Finance was supposed to be the next big frontier for big tech. They would use their data and expertise to take control of checking accounts, investments, brokerage and insurance, disrupting the entire industry the same way they have retail, media and telecommunications, and now more and more automobiles. And yet, so far at least, it has failed. Why? There are three main reasons.
First, the level of regulation imposed by central banks creates a very effective wall around the industry. Banking is one of the most scrutinized industries in the world, and the level of surveillance has only increased since the crash of 2008, and for good reason. Capital ratios, counterparty risks, deposit insurance and anti-money laundering rules are there to protect consumers and ensure the stability and soundness of the financial system.
But they also make it very, very difficult for new players to break into the industry, regardless of their level of funding. It’s easy to get started selling books or movies on the web. No one cares except the bankrupt companies. Breaking into finance is much more difficult.
Second, brands matter more than we often realize. No one has much affection for their bank. And yet, as challengers have found over the years, it’s extremely difficult to move people from one to the other. Many of us stay with the same bank our whole lives, and that’s probably not the case with any other product.
It takes a lot of trust to put your money with someone else, and that’s not easy to establish, especially when the tech giants have already been so cavalier about how they use and monetize our information. personal. Finally, so far, they have nothing very new to offer. Libra didn’t seem to do anything I couldn’t already do with a Mastercard for free, and neither did any of the other offers. Once you can make payments over the internet, there hasn’t been much that’s really innovative so far.
Of course, that could start to change over the next few years. The tech giants may have done well. They are already under intense regulatory scrutiny, with constant threats from Washington or Brussels to break them up, and they may well have decided that a full-scale assault on the banking sector could invite too much political heat to make the risk worthwhile.
It may also take longer than expected. Mobile payment apps have now become mainstream, and Apple plans to enable its phones to accept and make payments soon (following its acquisition of Canadian start-up Mobeewave). This will bring it closer to what will effectively be its own payment and clearing network, which could be a very powerful combination if it does indeed create a whole new form of financial plumbing.
And of course, many of the new fintechs are starting to make real headway in the market. Klarna brought installment payment into the mainstream, and Stripe built an impressive e-commerce payment system. It may well be that true innovations can disrupt the industry, but simply trying to leverage an existing platform doesn’t quite work.
The important point, however, is surely this. The failure of Libra is just the most dramatic example. None of the tech giants has managed to make any real headway in finance. Traditional banking and payment giants may not be very kind businesses. None of them could grow very fast. But they also seem impregnable.
Shareholders can stop worrying about when they might be upset. Right now, the tech onslaught is failing – and there’s no sign of that changing any time soon.