Many looked at fintechs as a threat to traditional banks, but according to this article in Forbes, it might be Big Techs that are the real challenge, with better funding and an established customer base.
Fintechs may be the apple of venture capitalists eyes, but they won’t be transforming the financial services market alone in 2020. They will have some of the nation’s biggest tech companies to contend with.
This year has been all about the financial technology startups that raised hundreds of millions of dollars in venture capital, some now sporting valuations of more than $1 billion.
These fintechs have been busy disrupting everything from banking to investing, landing millions of customers along the way.
Some have out grown the traditional players, forcing entire industries to waive fees and slash commissions.
That hasn’t been lost on technology companies, which began testing the waters in 2019.
Apple is a perfect example. Despite start-up bumps, it has Goldman Saks behind the card. Goldman may not be an ideal fit in the consumer space but it has the depth to sustain losses if necessary.
It entered the financial services market earlier in 2019, teaming up with Goldman Sachs in August to launch the Apple Credit Card.
Apple has been tightly lipped about its performance since then but David Solomon, Goldman Sach’s CEO, was quick to tout the success of the Apple Card’s launch this summer.
Then there’s Google. Even though it did not do so well with electronics such as phones and home devices, you can’t hide money.
In November, the Wall Street Journal reported its gearing up to roll out checking accounts in 2020. Code-named Cache, Google is reportedly working with Citigroup and Stanford Federal Credit Union to make that a reality.
But penetrating the banking system will not be a cake-walk. Aside from top global players such as American Express, Bank of America, Capital One, Citi, Chase, and Discover, the Techs face regulatory issues on accepting deposits.
That’s not to say it will be completely smooth sailing for these tech companies as they navigate the highly regulated financial services industry.
As some of the leading fintechs have learned, it’s not always so easy to offer financial products and stay within the confines of regulations. Tech companies have an added layer to that.
They are under intense scrutiny by regulators and lawmakers over how they handle data.
That could hurt their ability to offer financial services. Facebook’s woes with Libra are a cautionary tale of what could go wrong.
With lawmakers and privacy groups already worried about how Facebook handles data there has been immense push-back to Libra. That’s resulted in Visa, Mastercard, Stripe, eBay and PayPal quitting the Libra initiative.
Mercator’s recent position on Fintechs in the retail space appears in this recent Viewpoint. We say that banks do not have to lose their revenue streams to novo-players. They need to keep an eye on the ball, stay focused, and not be slow to innovate. With that strategy, fintechs will not take over the space.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group