How Amazon, Apple, Facebook, Google are infiltrating financial services

March 29, 2022 9:00 PM

Mega technology companies such as Amazon, Apple, Meta and Alphabet, the parent company of Google, occupy the tricky space of being both a friend and perceived threat to traditional financial institutions.

On one hand, their credit cards, buy now/pay later products and prospective deposit accounts depend on traditional financial institutions or fintechs to get off the ground. Banks are also increasingly migrating to some of their public cloud services. On the other hand, they periodically play with the idea of rolling out financial products to their massive customer bases that would compete with bank partners.

“One of the biggest fears of banking executives is that the four large tech titans — Amazon, Apple, Facebook and Google — will move into banking and come after their clients,” wrote Alyson Clarke, a principal analyst at Forrester, in a 2020 report.

None of these companies have taken steps to obtain a banking license, so for now they need the support of financial institutions to offer bank products. But the prevalence of application programming interfaces and infrastructure providers means they don’t need to build financial capabilities in-house or take on the regulatory complexities, said Elif Yayla, senior intelligence analyst in fintech at CB Insights.

“Everything can be integrated in a few clicks,” she said.

In her mind, the goal of big technology companies’ incursions into financial services is to lock users into their ecosystems. “They get the benefit of customers spending more time in their product environments,” she said. “They get closer to transactions and more data on user behaviors, which will generate more revenue in the long run.”

Here is a closer look at the latest investments Amazon, Apple, Meta and Google have made in their financial services arms.

Amazon: A wealth of banklike features

Over the last 15 years, Amazon has rolled out a slew of banklike services, including small-business lending, lines of credit and credit and other payment cards. To do so it has partnered with financial institutions including JPMorgan Chase, American Express and Synchrony.

“In a sense, Amazon is building a bank for itself by taking core components of modern banking (deposits, credit cards, loans, insurance) and tweaking them to suit Amazon merchants and customers,” a 2021 report from CB Insights, "The Big Tech in Fintech Report," concluded.

It created a payment system called Amazon One in 2020 that uses contactless palm scanners to authenticate people for shopping at Whole Foods Markets and other locations.

In 2021 Amazon started testing buy now/pay later services with Affirm, which could eventually supplant its own installment lending product.

A job posting the same year for a digital currency and blockchain product lead suggests future forays into cryptocurrency.

Some banks such as Goldman Sachs and Capital One use the Amazon Web Services cloud — but not without some hiccups.

In a 2022 report about the industries that Amazon could disrupt over the next five years, CB Insights pointed to small-business lending and payments.

“Amazon has a deep competitive moat made up of data and speed — one that is difficult for commercial banks to match,” the report said. “With its data advantage, Amazon has the power to offer loans to businesses that traditional banks might consider lower-quality borrowers and refuse (or lend to on more onerous terms).”

Apple: From digital wallets to BNPL, tap-to-pay

Two of Apple’s best-known financial products are the Apple Card and the digital wallet Apple Pay. Soon, it may penetrate the buy now/pay later space.

In July 2021, Bloomberg reported that Apple would offer Apple Pay Later in partnership with Goldman Sachs. The service will reportedly give users the option to pay off any purchase in four interest-free payments every two weeks or spread payments out over several months with interest.

Although BNPL is typically extended through nonbank firms, some credit card issuers and banks have indicated they will develop or already have their own versions. Unlike some of its major BNPL competitors, Apple’s version will work both online and with in-store payment terminals. It will also be one of the few to offer installment loans through users’ existing credit cards instead of establishing a new line of credit.

Apple is also working on contactless payment acceptance. Tap to Pay on iPhone would let consumers make payments by pressing a contactless card or mobile wallet against a merchant's iPhone, without requiring a plug-in or Bluetooth card reader. Its initial distribution partner is payment infrastructure company Stripe. This development follows Apple’s acquisition of Mobeewave in 2020, which uses near-field communication to turn iPhones into mobile card acceptance terminals without hardware.

Meanwhile, Apple Card expanded its use cases in 2021 with the addition of Apple Card Family, a feature that let consumers combine credit lines to build a credit history and enable parents to set controls over card usage for their children. Recently, several technology news sites reported that Apple acquired the U.K. firm Credit Kudos, which helps lenders use bank data to make credit and underwriting decisions.

Meta: A step back from digital assets, a step forward into digital payments

Meta, the parent company of Facebook, has banklike services that consist of payment tools and a digital wallet.

Facebook Pay lets users send money within the Meta family of apps, including Facebook, Messenger and Instagram. It made its debut in Messenger, creating QR codes for users to send payments in the Messenger app. It remains to be seen whether consumers will choose Facebook over a plethora of more established payment options, but “more likely it’s a means to facilitate, embed and control payments and the payments experience for their users within the Facebook ecosystem,” Sarah Grotta, director of debit advisory and alternative payments at Mercator Advisory Group, said in a June 2021 story.

Meanwhile, Facebook’s Novi digital wallet became available in test mode in October, allowing users in the U.S. and Guatemala to send funds to contacts internationally without fees.

One area where Meta has stepped back is cryptocurrency.

In January, the Diem stablecoin, originally developed by Facebook, sold its technology assets to Silvergate Capital, the parent of Silvergate Bank in San Diego, for $182 million. The digital currency project was originally called Libra and caught the attention of regulators, including over concern that it would circumvent central bank control over currency.

Meta is not connected to Meta Financial Group and its subsidiary MetaBank in Sioux Falls, South Dakota. The two entities negotiated a $60 million deal for the Meta brand, as well as associated names like Meta Financial. The behind-the-scenes nature of the bank’s work suggests a name change will be less onerous than for one with a prominent retail presence, and the institution had already been considering a rebrand. Meta Financial will become Pathward Financial by the end of this year.

Google: Dropping bank accounts, expanding payments

The prospect of digital checking accounts from Google garnered hype in 2020 when the search giant named six institutions that would join the previously announced Citi and Stanford Federal Credit Union as homes of its Google Plex accounts. In total, 11 banks and credit unions were tapped to offer Google Plex.

These plans collapsed last October. Google is “updating our approach to focus primarily on delivering digital enablement for banks and other financial services providers rather than us serving as the provider of these services," a spokeswoman said at the time.

But Google remains active in the payments sector with its digital wallet Google Pay, which it has enhanced in recent years to centralize more actions within the service. For example, in February 2021 Google added or expanded functionality for consumers to pay for parking and transit fares using Google Pay within its Google Maps app. In May, it integrated with Western Union and the remittance firm Wise to let users send money abroad, starting with India and Singapore, without leaving the Google Pay app.

On the partnership end, Google Cloud has been a popular choice for banks such as KeyCorp and Wells Fargo when migrating their applications to the public cloud. Earlier this year, it announced a digital assets team that would support customers working with blockchain-based platforms.