The Real Fintech Threat Isn't from Startups

For all of the talk about startup fintech companies threatening banks' business, there is a much bigger challenge looming for financial institutions from the well-established tech giants.

Banks can ward off the threat from newer fintech players by partnering with and acquiring disruptors — and many of them have. However, many of the biggest technology companies are also actively pursuing fintech acquisitions and partnerships.

The tech giants with serious ambitions in financial services pose a more formidable threat to banks than the thousands of startups populating the fintech market. The tech companies everyone has heard of can allocate huge resources to their financial services initiatives and they cannot be acquired.

Among these tech giants, two companies stand out as the biggest threat to the financial services sector: Amazon for a mobile wallet, and Google for any number of products. Already, these two companies hold solid beachheads in financial services, offer top-notch digital services and experiences and are far ahead of banks in using analytics and artificial intelligence to understand customer preferences and behaviors.

They also have the broadest and most imaginative ambitions among the tech giants. Apple and Samsung want to sell great electronic products. But Amazon wants to be the place you shop for everything, and Google wants to be the place you search for everything. Such ambitious companies are less likely to be dissuaded by some of the barriers to entry in financial services, such as regulatory costs and entrenched incumbents.

Amazon: Mobile Payments Wild Card

Amazon is persistently butting into new industries with new products and services. It's a tech company, a retailer, a logistics company, a media company and a payments company. Its goal is simple: to be a one-stop shop for all the goods that its customers want to purchase.

To accomplish that goal, Amazon is constantly working to make its customers' shopping experience more seamless, which includes simplifying payments. Its one-click "Pay with Amazon" service now allows Amazon customers to use their payments information on other e-commerce sites. Amazon, which already counts 23 million users of its payments tools, is seeking to turn customers' Amazon login, payment credentials and shipping information into a digital wallet that customers can use to pay at other small and mid-size e-commerce merchants for a more seamless shopping experience.

For these smaller merchants, this is a hard deal to pass up. Since new customers don't have to enter all of their information at checkout, Pay with Amazon gives them a customer acquisition tool that reduces friction and shopping cart abandonment.

Amazon gets several benefits from the offering, including a new revenue stream from the transaction fees it charges for processing payments from third-party merchants. And, sure, even though Amazon has pledged to keep the transaction data it collects from Pay with Amazon purchases private, it likely won't keep the company from anonymizing, aggregating and analyzing data from the service to learn more about its customers' shopping habits.

The expansion of Amazon's payments services could lead eventually to in-store digital payments. In-store transactions still vastly dwarf e-commerce transactions and Amazon has been looking for more ways to get into brick-and-mortar commerce, including opening its own bookstores.

Amazon briefly launched a beta mobile wallet for six months in 2014, but then it folded. However, Pay with Amazon will ingrain the habit among its customers of trusting Amazon as a payments provider that goes with them wherever they shop. That is a natural stepping stone for a mobile wallet offering that could have millions of loyal active users if Amazon wanted to venture further into the mobile payments fray. In so doing, Amazon could further shut banks out of a payments market that is fast becoming dominated by tech companies.

Google: Fintech Investments Are Just a Start

Google's biggest splash in financial services has been Android Pay, but its financial services ambitions could extend well beyond mobile payments.

Google's venture investment arm, Google Ventures, has invested in a variety of fintech startups, including OnDeck and Ripple Labs. The investments span many areas of financial services, including lending, payments, security, analytics and blockchain.

These bets indicate Google is exploring where it can make its biggest impact at a time when it needs to diversify its revenue. It has a large incentive to make a major splash in financial services as ad blockers threaten its core online advertising business, and Google is not shy about chasing big goals. This is a company that wants to put self-driving cars on the road, use digital technologies to find cures for cancer and diabetes and is widely considered the leading horse in the artificial intelligence race. Once Google finds its best value proposition in financial services, it could cause the biggest shake-up in the industry of anyone in the market.

Google, Amazon and the other tech giants have plenty of time to make their moves in financial services. Unlike banks, they don't have the burdensome concerns of regulatory pressures, resources tied up in legacy infrastructure and low trust among the emerging millennial generation. Freedoms from these concerns allow these companies to experiment, iterate and gradually find their best play in the industry.

The longer that banks take to transform themselves into digital companies, the more time these tech giants have to remake the industry in their favor.

Paul Schaus is the president, chief executive and founder of CCG Catalyst. He can be reached at PaulSchaus@ccg-catalyst.com, and on LinkedIn and Twitter.