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Thought Leadership: First National Bank of Apple?

Thought Leadership: First National Bank of Apple?
Posted: Aug 2, 2017
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Author: Lou Grilli

It could happen.

There’s been lots of hype claiming that Zelle, the recently launched P2P service by several major banks and credit unions, is the “Venmo killer”, alluding to the fact that financial institutions are staving off the onslaught of tech companies looking to make inroads into the banking industry.

And there’s been a lot of these inroads being made. For example, Venmo recently announced their intent to issue debit cards allowing Venmo users to make purchases at brick and mortar locations from funds tied to their Venmo account. Meanwhile Apple has launched their own P2P service, Apple Pay Cash, with funds stored in a virtual prepaid card issued by giant prepaid issuer Greendot. And Apple Pay, after an initial stumble, got authentication of Apple Pay users down to a science – an important step in signing up banking customers. PayPal made a big entrée into the banking space when it acquired TIO networks, a major player in the North American bill pay market. Integrating this acquisition enables PayPal users to use their stored funds to pay their cell phone and cable providers.

Could one of these tech companies become a bank of choice?

ThePaymentsReview first proposed this concept in a Payments Predictions for 2017 posting here. More recently, Anand Sanwal, CEO of CB Insights asked the question “Could Banking be Amazon’s next target” at the Future of Fintech conference in New York. Amazon is looking more like a bank as it beefs up its stored value program. To provide incentive to keep your stored value account topped up, Amazon gives 2% cash back when you load funds using a debit card or bank account (via ACH). The preset reload amounts displayed on the Amazon website are $50, $100, $200 and $500, with $100 highlighted as the default. The program is called Amazon Prime Reload, and its designed to reduce Amazon’s transaction fees for purchases made by the 66 million, and growing, Amazon Prime Members. Are you a cash-only kind of person but still want to shop on Amazon? No problem, Amazon has a network of merchants who will accept cash and add it to your Amazon stored value account. It’s called Amazon Cash. Amazon is also in the lending business; Amazon makes small loans to merchants in the US, UK and Japan through its B2B arm, Amazon Lending. The division has made loans totaling over $1.5 billion, with a total outstanding loan balance of $400 million. These services makes the idea of a “Bank of Amazon” a little closer to reality.

Would anyone want to bank there?

There are plenty of surveys that say yes to that, as well. Research from uSwitch has found that one quarter of millennials (18-34 year olds) think tech companies, like Google and Amazon, could offer better financial services for their generation, and a further 18% would place supermarkets above banks.

An Accenture survey showed 34 percent of millennials, and 20 percent of respondents aged 35 to 54, would bank with Cupertino, California-based Apple if it offered those services. More millennials would bank with Google and Amazon, according to the survey, part of a broader report titled "Everyday Bank: A New Vision for the Digital Age."

These tech companies are potentially better positioned than traditional banks to provide innovative services with interfaces both online and on mobile that their users are already familiar with, and are unencumbered with legacy banking systems. And tech companies have an incentive to offer banking services. An example provided by Anand Sanwal: “If Amazon can get you lower-debt payments or give you a bank account, you’ll buy more stuff on Amazon.”                                                                    

What should credit unions and banks do to counter this?

Even if the tech companies don’t actually become full-scale banks, but instead continue to tinker around the edge of banking with bank-like services, what should credit unions and banks be doing to counter this? Fight fintech with fintech! Offering Zelle is a way for financial institutions to provide a service that PayPal and Venmo currently dominate, that Google dabbles in, and Apple has announced entry. Providing chat 24x7 to answer questions on loans or credit cards matches the capabilities that people have come to expect from online-only companies. And providing real-time access to accounts and transactions, online and from mobile, with user interfaces that are as good as iPhone and Android interfaces will keep cardholders and members from seeking something better.

Do you think the Bank of Apple (or Google, or Amazon) could happen anytime soon? Would you want it to? Please let us hear your thoughts on this.

 

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Lou Grilli

Lou GrilliLou Grilli

Lou is the Director of Payments Strategy at CSCU and is responsible for providing leadership to the organization for emerging payments and industry trends, as well as managing the product portfolio.

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