The Growing Influence of BigTech Companies in Payments and Financial Services

In today's rapidly evolving technological landscape, the convergence of innovation and finance has opened the door to a new era of possibilities. Advancements such as open banking, real-time payments, and embedded finance have emerged as driving forces, propelling BigTech companies - including Apple, Google, Meta, Microsoft, Samsung, Tencent, Alibaba - beyond their core offerings. These companies have now turned their attention to reshaping the financial sector. From branching into the payments industry to offering embedded financial services within their product ecosystems, their growing influence has caused a significant disruption in the payments and traditional banking industry.

By harnessing their user experience design, extensive data from their massive user bases, and sophisticated AI and machine learning capabilities, BigTech companies have progressively blurred the boundaries of payment types and financial services. Mobile wallets, P2P payment platforms, and digital payment solutions have become mainstream (further accelerated by the pandemic), enabling users to effortlessly conduct transactions through their smartphones, wearables, and social media platforms. Additionally, consumers and businesses now have the option to apply for lines of credit or loans directly through technology platforms, bypassing the traditional banking route.

It is worth noting that in more developed markets where traditional bank-based payment infrastructure dominates, such as the US, Europe, and Korea, BigTech companies are more focused on payment services (e.g., Google Pay, Amazon Pay, Apple Pay, Samsung Pay, Meta Pay) and heavily rely on existing payment rails. However, with the growth and maturation of Banking-as-a-Service (BaaS), partnering with incumbent banks or fintechs to offer embedded financial services becomes the dominant go-to-market strategy adopted by these BigTech companies. This model allows them to alleviate the burden of regulation, infrastructure, and operations that exist within the finance sector.

In contrast, direct competition tends to be more common in emerging markets where financial systems are still evolving, often due to the limited penetration of financial services. BigTech companies in emerging markets, such as Ant Financial, Tencent, Vodafone, and Mercado Libre, operate through distinct payment infrastructure integrated with their core products. They typically offer a broader range of financial services, including banking accounts, lending, insurance, and asset management. This regional variance can be attributed to differences in financial development, regulations, consumer behaviors, and government initiatives.

Below are examples of important initiatives undertaken by prominent BigTech companies:

• Amazon – As a popular brand and a well-established e-commerce platform, Amazon is leveraging its strong foundation to emerge as a financial service provider for both consumers and businesses. Through collaborations with entities such as Co-op for insurance, Affirm for payment products, and Parafin for business loans, Amazon has cultivated a diverse ecosystem within the financial services space. Offerings such as Amazon Pay, Amazon Cash, Amazon Credit Cards, short-term Amazon Lending initiatives, and Amazon Pay Later, demonstrate Amazon's multifaceted approach to integrating financial products into its platform
• Google – While its initial plans to offer banking services through partnership with Citigroup and Stanford Federal Credit Union were abandoned due to the departure of its project lead, Google's aspirations for growth in the financial sector remains resolute. Rather than directly offering banking services, it forms alliances with banks through cloud contracts and advertising collaborations. Google claims that Google Wallet now has better interconnectivity with other Google apps like Gmail, Calendar, and Maps. Furthermore, Google’s integration of payments into Google Maps and its exploration of cryptocurrency payments accentuate its commitment to innovative solutions within the financial services landscape
• Apple – Apple's strategic expansion into the financial services sector began with Apple Pay. The subsequent introduction of Apple Card, a credit card issued in partnership with Goldman Sachs, and Apple Pay Later indicates its groundwork for potential future financial disruptions. More recently, Apple has provided an exclusive offering for its Apple Card holders—a high-yield savings account with an impressive 4.15% APY. This is in stark contrast to the US average interest rate on savings accounts, which stands at 0.42% (as of July 2023), according to the FDIC. Apple is certainly not concealing its ambition to disrupt the financial services sector while seamlessly integrating itself into every facet of its customers' lives
• Meta (previously Facebook)- In 2019, Meta launched its payments system, Facebook Pay (rebranded as Meta Pay in 2022), designed to function across its app family—Facebook, Messenger, Instagram, and WhatsApp. Meta's goal was to create a digital wallet capable of managing not only users' identities but also all of their digital assets and properties. Additionally, Meta had aspirations to venture into the cryptocurrency space through the Diem project, which aimed to establish a stable cryptocurrency pegged to the US dollar—a stablecoin that offered rapid transactions while mitigating the volatility associated with other cryptocurrencies. However, the project encountered substantial opposition from the public and regulators globally due to concerns related to monetary sovereignty, financial stability, privacy, and antitrust issues. Lacking the necessary support, the project was eventually sold to Silvergate Capital in early 2022
• Microsoft – In 2016, Microsoft attempted to enter the payments space by launching Microsoft Wallet, later rebranded as Microsoft Pay, which allowed users to conduct transactions through their Microsoft accounts. However, it was discontinued in 2019, partly due to limited adoption and the phasing out of Windows 10 Mobile. Despite this, Microsoft continues to make an impact within the financial sector indirectly. Collaborating with fintech firm Finastra, Microsoft is integrating financial services into its ecosystem. This partnership enables users of Microsoft Dynamics 365 to access lending opportunities without leaving their business management platform. By leveraging the data stored within Microsoft Dynamics 365, which may include accounts receivable and payable records, SMEs can experience a more streamlined lending application process
• Alibaba – Launched in 2004, Alipay was rapidly expanding its influence from online, in-app, and in-store payments to encompass cross-border remittances. Alipay holds a prominent position within Alibaba's online marketplaces, including AliExpress, Tmall, and Taobao, as the primary method of payment. Moreover, Alipay collaborates with foreign merchants and financial institutions, broadening its accessibility to travelers and international customers. The company's evolution from a technology platform to offering a spectrum of financial products, such as wealth management, micro-financing, insurance, and credit services, illustrates its transformative impact on the financial sector. Alipay has been serving as a leading example that many other tech companies are aspiring to replicate
• Tencent - Leveraging its first-mover advantage of integrating payments into a social messaging app, Tencent’s WeChat Pay revolutionized payments, turning them into a chat-like experience. WeChat Pay's influence has expanded internationally, as Tencent establishes partnerships with global retailers, financial institutions, and tax refund entities. Tencent's broader financial services offerings, such as WeBank, seamlessly weave into its product ecosystem, showcasing the company's strategic entry into the financial industry
• Samsung – Samsung provides a diverse range of financial services and payment options that can vary depending on the region. One of its notable offerings is Samsung Pay, enabling users to make transactions via Samsung smartphones and smartwatches. Additionally, in collaboration with SoFi and Mastercard, Samsung has introduced an innovative mobile-first money management platform, featuring a cash management account and a debit card. Account holders of this platform can enjoy exclusive access to discounts on Samsung products.

As demonstrated by the examples above, BigTech companies are progressively transforming the payments and finance landscape. A crucial motivation among these tech giants is the access to novel data sources, enabling them to gain more profound insights into consumer spending patterns and financial positions. The data collected can be harnessed to enhance their core business operations and optimize advertising targeting on social platforms and drive behavioral shifts toward the usage of products and services offered within their ecosystems. Furthermore, the provision of payments and financial services allows them to diversify their revenue streams, safeguard their core products, broaden their customer bases, nurture loyalty, and refine the overall customer experience.

However, the entry of BigTech companies into the payments and financial services sector has not been without challenges. Regulatory authorities worldwide express concerns about potential market dominance and monopolistic behaviors, leading to restrictions being imposed on their activities. This is evident in the backlash against the Facebook Diem Project, which ultimately led to its discontinuation. Nevertheless, regulators primarily focus on data privacy, consumer protection, possible antitrust issues, and the effectiveness of measures in place to safeguard these concerns. Given the extensive amounts of sensitive financial and personal data amassed from users, mishandling could result in data breaches, financial fraud, and identity theft. Notable instances, such as the 2018 Facebook and Cambridge Analytica scandal involving unauthorized access to data for targeted political advertising, and the 2020 Wirecard financial scandal with missing funds and fraudulent activities, have eroded consumer and regulator confidence. These cases serve as a reminder the significance of robust data privacy practices and adherence to governance and compliance standards to maintain consumer trust and confidence.

The convergence of technology and finance has led to significant changes in how financial services are delivered, accessed, and experienced. BigTech companies promise a future payments landscape characterized by enhanced convenience, efficiency, more personalized services, and financial inclusion. As they continue to shape the payment and financial industry by developing new technologies and services that change the way people pay for goods and services, store their funds, apply for loans, or invest their money, striking the balance between innovation and responsibility will be crucial to ensuring benefits for consumers. Consumers want to use new and convenient payment methods, but they also want to be protected from fraud and data breaches. BigTech companies that can strike this balance will be the ones that succeed in the long run.

This article was first published by The Paypers, the Netherlands-based independent source of news and insights for professionals in the global payment and e-commerce community.

The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).