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Google’s entry into retail banking

What happened?

Operating the functions of the payment system is one thing, becoming a banking institution is quite another. Generally speaking, a retail bank is a balance sheet which transforms capital and consumer deposits into loans and mortgages. Because of this, it is highly regulated and probably not something big tech necessarily wants to get involved in. Therefore, seeking alliances with well-known and trusted banks and have them deal with the regulated parts seems a realistic strategy. Apple has launched a credit card issued by Goldman Sachs. Facebook has announced the ambitious project Libra, which originally included a handful of trusted financial institutions, and Amazon has issued a credit card and is reaching out to banks for a partnership to open current accounts for their clients.

What does this mean?

Operating the functions of the payment system is one thing, becoming a banking institution is quite another. Generally speaking, a retail bank is a balance sheet which transforms capital and consumer deposits into loans and mortgages. Because of this, it is highly regulated and probably not something big tech necessarily wants to get involved in. Therefore, seeking alliances with well-known and trusted banks and have them deal with the regulated parts seems a realistic strategy. Apple has launched a credit card issued by Goldman Sachs. Facebook has announced the ambitious project Libra, which originally included a handful of trusted financial institutions, and Amazon has issued a credit card and is reaching out to banks for a partnership to open current accounts for their clients.

What’s next?

There is some money to be made in retail banking, but it became a low-profit industry after the financial crisis, especially compared to the advertising business of Google or the high margin hardware division of Apple. Unsurprisingly, big tech isn’t after our money directly, but mostly after our data and simply keeping us “in-house” all day. However, it is striking that this deeper dive into financial services, to collect more valuable and sensitive personal data, is happening at a time when big tech is under close public scrutiny. Consequently, Google will have to win over two groups of stakeholders. The big tech giant will have to convince the general audience that it will keep financial data separate from other sources and that it will not use this data for advertising purposes or sell it to third parties. Moreover, to prevent a break-up of big tech, Google will also have to prove to regulators that its big pile of data doesn’t provide it with too much of a competitive edge over its non-tech rivals.