Today, there is more of “Tech” in FinTech than there is of “Fin.” The journey to a borderless tech industry – encompassing every aspect of innovation in the financial world and beyond – started years ago when the term FinTech wasn’t even coined. FinTech then served as a transitional stage in the mindsets of innovators in the financial services industry, and now, technology is a dominating transformational force across niches, with the ‘finance’ part fading into the background.
Just about a decade ago, we would have a precise classification in mind for which industries Apple, Amazon, Walmart, and Morgan Stanley represent. Today, these corporations and a broad range of rapidly emerged cross-industry behemoths are all technology-first companies with a diversified business model. And that became possible because of technology and data.
E-commerce and lending is the hottest tie-up there is right now. Online purchasing and even browsing behavior became the key for e-commerce giants like Amazon in the Western world, and Alibaba in Asia, to accumulate enough knowledge and data to build the best match for online shopping (whether from a business perspective or consumer) – an online loan. Today, lending services of Amazon and Alibaba, while vastly on different levels, are massive, billion-dollar businesses.
In 2011, Ant Financial spun out of Alibaba as its financial arm, and today, Ant Financial’s consumer lending has reached at least $95 billion. Ant has become a financial giant that was said to be valued at $60 billion and currently has more outstanding consumer loans than China’s second-largest bank. Ant Financial’s outstanding consumer loans are almost 3.7 times the size of China Construction Bank Corp.’s.
In comparison to Alibaba, Amazon is shy some billions but nonetheless, an illustrative case. According to Forbes, Amazon Lending has made more than $3 billion in business loans ranging from $1,000 to $750,000 since 2011 to help SMBs selling on Amazon grow their enterprises. In February, CNBC reported that Amazon had partnered with Bank of America Merrill Lynch to expand its small-business lending efforts.
Ant Financial Services, in addition, is one of eight companies approved to pilot commercial experiments with social credit scoring in China, which assigns ratings based on information such as when customers shop online, what they buy, and what phone they use.
I won’t go into the Samsung, Apple, and Facebook cases which were widely dissected and speculated around. Instead, let’s look at more unorthodox entrants – a Singapore-based ride-hailing company Grab, for example. To be precise, Grab is a technology company that has built a popular ride-hailing app, but it’s not all the company aspires to be.
After gaining success in ride-hailing, Grab (which has more than 86 million downloads) Co-founder Anthony Tan is pushing his startup into a new challenge, Bloomberg shared a day ago: catering to those underserved by traditional financial institutions in Southeast Asia.
“I wake up every day thinking about how we are going to empower the next 100 million micro-entrepreneurs by 2020. I know it’s tough. People called us a taxi app. Dealing with competitors was impossible. But our job is to make impossible possible,” Tan told the Money20/20 conference in Singapore.
Tan is actively encouraging financial institutions to join its joint-venture with Credit Saison called Grab Financial Services Asia. By using its data on customer behavior, the platform plans to provide loans to millions of people who are not served by traditional banks.
On March 13, Grab announced a team-up with Chubb, the world’s largest publicly traded property and casualty insurance company, to offer insurance solutions for Grab’s 2.6 million drivers. The partnership was announced as part of the launch of Grab Financial, the FinTech platform within the Grab ecosystem. Encompassing all of Grab’s FinTech offerings, Grab Financial offers payments services, rewards & loyalty services, financial services, and agent services.
Successful technology companies have a clear pattern of development – after building and scaling a core technology-focused business, they utilize accumulated data from interactions with customers, and spring out into segments where that data can open new doors. The Asian Google – Baidu – is a perfect example.
At the end of January 2018, Baidu was reported to be seeking new investors for its wholly-owned finance unit in a deal that could fetch up to $2 billion and deepen its push into financial services. Baidu Financial Services Group (Baidu FSG) runs payment system Baidu Wallet, an online credit service and wealth management platform. By beefing it up, Baidu is attempting to narrow the lead that its Chinese rivals Alibaba and Tencent have forged in financial services.
Baidu Wallet, which also attracts users for other financial services such as online credit, had 100 million activated accounts as at the end of 2016. The fundraising also comes amid a wider reshuffle of Baidu’s corporate strategy as it looks for new revenue streams outside of its core search business, Reuters noted.
Similar to Grab’s initiative to expand access to financial services, Amazon offers its own answer – Mexico became the first country where it has offered a debit card, called Amazon Rechargeable, aiming to give customers a new method to shop on its website. Last October, Amazon also began offering a cash payment system at convenience stores including 7-Eleven, similarly targeting shoppers without credit cards.
It’s interesting that technology companies start with a different target audience and a goal when stepping into the financial services. It likely happens for a few reasons.
First, an enormous overlooked population, either fully or partially excluded from the formal financial system. And the exclusion is systemic and perpetual – with no access to financial services, they cannot obtain relevant history to unlock more opportunities. And without history, they cannot access favorable rates in the formal financial system. The only way out is a different lens through which excluded population is assessed.
And another reason is that traditionally, financial institutions had a rigid scoring system that did not take into account specifics of lifestyles, online behavior and other, more nuanced things than a job with income and timely credit card payments. Ultimately, institutions found themselves locked with a confined audience with generally similar stand in their respective economies.
Technology companies, on the other hand, had a view of a customer from a whole another perspective due to hallmarks of their business – responsibility with timely phone bill payments, interests expressed in online search, online shopping behavior, etc. Alternative data and technological advancements in data treatment appeared to be the bridge that technology companies crossed into the financial world, and in doing so, forced the industry to change.
One could dare to say that today, there is no pure-play industry; technology is the common transformative force. Whether we are talking about logistics and supply chain management, sharing economy, or commodities trading – everything boils down to building ecosystems connected through technology and data.
As a result, financial services are no longer a proprietary revenue-generating activity for banks; it is rather an open space that can be penetrated by any company from any industry that has the capability to invest and innovate. It is no longer sufficient to know the finance part of the financial services, but rather vital to understand the technology part of it. Corporations that have figured out technology and distribution will have no problem getting into finance, while pure-play finance businesses will be at a disadvantage without investments into digital transformation and adoption of advanced technologies.