Big Banks And Big Tech (Not Versus)

I’ve said for a while that the Big Tech giants will not become banks. Amazon (AMZN) and Alibaba (BABA) will do a lot of bank-like activities, but they will never move into full-service banking, as in offering deposit accounts. Why won’t they? Because that’s full banking activity which has all of the audit and compliance overhead that Big tech giants don’t want. The average technology firm in America has five times less regulation than the average American bank, and that’s a key point.

Another key point is that most of the Big Tech giants have a major chunk of market focused upon banks as customers. A huge chunk of Amazon and Alibaba’s cloud-based services are used by banks, and a massive amount of Google and Facebook advertising comes from financial firms. Why would you bite the hand that feeds you?

But then there’s another nuance that I’ve been thinking about and haven’t seen played out … until now. If I were a bank, why wouldn’t I partner with the Big Tech giants and help them offer banking? If I were a bank and did that, then such a partnership would sidestep the competition and put them on the back foot. After all, if Amazon partnered with my bank to offer banking then they wouldn’t need my competition. I would have the upper hand and my competition would be left for dust.

Well, finally, that’s happened. If you didn’t see it last week, JPMorgan announced that they had forged partnerships with Amazon and Airbnb to help them offer bank services.

It’s basically an ewallet that technology companies can give to their customers to use as virtual bank accounts. The JPMorgan product gives “tech companies the ability to provide millions of customers virtual bank accounts and to offer perks such as car loans or discounts on home rentals to those who keep money stashed there. The more customers use their virtual accounts to pay for services, the less the companies would have to spend on payment-processing fees to third parties such as JPMorgan.”

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