I received one interesting comment about Google, Apple, Facebook and Amazon (GAFA) and co getting into banking from one bank: why would they?
His response was based upon the fact that he’s more worried about Google when they’re not a bank than when they are one.
“If they bought a bank – let’s say they acquired Citibank – then this would be good news”, he said, “because that would kill them.”
Google would become stuck with compliance, audit and integration issues and would be dragged down like all banks are.
So that would be good news.
He was far more worried about Google et al whilst they’re not a bank, as then you worry about who they might partner with.
What if Google partnered with a bank that is your biggest competitor?
For this reason, all the banks are swimming around offering deals to be strategic partners with GAFA and don’t expect any of them to get into mainstream banking.
My take: I agree with all of the above, but with a slight nuance.
My question is: why would GAFA get into incumbent banking.
Why would GAFA buy a bank or banking licence when they don’t need to?
After all they can do all the things banks do today without a banking licence: payments, money transfers, remittances, prepaid, credit cards, loans, etc.
They could do this in partnership with banks or on their own, and would only need a banking licence or to acquire a bank if they wanted all the bank capabilities including core deposit account holdings.
Equally, they could do some other interesting stuff, such as partnering with innovative new models of banking based upon crowdfunding and P2P finance.
Or they could engage in fully adopting Bitcoin, and making this their de facto payment mechanism.
Or they could create their own Bitcoin, such as an Amazon Coin … oh, they already did?
In other words, the concern is not about GAFA getting into banking or buying a bank, but about all of the heavyweights of today’s mobile internet moving their radar explicitly to all of the areas of banking margins, leaving the core deposit account base and stealing the rest.
And that can be done with or without a bank or a banking licence.
“The mobile payments area in general is one that we’ve been intrigued with. It was one of the thoughts behind Touch ID … you can tell by looking at the demographics of our customers, and the amount of commerce that goes through iOS devices versus the competition, that it's a big opportunity on the platform.”
Tim Cook, CEO of Apple on the Apple Earnings Call, 27th January 2014