The smart way for banks to partner with big tech

Big tech companies have been a disruptive force in business since the internet became mainstream. With the recently announced Apple Card, banks should be asking what the ambitions of companies like Apple, Google, Facebook, Microsoft and Amazon in financial services means for them.

Survey data suggests that many banks are already working with big tech companies to some degree, and such collaboration will likely grow deeper and more common over time. As big tech’s platforms consolidate more users and influence over the digital world, they will grow more attractive as partners, thanks to their reach and the cost savings they can enable.

Ignoring these tech behemoths may not be an option for much longer — if banks decline to partner with big tech, other new entrants may take those opportunities to pull business and customers away from traditional financial institutions.

After all, Marcus — Goldman Sachs’ consumer bank, which is partnering with Apple on the Apple Card — is a relatively new entrant to retail banking. The partnership could help Marcus rapidly expand its reach, and, more importantly, the amount of data it has about consumers’ spending habits that could help in targeting customers with more products and services.

But banks must take a strategic approach to collaborating with tech behemoths, and carefully weigh potential risks and rewards. The chief risk is that banks lose the relationship with the customer, and simply become an orchestration engine sitting in the background of big tech’s customer-facing offerings. Big tech will only want to take control of the customer experience in specific areas where they can add value, however, as Apple is doing by providing Apple Card users with tracking on their spending and rewards in the Apply Pay app. Uber and Amazon have similarly partnered with major credit card issuers to offer branded cards that enhance their customer experience with rewards points. Taking full control of the entire customer relationship would entail charging unpopular fees and penalties that would muddy big tech’s reputation for user friendly experiences.

Banks should consider where to leverage big tech companies’ existing platforms to boost their own customer experience. For Marcus, it makes sense to let Apple share information with customers through the mobile platform that Apple already owns and controls. As big tech’s mobile, artificial intelligence and cloud platforms grow more advanced and more central to everyday for many consumers, it will make more and more sense for banks to utilize those assets for customer experience improvements.

At the same time, financial institutions should look to enter new markets and take advantage of new types of opportunities through partnering with big tech. Marcus’ partnership with Apple enabled its entrance into the credit card space with an offering that uniquely leverages Apple’s brand and technology, and also specifically targets the mass affluent consumers who make up Apple’s core customer base. Big tech’s reach could also help banks unlock new opportunities with unbanked or underbanked consumers, a major area of focus for big tech. And Marcus could expand its partnership with Apple in the future to offer loans or wealth management services to Apple customers. That could potentially lead to setting up shop in Apple stores so customers can meet with a wealth adviser when they go to browse Apple’s products. Banks should explore such opportunities to meet customers’ needs in new ways — something that could also be accomplished by offering more services and capabilities through big tech’s increasingly ubiquitous voice assistant and chatbot platforms.

Lastly, banks will need to agree to terms with big tech over who will own data resulting from any products or services they jointly offer, and how that data will be protected. Apple maintains that it won’t have access to data from the Apple Card, and Marcus says that it won’t sell the data to third parties. Data ownership, privacy and security issues have always loomed over any commercial partnership with big tech companies that have risen to prominence, partly because of the amount of data they harvest and how well they make use of it. Given consumers’ growing awareness and concerns around data privacy issues, and the recent missteps big tech companies have made in this area, banks will likely need to emphasize that any customer information held by big tech companies is fully encrypted and will not be exploited for financial gain.