Big Tech Banking and the Dialectic of Disruption

This year, we have already seen Apple enter the banking market, in partnership with Goldman Sachs and MasterCard. The Apple Card offers some decent cashback rewards, but it hasn’t exactly revolutionized how we use money.

This month, Google announced that it will offer checking accounts in collaboration with Citigroup, starting in 2020.

Facebook also introduced Facebook Pay in early November, which will allow users to send and receive money over Facebook, Messenger, Instagram, and WhatsApp.

Amazon has made a few tentative forays into finance, with small business loans and a credit card for the “unbanked” people who do not yet have an online account. They are still in the “beta” phase with this one but if it catches on, they will launch a mainstream card.

So, what are we to make of all this?

First, it is strikingly unimaginative. Technology companies that made their fortunes by breaking the mold are now wading into other industries slowly, using their weight as a means to gain market share.

They do not want to reinvent the banking system. Instead, they want to add a layer of machine learning and slick digital interfaces to deliver a better customer experience.

There are benefits to this, of course. Banks have struggled to keep pace with the digital era and FinTech companies like Monzo, N26, and Revolut have used their innate agility as up-start challengers to take customers away from the traditional players.

In that sense, Big Tech may genuinely disrupt this industry. The incumbents are not delivering on what customers today expect, which creates the perfect scenario for disruption.

FinTech companies excel at creating customer-centric features, but they lack the resources of Google, Facebook, et al. In a race to the bottom, Big Tech will win.

If the tech giants aren’t all that interested in being a bank, why are they getting into retail banking?

Well, data. Banks have a lot of it, but they’re not sure how to use it. This is another reason FinTechs have been able to win customers.

However, the likes of Google simply have more data, more engineers, more systems designed specifically to process, analyze, and utilize information. To use a crude analogy, Google is a highly sophisticated refinery for raw data.

There are broader trends on show here, too.

Historically, banks fought for real estate presence on high streets. This helped capture footfall and served as an indicator of prosperity and trust.

That ‘high street’ has moved online and it is owned by the likes of Google, Amazon, Facebook, and Apple. It was only a matter of time before they started ‘building’ on such fertile land.

DISRUPTION AS A DIALECTICAL PROCESS

In a Hegelian dialectical process, we have a succession of “moments of a logical concept”, to use his term.

We’ve all had a long month, so I’ll keep this bit brief. I think there’s something illuminating in it, so bear with me.

We begin with a fixed moment, what many people like to call the “thesis”. This could be our traditional banks, in our dialectic here. “Moment” does not mean a short period in time for Hegel; it comprises a context, a set of circumstances, or an event in time.

Next, there is a moment of instability or an “anti-thesis”. In our instance, we’ll label this as the FinTech challengers and their initial, seismic impact on retail banking.

These two “moments” come into direct contact and lead to confusion, flux, and ultimately understanding.

Our third stage is often labeled the “synthesis”, but this word has taken on a new meaning in today’s lexicon.

In the dialectic, it is not a straightforward combination of two different concepts to form one new concept. That would be neat, but it rarely occurs.

Our initial “thesis” (the big banks) and our “anti-thesis” (FinTech challengers) sublate as part of this process.

Sublate is a translation of Hegel’s aufheben and means both to negate and to preserve.

In a nutshell, they retain some of their characteristics and take on new ones, of necessity. In Hegel’s logic, there is a general thrust that moves moments towards their later counterparts.

So, the competition does not lead to static contradiction but instead, leads to a dynamic, new reality.

In a collision, the FinTechs have become a little more like banks; banks have become a little (and only a little) more like the FinTech challengers. We have our synthesis.

This then becomes our new “thesis”, awaiting its “anti-thesis”.

There are no final winners or losers; the dialectical process of disruption keeps unraveling in front of us. Customer needs to keep changing and no one company can deliver on these needs in real-time.

The Apple Card, Facebook Pay, and the Google checking account are all responses to where we are today, and their entry will create a new dynamic.

We can look to China for a glimpse at the future, as I find myself saying with increasing regularity these days.

Smartphone payments have never truly taken off in the West. Credit card payments remain our preferred way to transact.

The latest moves from Google and Facebook will allow them to integrate more services into smartphone banking, which should convince more people to pay using their handheld devices.

This is the dominant dynamic in China, where smartphone payments have been the norm for some time now.

Jazzy branding and seamless digital payments will offer a compelling package for the everyday consumer, but this is just one part of banking.

Google could start offering business loans through Citi, based on what it knows about customers, for example.

The moves by Big Tech this year may lack a little flair, but they are purposeful steps into a new ecosystem that will have far-reaching consequences for all of us.