The Tech Companies Want to Become Banks
Around 20 years ago Walmart tried to start a bank. The States reacted and passed laws to ban would-be Walmart branches. Eventually members of Congress drafted a bill that would ban retailers from banking. The concern was both based in issues of scale and trust. In the end, after nearly a decade of trying, Walmart bailed on the attempt.
“We don’t plan to do this again,” Jane Thompson, Walmart’s president for financial services, told The New York Times at the time. “The bank is behind us. We will use our partners to roll out new products.”
This tale of wasted time and effort has not phased the big tech companies. On Wednesday, Google confirmed that it would begin offering checking accounts next year. Uber Money plans to be a bank for its drivers. Apple has an indestructible credit slab. Facebook just announced Facebook Pay (Venmo basically), Facebook would get all the transaction data for ads. Also don't forget Libra. Amazon, like Google, has reportedly explored checking accounts of its own.
The reason these US tech firms are pushing so hard is in part the success of their Asian counterparts. There, tech firms plowed into finance years ago and largely won out. In Beijing, it’s embarrassing to pull out a credit card rather than a QR code that links to your WeChat account. Ant Financial, the banking arm of Alibaba, is far bigger than Goldman Sachs, the bank that helps Apple issue its credit cards. On the same apps you use for news and games and texting, you can also get loans, credit, and manage your investments.
Tech firms can deliver financial services right where and when they’re needed, says Gerard du Toit, a banking consultant at Bain. Part of that is, yes, data: Google and Facebook know about your recent breakup. They know that a baby is due, that the kids just started college. They’d probably love to help finance every step of the way, and collect even more data in the process. But new sources of revenue aren’t the main focus right now, Du Toit says.
Instead, tech companies want to lock you even more securely into their existing business models—keeping those well-proven profit engines humming. If you thought iMessage kept you tethered to the iPhone, get ready for when your financial life revolves around Apple Pay. “All of these players have quite bold ambitions to be the center of everyone’s life, where you just can’t imagine breaking up with them,” he says.
Facebook is learning that the hard way with Libra, even sparking a House bill that would, you guessed it, keep big tech out of finance. The project already faces an antitrust inquiry from European Union regulators, and US officials have called it too-big-to-fail. “There are very few companies that actually want to be banks,” Du Toit says. (Facebook remains adamant that Libra is not a bank and won’t become one.)
Caesar Sengupta, a Google payments executive, told The Wall Street Journal that the search giant plans to partner with banks to get its products off the ground—a somewhat pointed statement, one month after Zuckerberg was hauled into Congress after failing to do just that.
US consumers present another barrier. “You need to give them a really big incentive,” says Arielle O’Shea, a banking specialist at Nerdwallet. “And even that might not be enough.”
One of the most interesting thing about tech firms becoming banks is they don’t even need to make money off the banking products themselves. Amazon would save money when you open a checking account, Du Toit notes, because it would avoid fees it pays when you use an account from somewhere else.
Those initial steps—credit cards, checking accounts, and the like—are probably the way forward for now. “I don’t think they give up much by doing that,” Du Toit says. Remember Walmart? It basically did fine. The company is today a financial hub for everything from remittances and credit cards to tax help.