Big Tech’s entry into banking signals the death knell for traditional lenders
Large tech companies could pose a much bigger challenge to physical lenders than fintech startups that aren’t the size of platform companies
Slow but steady advances by big tech companies like Google, Amazon and Facebook in the banking industry could end up dislodging the country’s physical lenders.
The tech industry, which has slowly moved into licensed deposit-taking institutions in India, is poised to disrupt the business of traditional lenders in India, media have said. Raising the question of whether India’s traditional brick-and-mortar banking industry, which is already crippled by rising NPAs and bad debts due to the pandemic, then suffer the fate of dying newspapers in the future?
Amazon, Google, and Facebook’s WhatsApp are already very active participants in India’s Unified Payments Interface, or UPI, real-time payments network. Walmart’s PhonePe and Google Pay both occupy more than 85% of the market, which is made up of 50 apps, including the one owned by banks.
Amazon and Google have also activated financial intermediary services, such as loans and card payments, on their payment platforms. More recently, in a move that is expected to shake up the banking industry, Google Pay has started offering term deposit products from small Indian banks that do not have their own liability deductibles. And, Equitas Small Finance Bank officially announced that it has moved to Google Pay, offering clients of the digital wallet platform up to 6.85% interest on one-year funds.
Other lenders are also expected to sign up for Google Pay, media said.
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A Bloomberg report pointed out that Alphabet, Facebook Inc, and Amazon.com Inc could pose a far greater challenge to physical lenders than fintech startups that aren’t the size of platform companies. Most of the time, deposit-strapped banks could succumb to the lure of tapping into the existing cache of active users of these tech intermediaries, which could then interfere with the core operations of financial institutions such as the collection of deposits.
This could possibly have an impact on the large term banks which will then have to deal with a decrease in deposits. In its biannual financial stability report, the RBI warned last month that the entry of large tech companies such as Apple, Amazon, Google Facebook and Microsoft into financial services in emerging markets like India could present challenges. challenges to maintaining adequate ecosystem stability and governance, an Economic Times report said.
In the report, the RBI listed its top concerns such as monopoly practices, antitrust issues, cybersecurity risks, and data privacy challenges. The central bank has already suspended the licensing of Amazon, Google and Facebook to build a whole new payments network in India due to data security concerns, media said.
In China, local tech titans, not Silicon Valley companies, have been able to easily topple traditional lenders from their seats of power. For example, Jack Ma’s Ant Group Company sold banking services to its growing network of users, taking advantage of the technological advantages inherent in using its customers’ real-time non-financial data to check their credit capabilities. That was, however, before the Chinese government reduced them to their size.
India’s banking sector appears particularly vulnerable to Big Tech, experts said. Financial transactions are increasingly taking the technology route, largely implying that customers simply have to connect to an open network. As banks continue to get bogged down in elaborate and cumbersome KYC processes, payment wallets could easily establish the identity of the customer.
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In addition, Indian deposit-taking institutions have no unique selling point to attract customers to their banking services except holding bank accounts for sending or receiving funds. Today, customers prefer to use Google Pay or PhonePe to complete their transactions rather than using banking apps or their cards.
In fact, the Bloomberg report states that the two wallets were used to transfer 5,000 billion rupees ($ 70 billion) last month. That’s the power of the platforms’ data network activity, reports said, and when Facebook’s WhatsApp Pay kicks in, its half a billion Indian users are sure to log into their services. financial.
According to media reports, the stage is set for Silicon Valley to take the banking sector by storm.
Interestingly, Equitas, which has no relationship with the Google Pay client, may not have a long-term association with the saver. Once the deposit is due, the money will automatically flow back to the bank account it came from. Customers will have a multitude of lenders to choose from on a platform that can book deposits in just two minutes. They can simply click on the bank that offers them the best interest rate, making this technology-driven facility clearly in favor of customers.
If Google Pay is successful in its new banking business, PhonePe and WhatsApp Pay may just want to jump on the bandwagon. Platforms can also provide information on consumer behavior and payment flows for a fee. What might work against banks is that they can decide whether a bank’s promotional offer should be displayed prominently or buried in a dark corner.
Big tech seems to be chasing a critical industry on the slow death lane, so India’s public lenders, in particular, will have to pull their socks up to meet the challenges posed by this tech sauce train or lobby with regulators like an already RBI. convinced to master the giants of technology.