U.S. Markets open in 5 hrs 26 mins

GOOGL, FB, AMZN's Aggressiveness to Disrupt Banking Sector

Zacks Equity Research

The banking industry is booming thanks to the growing demand for fintech services driven by a strong shift in the consumer preference.

However, banks are coming under increasing threat from aggressive efforts of tech giants such as Alphabet’s GOOGL Google, Facebook FB and Amazon AMZN. This phenomenon was recently supported by Britain’s financial watchdog as well.

Technology at Play

Increasing Internet and smartphone user penetration globally holds the potential to bring about a tectonic change in banking sector.

Tech giants are rapidly penetrating the banking space capitalizing on the increasing dependence of financial institutions on new technologies. In fact, Internet of Things (IoT) and data analytics technologies have witnessed rapid adoption in the sector driven by collection and analysis of massive customer’s banking data.

Further, rising concerns regarding data privacy and security among the people are compelling the banks and financial institutions to adopt cloud services, resulting in increased migration of their workloads on cloud infrastructure.

On the back of this heavy dependence, the following tech companies are well poised to disrupt the banking sector.

Google’s Aggressive Stance: Driven by its improving artificial intelligence (AI) and machine learning (ML) techniques, the company is strengthening its footprint in banking sector.

Alphabet’s digital wallet service called Google Pay is gaining traction among the customers due to the peer-to-peer money transfer facility. Further, the service enables the users to transfer money directly to the bank account, which in turn prevents wastage of time by eliminating the need to deposit money physically.

Google’s growing global footprint is a major positive. The company recently teamed up with four banks of India namely Kotak Mahindra Bank, HDFC Bank, ICICI Bank and Federal Bank in order to introduce digital lending service in India.

With the new partnership, Google is aiming at granting instant and pre-approved customer loans via Google Pay.
 
All these endeavors are testimony to the search giant’s robust efforts to revolutionize the traditional banking sector by facilitating all the necessary services in a smartphone. Alphabet currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alphabet Inc. Revenue (TTM)

 

Alphabet Inc. Revenue (TTM) | Alphabet Inc. Quote

Amazon and Facebook’s Efforts: Both these companies are also aggressively eyeing the commercial banking space with an aim to leverage their vast customer data stored on their platforms.

The e-commerce giant which carries a Zacks Rank #3 is pursuing a deal with J.P. Morgan Chase in order to create a checking account. This will enable the company to foray into the online banking services space. Further, it introduced a digital financial advisor called Cora by utilizing its augmented reality (AR)/virtual reality (VR) techniques.

Additionally, with the ability to aid customers in paying bills and track transactions, virtual assistants are rapidly gaining popularity in the financial services space. Growing adoption of Alexa by financial institutions are aiding growth of Amazon in this particular space.

Amazon.com, Inc. Revenue (TTM)

 

Amazon.com, Inc. Revenue (TTM) | Amazon.com, Inc. Quote

Meanwhile, Facebook is looking into ways to provide financial information to its users. Reportedly, the social giant, carrying a Zacks Rank #3, is in talks with JPMorgan Chase, Wells Fargo, Citigroup and U.S. Bancorp to share the information related to checking account and card transaction details of their customers.

Further, the company recently rolled out WhatsApp Payments in India. Notably, the service is UPI-based which offers peer-to-peer payment service to its users. We believe, the growing momentum of WhatsApp will continue to act as a tailwind for Facebook in the digital payment sector.

Facebook, Inc. Revenue (TTM)

 

Facebook, Inc. Revenue (TTM) | Facebook, Inc. Quote

Digital Payment Space Holds Promise

The online payment services are changing the landscape as they help people in making payments just by a click on their smartphones.

According to a report from Statista, the total transaction value in the digital payment market is anticipated to reach $3.3 trillion in 2018 and likely to witness a CAGR of 13.5% between 2018 and 2022. Further, it is expected to reach $5.4 trillion by 2022.

PayPal PYPL and Square SQ continue to be the dominant players in this particular space driven by their robust product portfolio.

PayPal’s strategic partnerships remain its key growth driver. Recently, the company announced the partnership with Itaú Unibanco Holding SA. This will enable PayPal to gain traction among the bank’s customers by offering them services.

Further, this Zacks Rank #2 (Buy) stock extended its partnership with American Express to allow the U.S. American Express Card members access reward points for purchases at millions of PayPal merchants online.

PayPal Holdings, Inc. Revenue (TTM)

PayPal Holdings, Inc. Revenue (TTM) | PayPal Holdings, Inc. Quote

Meanwhile, improving business loan processing via Square Capital remains a tailwind for Square. Additionally, this Zacks Rank #3 stock has made a second attempt to disrupt the banking sector by re-applying for industrial loan company charter with Federal Deposit Insurance.

Square, Inc. Revenue (TTM)

Square, Inc. Revenue (TTM) | Square, Inc. Quote

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Facebook, Inc. (FB) : Free Stock Analysis Report
 
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
 
PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report
 
Square, Inc. (SQ) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research