FROM GAFA TO BAT

GAFA

Google, Apple, Facebook, and Amazon have all entered financial services in different ways and to a different extent:

  • Google – released Google Pay wallet in 2015, but closed its current account project in 2021 to focus on developing a digital banking and payments ecosystem instead of competing directly with banks;
  • Apple – first released Apple Pay in 2014 on Apple devices such as iPhone, iPad and Apple Watch and Mac, and issued a credit card with Goldman Sachs in 2019, primarily for use with Apple Pay;
  • Facebook (now Meta) – Facebook Pay (& Novi Wallet in 2021 pilot). Facebook’s much discussed and criticised digital currency ‘Libra’ has, for the time being become a currency-backed stablecoin called ‘Diem’. The availability of Facebook Pay wallet varies by country, but covers its Facebook, Messenger, Instagram, WhatsApp products.
  • Amazon – is unbundling most of the current banking system with loans, cards, and insurance and, given its size and dominance outside of China, would appear to be building a bank for itself. With a strong ecommerce focus, Amazon has launched financial management tools that aim to:
  • Increase the number of merchants on Amazon and enable each merchant to sell more;
  • Increase the number of customers on Amazon and enable each customer to spend more;
  • Reduce any buying and selling friction.

BAT

Although GAFA often gets the most exposure and media time, their Asian equivalents may already be ahead. So far they have expanded little outside of their home markets, but anywhere with a Chinese or South Korean diaspora, especially within Asia, is a target market.

Baidu, Alibaba and Tencent are Chinese Internet giants that offer search, ecommerce and messaging comparable to Google, Amazon and Facebook. Kakao is a South Korean social messaging app that is having spectacular success in its home market.

Foremost amongst popular social messaging in South Korea, app Kakao Talk launched digital-only KakaoBank in 2017, acquiring two million customers inside two weeks of launching. Its user base continued to grow to six million by 2019, and to 14.3 million by March 2021 – which is 33 per cent of Korea’s adult population. KakaoBank’s products and services include a payment account with a debit card, loans, and remittances.

Similarly, in China, banks such as MYbank and Webank backed respectively by Ant Group (which includes Alibaba and the Alipay payment platform or superapp) and Tencent, (owner of WeChat and 30 per cent owner of WeBank), have seen strong user-base growth following their launch in 2015. WeBank offers unsecured lending to over 60 million customers in over 500 cities by leveraging Tencent’s social media base. MYbank has leveraged Alibaba’s strong merchant network on the ecommerce platform by offering loans to over 6 million small businesses.

GAFA and BAT threaten everyone

The threat that Big Tech pose to incumbents and fintechs is daunting given the absence of any cost drag from legacy systems and under-used branch networks, a common problems for incumbents. They also have a natural advantage in customer acquisition owing to their high user engagement models. Further, the diverse nature of these large tech companies could mean that cross-subsidisation allows these firms to operate even while making losses to grab greater market share.

These experiences are successful examples of Internet companies venturing into banking. Lessons learnt include:

  1. Incumbent banks shouldn’t be overly complacent with their existing customer base. The speed of customer acquisition through digital channels is much faster than through traditional channels;
  2. Internet giants have a clear edge in payments and mobile money;
  3. There are opportunities to cross-sell and scale to other products.

Elsewhere in the world there is a trend towards banking as a Service (BaaS) and large tech companies have often co-opted banking service components.

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