I’ve said for a while that the Big Tech giants will not become banks. Amazon and Alibaba will do a lot of bank-like activities, but they will never move into full-service banking, as in offering deposit accounts. Why won’t they? Because that’s full banking activity which has all of the audit and compliance overhead that Big tech giants don’t want. The average technology firm in America has five times less regulation than the average American bank, and that’s a key point.
Another key point is that most of the Big Tech giants have a major chunk of market focused upon banks as customers. A huge chunk of Amazon and Alibaba’s cloud-based services are used by banks, and a massive amount of Google and Facebook advertising comes from financial firms. Why would you bite the hand that feeds you?
But then there’s another nuance that I’ve been thinking about and haven’t seen played out … until now. If I were a bank, why wouldn’t I partner with the Big Tech giants and help them offer banking? If I were a bank and did that, then such a partnership would sidestep the competition and put them on the back foot. After all, if Amazon partnered with my bank to offer banking then they wouldn’t need my competition. I would have the upper hand and my competition would be left for dust.
Well, finally, that’s happened. If you didn’t see it last week, JPMorgan announced that they had forged partnerships with Amazon and Airbnb to help them offer bank services.
It’s basically an ewallet that technology companies can give to their customers to use as virtual bank accounts. The JPMorgan product gives “tech companies the ability to provide millions of customers virtual bank accounts and to offer perks such as car loans or discounts on home rentals to those who keep money stashed there. The more customers use their virtual accounts to pay for services, the less the companies would have to spend on payment-processing fees to third parties such as JPMorgan.”
However, that’s not the end of the game as JPMorgan has not yet gained all the partners they hope. It’s targeting the biggest e-commerce and gig economy companies such as Amazon, Uber, Airbnb and eBay, but it has not yet signed them all up and, even if they did, there may be wiggle room to see these companies choose alternative providers over time.
So, is this how it all plays out?
Does this mean that the battle for the future of banking will be between Big Banks vying for the best partnerships with Big Tech?
In short, yes. That’s exactly what I see happening. Big banks need to have the biggest platforms as partners. The platforms don’t want to be big banks. They need to stick to their knitting. But Big Tech needs to offer payments, loans, credit, savings and financial services and the best way for them to do that is to find a big bank partner whose products they can white label.
That is happening folks. JPMorgan’s ewallet announcement is exactly this. Therefore, expect lots of moves amongst the big bank crowd to forge partnerships with the Big Tech giants over the next decade. That’s where the battleground for the consumer lies and exactly where banks will focus.
Postnote: this is kind of a follow-up to last week's Big Banks versus Big Tech post
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...