Daniel Latimore, vice president for banking at Celent. Photograph by Adam Detour
Daniel Latimore is a senior vice president for banking at research and consulting firm Celent.
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Why are Apple, Google, Facebook and other tech companies interested in offering banking and financial services? It’s not that banking is where the money is, but rather that banking is where the data is. Big tech has grown by monetizing data. By offering a checking account, credit card or other financial product, these companies can gather specific and detailed information about your income, spending, cash flow and other financial habits.
Are the tech firms really becoming banks? For now, they are wading into specific parts of financial services and generally partnering with existing financial institutions. For example, Google will soon offer checking accounts in partnership with Citigroup and Stanford Federal Credit Union. Often, the tech company will be the brand that the customer sees while the bank takes on regulatory issues and other behind-the-scenes tasks. In time, some tech companies may move further into financial services but will likely stop short of crossing lines that require them to deal with regulatory complexity and compliance.
What are the potential benefits for consumers? Tech companies will likely offer lower fees and higher interest rates than traditional banks. Some may offer cash incentives or other perks to encourage customers to make the switch. Many are also focused on offering a better customer experience by offering apps that are easy to use, making it easier to find the information you need within an app, and figuring out the right way and time to connect with you to be useful but not annoying.
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As these companies get to know customers better, they’ll start giving them personalized offers. For example, if they know how much you’re paying on a mortgage, they may infer the rate and offer you a refinance option with a lower rate through a partner.
What are the trade-offs? You are giving the tech company your financial data. They’ll see how much money you have in your account, what bills you’re paying and more—and they’ll use that information to try to sell you stuff and market financial products. Customers who are concerned about their privacy may want to use a diverse portfolio of service providers—keeping social accounts in one bucket, banking in another and investments in a third—to avoid giving a single company a full view of their affairs. There are also a lot of boring but important functions that traditional banks do well, such as maintaining branch locations and call centers, that aren’t always a strong suit for technology companies.
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Will people make the switch? Inertia is the most powerful force in consumer finance. Getting people to change unless there’s a big shock is tough. And for a significant portion of the population, the brand really matters in financial services. If you want to give the new accounts a try, you might consider opening one as a secondary account. If over time you receive offers that would save you money and you don’t mind how your data is being used, you might consider making it your primary account.