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 $55tn (Forbes) and that nearly a third of online merchants accepted digital wallets as payments (Statistica) – it seems to be a matter of time until GAFA will try and get their piece of the pie.

GAFA – Recent Movements

Some of the BigTechs have already put the wheel in motion. For example, Apple and their US launch of the Apple card. Facebook has got a ‘Global Coin’ plan up its sleeve, additionally they tested a P2P payments system for WhatsApp in India. As for Amazon, they seem more interested in leveraging FinTech services to benefit their own ecosystem. Lastly, Google obtained an E-Money license from Lithuania at the end of 2018. Lithuania has been becoming a hub for FinTechs, check out this article to find out why.

Wechat & AliPay – The QR Code Takeover

If we take a look at what Alibaba and Tencent have been doing – AKA ‘the GAFAs of Asia’ – then we start to realise 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,”

More than 580 million people made at least one mobile payment in China during 2018, this is up 10.7 per cent year-on-year, 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.

Earlier this year, Alipay acquired WorldFirst, a UK-based remmitance FinTech company. This will undoubtedly open doors for their European entry. Even more recently they announced a collaboration with 6 digital wallets in Europe. This means that customers from Asia will be able to pay hassle-free with AliPay – this will be at all merchants that currently accept these 6 digital wallets.

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.

Apple Card

The joint venture between Apple and Goldman Sachs has led to the release of their new Apple Card, it will be available to US customers in the summer of 2019. Tim Cook, chief executive, said that the Apple Card would be the biggest card innovation “in 50 years”. Lets dig deeper into this statement below…

Apple Card Features

So far from what has been presented in the Apple conference, this is what we know is on offer. 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.

Facebook BigTech

Facebook

Last year 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 recent data privacy scandals.

Facebook – Global Coin

Currently, Facebook has been conducting 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 2.7bn… 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!

Facebook – Cryptocurrency & Volatility

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 ect) 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.

WhatsApp – P2P Payments

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.

Seeing as WhatsApp had promising results from the tests in India, they’re now wanting to scale up their P2P operations by expanding into Europe. Facebook has chosen London as their base for WhatsApp’s push into payments.

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?