Could banking with technology companies become the future?
Apple will launch their credit card, Apple Card, in the US this summer. There will be both an iPhone and physical version of the card, with a cashback incentive on every purchase. The card has been created with the help of Mastercard and Goldman Sachs and promises to have no late fees, annual fees or international fees. While the rewards structure is nothing out of the ordinary compared to their leading competitors such as American Express, cardholders will be able to use their cash rewards for other Apple Pay activities, including sending funds to other iPhone users through messages.
But why has Apple done this? Well, more and more social media firms are entering the finance sphere. For instance, Facebook has a number of licenses for e-money and payment services, they have also recently issued a digital currency (‘Facebit’), Amazon is in talks with JP Morgan to offer bank accounts while WeChat allows you to invest, book a doctor and even find a date on their platform. So there is a growing number of technology firms entering the financial area - but what is driving this trend?
A survey by YouGov examined if customers trust their banks, with only 55% of UK respondents trusting their bank, compared to 64%, 43% and 39% in the US, Germany and France respectively. Also, MuleSoft surveyed more than 8,000 people across the world and found that 52% of 18 to 34-year olds said they would consider banking with Facebook or other tech giants they regularly use, while a third of all age groups agreed.
The advantage Apple, Facebook and Amazon all have over traditional banks is that they have daily touch points with clients. These companies have frequent contact with their clients as they use iPhones, Apple apps, log into Facebook and buy products of Amazon regularly. Further, these companies have the consumer base and more importantly, all of the data they need on customers to offer personalised banking products with ease. Customers also value convenience – they will be drawn to major tech firms that can offer a better integrated product where clients are able to complete more tasks with only one company rather than many.
However there are ethical and security concerns. Walter Thompson Intelligence found that 76% and 65% of Chinese and US customers say ethical behaviour is important when choosing a financial institution. Given concerns over Facebook’s use of data as well as these companies’ tax bills, it may put customers off trusting big tech firms with their private banking transactions.
Nevertheless, these tech companies have the opportunity, technology and ability to invest in the banking industry, offer competition to traditional banks and rock the banking industry in the coming years.