What an Amazon and Goldman Sachs partnership means for Wall Street and fintechs
Sarah Kocianski is head of research for digital banking and fintech consulting firm 11:FS.
Last year saw a series of announcements from Google, Apple, Facebook, and Amazon (GAFA) quartet moving further into financial services.
- In this op-ed, Sarah Kocianski, head of research for banking and fintech consulting firm 11:FS, discusses what the implications could be for Wall Street and Big Tech.
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Last year saw a series of announcements from Google, Apple, Facebook, and Amazon (GAFA) quartet moving further into financial services. Apple Card being the most significant, but Facebook Pay and Google's collaboration also created buzz. Now Goldman Sachs is in talks with Amazon to offer small business loans to its US customers.
Amazon is an interesting one. It already offers loans and insurance, and while it's first attempt at entering the student loan market through its partnership with Wells Fargo ended abruptly, this week's announcement signals that they've learned from that experience. Also not forgetting the recent BBVA announcement to sell products through its marketplace, it is becoming clear that Amazon is looking to be a collaborative distributor of financial products not the direct competitor to Wall Street that some envisioned. At least not any time soon.
So far big tech's push into financial services has been more slow creep than huge strides. We are seeing big tech firms continuing to add services that are peripheral to banking to their existing offerings, without going full-stack banking.
Why? The headache of getting, and maintaining, a banking license is too big a risk for these companies when they can enter the market with licensed partners. The Apple Card, Mastercard, Goldman Sachs collaboration is the model to follow. Apple gets the service to users, while Goldman gets to compete with Citi, Chase, and others with the benefit of one of the most trusted brands in the world.
For Google customers that are already using Google Pay, then a Google checking account may well feel like a natural next step - they already trust Google with their transaction data. I'm not sure that many would use such an account as a deposit account for large sums, I also don't believe that Google wants to be a holder of funds. Google's strategy appears to be focused around gathering transaction-level data it can use for its own purposes.
Meanwhile, Facebook is likely to continue its payments push, both to merchants and in the person-to-person space, facilitated in part by the amalgamation of the Facebook, WhatsApp and Instagram platforms. It has been trying to create a killer service for some time but to date has been outgunned by the likes of Apple Pay and Google Pay who have seen far more adoption and mainstream usage.
Should banks be worried?
For now, incumbents still have the advantage when it comes to customer numbers, helped by ongoing apathy towards switching, a status quo that is unlikely to remain. Banks need to focus on offering services and products their customers actually want and more importantly need.
Rather than offering one-size-fits-no-one products, they would be better looking at services that can be tailored to individual groups. To date that has tended to mean a generic digital service labeled as being aimed at millennials when in reality it means, mom and pop store owners, freelancers, gig economy workers and so on.
In order to do that they will have to rethink not only their core technology, which in many cases is rapidly becoming unfit for purpose but also their whole approach to serving customers. If they do that thoroughly it will most likely lead to an overhaul in ways of working, processes and product development.
However, this doesn't mean the sudden decline for incumbents. People are increasingly happy to be multi-banked if they can get better prices and services that way, something that has worked in big banks' favor so far. For example, people will use Chime for daily spending but can't be bothered with the hassle of getting their salary paid in as it would involve having to deal with their employers' HR system so leave it with their older/incumbent account.
Should fintech firms be concerned?
For the foreseeable future, the likes of Chime and N26 are safe from competition from big tech. N26, for example, has seemingly done well in acquiring customers since expanding to the US, reaching 250,000 at the beginning of 2020, with customers shifting funds from Chase and Citibank. For the most part, that's been done through heavy marketing spend and luring customers with discounts and perks, including free ATM withdrawals. The question for N26 is can they sustain that level of generosity in order to continue to attract customers and are these users active enough to bring in enough revenue through interchange fees to make that initial spend worth it.
Trust in fintech challengers are also boosted by their existing customer bases and those customers' willingness to recommend the bank/refer people (something GAFA also has) as well as their holding licenses that are equal to those of the incumbents (something GAFA don't currently have and are unlikely to gain).
However, a firm like Revolut - who also made a well-publicized US expansion - has a different position, being less widely used as a "primary" account, or even the "daily spending" account that some people use firms like Chime, N26 or Monzo for. In its case, I would suspect it has more to worry about as there's nothing to stop Google and co. offering similar services should they want to.
Sarah Kocianski is head of research for digital banking and fintech consulting firm 11:FS. In her role she creates interactive research reports that challenge the market research status quo. She is also a host for 11:FS' Fintech Insider and Insurtech Insider podcasts, and regularly speaks at events including Money 20/20 Europe, MoneyConf and Web Summit. Prior to joining 11:FS she was the lead fintech analyst for Business Insider Intelligence.
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