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Dec 13 2019
Tech players expand their ecosystems through payments & financial services
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32 min
What’s Happening
The WSJ recently reported that Google will begin offering checking accounts to consumers in 2020. Google’s Cache project will offer accounts through Citigroup or the university-affiliated Stanford Federal Credit Union (with potentially more bank partners in the future). Details are limited but Google has indicated it will stay out of the “financial plumbing” – helping it avoid the associated compliance and need for a banking license. Its approach emphasizes deep partnerships with the financial institutions’ brands out front. On its side, Google will focus on value-added services for consumers, merchants and banks, such as loyalty programs. According to Google, it will not directly sell users’ financial data, though other less-direct forms of monetization (e.g. merchant services, attribution of sales to ads) are still on the table.
While retail banking has traditionally been a lower-margin business than the tech sector, the big tech firms have been drawn to it by the allure and possibilities of consumer data. McKinsey projects that big tech could capture as much as 40% of the $1.4T financial services market in the US.
The Cache bank-account project is not Google’s first foray into financial services – it also operates Google Pay (previously known as Android Pay and Google Wallet). Google Pay is a digital wallet that holds credit cards and masks customer data in transactions. It also incorporates a peer-to-peer payments service (Google Pay Send). According to Google, it doesn’t use data from Google Pay for advertising or share it with advertisers. Google Pay has 12M+ users in the US – well behind Apple Pay – and far more users globally.
Notably, Google Pay has found particular success in India where it has 67M+ users and may be the leading mobile payments service. It processed $110B in the last year or so after launching just two years earlier in 2017. The offering in India, formerly called Google Tez, is branded as Google Pay but is different in enabling real-time payments between bank accounts (individuals and businesses) without the need for credit/debit cards. It builds on top of the government-backed UPI (Unified Payments Interface) system, with payments free for both consumers and merchants. The service can use either a printed QR code or proprietary Audio QR technology, which transmits near-silent ultrasonic sound to exchange information between two phones (so no special hardware is needed). Lately, Google has been investing in services for offline and online merchants in India – e.g. more efficient on-boarding (Google Pay for Business), customer programs such as offerings, subscriptions, and rewards through branded storefronts (Spot Platform). Google India is also making it easier for Android developers to integrate Google Pay into their apps through an in-app engagement/rewards platform (Project Cruiser), while promising not to take a cut of Google Pay revenue.
Other technology players in financial services
All the big tech players are looking to tap into consumer data and entangle consumers in their respective ecosystems, though each approach has its own nuances. Players also face different levels of trust among consumers. According to a McKinsey survey, Amazon is the tech firm most trusted by consumers to handle their finances (65%), followed by Google (58%) and Apple (56%). Facebook notably lags the group with just 35% of consumers trusting it to handle their finances.
  • Financial services has been on Amazon’s priority agenda since at least 2017, when CEO Jeff Bezos laid down the mandate. Like Google, Amazon was exploring co-branded bank accounts, with JPMorgan Chase and Capital One last year. However, the plans have reportedly been scrapped out of concerns about being subject to banking regulations.
  • Amazon’s co-branded credit cards, which it has offered since at least 2002, helps it reduce the merchant fees on transactions made on its platforms and in its stores using the cards, in addition to bolstering customer loyalty. Amazon offers two versions of every card – regular and Prime – through its financial services partners. The Rewards Visa credit cards (with up to 5% back at and Whole Foods) are offered through Chase, while the Store Cards with purchase financing are offered through Synchrony. Synchrony is also a partner on its secured Amazon Credit Builder cards. Amazon offers financial services for businesses too – Amazon Business cards through American Express as well as Amazon Lending’s seller financing (which lends $1B+ per year).
  • Amazon has lately been paying more attention to unbanked and underbanked populations. In addition to the secured Amazon Credit Builder cards, it also offers Amazon Cash (prepaid no-card accounts loaded with physical cash at 45,000+ locations), Amazon Reload (gift-card accounts loaded with a debit card, with 2% cash back), and Amazon PayCode (payments for Amazon orders in cash at Western Union locations). Younger consumers are also in scope – with Amazon Allowance offering Amazon accounts for kids funded by their parents and an investment in Greenlight Financial, which offers a debit card for children.
  • Unlike most big tech firms, Amazon is itself a payment service provider (PSP), having invested in payments processing infrastructure early on when it realized the impact of credit card fees on its economics (and disadvantage vis-à-vis brick-and-mortar transactions, which tend to have lower fees). Amazon Pay, which rides on Amazon’s in-house payment processing, lets consumers in 170+ countries pay for non-Amazon purchases through their Amazon accounts, using credit cards and addresses already on file. Merchants pay a fee per transaction, similar to other PSPs. Amazon Pay has done reasonably well, with a reported 33M+ customers using its service at least once as of early 2017. However, it trails PayPal, which has 4x to 22x the customers in the US (figures vary widely).
  • Earlier this year, Amazon Pay announced a major deal with payment services giant Worldpay, which lets Worldpay’s network of merchants (1.1M in the US alone) easily enable Amazon Pay as a payment option. Amazon has also been exploring partnerships with brick-and-mortar retailers to accept Amazon Pay, with potentially lower processing fees. Offline purchases can be made through QR codes and barcodes in the Amazon app (similar to the Amazon Go cashierless experience); in India, Amazon is experimenting with “scan and pay” QR codes posted in retail stores. Amazon is also reportedly exploring handprint biometrics at Whole Foods locations.
  • Amazon’s Alexa voice assistant is a key aspect of Amazon’s ambitions for consumer financial services. Use cases include utility bill payments via Alexa (in partnership with Paymentus), in-car payments (e.g. fuel at a gas station), and potentially peer-to-peer payments. Purchases made through Alexa earn Amazon a higher payment processing fee (e.g. 4% of the transaction vs. 2.9% otherwise). Several major banks – e.g. Capital One, American Express, US Bank – have integrations that allow customers to access financial information via Alexa.
  • Apple Card, launched in Mar 2019 with Goldman Sachs and Mastercard, has been reasonably successful in gaining consumer adoption. It touted $10B in credit lines (from Goldman Sachs) as of end of Sep 2019, with $736M in outstanding loan balances. Apple’s approach to the credit card is tightly integrated with its brand (“Designed by Apple, not a bank”) and ecosystem (e.g. Apple Wallet, Apple Pay).
  • Apple Card’s differentiators are 3% back on Apple purchases and 2% back on Apple Pay transactions; rewards delivered daily to the customer’s Apple Cash; elimination of fees; elegant purchase-tracking dashboard in Apple Wallet; and reportedly some of the strongest privacy and digital security features out there with options for digital-only (facial recognition or fingerprint) or a numberless titanium card.
  • This past week, Apple launched a no-interest 24-month iPhone installment plan for its Apple Card customers, sweetening the deal with 6% back on all Apple purchases through the end of the year. Unlike its non-Apple Card installment plan offered with Citizens Bank, this is a 1st-party offering from Apple.
  • Apple Pay – the current leader in mobile payments – has benefited from an aggressive push for consumer and merchant adoption. It is growing 4x as fast as PayPal, recently overtaking the Starbucks app as the most popular payments app in the US with 30M+ users. Apple expects 70% of US retail stores to accept Apple Pay by the end of 2019. Adoption has grown globally as well, with Apple Pay activated on 383M phones. It recently went live with an Express Transit feature in the UK that allows riders to swipe their devices across the Transport for London network. Lately, Apple Card has been facing regulatory questions in the EU related to antitrust, as well as facing pressure to open up their infrastructure to rivals.
  • Facebook Pay began rolling out last month in the US, with the intent of eventually facilitating payments across Facebook’s ecosystem of apps – Facebook, Messenger, Instagram, and WhatsApp. The service supports person-to-person transfers (like Venmo) as well as payments for goods and donations (e.g. on Facebook Marketplace and for crowd fundraisers). Facebook Pay is part of a broader move by Facebook for interoperability across its portfolio of apps, bringing them under one “branded house” umbrella, as well as its effort to better serve its 40M business users.
  • UPI-based WhatsApp Pay was expected to roll out in India this year, after an early pilot last year with 1M users (WhatsApp has 400M users in India, more than any other market). Since then, it’s faced regulatory hurdles after the Reserve Bank of India began requiring payment data to be stored in the country, in a move towards data localization (see our Nov 22 2019 brief on the global cloud race and the impact of data localization). WhatsApp Pay is still expected to launch within the next few months. WhatsApp Pay has also reportedly been in discussions with partners to launch in Indonesia as well.
  • Earlier this year, Facebook launched Checkout with Instagram in closed beta, which allows customers to tap on items and purchase in-app with stored data. 130M people tap on product tags every month on Instagram. Facebook is testing a selling fee with businesses during the beta.
  • Over the past few years, Uber has been working on financial services for the two sides of its marketplace – “riders/eaters” and “supply” (drivers, restaurants, couriers, truckers). It launched a successful Uber Visa credit card with Barclays in late 2017, with attractive perks such as 4% back on dining, 3% back on travel and 2% on online purchases, a $50 credit every year against digital subscriptions, and phone insurance. It recently announced changes that go into effect in early 2020 to bring the card closer to its ecosystem and improve its economics – rebranding it the Uber Credit Card, bringing dining rewards down to 3% and online purchases down to 1%, removing the $50 subscription credit, and offering rewards only in Uber Cash. It also has debit cards through GoBank and BBVA for drivers and delivery partners, with discounts on fuel, auto care/repair, and retail (e.g. Walmart).
  • Uber Cash, Uber’s digital wallet, has been a key element of its retention strategy – with a discount of up to 5% for people who load $100 into the wallet. Uber Cash also serves as a rewards mechanism for its Uber Rewards (which has tiered status and perks) and its Uber for Business/Amex Corporate user loyalty programs. For drivers, Uber has a loyalty program called Uber Pro and an Uber Wallet offering real-time payouts.
  • In late Oct 2019, Uber announced Uber Money – a new division that will house its credit cards for consumers, debit cards for drivers, Uber Cash for consumers, Uber Wallet for drivers, and Uber Pay. Uber Pay is an API-driven platform for developers to integrate payments or rewards into their apps.
  • Uber has a partnership with EBANX to launch Uber Pay in Brazil and serve unbanked consumers and drivers, with plans to follow in Mexico and India. Uber’s offerings for unbanked drivers may extend to remittances and lending in the future.
  • It also has Uber Pay partnerships with financial services firms Green Dot (US), Rapyd (UK), and Adyen (Netherlands). Notably, Uber – which pays an estimated $1B+ every year in payment processing fees – sought and was granted a European payments processing license in the Netherlands, under subsidiary Uber Payments B.V.
Asian tech players in financial services
The penetration of mobile payments in Asia and rise of “super-apps” like Tencent’s WeChat and Alibaba’s Alipay have resulted in market entry (and adoption of similar approaches) by Western firms as well as newer large Asian players vying for position. The two Chinese payments giants – Alibaba and Tencent – are not sitting still either.
  • Alipay was moved under a new entity in 2011, which was rebranded as Ant Financial in 2014 (Alibaba owns 33%). Ant Financial, now valued at $150B – nearly twice as large as Goldman Sachs – has offering in 5 key service areas – payments, wealth management, lending, insurance, credit rating. In addition to Alipay, Ant Financial houses the Ant Fortune wealth management marketplace and Yu’e Bao (one of the world’s largest money market funds); Ant Credit Pay/Huabei (purchase micro-financing as low as $7) and Ant Cash Now (micro-loans); Ant Insurance (including a 3rd-party marketplace and Xiang Hu Bao mutual-aid health plan); and Sesame Credit (credit-rating system). 8 out of 10 Alibaba customers in China use at least 3 of the 5 service areas; 4 out of 10 customers use all 5.
  • Alibaba’s efforts in financial services also extends to Alibaba Cloud plays as well – e.g. “banking as a service.” Outside China, Ant Financial has investments and partnerships across much of Asia, as well as a $700M acquisition earlier this year of UK payments group WorldFirst.
  • Tencent, the other leading payments brand in China, has WeChat (1.1B+ monthly active users) and Tenpay – which includes payments service WeChat Pay (900M+ users) and QQ Wallet. WeChat Pay serves consumers in 49 countries/regions, and has been exploring mobile-wallet partnerships outside China. WeChat Pay is used across Tencent’s ecosystem of consumer apps – both its own chat, content and gaming apps as well as a massive library of 1M+ 3rd-party “mini programs” (compared to Alibaba’s 160,000+ mini programs). Last month, Tencent followed Alipay’s move to open up to users with international credit cards in China, letting them make payments directly through WeChat Pay’s digital wallet.
  • Over the past few years, Tencent has undertaken a torrent of acquisitions/investments as well as an organizational restructuring, to bolster its competitive position. Outside China, in financial services, Tencent holds positions in Gojek/Go-Pay (Indonesian ride-hailing and payments), Nubank (Brazilian digital bank), Ualá (Argentinian personal-finance app), Policybazaar (Indian insurance marketplace), and NiYO (Indian digital bank). It also has partnerships with Line (Japanese messaging app) for payments and a rumored deal with BlackRock underway.
Ride-hailing firms
  • Like Uber, ride-hailing firms in Asia – notably Didi Chuxing (China), Grab (Singapore) and Gojek (Indonesia) – have ambitions to become “super apps” with plays in payments and financial services as well as food delivery, ecommerce, advertising and other arenas. Grab and Gojek have been raising giant funding rounds this year as they go head-to-head – an expected $6.5B for Grab (Series H; valued at $14B) and $2B for Gojek (Series F; valued at $10B) by the end of 2019. The capital will go to acquisitions as well as expansions across verticals and geographies. Didi is backed by Alibaba, Tencent, Apple and Uber (when their deal is approved); Grab is backed by Didi, Uber and Visa; and Gojek is backed by Google, Tencent and Visa, among others.
  • Didi Chuxing became a ride-hailing giant in China but has since expanded to other markets including Japan, Australia and Latin America. It has been less acquisitive than the other two in the payments arena, buying Chinese payment services provider 19Pay in 2017 (and with it a 3rd-party payment license). Early in 2019, Didi introduced a slate of financial services for consumers and drivers that puts it in competition with Alibaba and Tencent – wealth management, credit and lending, a crowdfunded health plan, and auto insurance. Its insurance business offers 20+ property and life insurance products.
  • Grab is in 8 markets in Southeast Asia, with e-money licenses in 6 markets. Grab has made two acquisitions in payments – iKaaz and Kudo – and plans to deploy its new capital towards more. It has been in talks in Indonesia to merge its payments affiliate OVO with Ant Financial-backed payments firm DANA to help compete with Gojek there. Grab has been partnering with regional and global financial services firms – including a co-branded credit card with Citigroup launched in Jun 2019 for Southeast Asia, and a deal with Mastercard for prepaid cards. It also rolled out lending and micro-insurance offerings earlier in 2019. Grab, looking to double down on financial services, was reportedly in talks earlier this year with Ant Financial and PayPal to spin out its financial services unit.
  • Gojek was earlier to market than Grab but slower to expand beyond Indonesia to the rest of Southeast Asia, where it is now in 5 markets. Gojek has been acquisitive in the payments space, buying, Kartaku, Midtrans, Mapan, and MVCommerce/PonselPay, as well as a reported deal underway to acquire Indonesian mobile point-of-sale startup Moka for $120M+. Like Grab, Gojek has partnerships with regional and global financial players – e.g. a deal with Visa to work together on cashless payments – and also offers micro-insurance options.
  • With India a key battleground in financial services, both Western and Asian companies are looking to carve out their space, in some cases through proxies. Ant Financial-backed mobile-wallet provider Paytm led the market in India two years ago. However, it recently had to raise $1B at a $16B valuation to fend off Google Pay, Walmart/Flipkart’s PhonePe (valued at $10B), Amazon, WhatsApp Pay, Samsung Pay, and other entrants in India.
There is a long tail of players who are entering financial services to expand their offerings to customers, tap into individual data and deepen their customer relationships, and/or streamline their cost structure. Examples include US telecom company T-Mobile, South Korean electronics giant Samsung, Chinese smartphone maker Xiaomi, Chinese ecommerce giant, and Japanese ecommerce platform Rakuten.
Big tech’s financial services partners
Acquiring a new customer is expensive for a consumer-facing financial services company – perhaps $1,500-2,000 for a retail bank and $300-400 for a credit-card issuer. Traditional approaches to servicing these accounts can be costly as well – for instance, “distribution” (e.g. brick-and-mortar branches, ATMs) is responsible for about half of operating costs at a retail bank.
For both retail banks and card issuers, partnerships with tech firms hold the promise of ready access to a large pool of engaged, loyal and creditworthy customers and their associated streams of revenue, as well as the cost efficiencies that come with scale. Retail banks also get the benefit of growing a low-cost source of funding in the form of deposits.
Digital partnerships can help financial services companies achieve their ambitions for digital offerings and business models, access to consumer data, and consumer-facing relationships and personalization. They can also help forestall the loss of revenue to big tech firms – in payments alone, big tech firms are projected to capture 15% or $280B in the next 5 years. The business models and economics are shifting and will put more pressure on the banks that lack scale and consumer reach.
Goldman Sachs
  • Goldman Sachs moved into consumer banking and lending with the 2016 launch of Marcus, an online alternative bank with now $50B+ in deposits, $5B in loans, and 4M customers in the US and UK. The move was a major effort to diversify as growth slows in Goldman Sach’s traditional trading and investment banking businesses. The low-cost funding from deposits means Goldman Sachs saves $100M every year for every $10B in deposits. As Marcus becomes more important, there are discussions about moving it under the Goldman Sachs premium brand (vs. the Marcus brand, which some perceive to be “downmarket”).
  • Channel partners are a key element of Goldman’s consumer strategy – and the reason why it spent $300M to launch the Apple Card and offered Apple significant control over the user experience. Apple Card is the first consumer card for Goldman Sachs, which is not a traditional card issuer. It will be handling applications and disputes, and using customer data to manage card services. According to Apple, Goldman Sachs has agreed not to charge fees to consumers or sell (or share) data, common revenue streams for card issuers. It will have to make money from the projected 21M users through other means, such as interest charges and other financial products (e.g. debit cards). With possibly thinner margins, some industry watchers believe it could leave Goldman Sachs exposed to an economic downturn.
JPMorgan Chase
  • JPMorgan Chase, the #1 credit-card issuer in the US serving nearly half of US households, has partnered with Amazon on its popular rewards credit card since 2002. For JPMorgan, the Amazon relationship brings its card-issuer business tens of millions of customers at relatively low acquisition costs – helping it increase efficiencies from scale. The card is profitable but has skirted the edge of going into the red at times, with JPMorgan sharing a “far higher percentage of card revenue” with Amazon than is typical. Amazon also partners with JPMorgan on ChaseNet, its white-label payments network under a 10-year deal with Visa, which can also enable lower costs for merchants on certain transactions.
  • Last month, JPMorgan Chase announced a digital wallet offering targeted to big tech companies and their customers – in essence, helping accelerate the entry by big tech into financial services. The offering includes virtual bank accounts from which customers can pay for goods and services, as well as offers such as car loans and home-rental discounts. JPMorgan would handle all the payment processing and cash movement, leveraging its ability to handle the full continuum from “pay in” (from customers) to “pay out” (to sellers/suppliers). The plan is to offer the services at a discount to what it would cost for multiple providers, and get its recently consolidated wholesale payments business to scale. JPMorgan plans to go live with one client by end of 2019.
Other financial-services partners
  • Financial services firms are eager to work with the big tech firms, as long as the economics makes sense. For instance, Synchrony and American Express are the other banks that work with Amazon on cards, Barclays partners with Uber on its popular credit card, and Green Dot works with Uber on digital wallets.
  • In the emerging realm of tech-branded deposit accounts, Citigroup will operate Google’s bank accounts. Cambr is a joint venture targeting tech firms with a new model that allows deposits to be distributed through a network of 850+ community banks, for better rates and FDIC insurance.
What It Means
Financial services by big tech is not exactly new. What is new is the growing momentum around deeper partnerships between big tech and financial institutions – a sense that coexistence, rather than destructive disruption, will be the likely outcome. Tech firms are realizing that they don’t necessarily want to be a bank – or be regulated like one – though they’re willing to go as far as digital wallets and payments processing. Their motivations around financial services are straightforward – to make it easier to buy their products and services (and lower their own transaction costs); to facilitate discovery and purchase of marketplace products and services; to entangle customers in their ecosystem and enjoy greater loyalty as well as larger shopping carts; and capitalize on individual data flows for greater personalization and engagement.
Payments are foundational to these interests, and to most versions of the “super app” strategy. We see this prominently in the realm of ride-hailing, where firms began by solving problems in one vertical, including streamlining the payments process, and then used consumer adoption of their payments system to help lever into adjacent verticals. For “super apps,” it’s not about the portal, it’s about the ecosystem. Payments is a “utility” in that ecosystem, part of the common fabric that supports a familiar user experience, serves as a gathering point for critical data, and impacts the cost structure for participants and the platform.
Deciphering big tech’s moves
Each of the big tech players is taking a different approach to financial services, depending on its own context. All of them are impacted by an environment increasingly skeptical of how they are going to use consumer data. The expectations of consumers are changing, as well as their sophistication around understanding how their data will be used. Consumers are less willing to engage in ecosystems where they don’t trust the platform owner, making it harder to keep them, get them to share their data, and convince them to adopt new adjacent offerings. Trust is the lubricant that facilitates the workings of the modern economy; conversely, mistrust has a tendency to gum up the engine. Facebook and Uber, in particular, are facing major trust issues, raising the bar for the value they have to offer to get consumers to buy in and regulators to agree.
Apple, for instance, has been positioning itself as a defender of user privacy and data security. With Apple Card, it pushed for a user-centric “Apple-controlled” experience in which Goldman Sachs is deliberately limited in the data it can share and fees it can charge. The key weakness in Apple’s ecosystem is its reliance on iPhone hardware, which has been slowing, losing share relative to Samsung. Despite Apple Services growth and efforts in subscriptions, it needs users to continue buying the iPhone every few years for its core business model to work. Through this lens, Apple’s aggressive 6% back promotion this month, encouraging users to sign up for the Apple Card and buy an iPhone on a 24-month plan – a 1st-party program managed by Apple rather than the prior 3rd-party program through Citizens – makes perfect sense. More than that, it appears to signal Apple’s intent to move towards a premium membership not unlike Amazon Prime.
Amazon, on the other hand, has focused efforts in financial services on the economics of its business model (e.g. transaction fees) and integration with its Prime membership. Typically, of the 2-3% fees per credit card swipe, the card-issuing bank gets 70% in interchange fees, the payment network gets 10% in assessments, and the merchant-acquirer bank and payment processor then share the remaining 20%. Amazon has pushed to reduce many of these fees – e.g. sharing the card-issuer revenue with JPMorgan Chase, partnering on the ChaseNet payment network, and serving as a payment processor on its own platforms.
Of all the tech firms, Amazon was probably the first to fully understand the strategic flywheel of the modern age – ownership of the customer relationship, offering more value through economies of scope, and amassing economies of scale – all powered by data and AI. The Prime membership is central to the flywheel, bringing more customers more closely into Amazon’s ecosystem through an expanding value proposition. This is the reason why every single card Amazon offers comes in two flavors, regular and Prime. Amazon has lately been reaching further afield for new consumers to bring into the wheel – from offline customers to the unbanked and underbanked to teenagers and children.
Lately, Amazon has faced significant business model challenges and public scrutiny (see Nov 11 2019 brief on Amazon’s recent challenges). The timing may be one reason why it pulled back on bank accounts – it would certainly have increased the level of regulatory attention. We should probably view Amazon’s pullback from bank accounts not as a lack of ambition in the arena but rather as a combination of ill timing and the fact that they haven’t figured out exactly how to do it yet. Amazon also faces specific challenges with respect to Amazon Pay. Some merchants are reluctant to let Amazon – a potential rival – have visibility into their transaction data, even though Amazon may only have access to final order totals. Amazon does have the advantage of offline retail locations (and new grocery-store brand on the way) where it can test and deploy payments services. However, Amazon (unlike Apple or Google) lacks a mobile-hardware platform where it can position/integrate its own digital wallet and payments offering.
Google has taken the approach of emphasizing deep partnerships with the financial institutions’ brands out front. In so doing, it has been able to attract Citigroup – whose CEO has bluntly expressed wariness about becoming a “dumb utility” – as a partner for its bank-account effort. Google is drawn to bank accounts because the information there is unique – how much capital consumers have access to, how much they spend, what bills they pay, how often they pay, how they save, and more. While Google will not sell the data directly, it does have less direct opportunities for monetization – including some that don’t require identifiable personal or transaction data, such as anonymous matching of profiles/behaviors to purchases for ad attribution. Google has also taken a “helping disposition” with merchants, for instance, offering services for merchants in India to help them introduce new customer programs (e.g. promotions, subscriptions, rewards) through branded storefronts.
Uber has ambitions of being more Amazon-like – i.e. expanding its platform and drawing customers into its ecosystem. However, it has struggled to get all the cylinders of its flywheel going – partly due to the challenges of public/regulatory scrutiny and associated management distraction, partly because it has had to rebuild customer trust and loyalty. Pressure to move closer to profitability and cut costs is also a factor – it lost $1.1B in the last quarter and has been engaging in layoffs. While Uber has found success with its core ride-hailing business and Uber Eats, with Uber Freight also a promising business, it has yet to achieve scale across its verticals. It has to convince its customers, vertical by vertical, that the value they get from each new offering is worth using and sharing their data with Uber. Its efforts with Uber Money, however – especially the rewards credit card, loyalty programs, Uber Cash and Uber Pay – are laying the groundwork for its “super app” ambitions.
The shifts on the financial-services landscape
These tech players have to pursue their ambitions on a changing financial services landscape, with the following shifts underway:
  • More privacy but greater use of data – While tech firms are still going to use data, how they are using that data is getting greater scrutiny. In response, firms are being more thoughtful and transparent about uses of data, their handling of it, and how they communicate about it. They are also exploring approaches where they don’t need identifiable data to achieve their business objectives – e.g. anonymous data matching or higher-level data.
  • Regulatory scrutiny of big tech’s access to data – There’s an ongoing question as to whether the massive stores of data held by each big tech firm constitutes a monopoly on its own. EU regulators are currently reviewing rules defining what is meant by market power. The US Justice Department is reviewing Google’s $2.1B deal with Fitbit, largely on the basis of its access data – a very different lens on antitrust than what has been traditional.
  • The broader antitrust implications of “super apps” – Apple is facing antitrust questions in Europe regarding how it has advocated for use of Apple Pay – e.g. use of Apple Pay as a default payment method, whether Apple is rejecting apps for not using Apple Pay. Google, which went through a round of antitrust investigations in Europe for its pre-bundling of Google apps on Android phones, is now facing a similar inquiry in India, where it leads in both mobile operating systems (Android) and mobile payments (Google Pay).
  • Push for big tech firms who act like banks to be regulated like banks – While it was the German deputy finance minister who recently made this statement, it’s not the first time that regulators have expressed these sentiments. Certainly, the incumbent financial services firms would generally agree. This means that big tech firms have to decide whether the value of each financial services opportunity is worth the associated regulatory regime.
  • Shift away from cash – While Facebook’s Libra saw a broadly negative reaction, countries are looking at establishing their own digital national currencies. One survey of 63 central banks showed most were working on digital currencies, at least to some degree – including China, India, France, Turkey, Uruguay, and Saudia Arabia. China is about to launch its digital currency in a few cities. India has moved very quickly over the past few years from a largely cash-based economy to widespread mobile payments and mulling its own digital currency. Consumers in these countries, as they use their phones for everyday offline transactions, are becoming increasingly acclimated to a world without cash.
  • “Super app” experiences powered by real-time payments – While super apps are best-known in Asia, US companies (such as Facebook, Google and Uber) have explored similar approaches. For instance, in India, Google brought jobs discovery into its Google Pay, seeking to draw both consumers and merchants into its app. The direction right now outside Asia, however, seems to be towards greater integration across an ecosystem of apps instead of the single app.
  • Use of alternative technologies such as sound waves for payments – Rather than the NFC (near-field communication) used by Apple Pay or magnetic secure transmission (MST) used by Samsung Pay, tech firms are exploring new approaches that don’t require special hardware on the part of the user or merchant. Sound waves has been a promising arena, with Google Pay using its proprietary audio-based Audio QR and Amazon investing in ToneTag’s sound-wave technology. Amazon has also been testing handprint biometrics at select Whole Foods locations.
  • Alternative digital-only banks – “Neo-banks” and challenger banks – such as Chime, which recently raised $500M at a $5.8B valuation – are offering an alternative to traditional banks. While they are making headway and reshaping consumer expectations around the banking experience, trust is a significant issue. For instance, Robinhood botched the launch of its deposit offering and had to take it down after the SIPC said it would not insure the product, while Chime recently experienced outages due to its reliance on another startup for payment processing. A bill was also recently introduced in the US Senate to close the industrial loan charter “loophole,” which would reduce the options for new entrants to operate.
  • AI/machine learning and concern about algorithmic bias – Most of the the large banks are tech firms are using some form of AI and machine learning, e.g. fraud detection, process automation, credit scoring and approvals. Risk managers, however, are finding it difficult to adequately assess and quantify the risks associated with AI. Recently, Apple Card and Goldman Sachs saw accusations of gender bias in their credit-approval algorithms – even when gender wasn’t included explicitly as a considered factor.
  • India as a key battleground for payments – The evolution in India towards mobile payments has been rapid, driven by the Indian government taking large-denomination currencies out of circulation in 2016, resulting in the accelerated adoption of mobile payments by consumers. The government-backed UPI standard/system also was a major driver in the ensuing race. Google has led the charge, with now 67M+ of the UPI’s 100M+ users. However, even Google, has struggled to find a business model that works. India has lately been making it even harder for tech players with new regulations – recently proposing its first major data-protection law.
Disclosure: Amazon and Google are vendors of 6Pages.