Major tech companies like Apple, Google, Amazon and Facebook are sinking their teeth deeper into the payments industry by investing in, or acquiring fintechs in the space.
"It's getting increasingly easier for non-banks to offer end-to-end financial services products through embedded finance,” CB Insights Analyst Elif Yayla said in an email. “The goal is to increase the value and convenience they provide to customers and further lock them in their vast product ecosystems.”
Big Tech companies have incredible scale both in customer base and tech capabilities, which makes entering the financial services space a no-brainer for them, Yayla said.
The increased use of embedded financial services and an application programming interface plays to the strengths of big tech companies as opposed to incumbent financial institutions who still run on legacy systems, Yayla said.
“Tech companies have a significant advantage over traditional financial institutions when it comes to lowering costs,” Yayla said. “Peer-to-Peer (P2P) cross border money transfer is one example.”
In one example of the investment-acquisition trend, Apple bought Mobeewave, a Canadian contactless payments company in July 2020 for $100 million to enhance its devices' contactless and digital payment capabilities, the report stated.
Apple acquired Mobeewave with an aim to turn its iPhones into mobile payment terminals. Mobeewave’s technology allows merchants to use their smartphone as a payment terminal, enabling customers to pay by tapping their credit card to the device, according to the report.
“By incorporating Mobeewave’s features into Apple Pay, Apple can offer quick payments and transfers without any other app or platform,” the report stated.
While the US has been lagging behind in contactless payments compared to other countries, the pandemic has taken their acceptance to "a different level," Apple CEO Tim Cook said during the company's Q4 2020 earnings call. "We are very bullish about this area and view that there are more things that Apple can do in this space."
"In payment services, we continue to expand our coverage with nearly 90% of stores in the United States now accepting Apple Pay so that customers can easily have a touchless payments experience," Apple CFO Lucas Maestri said during the company's Q1 2021 earnings call. "Wearables, Home and Accessories grew 30% year over year to $13 billion, setting new all-time revenue records in every geographic segment."
Amazon on the other hand is planning on expanding its financial services to better facilitate credit services to small and medium sized businesses on its platform. The e-commerce giant provides many financial services like credit cards for consumers and businesses along with providing a revolving line of credit to sellers on its platform. The company also provides a hardware point of sale (POS) called Amazon One to its retail sellers.
The Seattle based-company acquired the omnichannel payments company Perpule this year to further streamline payments on its platform, according to a recent report by CB Insights.
“In a sense, Amazon is building a bank for itself by taking core components of modern banking (deposits, credit cards, loans, insurance) and tweaking them to suit Amazon merchants and customers,” the report stated.
As payments and banking get more digital, tech companies may have an edge over incumbent financial institutions that are still using legacy systems.
“When it comes to big tech, incumbents will have to decide which role they want to play in their entry to financial services, whether it's competing directly...or playing the role of the enabler to grow their revenue channels (by offering banking-as-a-service),” Yayla said by email. “Either way, legacy banks will play an increasingly smaller role in the financial ecosystem in the future, especially in the direct-to-consumer category.