune, a wealth management service; and Zhao Cai Bao, an investment marketplace. 6 months ago, they also launched a new health insurance service that has gained 50 million customers already and aims for 300 million within its first two years of operations. Ant Financial was valued at USD 150 billion in 2018, making it the 10th largest financial firm in the world in only its 5th year of operation. There might not be the massive global change in banking that some soothsayers have been predicting, but there is likely to be one in China as tech companies rewrite how consumers interact with everything financial.
The rise of gig workers represents a disruptive force in wealth management that presents both challenges and opportunities. As gig workers don’t have access to employer-sponsored benefits, it can often be a challenge to get them to engage in the wealth management industry. In fact, a global study of gig workers found that 44% aren’t saving for anything and 22% only save on occasion. At the same time, gig workers tend to be more involved in their own personal finances, presenting a consumer segment for wealth managers to engage with. To do so, wealth managers will first need to understand how and why individual workers select particular types of gigs, which will allow them to analyze the implications of those choices and begin predicting what each gig worker’s financial needs are. They will also need a combination of new and existing capabilities, with clear strategies and the ability to build effective external partnerships as well as human and machine touchpoints that best suit each investor’s needs and preferences.
BigTechs have been rapidly moving to offer a wide range of financial services. But the role of BigTechs in the financial sector raises numerous issues as BigTechs are not regulated like financial institutions and, therefore, are not subject to the same stringent capital, leverage and liquidity constraints. While this can have numerous advantages, especially in terms of increasing access to finance or access to more-affordable finance, it is also important that regulators carefully monitor and guide this process in order to ensure fair competition and consumer protection. But regulating BigTechs’ financial services activities will not be easy. Even when objectives are clear and uncontroversial, selecting the most appropriate policy tools will require navigating complex interactions. This includes navigating along two dimensions: (1) how much BigTechs will be encouraged/allowed to enter into the financial sector and (2) how data will be treated. In the end, it will be up to a combination of the market and regulators to answer these questions and strike the right balance that ensures fair competition and proper data protection.
In 2019, FinTech is not a new concept, with most people having at least some understanding of it. But this is not the case for TechFin. What is it? And how is it different from FinTech? At its most simple level, FinTech refers to financial companies looking at technology as a way to improve services and consumer experiences. TechFin, on the other hand, refers to a technology firm that wants to deliver financial products on the basis of existing tech solutions (e.g. Google, Amazon, Facebook and Apple). Jack Ma, a co-founder and executive chairman of Alibaba Group, has described the difference between Fintech and TechFin in an interesting way: “There are two big opportunities in the future financial industry. One is online banking, where all the financial institutions will go online; the other is internet finance, which is purely led by outsiders”. In other words, it really comes down to a matter of how each approaches financial services.
Today’s consumers want the same level of experiences they get from financial institutions as they get from BigTechs like Amazon and Google. The reality, however, is that most financial institutions do not currently offer this level of experience, meaning that, when BigTechs start delivering banking services, financial institutions may well be in trouble. Here are 5 competitive strategies to help them face the BigTech threat:
Over the past few years, there has been much made of the FinTech boom and how tech- and financially-focused companies were invading the financial sector from seemingly every corner. A new player, however, is entering the sphere and making even bigger waves. BigTechs (also known as TechFins) have swooped into the sector, taking many financial institutions off-guard. Perhaps nowhere else is this more evident than in China, where Alipay and WeChat are providing innovative financial services that are dominating. With IBM entering the remittance market through World Wire, Facebook testing out WhatsApp payments, Alipay entering the UK market in a big way and Apple announcing its Apple card, it is clear that struggles with FinTechs were a mere distraction in comparison to what will likely be a major battle with BigTechs in the years to come.
BigTechs – with their size, brand recognition, distribution capabilities and technology – are already active in the financial services industry and have sufficient motivation to enter the asset management industry. With consumer trust in BigTechs now equal to their trust financial institutions and even ahead of their trust in fund managers, it is interesting to look at what BigTechs can offer. There are 5 big strengths they have in the asset management industry:
Digital-centric companies like Amazon and Uber have raised consumer expectations regarding the experiences companies provide. These expectations are even being placed on financial institutions. Here are 4 lessons the financial industry can learn from digital-centric companies:
While most companies turn to BigTechs for ways to make work easier (e.g. with software and apps), they can also teach all industries other valuable lessons about how to do business. Here are 12 ways non-tech industries can learn from BigTech:
At EBAday 2019, a group of panelists discussed the likely future of instant payments in a world of open banking. The group noted that major progress is already being made in some areas of the world and that Europe stands to lose out in its own backyard to China and the U.S. if it doesn’t start making waves and fostering an atmosphere of collaboration. For most involved in the financial sector, the main question seems to center around how open banking standards will eventually settle as APIs are still very fragmented, although there is a light at the end of the tunnel with regulations starting to introduce a common set of standards. The other big question is who is more likely to push innovations and become the leaders of tomorrow: will it be traditional financial institutions or will it be BigTechs? While there has been much made of how BigTechs are continuing to push into the financial sector with their large consumer bases and drive for providing consumers with fast and easy solutions, it should be noted that traditional financial institutions are demonstrating a willingness to embrace PSD2 legislation. In fact, many are active in delivering beyond PSD2 and beyond a limited API scope. It should be remembered that we are still in the infancy of this and that there is much growing and learning to do. What is certain is that the world is moving, thanks to increased consumer expectations and open banking, toward a different standard of normal. And it should be interesting to see how it all shakes out.