Is There More of ‘Tech’ in FinTech Than There is of ‘Fin’?

May be just about a decade ago, an average consumer would have a precise classification in mind for which industries Apple, Amazon, Walmart and Bank of America represent. In 2016, we can’t be so sure anymore as former pure technology companies got their hands firmly into various other industries including financial services.

The emerging startup culture in the world’s innovation hubs has brought forth the notion of open innovation, where R&D, talent pool, idea generation and new product development are not exclusively an internal process or asset, but can be external as well. Beneficial partnerships are being forged across industries among companies that are not related at a first sight. As examples, look at Siemens and Airbus Group working together on a research partnership to introduce new electric propulsion systems. A Philips and Teva joint venture called Sanara Ventures is focusing on healthcare innovation. There are other companies that spin off venture arms to look for opportunities in other industries. There are numerous examples like Google, Microsoft and others. Let’s look at some of the interesting examples of non-financial players that now gain significant weight and impact in the financial services industry.

Amazon would be one example with its initiative to enter the lending business. Even though there were things the ecommerce giants got all wrong in payments, the lending business is still an open door. In January 2016, Amazon made a bold move to compete against the UK’s high-street furniture and electrical retailers by introducing a new program for its UK shoppers. Its customers can now opt to take out a loan on Amazon for purchases worth £400 and more. The company will offer shoppers the option of paying for their purchases over as many as four years. Customers are charged an interest rate of 16.9% on the loans, which can be taken out on multiple items as long as the total is £400 or more. Customers would not need to pay a deposit, which means that the first payment would be their opening monthly installment.

Hitachi Capital Consumer Finance (also a financial spin-off of a non-financial player) will be in charge of the online retailer’s loan services. Hitachi also offers interest-free credit on furniture for John Lewis.

Another former far-from-finance player, Apple, is now a permanent subject of finance-related discussions. Well-known and spreading actively around the world, the Apple Pay service was the tech giant’s ticket into the financial services industry and since launch it has been making waves across markets where it was launched. In February 2016, the service was launched in China, - a very important market for Apple. In Q3 2015, out of Apple’s $46.9 billion in revenue, China’s share was 27%. In January 2016, Bank of America and Wells Fargo were reported to be working on integrating Apple Pay into their ATMs. Seems like Apple Pay is here to stay as it gets its hands deeply into financial services ecosystems around the world.

If we are mentioning Apple, we can’t forget about Microsoft and Google. In different ways, but all mammoths of the technology industry are involved in financial services now.

Microsoft is known to us as a stealth-mode but heavyweight player that is paying a lot of attention to blockchain technology. Not only does its venture arm – Microsoft Ventures - have an impressive portfolio with very interesting FinTech companies in its sack, but Microsoft has also established leadership in research on blockchain applications. The number of Microsoft initiatives in FinTech may surprise many as the company is not yet rushing to speak up.

There are several interesting blockchain-related initiatives that the tech mammoth is involved in. Microsoft recently presented the public cloud platform offering Ethereum Blockchain as a Service (BaaS) through Microsoft Azure. As the company explained, the Ethereum Blockchain-as-a-Service provided by Microsoft Azure and ConsenSys allows financial services customers and partners to play, learn and fail fast at a low-cost in a ready-made dev/test/production environment. It will allow them to create private, public and consortium-based blockchain environments using industry-leading frameworks very quickly, distributing their blockchain products with Azure’s worldwide distributed (private) platform.

Shifting the spotlight over to Google will reveal equally impressive initiatives that another tech giant has in the financial services industry. Obviously, worth mentioning is Google Wallet that is moving away from being a wallet towards an instant money transfer service. Android Pay is now another permanent asset in financial services that is favored by Aussie banks and offers the in-app purchase feature. Google definitely has a keen interest in FinTech that it expresses through Google Ventures. More than 30 FinTech companies are in the tech giant’s portfolio among which are such notable players such as Robinhood, Upstart, OnDeck, Plaid, Ripple Labs and others.

Moving on, the per-eminent social media company, surprisingly, is also trying to take over financial services. Facebook repeatedly makes attempts to compete in this space such as with its announcement made in October 2015. Facebook then announced that it was adding a shopping section among other sections on its social platform. As noticed by Facebook, people are coming to the platform not only to connect with friends and family but also with products and brands. In fact, a survey by Facebook suggested that nearly half of its users come to actively look for products, with a majority of them discovering new products in their news feed, pages and groups. Does Facebook have the potential to become a serious competitor to Amazon with this trend? Perhaps we may find out soon enough. In order to enhance its users’ experiences, Facebook picked up on the trend and implemented a shopping section as a native option. It wasn’t the company’s first initiative and move towards commerce. In 2014, Facebook introduced a new feature to drive sales for businesses—the carousel format for Facebook ads. After the implementation of a carousel, businesses reported 30-50% lower cost per conversion. Facebook also brought the carousel to Instagram ads. Slowly but surely, Facebook seems to be turning towards businesses and payments with its ‘Buy’ button. Earlier in 2015, the social media giant also made P2P payments available to everyone in the US causing concern for established P2P payment services like Venmo.

Since we are talking about shopping, it’s also worth mentioning former brick-and-mortar players like Walmart and Target. Both companies have stepped onto the payments path with their Walmart Pay and Target Pay initiatives. While digging a grave for CurrentC and MCX, they are also paving their way towards financial technology initiatives to seize the digital payments opportunity.

In December 2015, American multinational retail corporation Walmart launched its own mobile payment solution called Walmart Pay. The solution is aimed at enabling a fast, easy and secure way for customers to pay with their smartphones in Walmart stores. Customers can pay with any iOS or Android smartphone, through any major payment type and at any checkout lane, all through the Walmart app. At about the same time, Target was reported to be working on its own mobile wallet. Target is the fourth-largest retailer in the US and with the financial power and its extensive store network, the proprietary wallet will instantly get a great base to roll out on. Target has not yet committed to launching the product. Even though it is too early to say, the wallet could be out some time this year.

The list of technology and other non-financial players that now present significant competition to traditional financial institutions is certainly not exhaustive. There are also companies such as Intel, IBM, Samsung and others. Financial services are no moret a proprietary revenue-generating activity for banks, rather it is an open space that can be penetrated by any company from any industry that has the capability to invest and innovate. Indeed, there seems to be more technology penetration in financial services, at an industry level, than ever before!.