Money and payments
3.1 Global big tech companies are entering the financial sector
The major technology, or ‘big tech’ companies that apply business models of the platform economy are planning to enter the financial sector. These companies have differing approaches, but it is clear that in the near future they will change the competitive situation in the sector.
The competitive edge of the big tech companies may include their ability to operate globally, their extensive customer base, strong brands and their ability to use data compiled from various services. In addition, their excellence in technological development may translate into cost-efficiency, improved security or an enhanced customer experience.
Platform economy business models may change the structure of the financial sector
The term ‘platform economy’ refers to online and digital technology business models in which various entities engage in exchange or provision of services permitted by the platform.
Both commercial entities and voluntary communities provide platforms for a variety of purposes. A feature typical to these platforms is that the entities provide products and services that complement each other, with common rules and a uniform customer experience.
As the business models of the platform economy may change the structure of the financial sector, the Bank of Finland, too, studied these models in 2019.
Big tech companies – in particular Google, Amazon, Facebook, Apple, Microsoft, Alibaba and Tencent – operate by the principles of the platform economy. Many of them are expanding their operations into financial services and payments. The best examples are the payment services developed by Facebook and the corporate credit provided by Amazon to its suppliers operating on its platform.
Payment transaction data attracts interest
In the past ten years, the big tech companies have become the largest companies in the world in terms of market value. Their goals to extend business to financial services can be divided roughly into two categories. On one hand, the aim is to develop new lines of business, on the other, to improve the cost-efficiency of payment transactions in their core business.
The aggregate annual turnover of the big tech companies amounts to hundreds of billions of dollars. Hence, even small improvements in the management of payment transactions are a sufficient incentive for developing new payment solutions. However, many big tech companies seem to have even more ambitious goals, for example extending their activities into new business areas.
An important incentive for this is the possibility to collect financial services data, particularly data created in payment transactions. The strength of the big tech companies lies in the utilisation of data collected via digital services and platforms. This data enables the provision of tailored services or contents. Thus, collecting data from payment transactions and other potential financial services would be well suited to the business models of the big tech companies.
Cloud services play a significant role in the influence of big tech companies
Big tech companies exert influence in the financial sector also by providing cloud services to banks and other traditional entities. ‘Cloud services’ is a broad concept covering a range of IT services in which customers can manage, store and process data online.
Traditional financial sector entities may transition to cloud services either by transferring their entire infrastructure to the cloud, or by transferring it piecemeal, function by function. New financial sector companies, in turn, are already using cloud services extensively. The financial services provided by the big tech companies are also based on cloud services.
Despite the still minor importance of the big tech companies in the financial sector, they have to be taken seriously from the outset, due to their large size. Big tech companies have a large potential to change the structure of the financial sector and at the same time to possibly create risks to financial stability. Moreover, within the financial sector, the use of cloud services provided by the big tech companies is spreading to increasingly critical areas of business.