View: Big Tech’s increasing influence in finance is an opportunity for banks, not a threat – Economic Times

Posted: September 1, 2021 at 12:37 am

In the span of a decade, subdued Greece, Asia Minor, Egypt and the Persian Empire. Like the Macedonian, Big Tech has evinced a rapacious and relentless appetite. Through technology acquisition and partnership, Amazon monopolises digital sales, while Google and Facebook control, where they do not dominate, the advertising space. Will consumer finance also go the way of brick-and-mortar stores and newspapers?

In a Bloomberg column reproduced in ET (, Andy Mukherjee certainly thinks so. But his principal assertion - that fintech, riding on the back of Big Tech, could challenge banks - seems something of a non sequitur.

Three disparate examples are furnished to prove the existential threat posed by Big Tech. First, Google's latest announcement that it has partnered with Setu to offer its Google Pay customers a preferred fixed deposit (FD) rate from Equitas Small Finance Bank (up to 6.35% annually) 'shows the tenuous nature of the hold' banks have on activities like attracting deposits.

Each example is memorable for its siege imagery and could provide banks a much-needed wake-up call. But, together, they fall short of making a definitive argument.

For starters, banks are more than transaction houses for their customers. There is a deep psychology behind the idea of trust, which has nothing to do with published returns and everything to do with credibility. Even if one were to discount the fact that Equitas' FD rate is reminiscent of the rate offered by banks till 2019, and that the current differential could soon disappear when RBI tightens liquidity, most people would be loath to invest in an unknown bank, even if it is endorsed by Google.

In a country where deposits are not insured against default (Rs 5 lakh per account hardly inspires confidence), the average consumer who has, at least vicariously, experienced some suffering at the hands of a failing bank, will think twice about such a transaction.

Second, banking's historic moat does not consist of KYC rules alone. More than anything else, banks are straddled by an ever-increasing list of directives and statutes that complicate basic operations, and leave no time for process and product innovation. The landscape for online sales and advertising was (until recently) as unrestricted as that of financial services is tightly controlled.

For non-banking finance companies (NBFCs) and fintechs to challenge banks in their core activities - loans and the sale of certain regulated products like insurance - they need to be willing to come under the regulator's lens. There's a good reason for this. Truth in advertising, product reliability and security are still more important than technological convenience. As technology intermediaries foray deeper into banking territory - if the recent experience of the Chinese crackdown is anything to go by - it is only a matter of time before RBI comes out with a set of rules to govern these challengers.

Which brings us to the place where many fintechs are currently situated: payments. It is clear there is no money to be made in consumer payments, beyond the potential to convert some of these transactions into loans (the whole premise behind credit cards). So, when Google Pay and PhonePe process the majority of UPI transactions, they do not deny banks.

Even if one were to consider the monetisation value of data that results from these transactions, the principal owner (other than the consumer) of transaction data is the bank, not the wallet. And even when a wallet may legally harvest this data, there is no guarantee - as the US experience has shown - that real-time data harvesting by new-age fintech improves the sales performance of financial products.

More than threatening banks in the near future, Big Tech can provide financial institutions the advantages of access, convenience and speed. A partnership, with a clear division of labour, where banks earn more because they carry performance and financial risk, may be fruitful. An open contest less so.

Even Alexander stopped short of an assault on India because Magadha had three advantages: numbers, war- elephants and terrain. The Greeks wisely withdrew. The outcome of a hypothetical Indo-Hellenic confrontation on the ringing Indian plains can only be the stuff of conjecture. For now, I'd put my money on the Nandas.

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View: Big Tech's increasing influence in finance is an opportunity for banks, not a threat - Economic Times

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