GAFA1 and BATX2 have been engaged in the financial services sector for several years now. While their strategies and models vary according to the location, they have transformed the sector in under five years. These perpetually successful digital economy players now enjoy a prominent market position in financial services, and are continuing to innovate.
In recent years, GAFA have really scaled up their initiatives in the US and European financial services markets. Initially, their approach consisted mainly in providing new digital payment solutions. In 2013, Amazon introduced Amazon Pay to enable its customers to pay online. In the following year, Apple launched Apple Pay, a smartphone payment app based on contactless NFC (Near-Field Communication) technology. As for Google, in 2018 it brought all its payment services (including its mobile payment, electronic wallet and mobile money services) under the umbrella of Google Pay. The approach is often the same, regardless of the company: simplify the customer experience as far as possible, and integrate payment into the digital giants’ applications ecosystem.
New financial services have subsequently been launched, very often through partnerships with major banking operators. Thus, Amazon has been providing loans to merchants since 2014. The e-commerce giant also plans to partner with major players like JP Morgan in the United States to provide health insurance for workers. In March 2018, Apple announced the release of Apple Card in the United States, backed by Goldman Sachs and Mastercard.
These companies have different strategic interests.
By natively integrating payment functions into its telephones, Apple is trying to enhance their value proposition and make them an indispensable part of users’ everyday lives. As for Google, access to payment transactions gives it more data to monetise. The discovery of its secret alliance with MasterCard in September 2018 shows just how important data is to the Google corporation. Thanks to this partnership, Google is able to match online advertising with the offline purchasing habits of consumers.
But GAFA’s playing field is no longer limited to developed countries. They have taken several initiatives that reflect their commitment to expand into emerging countries. In India, there are already more than 20 million Google Pay users. While it initially concentrated on payment services, Google is now seeking to monetise its user base and has already launched a range of instant loans in partnership with four leading Indian banks – HDFC Bank, ICICI, Kotak Mahindra and Federal Bank.
Facebook is also asserting its position as an OTT (Over The Top) financial services provider, by developing its first pilot projects and partnerships with African banks. Marc Zuckerberg himself promoted the chatbot, a new virtual assistant that helps customers use payment services and manage their banking directly from Facebook Messenger.
Thus, United Bank of Africa, Diamond Bank and Guaranty Trust Bank in Nigeria have taken the plunge: they have agreed to be “disintermediated” and allow Facebook to liaise directly with their customers on their behalf.
In this model, the bank provides the banking service and Facebook distributes it. Facebook has made no secret of its ambitions to replicate this model in other African countries and Asia.
In this race to diversify financial services, China's Internet giants are also performing extremely well. Their financial services platforms are a colossal commercial success in China, and are quickly becoming popular abroad.
At the start of 2019, the Alipay service developed by e-commerce giant Alibaba had over one billion active users worldwide, and more than 40 million retailers in China accept Alipay payments via a QR (Quick Response) code. The same applies to WeChat Pay, which has capitalised on the user base of its instant messaging system.
Alipay's parent company, Ant Financial, is developing numerous international partnerships to increase acceptance of Alipay and enable Chinese tourists to use it in different countries.
At the same time, since 2015, it has been buying or investing in various local players such as Paytm in India, Ascend Money in Thailand, Mynt in the Philippines and Telenor Microfinance Bank in Pakistan. In 2017, it even made an unsuccessful attempt to buy American company MoneyGram. This would have given it access to the African market.
Some mobile money operators, like the pioneering M-Pesa, have anticipated the arrival of these players and are preparing to fight back. For example, Safaricom’s innovation laboratory has launched two initiatives based on different business models:
• The first, Masoko, was launched in 2017 and is an e-commerce platform that connects Safaricom merchants and customers. The operator has copied the formula of global players like Amazon and Alipay.
• The second, Bonga, is an instant messaging application that allows users to chat, transfer money or buy goods online from independent retailers. It natively integrates with the M-Pesa payment platform and seems to draw extensively on the methods that have made WeChat Pay a success.
Both GAFA and BATX have now made it very clear that they mean to expand their activities and sales in the financial services sector, especially in developing countries. In Africa, mobile money operators will definitely have to update their models to withstand this new competition.
1 Refers to America's Internet giants: Google, Apple, Facebook and Amazon.
2 Refers to China's Internet giants: Baidu, Alibaba, Tencent and Xiaomi.