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Should ‘Fintech’ Fear Big Tech’s Push Into Banking?

November 20, 2019, 4:18 PM UTC

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All of a sudden, Big Tech is rushing into financial services.

Google plans to offer “smart” checking accounts, powered by Citigroup and Stanford Federal Credit Union. Apple released a credit card with Goldman Sachs. Facebook yet clings to Libra, its audacious digital payments dream.

Should financial tech startups, or “fintechs,” fear the encroachment of much larger, lavishly funded tech giants?

“Fintechs should be very concerned,” says Avivah Litan, an analyst at research firm Gartner, noting Big Tech’s penchant for crushing competitors. These bigger rivals—with their phones, app stores, digital wallets, and billions of users—“own the user interface,” she says. She pointed to Apple Pay and Apple Card as a success story for Apple, but a threat to other card issuers.

Tim Chen, CEO of NerdWallet, warns, “Fintechs who compete on price should absolutely fear Big Tech—anyone who’s in a race to the bottom with them is going to lose.” Perks that once attracted customers, like higher interest rates on savings accounts or no-fee stock trading, are no longer going to be enough. For startups that rely on providing such benefits, he says, “it will be nearly impossible for them to compete with tech companies who have unlimited access to money and direct relationships with billions of consumers.”

Instead, fintechs are going to have to rethink their relevance, says Matt Harris, a fintech investor at Bain Capital Ventures. He believes the competition is going to “raise the bar,” making it that much harder for startups to add value. “If you were a fintech that was just selling a debit card with an app—effectively making the argument that your app is better than a bank app,” Harris says, “then I don’t think you’re long for this world.”

Other fintech leaders don’t appear fazed. David Hijirida, CEO of Simple, an online bank acquired by Spanish bank BBVA in 2014, describes Big Tech’s fintech invasion as “a natural evolution” for his industry. Chris Britt, CEO of Chime, a bank upstart reportedly nearing a $5 billion private valuation, tells Fortune the trend is “validation that alternatives to traditional banking are in high demand.”

Some fintech founders are even enthusiastic about Big Tech’s banking push. “I celebrate it. I think it’s awesome,” says Brandon Krieg, CEO of Stash, a digital investing startup based in New York. He drew a comparison to the retail coffee industry, which he views as not a zero-sum game. “Starbucks doesn’t get mad when another coffee shop opens down the block,” he says.

All this debate might be somewhat premature. It isn’t even a surefire bet that Big Tech will prevail. Google has struggled for years to make inroads in financial services (though Google Pay has been a recent bright spot, particularly in India). Facebook continues to stumble in its attempt to roll out payments. And Amazon has decided, notably, to put its own checking account plans—rumored to have involved JPMorgan Chase—on ice, as The Information reported.

“Are we going to see a mad rush of people leave their checking accounts to go with Google? There’s no way, no way in hell,” says Ron Shevlin, director of research at bank consultancy Cornerstone Advisors. “There’s got to be some superior value proposition,” he says, doubting that Google can offer anything radically different from what’s already available on the market. And others have pointed out that the regulatory battle against Big Tech—plus many questions related to consumer trust and data privacy—could hold them back.

I wouldn’t count the fintechs out.

Robert Hackett

robert.hackett@fortune.com

@rhhackett

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