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Why Monzo and Revolut have nothing to fear from Google's march into banking

Margi Murphy
Apple's credit card, which works on its phone. It’s relatively easy for consumer companies to leverage their large customer base and shiny apps to create products that are enjoyable to use - but they don’t exactly reinvent the wheel.    - Apple

Proving that nothing is secret from the all-seeing eye of Google, we now have the option to bank with it. 

The search giant yesterday unveiled a new current account which it said it would launch in the US next year, in a tie up with Citi. But it is not the only technology company trying to crack the financial sector.

Along with Apple’s credit card and Facebook’s digital currency, Silicon Valley’s intention to make its way into our wallets has never been clearer than in recent months.   

But why has it taken the most innovative companies in the world so long to break into this lucrative market?  

The first thing to note is that the US and the UK are two very different financial markets. The UK enjoys a bustling fintech scene with challenger banks sprouting up and the likes of Monzo and Revolut giving the stalwarts a run for their money.  

But while we have had little to choose from by way of credit cards and current accounts, in the US, there has long been a mature market full of credit unions and banks.   

Jack Henry, the second-largest American provider of integrated computer systems, works with 9,000 banks and credit unions. It would be a push to find that many banks in Europe, let alone the UK.   

“Here in the US we have an incredibly well established banking system,” says Sam Maule, the North American managing partner for fintech consultancy 11:FS. “It is a completely different ball of wax - a complicated and very mature infrastructure,” he says.   

Taking on this fragmented banking system is quite the task, one that only Facebook’s Mark Zuckerberg appears bold enough to try.   

Compared to the Facebook billionaire’s plans for a brand new currency, Google and Apple’s forays into the financial tech sector are both superficial.   

When you scratch the surface, Google’s new current account - which will launch in the US next year - and Apple’s credit card, are propped up by established banks.   

Google’s account, which will be accessed through its existing Google Pay app, will be provided by Citi. Apple is working with Goldman Sachs for its credit card, which offers cashback and zero fees.

Meanwhile Facebook, as it attempts to legitimise its Libra plans, has added a new Pay service to its social network, Instagram and WhatsApp.   

It’s relatively easy for consumer companies to leverage their large customer base and shiny apps to create products that are enjoyable to use - but they don’t exactly reinvent the wheel.   

Alastair Mitchell, partner at venture capital fund EQT Ventures, says Apple’s credit card is “one of the best executed products they've done”. 

“They're leveraging someone else's banking - Goldman Sachs - but with their distribution channel and with their product integration to make it a very easy-to-use bank within your phone.   

“It's a beautiful experience, it's going to be incredibly successful, and if I were American Express, I would be insanely worried right now,” he says.   

These partnerships have been enabled by the rise of startups such as UK-founded company Token, which act as the link between banking institutions and consumer-facing firms (EQT is an investor in Token). Five years ago, this "middle layer" didn't exist, Mitchell says.

It might appear that the cash-rich technology companies have been resting on their laurels. But it could be that they are avoiding the costs of regulatory compliance while reaping the rewards of valuable transaction data.   

“It is telling that nothing new has been introduced here. If I am Google, or if I am Apple, I am looking at this from a data standpoint. I’m looking at the transaction data and thinking about how I can monetise that without getting regulators all over them,” says Maule. 

 Technology companies have taken time to deliberate over who their customer is. No one bank fits all. What is the creditworthiness of an Apple customer compared to a Google user? It is telling that Apple is a higher-stakes credit card.   

Uber, Facebook, Apple and Google’s movement into the industry appears to be modelled on the “super app” ecosystem that has taken off in China.   

Super apps, like WeChat, wrap an individual’s entire life in a single app. This could be ordering a taxi, paying a bill and messaging friends or family.

Five years ago, a platform that could do everything would have sounded unlikely. But with the most valuable companies in the west given the green light to buy up whatever companies they like, it is a likely prospect for the future.   

This might play out different in the UK, however. “Good luck,” says Maule. “I can see why they are doing it in the US and can see it in a potential markets. But in Europe? Hell no. Does Europe like Google? There is just a whole different relationship between consumers and privacy. Americans are a bit different when it comes to that.” 

“The mass adoption of credit cards in the western world has been the biggest detriment to fintech,” says Raymond Lau, chief executive of financial data website Leapfin.

He says Africa and China have blossomed without the introduction of credit cards.  “Go to Tanzania or Ghana, where everyone has a mobile phone and it is a completely cashless society.

"The reason is because they went from cash straight into mobile phones and skipped the generation where credit cards ruled. Credit card adoption in the past 20 or 30 years in Europe and the US drastically slowed down tech adoption.”

That means if the technology companies want to make a real dent in the industry, they need to think “beyond incremental improvements to credit cards,” he says.  

Despite the negative press Lau believes there is only one company that looks like it might make a significant impact. “If you want to disrupt the industry, you have got to take on big risks. If i was to put my money on who would be able to crack it, it would be Facebook.”

His views aren’t shared by all, however. As Maule suggests, Facebook’s Libra is “just Venmo”, a mobile app payment system created by Paypal.  

“They need to think about their shareholders,” Lau points out. This might be why we will never see much more than an upgrade to Google Pay and Apple Pay. 

Both were created to alleviate the fees both companies were paying for transactions on the app store.  “They are thinking, how do I make more money? Not - how can I make an experience for the consumer that changes the way the financial industry works?”