Europe has so far been largely protected from the big tech march into financial services. Penetrating each market has been a challenge due to differences in language, tech adoption and regulations. But open banking is unifying the financial landscape across the continent, making it easier for tech giants to get a foot in. Now the big questions are: what will happen when they do? And what do we need to do to safeguard customer loyalty?
The big tech expansion into financial services has been a natural evolution. Tech giants like Microsoft, Amazon, Google, Apple, Facebook, Alibaba and Tencent are among the 10 largest companies in the world, and they all owe their success to their strong, data-driven customer focus.
By leveraging this data these companies can create ever more relevant, personal and intuitive experiences for users, leading to a level of engagement that allows them to quickly move into (and take over) new industry segments.
Over the last decade, we’ve seen big tech introduce payment services – and slowly move into credit, insurance, savings and investments. They’re already making headway in that space in the US and China, and are now setting their sights to the open banking opportunity in Europe.
These are the three paths we think big tech could take to venture into the European market:
While we wouldn’t be surprised to see big tech launch money management apps alongside what they already do, there could be a more significant impact if people’s financial information gets added to the apps they already rely on every day.
This strengthens the big techs’ offering, as it makes their products (something people already use) more useful, rather than trying to change behaviour or sell a new service.
For instance, your account transactions could appear on Google Maps, pinpointing when, where and on what you spent money. Your past spending habits could be used to help personalise search engine results. Soon, you might simply be able to ask Alexa, Siri or Cortana to tell you how much money you have left to spend this month, ask them to set a spending budget, or even action a payment.
We know that big tech excels at creating compelling user experiences, so if they also have a PSD2 licence that lets them access bank account information or initiate payments, the options to enhance the digital services millions already love are vast.
The rise of digital wallets gives big tech a big opportunity to take over the relationship between consumers and financial services providers.
These services don’t only gather people’s different bank accounts and credit card information in one place, but then lets users make payments from any of these accounts through one app – online or in person.
This means that, with a digital wallet, people no longer have to carry physical credit or debit cards, or log into seperate banking apps to make payments. It would all be done in the tech giant’s existing environment.
If big tech can provide a real-time view of people’s transactions and account balances in one digital wallet, it means people would have much less engagement with their bank or card provider. The big tech is effectively squeezing itself between the two and winning the customer’s exclusive attention. The entire payment process would be hugely streamlined and simplified, in a digital environment the user has already bought into.
As the number of point-of-sale systems that accept contactless payments grows, so does the threat of a big tech takeover of the customer relationship.
As consumers and merchants both become increasingly comfortable with cashless payments and digital products, we could see big tech start to offer their own brand of financial services.
Given that they operate some of the biggest online marketplaces in the world, it seems inevitable that big tech will take their first step towards replacing some primary banking services entirely – by creating their own payment systems that reward users for their loyalty.
One solid example is Apple Card – going live August 2019 in the US, and with a European launch expected to follow. It comes with zero fees, gives users daily cashback on their spending, and helps people manage their payments to avoid interest charges.
Big tech’s position as a financial provider could become even more powerful when the ability to make payments is combined with services like integrated billing and digital receipt management, both online and in physical stores. Or even by moving into areas such as offering cash advances or insurance.
When highly competitive products can be delivered on a slick platform that the user already values, it could be tough for more traditional providers to match up.
So far, only Google has a licence to operate as an Account Information Service Provider (AISP) and a Payment Initiation Service Provider (PISP) under PSD2. Other big tech companies are rumoured to be testing APIs while they wait for the licence to have their status rubber-stamped.
And while big tech surge could mean anything from taking over the relationship people have with their banks to head-to-head competition with financial services providers, one thing is certain: we can definitely expect to see a range of new financial services come to life over time.
As of now, the advantage is still on the banks’ side. They are still closer to the customers and have already established a relationship with them. To stay ahead of the big tech surge, banks will need to beat these companies at their own game: focusing on customers and finding ways to add value for them through personalisation.
Northmill is on a mission to build personalised banking services that improve people’s finances. By plugging Tink’s open banking technology into its app, Northmill will deliver a seamless and relevant customer experience.
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