GAFA & FinTech – Is There Potential?
With all the recent innovation in the FinTech sector, a question is still left unanswered – what will GAFA (Google, Apple, Facebook and Amazon) do? They have access to an unthinkable amount of data, cutting-edge technologies including cloud computing, AI and machine learning to leverage big data, a bottomless pit of cash and customer bases in the billions. Consider the fact that the global digital payments industry is around $5.44tn and a research from Experian highlights the rise of digital wallets: Three out of every five consumers are now using a mobile wallet to make digital payments – it seems to be a matter of time until GAFA will try and get their piece of the pie.
Wechat & AliPay
If we take a look at what Alibaba and Tencent have been doing – AKA ‘the GAFAs of Asia’ – then we start to realize how far behind the rest of the world is…
“China has jumped from using cash to using phones without the middle steps of cheques and bank cards,”
There are more than 123 billion mobile payment transactions in China, Xinhua reported (China’s official news agency) The payments system that AliPay (Alibaba) and Wechat (Tencent) use is mainly based upon QR codes. This system has completely taken over – you buy items by scanning their QR code, shops hardly take cash anymore, even homeless people display their QR code for help. Both Wechat and Alipay allow you to send money to friends, businesses and even to pay utility bills. Moreover, Wechat is a social media platform in itself, so you can send money in-app whilst messaging. Alipay on the other hand was a vertical integration move by the parent company’s ecommerce platform, it then expanded with Wechat to become the payment system for everything.
Alipay acquired WorldFirst, a UK-based remmitance FinTech company. Which opened the doors for their European entry. In 2019 they announced a collaboration with 6 digital wallets in Europe. This means that customers from Asia are able to pay hassle-free with AliPay – this is for all merchants that currently accept these 6 digital wallets.
The joint venture between Apple and Goldman Sachs had led to the launched of the Apple Card, and it was available to US customers in the summer of 2019. Back then, Tim Cook – chief executive, said “the Apple Card would be the biggest card innovation in 50 years”. Lets dig deeper into this statement below…
It’s a credit card, both virtual (Apple Pay) and physical, presented as a ‘minimalistic titanium laser-etched card’ which has no numbers on it – they must be retrieved from your iPhone. You can view the breakdown of all your expenses into different categories and you can view where purchases were made on a mini Apple Maps. The Apple Card also has cashback rewards and 0 fees. Apple boasts of these same-day cashback rewards of 3% in the apple store, 2% using apple pay and 1% for using the titanium card. There are no hidden fees, so even if you miss a payment deadline, you’ll just keep accruing interest at the set rate, of which Apple is aiming to have ‘among the lowest in the industry’.
The above features are not anything that’s substantially new for us in Europe with what our top 5 FinTech Challenger Banks offer. The statement that this is the biggest card innovation in half a century is a definite overstatement. All these features seem to be a combination of what’s already on offer, with a couple of improvements.
At the moment the Apple Card is still only available in the U.S.
Apple Pay Cash
Previously Apple Pay Cash was launched in a few select countries. This was a feature that allowed you to store money in your Apple Pay wallet, then send money to friends via iMessage or pay for services. However, this didn’t get expanded into the UK or mainland Europe. With this said, the project may become revived once the Apple card is available in more geographies.
In 2019 Facebook was contacting financial institutions with the aim of integrating them into messenger. Some FinTechs already have chatbots on messenger, but Facebook was aiming to get more traditional banks on board. This didn’t seem to go to plan as the general consensus was that the banks didn’t want to integrate with Facebook due to data privacy scandals.
In the same year the company held a variety of meetings with officials about their ‘Global Coin’ plan. Facebook wants to create a cryptocurrency coin which would be easily available to all users on Instagram, WhatsApp and Messenger. Their total user base is around 2.8bn (To put this into perspective, the population of the USA and Europe alone is around 1.1bn). Paying with the Global Coin will be very accessible, whether it’s on your laptop or on your phone via an app or digital wallet, it will only be a few taps away. Furthermore, Facebook most probably will not have any trouble in signing up businesses to open an account – if they do need convincing then a simple Facebook ads discount would get them hooked!
You may jump to the conclusion that a Facebook Cryptocurrency wouldn’t work as it will be too volatile like Bitcoin, but there’s a proven solution. Facebook may decide to launch their Global Coin as a ‘Stable Coin’ an example of this is Tether. 1 Tether = 1 USD, always. This is achieved by backing the cryptocurrency with fiat currency assets (USD, EUR, GBP…) in a bank reserve. As long as the fiat currency in the bank reserve is more than the cryptocurrency equivalent that has been issued, then the cryptocurrency will remain pegged to the set value.
In India, WhatsApp has more users than Facebook, the adoption of WhatsApp has even extended to business use. The entrepreneurial community in India are selling anything from medicine, baby clothes and art via the platform. This is why WhatsApp decided to test their prototype P2P payments service there. The platform received the approval to go live on a peer to peer basis in November 2020.
Seeing as WhatsApp had promising results from the tests in India, they decided to scale up their P2P operations by expanding into Brazil. The app launched its payments services in June 2020, but but the central bank suspended it some days later alleging it could damage the country’s existing payments system in terms of competition, efficiency and data privacy. Finally, they relaunched on may 2021.
PSD2 – What is it?
The second Payment Services Directive (PSD2) is a project led by countries of the European Union. In simple terms, it is a legislation that would break down the monopolistic barrier which banks currently have over your account details. Furthermore, it will aim to increase security in the verification process for online purchases. This will all be done by allowing merchants to process your online payments for you directly, without the need of intervention by Visa or PayPal for example. This would be done at your consent, furthermore, you’d benefit from a more rigorous verification process. This legislation will bring merchants and customers closer together, however they will have to meet more regulations. The new PSD2 legislation will foster competition as merchants like Amazon, or even Facebook in the future could be processing your payments directly from your bank account.
BigTech – Big Trust Issues
In 2018 Google quietly bought transactional data from Mastercard, this was apparently to better align whether purchases that were made in a physical store were due to their advertising, amongst other things… This is a rather intrusive move, check out the Bloomberg report about it here. It isn’t news that the BigTech companies aren’t afraid to, let’s say, test the boundaries… We all know about Facebook’s continuous data privacy scandals, but there seems to be a habit occurring.
When a company has that much power, a simple fine and apology is all that follows. Realistically what punishment can Facebook get? In the end, it’s highly unlikely that people will deactivate all 3 platforms, or that governments will ban its use. Therefore, it seems that the rewards are worth the punishments. Due to their prominent existence in todays society, it seems that either way, the BigTechs hold all the eggs in their basket… Saying this, traditional banks have had their fair share of scandals too. It seems that the most trustworthy are the FinTech challenger banks, as their transparent edge has yet to give us a reason otherwise. Who will you trust with your money?