This article was written by Tue To. The original article was published by Edgar, Dunn & Company. You can find the article here.
In today’s rapidly evolving technological landscape, the convergence of innovation and finance has opened the door to a new era of possibilities. Advancements such as open banking, real-time payments, and embedded finance have emerged as driving forces, propelling BigTech companies – including Apple, Google, Meta, Microsoft, Samsung, Tencent, Alibaba – beyond their core offerings. These companies have now turned their attention to reshaping the financial sector. From branching into the payments industry to offering embedded financial services within their product ecosystems, their growing influence has caused a significant disruption in the payments and traditional banking industry.
By harnessing their user experience design, extensive data from their massive user bases, and sophisticated AI and machine learning capabilities, BigTech companies have progressively blurred the boundaries of payment types and financial services. Mobile wallets, P2P payment platforms, and digital payment solutions have become mainstream (further accelerated by the pandemic), enabling users to effortlessly conduct transactions through their smartphones, wearables, and social media platforms. Additionally, consumers and businesses now have the option to apply for lines of credit or loans directly through technology platforms, bypassing the traditional banking route.
It is worth noting that in more developed markets where traditional bank-based payment infrastructure dominates, such as the US, Europe, and Korea, BigTech companies are more focused on payment services (e.g., Google Pay, Amazon Pay, Apple Pay, Samsung Pay, Meta Pay) and heavily rely on existing payment rails. However, with the growth and maturation of Banking-as-a-Service (BaaS), partnering with incumbent banks or fintechs to offer embedded financial services becomes the dominant go-to-market strategy adopted by these BigTech companies. This model allows them to alleviate the burden of regulation, infrastructure, and operations that exist within the finance sector.
In contrast, direct competition tends to be more common in emerging markets where financial systems are still evolving, often due to the limited penetration of financial services. BigTech companies in emerging markets, such as Ant Financial, Tencent, Vodafone, and Mercado Libre, operate through distinct payment infrastructure integrated with their core products. They typically offer a broader range of financial services, including banking accounts, lending, insurance, and asset management. This regional variance can be attributed to differences in financial development, regulations, consumer behaviors, and government initiatives.
Below are examples of important initiatives undertaken by prominent BigTech companies:
As demonstrated by the examples above, BigTech companies are progressively transforming the payments and finance landscape. A crucial motivation among these tech giants is the access to novel data sources, enabling them to gain more profound insights into consumer spending patterns and financial positions. The data collected can be harnessed to enhance their core business operations and optimize advertising targeting on social platforms and drive behavioral shifts toward the usage of products and services offered within their ecosystems. Furthermore, the provision of payments and financial services allows them to diversify their revenue streams, safeguard their core products, broaden their customer bases, nurture loyalty, and refine the overall customer experience.
However, the entry of BigTech companies into the payments and financial services sector has not been without challenges. Regulatory authorities worldwide express concerns about potential market dominance and monopolistic behaviors, leading to restrictions being imposed on their activities. This is evident in the backlash against the Facebook Diem Project, which ultimately led to its discontinuation. Nevertheless, regulators primarily focus on data privacy, consumer protection, possible antitrust issues, and the effectiveness of measures in place to safeguard these concerns. Given the extensive amounts of sensitive financial and personal data amassed from users, mishandling could result in data breaches, financial fraud, and identity theft. Notable instances, such as the 2018 Facebook and Cambridge Analytica scandal involving unauthorized access to data for targeted political advertising, and the 2020 Wirecard financial scandal with missing funds and fraudulent activities, have eroded consumer and regulator confidence. These cases serve as a reminder the significance of robust data privacy practices and adherence to governance and compliance standards to maintain consumer trust and confidence.
The convergence of technology and finance has led to significant changes in how financial services are delivered, accessed, and experienced. BigTech companies promise a future payments landscape characterized by enhanced convenience, efficiency, more personalized services, and financial inclusion. As they continue to shape the payment and financial industry by developing new technologies and services that change the way people pay for goods and services, store their funds, apply for loans, or invest their money, striking the balance between innovation and responsibility will be crucial to ensuring benefits for consumers. Consumers want to use new and convenient payment methods, but they also want to be protected from fraud and data breaches. BigTech companies that can strike this balance will be the ones that succeed in the long run.
This article was first published by The Paypers, the Netherlands-based independent source of news and insights for professionals in the global payment and e-commerce community.
The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).
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