Uber has taken another step into FinTech scene. As other big tech firms are also viewing the opportunities of the sector, the industry might change considerably.
Uber Money has been a long time coming. The ride-hailing giant’s FinTech initiative comes two years after Uber first launched its credit card through a partnership with Barclays. The company has ramped up its efforts for some time.
In June, Uber opened a new outpost in New York, reportedly focusing on ways to boost the payment experience of riders. Then, in September, the business surveyed its drivers about their financial situation, asking if they had ever taken a loan and, if so, how big it was.
These efforts seemingly culminated in the announcement of Uber Money, a new division housing a variety of FinTech solutions for both customers and drivers. The announcement included giving drivers the ability to tap into their earnings the moment they have earned them, a debit card that gives them cashback on petrol-purchases and an e-wallet to give them more control of their money. It also included a relaunch of Uber Credit Card for consumers.
“On the face of it, Uber highlights some positives for its drivers, but in reality it gives Uber more control of all the money flows through its business,” Mike Hampson, founder and CEO of Bishopsgate Financial Consulting, a consultancy for the UK financial industry, tells FinTech Global. “If they can lock in the balances of all of its drivers there could be some potentially attractive revenues from the cash balances that they will end up holding and controlling.”
FinTech Global reached out to Uber for comments on this story, but the company did not return with comments.
Uber Money is the latest push by a big tech company into the FinTech space. Apple has released a credit card and a payment solution, Google Pay was released in 2015, Amazon launched Amazon Pay in 2007 and Alibaba launched Alipay way back in 2004, rebranding it Ant Financial in 2014.
And these efforts could change the industry to its core. “Ultimately, platform businesses such as Uber – that link supply and demand and focus on ever improving customer loyalty – have the potential to disrupt much of the financial services industry,” Ian Bradbury, CTO for financial services at Fujitsu, the information technology company, told FinTech Global.
There are numerous reasons for why these companies opt to enter the FinTech space. Anton Ruddenklau, global co-leader of FinTech at KPMG International, recently wrote in a blog that the reasons ranged from companies like Microsoft and Google entering the space from a technology and data management perspective whereas e-commerce firms “like Amazon and Alibaba have a focus on creating a frictionless customer experience, which drives their interest in financial services such as using customer data to better manage credit risk and working capital.”
But no matter what the reason, Ruddenklau noted that this trend could create collaboration opportunities for incumbents in the financial services sector. He pointed at a KPMG report that had found that 26% of financial institutions already have partnerships with big tech firms and that an additional 27% planned to create that kind of relationship.
A similar notion can be found in the BIS Annual Economic Report 2019. In it, the Bank for International Settlements (BIS), the financial institution co-owned by over 60 central banks around the world, noted that big tech firms only dedicate a small portion of their companies to the financial sector so far. “But given their size and customer reach, big techs’ entry into finance has the potential to spark rapid change in the industry,” the report continued.
Thanks to their massive data sets and the low cost of their infrastructure, BIS believes big tech companies could scale their FinTech operations quickly and yield some positive outcomes.
“Using big data and analysis of the network structure in their established platforms, big techs can assess the riskiness of borrowers, reducing the need for collateral to assure repayment,” the report continued. “As such, big techs stand to enhance the efficiency of financial services provision, promote financial inclusion and allow associated gains in economic activity.”
This could mean more people would get access to things like credit checks or money transfers.
BIS also highlighted that big tech launching financial services initiatives comes attached to some risks. For one, the cheer size of these enterprises mean they could quickly become the dominant players in the sector.
This worry was echoed in a recent report from tech consultancy Capgemini where it was revealed that 63% of banks worry of the threat of tech titans leveraging their global reach, brand equity, customer trust, great customer experience and finally payments infrastructure to compete with incumbents in the market.
“[It’s] no surprise that our research shows 83% of companies within the financial services space believe that new entrants, such as Amazon, Apple and Facebook, could become major competitors in offering financial products,” Simon Winter, vice president and regional head at NTT DATA Services EMEA, the information technology company, tells FinTech Global.
Winter notes that these companies have often spent decades building consumer trust, meaning people would, given the choice, be likely to opt to use the services of companies they are familiar with rather than traditional financial institutions.
“Should they choose to harness it, these technological juggernauts have a strategic advantage compared to traditional financial institutions,” Winter continues. “Not only are these companies well-known and respected, the frequency of average use also means they already possess a wide-ranging dataset.
“Furthermore, they are not encumbered by legacy technical debt which typically pervades many existing financial institutions impeding their agility. This could mean that not only will traditional organisations lose out on valuable custom, but that the end customers, by putting their faith in the tech titans rather than proven financial services providers, might also not get the most appropriate outcome.”
Another potential consequence of big tech entering the FinTech space is that it would affect incumbents’ ability to source talent. “Within the tech sector, there’s clearly a talent shortage,” Ben Markland, managing partner at 360Leaders, the executive search firm, tells FinTech Global. “There’s an incredible number of companies fighting to attract the best leadership teams, and with big brand names like Uber and Amazon entering the FinTech space hiring experts will be tracking developments closely to see how this affects the talent marketplace.
“[Big tech firms] have huge reputations, they’re real market leaders and an eye-catching prospect for ambitious candidates. As we know, for startups, finding the right leaders who can boost growth is often crucial and time critical. If these big players can divert talent within the sector, employing those who were once attracted to innovative startups, this will prove a challenge for businesses.”
When talking about big tech firms entering a new market, there is always talk about how they would restrict the chances of startups to make a name for themselves.
However, Bradbury does not think that is a big risk in FinTech. “If you look at the industries that tech giants are already disrupting – retail, transport and even information technology – there are still very successful startup ecosystems,” he says. “Tech titans still don’t have a monopoly on great ideas. Although they have a strong entrepreneurial mindset, these companies also tend to focus on updating and maintaining their own platforms.
“Startups are not so constrained in their thinking and frequently can come up with concepts that the larger companies cannot. Finally, any industry that is being disrupted tends to drive entrepreneurial interest – with support and interest coming from investors, incubators, incumbents and even the digital disruptors themselves. If anything, the entrance of tech giants might improve the chances of smaller startups’ success.”
Taking the conversation further, the BIS report noted that big tech firms entering the FinTech space could threaten the control of the financial structures they would operate in. As such, BIS encouraged regulators around the world to look into rules encompassing both traditional financial rules as well as data privacy and competition objects.
The Facebook-backed Libra cryptocurrency project has presented lawmakers and regulators with an opportunity to actively investigate how big tech would influence the world economy and nations’ economic sovereignty.
Facebook announced the project in June alongside its e-wallet subsidiary Calibra. Since then, lawmakers from Europe and the US have expressed their concerns about Libra, fearing that it would affect their ability to govern properly and if it would represent any risks about private individuals’ privacy.
As the pressure grew, several of the initial 27 members – including Stripe, PayPal and Mastercard – of the Libra Association dropped out of the project.
In mid-October, the concerns had grown to the point where Facebook’s co-founder and CEO Mark Zuckerberg had to attend a six-hour grilling by congress. The lawmakers questioned him about Facebook’s less that stellar track-record concerning data privacy and if Facebook was really the right institution to lead a project like this.
It is clear that this conversation will be ongoing. For now, though, Hampson does not think that Uber’s foray into the FinTech space will overly disrupt the industry as a whole.
“The FinTech scene is vibrant and the market huge, so even a player like Uber coming into it should not worry the established FinTech players at all, especially if they have a clear value proposition,” Hampson concludes. “I don’t see this having much impact outside the Uber eco-system. At the end of the day most of us don’t need another payments system and they are not talking about anything radically new or different in the payments space.”
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