British lender NatWest has launched a digital bank to compete in the U.K.’s thriving fintech space.
Interview With Mark Bailie, Former Group COO Of Royal Bank Of Scotland And Current CEO Of Bó
Revolut has begun rolling out early access to accounts for Canadian users, BetaKit has learned.
Key Points
Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Digital, NEO, Open Banking, Open Finance
Fintech Canada Directory Category: Digital Banking | Analytics | Infrastructure
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Black Friday, data concerns, online sales: 5 killer stats
Excellence in Marketing | | Nov 25, 2019
We arm you with all the stats you need for Black Friday and to help you understand the big industry trends.
1. One in four shoppers planning to make a purchase on Black Friday
More than a quarter (26%) of consumers are planning to make a purchase during Black Friday, up from 21% in 2018 and 19% in 2017.
Almost one in five (19%) said they would be encouraged to spend more because Black Friday falls after pay day, while 28% said they plan to do some Christmas shopping – higher than in previous years.
Of those that are planning to buy, 78% said they had intentionally delayed spend. However, 54% said they expect so spend less than last year and only 8% expect the deals to be better.
Source: Retail Economics/Klarna
See: EY Global FinTech Adoption Index finds over half (64%) of global consumers use FinTech
2. Consumers think data collection risks outweigh benefits
The majority (77%) of US adults have heard something about how companies use their personal data and most (81%) think the risks outweigh the benefits.
Almost four in five (79%) are at least somewhat concerned about how much data is collected about them by companies, while seven in 10 feel their personal information is less secure than it was five years ago. Some 62% believe it is impossible to go through daily life without having their data collected by companies.
The survey of 4,272 US adults found that just 6% claim to understand a great deal about what is being done with their data, while 59% understood very little or nothing.
This means they see few personal benefits to data collection. Just 5% of adults say they benefit ‘a great deal’ from data collection, while 23% felt ‘some benefit’. However, 49% feel ‘very little’ benefit and 23% feel ‘none’.
Source: Pew Research Center
3. Monzo the most recommended brand by UK consumers
Digital bank Monzo has the strongest brand advocates of any brand, topping a list of the most recommended brand among Britons with a score of 84.8.
Online money transfer service Transferwise came second on 76.8, followed by phone maker One Plus (74.8), consumer finance website MoneySavingExpert.com (74.6) and green energy company Bulb (74.4). The brand advocacy rankings ask past and present customers of more than 1,500 companies if they’d recommend them to family, friends and colleagues.
See: A major UK lender just launched a digital bank to compete with Monzo and Revolut | Interview with Bó CEO
This year’s rankings are led by finance and fintech brands. Travel brands also perform well, with Universal Studios Orlando scoring 71.3 and Secret Escapes 70.8.
The most improved brand was Celebrity Cruises with an 8.8 improvement in score, followed by Southern Trains, which increased eight points, and Travel Republic (up 7.8).
Source: YouGov BrandIndex
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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A major UK lender just launched a digital bank to compete with Monzo and Revolut | Interview with Bó CEO
CNBC | Chloe Taylor | Nov 28, 2019
British lender NatWest has launched a digital bank to compete in the U.K.’s thriving fintech space.
NatWest — a subsidiary of RBS — launched cloud-based bank Bo on Wednesday, with the service going live on both Apple’s App store and Google Play.
Those who sign up to the digital bank will be sent a bright yellow Visa card and access their account via Bo’s mobile app.
Bo was designed to help people manage their money, according to NatWest, and includes features to help users budget, set savings goals and access “great Visa exchange rates” when using their card abroad. Users will also be instantly alerted whenever they use their card.
“As we’re part of NatWest, people can rely on Bo to keep their money safe,” Bo CEO Mark Bailie said in a press release Wednesday. “But as a digital bank, built entirely on a separate cloud-based technology, Bo is also able to harness new technology and develop rapidly in line with our customers’ needs and expectations.”
While banks are under increased pressure to innovate, they’re not facing an existential crisis, Raman Bhatia, HSBC’s head of digital for the U.K. and Europe told CNBC earlier this year. The lenders that will win in the long run, he says, are those that people trust.
See: Lagging regulation, consumer trust inhibiting FinTech adoption in Canada
“I think one thing which remains a truism is customers do have a very high degree of trust when it comes to money, their deposits and their identity with respect to established banks,” Bhatia said. “And banks need to work harder than ever to preserve that trust.”
Fintech competitors
But in spite of that advantage, Britain’s challenger banks are continuing to gain both subscribers and investment in droves.
Online-only bank Monzo is valued at $2.5 billion, while its rival Revolut is valued at $1.7 billion, making the companies some of the most valuable unicorn firms in Europe. Elsewhere, SoftBank-backed OakNorth was valued at $2.8 billion in February, while money transfer start-up TransferWise was valued at $3.5 billion this year.
Both banks are setting their sights on global expansion. In October, Revolut struck a deal with Mastercard to help it expand into the U.S., while Monzo launched in the U.S. in June. Meanwhile, U.S. fintech unicorn Plaid has expanded its service across the Atlantic into the U.K., Ireland, France and Spain.
One major lender that has already made some progress in offering a standalone digital service is HSBC, which in 2018 launched a money management app in the U.K. and signed 300,000 people up to the service in the first year.
Continue to the full article --> here
Oliver Wyman | Nov 2019
Interview With Mark Bailie, Former Group COO Of Royal Bank Of Scotland And Current CEO Of Bó
Many people in the UK have no savings. They are one misfortune away from being pushed into a debt problem from which they might struggle to return. A large proportion of consumers are either under- or over-insured.
Their financial struggles aren’t being addressed by the existing financial system. RBS concluded that its current attempts to digitize may not be enough, on their own, to address these needs. With the support of Oliver Wyman, RBS decided on taking a new path with a new offering, with a new brand, built on a new technology stack.
Bó represents a new breed of financial institution – a greenfield digital bank owned by an existing incumbent.
Oliver Wyman: What started the journey that led to RBS building Bó?
Mark Bailie: When he became RBS CEO in 2014, Ross McEwan made clear we had to start putting the customer at the heart of everything we do, and become customer, rather than product, centric.
From that foundation, there have been two key enablers we’ve needed to help us build Bó; first, having our customer data in one place and really analyzing our customers’ situations in depth. This has allowed us to see some of the issues our customers’ face – and what could be done to help them.
See: Inflection point:Seven transformative shifts in US retail banking
The second enabler came from the growing potential to deliver technology and services at scale, and the rapid development of machine learning, AI, and cloud computing capacity.
When you put these together you see the potential for major changes, and opportunities. We can see a combination of customer need and the potential for highly personalized financial services.
What was the thinking behind taking a greenfield approach to the build?
We knew the kind of outcome we wanted would be a long and hard journey for an incumbent bank to deliver, with product-centric legacy infrastructure. So, for us, the question we discussed was, “how long have we got?”
If it's 10 years, you can probably transition the existing core into a truly customer-centric business, because you can do almost anything in 10 years if you're good and you can execute - and we still have a Plan A around this.
But if customers start accelerating their move toward new offerings, and you’re not already operating in that market, then the downside risk is asymmetric. If you don't know the timing, and you can see the potential for a material impact, then you need to cover the risk, so long as the cost is sensible.
See: Big Tech takes aim at the low-profit retail-banking industry
Greenfield lets you sidestep the challenge of legacy infrastructure and get to a truly customer-centric offering faster — it’s the pragmatic solution. However, greenfield isn’t a cost-free strategy. It creates other issues, which we’ve got to learn to manage: we will have two tech stacks, and two brands. That has taken a lot of thinking through, and in the end you have to make your choice.
How did you reach the decision to build Bó?
We didn’t wake up one morning and decide, "let's build a new greenfield bank," or, “we're going to spend X, go away and come back when it's done.” This was done in measured but quick, incremental steps.
We took a very small amount of money and gave ourselves three months to see if we could put together a proof of concept, using enough of the components, and make it work. Having done that, we went to the next step, to see if we could make it work in a real-time environment with live connection to payment rails. Once we got there in the time period we’d set, the next step was to put it into a production environment, and then into beta.
How much did the threat of new challenger banks motivate Bó?
So far, we don’t think anyone is managing to deliver truly customer-centric financial services, and no-one's yet proven that you can disintermediate the existing banks. This has led to a relatively common response: “The challengers are never going to make any money, their business model is unsustainable.”
I think that misses the point; it's still a very young sector. Customers are using the new services and capital markets are funding them. The product isn't perfect, but some customers clearly like it, which is why you can see the adoption levels increasing. Although what they're doing today isn't yet the full answer, these business models will evolve and develop over the next five years.
What customer needs is Bó focused on?
RBS is a large bank, with just under 20 percent of the current account market in the UK. We serve everybody and are able to put together quite a detailed view of how people deal with their finances.
See: How AI may help solve banks’ customer relationship issues
We know that 40 percent of working-age adults in the UK – that’s just under 17 million people – have less than 100 pounds of savings. That’s not just down to incomes – relationships with, and understanding of, money are also factors. So, we see a clear need for services that can help those millions of people to manage their money better, but crucially, delivered in a way they are willing to engage with.
What is the secret to building a new digital bank within a large existing bank?
For me, there are three things we have found to be most important.
Number one is having full support from the chief executive and the chairman. Unless the CEO is driving the vision, there’s no point in starting, and the board needs to be willing to back the CEO. If these elements hadn’t been in place, we wouldn’t have started.
The second is, you have to separate it out from the core business, but still ensure the new business has Exco-level sponsorship.
The third thing, when you are a large existing bank, is that you have to build it within your existing risk appetite framework, and it must be aligned with your existing policies. You have to build these things so they can co-exist together in the long term.
See:
Continue to the full interview --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Revolut is rolling out early account access ahead of Canadian launch
Betakit | | Nov 27, 2019
Revolut has begun rolling out early access to accounts for Canadian users, BetaKit has learned.
The move comes ahead of the challenger bank’s official launch within Canada.
Originally started in the UK in 2015, Revolut is a FinTech startup looking to disrupt the traditional banking industry. It offers typical banking services such as prepaid debit cards, currency exchange, stock trading, peer-to-peer payments, as well as a cryptocurrency exchange.
In an emailed obtained by BetaKit that was sent to Canadians who signed up for early access to the Revolut app, Revolut states it has officially begun to test the platform. It asks users to keep their participation confidential, requesting they do not post online until Revolut is ready for its public launch.
See: Revolut drops out of Singapore digibank race over high capital requirement
Revolut’s Canadian launch is no secret, however. Global expansion for the UK-based challenger bank has been a key part of its strategy over the past year. The FinTech startup has begun offering part of its services in greater parts of Europe, Australia, Switzerland, and launching in Singapore in October. Revolut has also announced intentions to launch in the US, having penned a partnership with Mastercard to help with that growth.
Revolut has also made clear its intentions to launch in Canada and began building out a Canadian team earlier this year. The startup brought on the likes of Saud Aziz, formerly of Koho, as Revolut’s Canadian strategy and operations manager.
This early access to the Revolut app marking the first time the challenger bank’s services have been made available locally.
Since its launch in the UK, Revolut has more than doubled the number of users that have signed up to its platform, reaching more than 8 million users, up from 3.6 million in December 2018. According to Revolut, it has seen more than 800,000 sign up for accounts in August and September.
See: Lack of open banking framework forcing Canadian consumers to choose between convenience and security, TD exec says
Revolut’s success in UK, though initially did not turn into revenue, led the company to go global. Since 2017, Revolut has more than tripled its revenue, grossing approximately $75.1 million USD in 2018, and claims to be currently opening approximately one million new accounts every month. Since its launch in 2015, transaction volumes are now more than $85 billion USD.
Revolut is among a growing number of, what have been dubbed, challenger banks, newly founded financial services institutions or companies that compete directly with incumbent or established banks, but provide more digital-progressive offerings.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Alternative Lenders Continue to Steal Business From Banks
The Financial Brand | Jim Marous
The banking industry has enabled alternative providers to impact the competitive balance for payments, investments and deposits. By not developing customer-centric digital lending platforms, traditional lenders have now also allowed digital players to steal significant loan customers.
Most traditional financial institutions associate PayPal with being a significant player in the competition for consumer payments. Their growth, along with the growth of Venmo, Square and other digital payment alternatives, is well documented. What is less well known is the rapid growth of PayPal as a digital lending alternative. It may be time for banks and credit unions to wake up, however, as the company announced that they had crossed $10 billion in small business lending in only 5 years.
“It took PayPal twenty-three months to get to the first $1 billion in lending,” said Darrell Esch, Vice President of global credit at PayPal. “Demand has never been in shortage.” According to research from deBanked, it took PayPal only five years to reach the $10 billion milestone.
The loan originations were spread out across 225,000 small businesses globally according to PayPal, including the US, UK, Australia, and Germany as well as Mexico through a partnership with another online lending platform. Currently, however, PayPal is originating $1 billion per quarter … making this digital player a very formidable competitor.
Amazon Joins PayPal as Top 5 Small Business Digital Lender
While the growth of PayPal as a digital loan alternative is impressive, they are far from the only digital lender impacting the lucrative small business lending marketplace. Amazon has joined PayPal, OnDeck, Kabbage, and Square as a top 5 digital small business lender. In fact, Amazon revealed that it had made more than $1 billion in small business loans to US-based merchants in 2018.
See: Lending Loop Surpasses $50 million Milestone and helps thousands of Canadian Businesses and Investors
In total, there are more than 1.9 million businesses, content creators, and developers in the U.S. using Amazon to deliver their products and services. According to Amazon, small and medium sized businesses now account for 58% of Amazon sales – up from 30% ten years ago.
The peer-to-peer business lender, Funding Circle, also revealed its first-quarter trading update, showing that loans under management rose by 44% compared to the first quarter of 2018, while originations grew by 23% (they have originated $9.5 billion in loans). This indicates that there is greater competition between alternative and traditional lenders, as well as increased competition within the alternative lending marketplace.
Digital Lenders Leverage Data for Improved Experiences
As with most digital banking alternatives, the top small business digital lenders use vast customer insights and competitive terms to deliver personalized offers and experiences to small businesses. Most of this is done in conjunction with small businesses still having banking relationships for holding funds and making disbursements at traditional banks and credit unions.
Alternative digital lending firms often provide small businesses more favorable terms on loans than can be received from traditional financial institutions. They also provide more financing options and faster approval than traditional banks. Alternative lenders like PayPal also approve small business loans at higher rates — 56% compared to 26% approval rates by big banks, according to data from Biz2Credit.
Because PayPal, Amazon, Square and other alternative lenders have access to transaction history of sellers on their platform – and often use that merchant’s sales data instead of a credit score – they can quickly determine the credit worthiness of a small business borrower. Comparably, banks and credit unions usually only have access to a small business’s deposits and bank accounts, unable to see the entire picture of a company’s sales.
“PayPal business financing programs can provide funding from $1,000 – $500,000 for small businesses looking for both quick decision-making and immediate usage as an application decision that usually occurs within minutes or hours, if approved, allows the business to start using the funds almost immediately,” said Esch.
This availability of funds comes at a time when many traditional organizations have pulled back from offering small business credit. According to the Federal Reserve’s Small Business Credit Survey, as many as 70% of merchants didn’t receive the funding they wanted in 2018.
See:
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The future of fintech: lending + services
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Lock BTC, Get DAI: Lending Firm Bridges Bitcoin-DeFi Divide in Latin America
“If you look at the great recession what you’ve seen is a bounce back of commercial lending, but lending to small businesses really hasn’t come back,” states Esch. A lot of the hesitancy is attributed to the cost of underwriting. Banks are usually not in a position to lend small amounts of money on a frequent basis. Digital alternative lenders are built for this type of lending.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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A digital bank that raised $110 million from investors including Leonardo DiCaprio has run into trouble
CNBC | Hugh Son | Nov 21, 2019
Key Points
- The digital bank Aspiration has had difficulty closing its most recent funding round, according to people with knowledge of the matter.
- The company laid off 15% of its employees last month and has been withholding some payments to vendors since at least the summer, these people said.
- “This is a company that would’ve gotten funded a year ago,” said a fintech CEO who requested anonymity to speak frankly.
A digital bank that raised $110 million from venture capital funds and celebrities including Leonardo DiCaprio is scrambling to find funding, a potential sign that investors are cooling on risky start-ups after the WeWork debacle.
At first blush, Aspiration has all the trappings of a successful disruptor.
Part of a new breed of online-only banks, the Los Angeles-based start-up has celebrity backers including DiCaprio and Orlando Bloom, rapid growth and a trendy socially responsible model that brought it plenty of media coverage.
In April, Aspiration CEO and co-founder Andrei Cherny told Reuters he was seeking a round “larger than anything we’ve done before.” The article cited an anonymous source saying the company wanted at least $200 million and a $1 billion plus valuation.
But Aspiration, which allows its customers to choose how much they pay for services, has so far failed to persuade enough investors to participate in its latest fundraising round, according to people with knowledge of the situation. Last month, the company laid off 15% of its employees and has been withholding some payments to vendors since at least the summer, these people said.
See: Fintech’s fast pass to traditional banking is now cut off
The start-up may have been caught in a shift as previously high-flying unicorns slammed into the reality of public markets. The disappointing Uber IPO in May and the collapse in WeWork’s valuation in September has meant that money-burning companies with a murky path to profitability are finding it harder to secure funding. What may be unfolding is the first sign of a painful adjustment for unicorns or companies seeking that status.
“This is a company that would’ve gotten funded a year ago,” said a fintech CEO who requested anonymity to speak frankly. “What you’re seeing is VCs becoming more discerning about the outcomes on latter-stage rounds. If you’re going to fund something at a $1 billion valuation, are you sure you can get a $3 billion valuation in an IPO?”
For so-called challenger banks like Aspiration, the problem is exacerbated by an increasingly crowded field. Chime and Varo have gained in popularity, investing start-ups like Betterment and Stash now offer checking accounts, and U.K.-based competitors Monzo and Revolut are coming to the U.S.
CEO response
In an emailed response to this article, Cherny said Aspiration had raised more than $50 million this year, with more coming in commitments.
“More than 1.5 million Americans have signed up with Aspiration to start making the move to spending and saving with a conscience,” [CEO] Cherny said in the statement. “During the past year, Aspiration has seen phenomenal growth in customers and revenue. Anyone saying otherwise doesn’t know the facts.”
He added that “prudent cash management and changing up your team structure is part of being a startup.”
While Aspiration has taken steps to conserve cash, that doesn’t mean that it is financially distressed, according to a person involved with the start-up who didn’t want to be named. The job cuts last month were tied to a major project that was completed, this person said. The company also recently hired two senior staffers – a general counsel and a chief business officer – and is planning several product launches, which this person cited as evidence that Aspiration was still in growth mode.
See: Q3 Global Fintech Report (CB Insights)
Still, the Series C round mentioned in the April Reuters article has yet to be closed, and that’s unlikely to happen before year-end, this person said. The $50 million raised this year is a combination of equity and convertible debt, the person said.
Irate vendors
Aspiration employees started getting antsy this summer as news of fresh funding failed to materialize.
At the same time, concern over the company’s funding spiked as irate vendors called Aspiration’s customer service line or appeared in person at the firm’s Marina Del Rey, California, headquarters to demand payment, according to former employees. Vendors even reached out to employees on LinkedIn, asking if Aspiration was still in business. The vendor complaints became so pervasive that most of the company’s acquisition team quit, the ex-staffers said.
Then, about two months ago during an all-hands company meeting, managers insisted that it was “normal” to not pay some vendors, the ex-workers said.
One vendor, a Los Angeles-based recruiter who didn’t want to be named until pending litigation was settled, said Aspiration failed to pay him after he helped the company hire several top engineers.
See: 10 Key Issues For Fintech Startup Companies
“The last thing I want to be is another creditor in line in a bankruptcy,” the vendor said, explaining why he filed a lawsuit seeking repayment. “Everyone over there wants out because they see the writing on the wall.”
He was told by Aspiration that the company found some funding — a “partial round” — during the summer, because it paid half of what he was owed in August.
Then last month, Cherny terminated 31 of his 200 employees. Several who remain said they are actively searching for employment elsewhere.
Aspiration has several possible options to consider if it can’t secure more funding, according to industry experts. Cherny could sell Aspiration to a strategic buyer like another fintech firm. (The April Reuters article was a signal that Aspiration was open to being bought, several venture capitalists said.) Or investors could offer him a rescue line of debt financing that would convert into a majority equity stake if performance metrics don’t improve.
Many start-ups have hit turbulent periods before going on to become successful, and that’s entirely possible at Aspiration, according to an investor in the company.
As with many fintech start-ups, customer deposits are kept at separate FDIC-insured institutions; Aspiration listed eight partner banks that held users’ money.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Big Tech takes aim at the low-profit retail-banking industry
The Economist | Nov 21, 2019
THE ANNUAL Web Summit in Lisbon each year is Woodstock for geeks. Over three days in November, 70,000 tech buffs and investors gather on grounds the size of a small town. Rock stars, like Wikipedia’s boss or Huawei’s chairman, parade on the main stage. Elsewhere people queue for 3D-printed jeans or watch startups pitch from a boxing ring. Money managers announce dazzling funding rounds. Panellists predict a cashless future while gazing into a huge crystal ball. A credit-card mogul dishes out company-coloured macaroons.
Yet the hype conceals rising nervousness among the fintech participants. After years of timidity Big Tech, with its billions of users and gigantic war chest, at last appears serious about crashing their party. “It’s the one group everyone is most scared about,” says Daniel Webber of FXC Intelligence, a data firm. Each of the so-called GAFA quartet is making moves. Amazon introduced a credit card for underbanked shoppers in June; Apple launched its own credit card in August. Facebook announced a new payments system on November 12th (its mooted cryptocurrency, Libra, however, has lost many of its backers and will face stiff regulatory scrutiny). The next day Google said it would start offering current (checking) accounts in America in 2020.
Individually, each initiative is relatively minor, says Antony Jenkins, a former boss of Barclays, a bank, now at 10x, a fintech firm. But together they mark the acceleration of a trend that could reshape the finance industry.
See: Visa R&D Arm Develops a Blockchain System That Could Replace Financial Data Aggregators
The GAFAs have long had an interest in finance. Yet until recently they focused on payments, each in its own way. Apple Pay and Google Pay are digital wallets: they hold a digital version of cards but do not process transactions. Neither charges merchants a fee. They simply store everything in one place and make payments more secure by masking customer details. Google collects transaction data; Apple does not. Otherwise holding a phone over a contactless terminal is the same as tapping a card.
Facebook Pay stores card details for use on the group’s various apps (Facebook, Messenger, Instagram and WhatsApp) so customers need not enter them every time. Amazon Pay does the same, and also saves card details for payments on partner websites. Uniquely, it “processes” payments, a task others leave to specialist firms. When a purchase is made through Amazon Pay, it asks the card issuer if there are sufficient funds. If the answer is yes, the shop releases the goods (the money itself generally moves at the end of the day).
What these systems share is their limited success. After eight years Google Pay has just 12m users in America, a market of 130m households. Only 14% of the country’s households with credit cards use Apple Pay at least twice a month. In October the number of customers who used Amazon Pay was just 5% of the number who used PayPal, says Second Measure, a data firm. This contrasts with the explosive growth of WeChat Pay and Alipay, China’s “super-apps”. These allow shoppers to pay for nearly anything, from tea to taxis, by scanning a QR code. Launched in 2013, they have over a billion users each. They process transactions worth a third of China’s consumption spending and are now big lenders in their own right (see chart).
But the comparison is unfair. China was able to leapfrog the world because of permissive regulation and a lack of existing digital-payment methods. The rich world already had a decent credit-card system, points out Aaron Klein of Brookings, a think-tank, limiting the appetite for novel solutions. Financial red tape also binds more tightly in the West. To operate as payment institutions across America, newcomers need a licence in every state.
See: The 11 Biggest Fintech Companies In America 2019
That makes the GAFAs’ move into retail banking even more puzzling. Since the financial crisis, credit provision has become one of the world’s most regulated activities. That constrains returns on capital and profits. Western lenders’ valuations are a fraction of tech firms’, notes Sankar Krishnan of Capgemini, a consultancy. Why would Big Tech want to be a bank?
The answer is twofold. The tech giants may not yet know exactly what they want, says Martin Threakall of Modulr, a fintech. Silicon Valley likes to place bets and see what sticks. And they probably do not actually want to be banks—as long as consumers do not notice.
At bottom, a bank is a balance-sheet, a factory that turns capital into financial products (eg, loans and mortgages) and a sales force, says Dave Birch of Consult Hyperion, a consultancy. The first two are heavily regulated, and Big Tech is uninterested. That is why the giants have turned to banks to do the tedious bits. Apple’s card is issued by Goldman Sachs, and Amazon’s ones by Chase, Synchrony and American Express. Google’s accounts are backed by Citi and a banking union.
Rather, the tech giants covet distribution. Their smarter systems and lack of branches should enable them to strip costs out, says Tara Reeves of OMERS Ventures, the venture-capital arm of a Canadian pension fund. More important, selling banking products should lead more people to use their payment systems. Apple and Google want one more reason for consumers to “keep their phone under the pillow at night”, says Lisa Ellis of MoffettNathanson, a research firm. Amazon wants payments in-house so users never leave its app.
But above all, the GAFAs want data.
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