[ABOVE: Apple retail, the new high street bank?]
Tech industry threat to financial services
Commonwealth Bank chief executive, Ian Narev, is the first banker to spill his mental load on the prospect of tech firms deeply disrupting the financial services sector.
Speaking at the G100 Congress in Sydney this morning, Narev observed that accelerating network speeds and the rapid evolution of smartphone apps is already changing the industry -- but he anticipates even bigger threats in future.
"We consider we have got very, very good competitors in the major banks, we have got very good competitors in the next tier banks," he said. However, he isn't just worried about other banks, but also technology firms who are already cash-rich and international.
"The Apples, the Googles, the Samsungs, the Paypals, the credit card companies, who can pick particular slivers as a result of the application of technology into financial services and compete," he said. "We need to be prepared for that."
His warning may sound a little preposterous: after all, can Apple really become a bank?
Outside the box
Apple already has over 400 million active iTunes accounts worldwide, each one linked to a credit card. It likes to remind us of this relatively frequently.
Not only this, but the company has recently begun selling debt in order, ostensibly, to pass cash across to shareholders. This means it now has ready access to capital and a credit rating in excess of that given to some countries.
The company has been expected to extend its offering to include mobile payment solutions for what appears to be an age.
If/when this happens these systems will likely see Apple exploit its existing iTunes customer base alongside the next-generation iPhone in order to furnish what will be a limited payment system. Payments will be charged to a user's credit card, with Apple's debt market position enabling the firm to expose itself to some credit-related risk.
This doesn't mean it becomes a bank, of course, at least, not yet. Though it is easy to imagine payment systems being joined by mobile-based money handling services.
That's not really such a preposterous idea -- PayPal already offers an app for that. Just take a photo of your check and the app sends it through the clearing process. (PayPal doesn't charge for the service but it seems likely the money sits in the company's account for a few hours before reaching yours, merrily generating interest as it does. That's how your bank generates money from your financial deposits, by the way).
Inside every transaction
Say what you like about Apple and its handling of its tax liabilities, you have to hand it to the company for figuring out a legal way to reduce just how much cash it must cough up to the countries it does business in.
As global governments move to limit the multifaceted ways in which multinational corporations can legitimately avoid putting a little money back into the countries which provide the infrastructure in which they do business, you can expect multinationals to explore brand new ways with which to continue to keep their money.
One way in which this might take place is through credit provision. In Apple's case, it might add credit provision to any future payment systems and check cashing services it might introduce.
If you know Apple you'll know it will start such a system in a small way. It is easy to imagine that the company (now equipped with debt market credentials) might launch a new business unit tasked with offering consumer credit deals for those purchasing new Macs or other Apple kit. The company is already close to achieving this in conjunction with credit agencies and its Apple Financing system -- but does it really need third party credit now it has direct access to credit/loan markets?
Consumers would see no difference between a purchase deal with Apple and those offered by anyone else. Apple would see one big difference -- it would keep the interest paid for the loan. Apple likes to take a slice of every transaction across its value chain, after all -- for evidence of this, just look at the evolution of the Apple retail chain or Mac App Store.
In time the company might begin to offer consumer credit deals for non-Apple kit. It could even emulate Google's ditched plan to launch a conventional credit card. Sure, banks would remain in business caring for customer accounts, but Apple would be taking a slice of every transaction on top of those accounts.
It would very likely funnel these new revenues through a business unit based in a relatively stable country that offers a selection of attractive tax breaks to financial services firms. In time, more and more of the company's transactions would be channelled through this business unit, legally reducing its tax liability.
Perhaps I go too far, but these notions are completely possible using current technology. None of them transform Apple into a bank -- it would simply be extending its mission to provide "convenience" to its customers. Banks would be impacted all the same.
What's interesting is that the banking sector already expects something like this -- why else would Narev be warning of competition from the tech sector?
It's up to government to swiftly predict and prepare for any kind of tech industry generated disruption within financial services. Though given that tech firms tend to be way ahead of legislature I'm not holding my breath with any conviction the powers that be are at all competent to predict and/or prepare for such systemic change. The tech industry dances rings round government with more skill than any rubber-clad dancer.
"We've also got to remember what the world went over the last four or five years and realise that there must continue to be minimum standards that apply to any institution, no matter what it calls itself, that is entrusted with accepting money from the public," warned Narev, though he hasn't defined those standards.
"That will be interesting to watch."
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