The quest to disrupt the mainstream banks of the past is not exactly a new headline — any number of FinTechs big and small have thrown themselves against that wall for the better part of the last decade. A few have made progress; most of have not. As it turns out, consumers do not always love their banks, but as PYMNTS data has demonstrated time and time again over the last few years, they do trust the bank.
When money is on the line, trust goes a long way in cementing a relationship.
But the potential disruptors just keep on coming — and seem to be growing in size and scale as players like Apple, Facebook and Google are increasingly sliding into place and attempting to build out a robust set of financial service offerings to enhance their ecosystems, and hopefully make them more sticky over time. Sliding into place — and learning that financial services are often much harder from the inside than they appear from the outside.
Facebook Joins the Mobile Wallet Race
Perhaps it was only a matter of time before Facebook officially threw its hat into the mobile wallet ring, and fait accompli that when its mobile wallet launched it would be called Facebook Pay. But this week the inevitable became the actual and Facebook Inc. officially announced the launch of its mobile payment system meant to operate through Facebook, Instagram, Messenger and WhatsApp.
The launch, according to Facebook, is meant to take shopping and payment actions that are already happening within its apps and make them smoother and more secure for users.
The project is reportedly not related to Facebook’s Libra cryptocurrency project, and will be built off more mainstream payment form factors like cards and other wallet accounts like PayPal.
Facebook Pay can be enabled across the entire suite of social media properties Facebook owns, or users can customize which apps it is online for. Apart from making and taking payments, users will also be able to view payment history, update settings or manage payment methods all in one place.
Facebook Pay is available in settings on the app or website. It will start rolling out on Facebook and Messenger, and then later be available on WhatsApp and Instagram, where it can be set up through those apps. Facebook said it offers extra security and protection, and it has processed over $2 billion in donations since it launched a 2015 fundraising tool. To provide security, Facebook noted that card and bank account numbers would be encrypted and securely stored, and that customers could add a PIN or use their device biometrics to provide an extra layer of security when sending money or making a payment.
Facebook said it will not receive or store biometric information from user devices.
Apple Cards Equality Hiccup
The Apple Card — which advertises itself as a new kind of credit card by Apple, not a bank — has created some headaches for its banking partner issuing the card, Goldman Sachs. The Apple Card has come under fire in the last week for allegedly discriminating against female applicants — a situation brought to light in a series of tweets posted by David Heinemeier Hansson, a partner at software development firm Basecamp. He claimed that he was approved for 20 times the credit limit his wife received, even though they file joint tax returns and she actually has a better credit score. Apple Co-Founder Steve Wozniak also chimed in, saying the same thing happened to his wife.
Goldman Sachs has demined that it uses gender as a factor in determining credit worthiness and has promised to reevaluate how credit limits are determined for Apple Card users after being accused of gender discrimination.
“We have not and never will make decisions based on factors like gender,” Carey Halio, Goldman’s retail bank CEO, said in a statement to CNBC. “In fact, we do not know your gender or marital status during the Apple Card application process.”
She added that a variety of factors go into the decision in offering a credit limit, and that a lot of factors might combine to lower credit lines. For example, “their existing credit cards are supplemental cards under the spouse’s primary account — which may result in the applicant having limited personal credit history.”
Customers who received lower than expected credit limits should contact the lender to have their applications reexamined, the statement continued, and “Based on additional information we may request, we will re-evaluate your credit line.”
The issue has also caught the attention of regulators — specifically the New York State Department of Financial Services (DFS), which has launched an investigation into Goldman Sachs and the algorithms used to determine credit limits.
“The department will be conducting an investigation to determine whether New York law was violated and ensure all consumers are treated equally regardless of sex,” said a spokesman for Linda Lacewell, superintendent of the New York DFS. “Any algorithm that, intentionally or not, results in discriminatory treatment of women or any other protected class of people violates New York law.”
Hansson, the original complainant, was not ameliorated by Goldman Sach's explanation.
“‘I understand your concerns, but here’s why they are actually wrong and we are actually right’ is not listening. That’s patronizing. Please just stop,” he wrote on Twitter.
Google's Jump Into Banking
In another move to shore up and expand its financial services offerings, Google has announced it will partner with Citigroup and Stanford Federal Credit Union to launch consumer checking accounts next year.
The project, codenamed Cache, presents an offering where Citigroup and a credit union at Stanford will handle the accounts and the branding (i.e. the branding will reflect the financial institutions and not Google).
“Our approach is going to be to partner deeply with banks and the financial system,” Google VP of Product Management Caesar Sengupta told The Wall Street Journal. “It may be the slightly longer path, but it’s more sustainable.”
Moreover, Google will not sell account holders’ financial data — in much the same way Google Pay data is neither stored nor sold.
Whether it will work, of course, remains to be seen. According to data out of McKinsey & Co., a survey indicated that 58 percent of respondents said they would trust financial products from Google — a strong result that came in higher than higher than Apple and Facebook, though still trailing Amazon.
“If we can help more people do more stuff in a digital way online, it’s good for the internet and good for us,” Sengupta said.
Whether fees will attach to these new accounts — or what they will be — is still to be determined by Google.
So what did we learn this week? The tech firms are coming. According to research from Accenture, FinTech startups threaten to take a $280 billion piece of banks’ payment revenue pie by 2025 — or roughly 15 percent. Analysts found that FinTechs’ ability to offer free transaction services could take the greatest portion of banks’ payment revenues, followed by instant payments and app-based virtual wallet services. For now the big techs and the big banks are mostly collaborating.
If FinTechs can tap into the same kind of trust levels banks currently enjoy? The competition might be a bit stiffer.
Until next time.