Financial markets are no longer the same. While we are all still clients of traditional banks, we increasingly use other platforms for our financial needs. PayPal has been in use for a long time. We pay for apps on our phones through the Apple Store or Google Play, and our contemporaries in EU countries and most countries globally have access to many more services that still need to be available here, mainly due to regulations and the famous foreign exchange law. As large technology companies take over more and more segments of our service needs, the question that arises here is whether these large technology companies will become our banks. While industrial or technological revolutions have reached their 5.0 stage, banking and finance are entering Banking 2.0. Large technology companies are preparing to take over this banking revolution in their P&L reports and strategic plans.
A CB Insight report shows that the total investment of large technology companies in fintech companies last year was about $2.2 billion in the United States alone, while in the first quarter of this year, the total investment in fintech companies by funds was $22.8 billion, an increase of almost 100% quarter-on-quarter. The trend of investing in fintech companies is growing. The reasons mainly lie in the use of APIs, which have made it very easy to integrate financial services into any product offered in the digital world. In addition, it is evident that large technology companies want to use their economies of scale and vast user bases and data about them to offer them financial products that suit them best.
Facebook has long introduced several payment methods through its apps such as Messenger, Instagram, and WhatsApp, strategically shifting towards financial services and forming a separate Facebook Financial segment to develop a payment strategy on their platforms. In the meantime, Facebook Pay and P2P money transfer has been launched in India and Brazil, where WhatsApp is most prevalent. For example, Amazon has launched Amazon Pay in India and then Amazon Wallet. Also, in partnership with ICICI Bank, it launched its credit card, entering the insurance and gold trading segments.
The third giant moving towards digital payments is Apple. Apple Pay has long been available, and with the acquisition of Mobeewave, it is moving towards enabling payments by simply touching two phones using simple NFC technology.
Estimates suggest that the potential for e-commerce on Facebook and Instagram is over $30 billion, and these platforms are further building their foundations by providing financial services to their users without leaving the app.
Google has also entered e-commerce through a partnership with the Shopify platform, through which it will offer products directly on its platforms such as Maps, YouTube, and Search. To enhance the experience, Google is launching an AI tool (Shopping Graph) that gathers information from the web, blogs, videos, and product data to provide all relevant information to its customers.
These examples clearly show that large technology companies want to combine their user bases, e-commerce, and financial services to increase their profits and leverage the economies of scale they have.
Once upon a time, Amazon was a small online bookstore with modest revenues and negative financial results. Could anyone have imagined where it would be today? Knowing that Amazon is already present in the financial market through deposits, credit cards, loans, insurance, and even has a small and medium-sized business lending service, it can be concluded that it is slowly but surely moving towards forming its bank. Other banks have also found their way into banking through partnerships. Through partnerships with Wise and Western Union, Google has entered the money transfer market worth over $470 billion. It is expected that through Google, it will be possible to send money to over 200 countries worldwide by the end of this year.
Apple has launched the Apple Card Family service, which allows multiple family members to have a shared Apple card, and Facebook is preparing to launch its cryptocurrency.
The big tech giants are entering the financial market through their products or in partnership with traditional financial institutions. For now, these partnerships are mutually beneficial. Still, it is only a matter of time before banks and financial institutions become redundant, and those days are getting closer because banking is becoming increasingly digital. We can expect that tech giants will not relent, and traditional banks are definitely under significant threat. Liberalizing regulations and open banking standards will only accelerate this transformation further. How traditional banks will respond to this threat knocking on their doors remains to be seen.
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