Technology companies are stepping into the area of financial services that has long been the preserve of banks and financial institutions. This month, Google Inc. launched its AdWords Business Credit in the UK, to be extended to the US later this month, for small businesses with a variable 11.9% annual percentage rate (APR). In the US, APR will range from 8.99% to 18.99%. The cards will not have annual fees.
Google is teaming up with Barclaycard, part of the Barclays group, in the UK and Comenity Capital Bank in the US to issue the card. Both are MasterCard cards and will not have annual fees. Even Amazon’s financing arm, Amazon Capital Services Inc., is said to have begun personal loans to independent sellers to help them stock more inventory before the holiday seasons. Since Amazon takes a cut of all the sales through its website, helping small shops sell more goods makes great sense. Google already has Google Wallet as a wireless payment service that allows mobile phones to store loyalty and credit card details, while Apple’s new Passbook app allows iOS 6 users to store boarding passes, movie tickets, loyalty cards and more on their mobile devices. Even the world’s largest social networking site had launched Facebook Credits last year, which is a virtual currency that enables people to purchase items in games and non-gaming applications on the Facebook platform. One US dollar is the equivalent of 10 Facebook Credits that are currently available in 15 currencies. Facebook is expected to eventually expand Credits into a micropayment system open to any Facebook application.
What may surprise many is that since late 2007, Google has held a banking license issued by the Central Bank of the Netherlands—a license nominated for digital banking services. PayPal, too, has held a banking license since 2007 from Luxembourg while Hewlett-Packard has banking licenses in a few countries, allowing it to issue loans and leasing agreements. Given the connect with consumers that technology firms have, their extremely potent analytical abilities and use of algorithms to accurately decipher consumer behaviour patterns, banks and financial institutions need to wake up to this paradigm shift.
Will tech companies bypass banks in the future?