Is Big techs move into banking inevitable?

August 31, 2020

Also: 📠 Old software (and numbers) creating headaches? ⚖️ Launching and sunsetting 🔎 User Experience find of the week

📱 Big techs inevitable move into banking

A common theme in this newsletter has been how Big Tech is taking small steps into banking. This article argues that the move into banking is inevitable:

Mature tech companies have the means, motive, and opportunity to turn into banks. They have cash and can reasonably expect more if it; they have data and can put it to use, and they can smooth out their customers' spending to smooth their revenue growth.

Alphabet, Google's parent company, is extending this model and becoming a financial supermarket instead. They've launched an insurance company under their Verily business, which helps self-insuring companies protect against catastrophic losses. Basically, this means that Employers that pay for employee health claims out of pocket pay for a form of dynamic hedging. If they hit a predetermined point of money they pay for their employees' health, Verily pays the rest.

Speaking of Big Tech: They already have quite a foothold in banking considering their cloud solutions. As we've written before, Microsoft Azure has long been the preferred cloud banking solution for the Fintech industry in Norway because of its regional data centers. Google Cloud hasn't been that popular, but the reason might not be the location of their data-centers, but more about their deprecation policy. Google is known for suddenly shutting down products (see the Google Graveyard), but this also seems to apply to features in their cloud solution. I can see why risk-averse banks steer away.

📠 Old software (and numbers) creating headaches?

Nordea is reporting that they are currently working on modernizing their core-systems to deliver the best possible solutions for their customers. A wise move considering a lot of banks still run on old solutions. As an example, City just reported that defective software dating from the 1990s newly was the reason behind a $1 billion wire transfer screw up.

Danske Bank is also experiencing headaches. They just noticed that they had collected several million kroner they were not entitled to for years. This was due to several errors in the bank's data and IT systems.

The last problem this week is coming from Japan, where they are running out of credit card numbers amid an online shopping boom. Most of Japan's credit card companies issue cards with 16 digits so they can partner with international firms such as Visa and Mastercard. The most obvious solution would be to add an extra number, but if they do they will have to decide whether to update the almost 300 million 16-digit cards already in circulation or allow them to co-exist with the new cards.

⚖️ Launching and Sunsetting

Aprila just won the Mastercard Lighthouse program for 2020. This is an initiative dedicated to creating partnerships between fintechs and banks. Up until now, Aprila has only provided companies with credit. Now they also will make it easier for small business to pay for goods and services as well. The first addition to this new strategy is a card they are offering to subscribers of Orbit, which are creating a "ClassPass for the office space". Through Orbits subscription companies can sit in various offices. Aprilas card work as an access card and a traditional payment card the employer can connect to. The goal is for companies to be able to pay with Aprila everywhere. Israr Khan, CPO/CTO in Aprila Bank, compares the new strategy to a mix of Vipps and Klarna for companies. (Disclaimer: Aprila is a client of Stacc)

At the same time Vipps is shutting down Vipps Go, a service that made it possible for small shops and kiosks to add items to the app itself. This seems like strange timing considering Covid-19 and the sudden rise of ordering from your phone at restaurants and bars. As a solution to existing Vipps Go customers, they are, among others, recommending to switch to Ordr. They experienced a rush of customers when all Norwegian restaurants were forced to find digital solutions, and are now expanding outside of Norway. In the last months, they've had a growth in transactions of 10 000%. Luckily for Vipps, they are one of the primary payment providers in Ordr.

🔎 User Experience find of the week

We're all about creating the best user experience for our customers. For that reason, we're not just reading finance related news, but also scouring the internet for good interactions and studies on good user experience. This week we found a review about which icons work best for signifying that it would open an accordion in place, rather than linking directly to a new page. Long story short: Use Caret (or downward-facing arrow). We're btw happy to say that this is our normal go-to-pattern. 😉

🙏 Don’t keep it a secret!

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Marius Hauken, partner Stacc X