With the Apple Card, Apple has set a new milestone in the digital financial market evolution. The titanium-made credit card not only looks good, but also complements Apple’s pay service Apple Pay as a necessary tool to become the largest bank in the world. Google and Facebook are also taking the direction of a financial services provider. Why the three largest banks in the world are coming from Silicon Valley in the future, it looks bleak for current banks and what role Blockchain and crypto currencies play in this financial market evolution.
Although Goldman Sachs and MasterCard are still Apple’s banking services, there are good reasons why Apple and its other major Silicon Valley counterparts, Facebook and Google, are slowly taking over the financial sector. The digital companies are still dependent on banks and their infrastructures and licenses. Banks like Goldman Sachs are the backbone of digital companies to gain momentum in the financial sector.
Who has the data wins
It’s not secret: data is the gold of the 21st century. If you have the most data or access to them, you can quickly gain market dominance in an industry – see Google & Co. So far, the data has only relatively little effect on the financial sector. This is exactly what is changing with offerings like Apple Pay and the Apple Card, which are shaking up the financial services market. In the first step, one may still recognize quite few parallels to the Bitcoin ecosystem and the Blockchain technology. However, there are indications that tokens and blockchain infrastructures can help to break away from banking partners in the future. It’s not so much about having your own banking license that Apple will sooner or later likely acquire anyway, than about autonomous financial infrastructures.
Protected structures and regulation are the protective walls of the old financial elite
At present, the high regulatory licensing requirements, established infrastructures and the associated costs represent successful barriers to entry, in order to keep up with new digitally affine competitors, in particular crypto start-ups. Nevertheless, even here, the pressure is already growing by more modern banking service providers such as N26 or Revolut, which are increasingly challenging the legacy banks for traditional customer business.
But even the new FinTech banks have no chance against the Internet companies. Facebook or Google are potentially able to offer faster and better financial services. No matter if provincial savings bank or N26. When is the right time to offer the customer a home savings or life insurance policy? How should the respective financial product be designed? Which type of risk or type of investor is the potential customer? If in doubt, Google & Co. can better answer all these questions and transform them into better usability than a classic bank.
More than just home savings contracts
This informational advantage in the financial services business is not limited to the classic private customer business. Investment banks like Goldman Sachs or J.P. In the long term, Morgan has little chance in investment banking when Google develops and feeds its own financial algorithms. With a new focus on financial markets, the big data bugs should use their knowledge in the financial market in such a way that the supposedly superior banking giants of today have to take their towel.
Compared to the data sovereignty and higher user-friendliness of the Silicon Valley financial offers, banks have less and less chance. The result is that their influence is shrinking and they are increasingly degraded to small service providers. By contrast, value creation in the financial sector is increasingly channeled to the large platform companies. Finding niches is becoming increasingly important to banks. Not least because the traditional lending and deposit business is taken over bit by bit by digital companies. But what does this development actually have to do with the Bitcoin ecosystem or blockchain technology?
Where the blockchain comes into play
As is currently emerging, these digital companies are focusing more and more resources on blockchain projects. For example, Facebook is planning its own stable coin. Correspondingly, the Internet giants are focusing more on the messenger business, for example to make financial transactions even more convenient for the end user. A development that can be observed in almost all major messenger services, such as Telegram.
The appeal of not relying on slow settlement systems such as SWIFT, complex correspondent banking systems, bank account numbers and other clearing houses promises not only a better margin. Rather, it gives the prospect of more freedom and control in B2C and B2B customer business.
With the help of their own financial transaction systems based on blockchain, the companies can gain more independence. First, by removing the bank as a middleman and others by limiting the influence of states. As a state, it is much easier to regulate a financial services provider that relies on state or part-state infrastructure. On the other hand, if this financial service provider has its own global settlement infrastructure, allowing the exchange of any property value, then this limits the influence of government measures such as sanctions. Apple could make itself independent not only of Goldman Sachs as in the concrete case, but increasingly also of state regulation. Even with its own cryptocurrency independence from central banks would be given. Of course a Stable Coin should not be coupled 1-to-1 to the local currency without exception. A circumstance that can easily be changed. In the future, a group could implement its own monetary policy.
Outlook – This is how it could be
Until the sketched scenario can come, some intermediate steps will happen and take a few more years into the country. The first step, as can be observed, are cooperations such as Apple with Goldman Sachs. Parallel to research on alternative infrastructures, especially at the Blockchain. Also, it may happen in the transition phase, that bank licenses or directly whole banking institutions are acquired – capital is finally enough available. With the increasing expansion of blockchain projects, especially their own crypto currencies, more and more services are transferred to the new infrastructures. At the same time, old cooperation partners, ergo banks, are coming under increasing pressure as more and more businesses are being incorporated by the digital corporations.
The market shares are shifting in favor of the new players, whose superiority grows with each additional customer or trading business – thanks to the data and algorithms. Ultimately, the existing financial ecosystem will be decoupled from the old structures and transferred to the hands of a few digital corporations. A scenario that should not only scare the banks.