While the financial media has been preoccupied with the idea that the banking business is at risk of being “Amazon’d” by the blockchain, the banks themselves are worried about being “Amazon’d” by…well…Amazon…
Or at least they should be, as American Banker’s Lalita Clozel explains in a piece tracing large tech companies’ attempts to forge ties with banking regulators in anticipation of someday leveraging the vast quantities of customer data to outmuscle the banks in their own industry. Meanwhile, even the most optimistic cryptocurrency enthusiasts concede that blockchain technology continues to grapple with issues of scalability that, for now at least, will make it incredibly difficult to compete with banks.
A group of companies that includes Google, Facebook and Amazon recently formed a lobbying group to help them explore the feasibility of entering businesses like lending and loan-intermediation.
Technology giants like Google, Amazon, Facebook and Apple are showing an increasing interest in engaging with federal banking regulators, a move that underscores Silicon Valley’s growing involvement in the financial services arena. In recent years, such firms have formed a lobbying group, Financial Innovation Now, that is staking out their view on various hot-button topics. But some firms are also meeting individually with government agencies.
Furthermore, both Amazon and Square have taken meetings with the OCC.
For example, Amazon lobbyists met with the Office of the Comptroller of the Currency starting in the second quarter of 2016, and again this year to discuss “issues related to mobile payments and payment processing, financial innovation, and technology," according to publicly available lobbying disclosures.
PayPal, meanwhile, met with OCC officials in the second, third and fourth quarters of last year to discuss “mobile payment innovation” issues related to underserved customers and remittances and money transfers, according to its disclosures.
Even before this latest lobbying effort, both companies had already launched forays into small-business lending (Amazon’s SB lending businesses saw its revenue double over the past year). Apple, meanwhile, has for years been lending to customers hoping to purchase its products. But before deciding whether to expand their financial services offerings, tech companies must first understand what regulatory obstacles might exist.
“People are kicking the tires,” said Lawrence Kaplan, a bank lawyer of counsel at Paul Hastings. “People are asking questions: What does this entail? Can you get us up to speed if we want to pull the trigger?”
In the spirit of helping to shepard financial innovation, the OCC earlier this year created a national fintech charter that financial technology (and big tech) companies can use to circumvent certain restrictions, easing their transition into the financial-services business.
The charter, Clozel notes, was adopted after an aggressive lobbying campaign by large tech companies. One of the most logical applications for leveraging the vast troves of personal data routinely harvested by firms like Facebook and Amazon would be intermediation – or connecting customers with lenders for a small finder’s fee.
Large technology firms are “really interested in the intermediation piece, where you have access to all that data,” said Paul Nash, the former senior deputy comptroller and chief of staff under Comptroller Thomas Curry, who began discussing the possibility of a fintech charter early last year. “All of them are thinking about it.”
The next lobbying objective for big tech is to convince regulators to force banks to provide access to their financial data through an Application Programming Interface, or API, that would allow tech companies like Amazon to create almost instantaneous connections to banks’ transaction processing networks, allowing them to take over more consumer-facing businesses.
In summary, while many a think piece has been written about financial services companies and banks trying to become more like technology firms, the irony is that tech firms are also trying to be more like banks.
“There's been lots of interest by financial services firms in technology companies and fintech companies,” said Kevin Petrasic, a partner at White & Case. “Some tech firms are now looking in the other direction.”
In other words, it’s only a matter of time before Amazon Prime customers will be able to make purchases on Amazon’s marketplace using an Amazon credit card.