Big Tech will push deeper into finance this year — but avoid the ‘headache’ of being a bank

Big Tech may want to get into banking this year, but it doesn’t want to be your bank.

Google plans to introduce consumer bank accounts later this year in collaboration with Citibank and a California-based credit union. The company wants to piggyback off the financial know-how of its partners, while providing the digital layer through Google Pay.

It’s somewhat similar to a move from once of its Silicon Valley peers. In 2019, Apple debuted a credit card that created in partnership with Goldman Sachs. Like Google, the company has left much of the financial legwork to its bank partner while designing the card itself and integrating it with its digital wallet app.

Though their products are different, both firms share something in common: they have no plans to become regulated financial institutions like Citi or Goldman. While Big Tech — a group of companies that includes Google, Amazon, Facebook and Apple — will undoubtedly push deeper into finance this year, their progress in banking will be “more of a slow creep than big strides,” said Sarah Kocianski, head of research at fintech consultancy 11:FS.

“The big tech firms will continue to add services that are peripheral to banking to their existing offerings, without going full-stack banking,” she said. “The headache of getting, and maintaining, a banking license would likely be considered too big a risk for these companies. Instead, they will continue to operate with licensed partners.”

In Europe, plenty of online banks from Monzo to N26 have emerged, targeting the wallets of younger, tech-savvy consumers. Singapore and Hong Kong are also in the process of introducing new digital bank licenses to make it easier for tech businesses to offer financial services. Kocianski explained that U.S. tech companies would be put off by becoming banks themselves due to the accompanying regulatory restraints.

That’s a view echoed by Accenture’s global payments lead, Sulabh Agarwal. The analyst told CNBC it made little sense for tech giants to become banks. He said the return on capital for a tech company is much greater than that of a lender.

“Do I expect them to become banks? I don’t think so do. I expect them to create new services to enhance their propositions,” Agarwal said. He added that financial efforts from online platforms like Google and Facebook were more about keeping customers hooked on an app or website in order to drive their advertising revenues.

In Facebook’s case, the social media firm wants to introduce a digital currency that makes global payments cheaper and faster. Called libra, the virtual token would be tied to a basket of currencies and government debt, however it has drawn regulatory pushback due to concerns it could hurt the monetary sovereignty of major world economies.

The firm has been urged by President Donald Trump to seek a federal bank charter before going ahead with the project. Such a process, for any tech company, would be tedious given how complicated it is already for fintech start-ups to obtain banking licenses in the U.S. Still, Facebook’s experiment has the potential to give major banks a run for their money.

“The theory goes that if 2 billion people were to withdraw their deposits from the banking system and move them into Libra tokens, you’d effectively have a run on the banks,” said Simon Taylor, co-founder and blockchain lead at 11:FS. “Facebook is absolutely big enough for that to be plausible, but whether or not it happens depends much more on what consumer problem is being solved.”

Aside from libra, Facebook is also consolidating its payment products under a new brand called Facebook Pay. Uber, like its Southeast Asian competitor Grab, is moving further into finance with a division called Uber Money that houses a digital wallet and upgraded payment cards. They’ll face competition from the likes of Google Pay and Apple Pay in the U.S. and Chinese payment apps like Alipay and WeChat Pay.

Then there’s Amazon, which is already in the business of business lending, but hasn’t yet made a foray into consumer banking. The company also set up a student loan scheme in 2016 with Wells Fargo, which shuttered not long after being introduced, although Kocianski noted there was “every reason to suspect they’ve learned from that.”

The firm was reported to be in talks with the likes of J.P. Morgan about launching its own checking accounts, though it’s still not clear whether that will ever happen.

As for Apple, Kocianski expects the firm will, like Google, continue to “stay in the payments space, peripheral to full stack banking.”