BigTech & Money

The financial industry, once dominated by commercial and investment banks, has undergone tremendous changes, especially in emerging economies as tech companies scramble for a pie of this lucrative venture. Millions of users across Africa and Asia are more likely to pay for services using their phones as opposed to banks. Things have never been easier for these consumers who can now save, borrow, buy insurance, and even invest using tech platforms such as M-pesa, Alipay and WeChat. All these financial tools were thought to be a preserve of the rich and developed world, what made it easier for the underserved communities to easily access these essential financial services? An answer can be found in the short stories herein.

A story is told of a man who wanted to build the largest e-commerce marketplace in the world. This man wanted to ensure that payments were secure and that everybody could conveniently pay upon receipt of their goods. No bank wanted to partner with him, facing such rejection, he set up a financial division which acted as an escrow for holding customer’s funds. The funds could only be released upon delivery of goods. The move built trust in the most populous country in the world and as their business grew, so did the funds in escrow. This forced them to rename their financial division Ant Group which in 2019, facilitated more than $15 trillion worth in transactions, an amount similar to EU’s GDP and way more than what was transacted by MasterCard and Visa combined. With such huge data and financial muscle, the group is eyeing a $32bn dual listing in Mainland China’s Shanghai exchange and the Hong Kong Stock Exchange.

Another story is told of a 20 year old tech company in East Africa which wanted to change its community through mobile money. The firm understood how cumbersome it was opening a bank account which not only required a minimum bank deposit but also knew how expensive it was transaction wise. Their mobile money wallet was launched and its uptake in the first year shocked many. Coupled with violence after a highly contested plebiscite, movement restrictions were imposed and the only way one could send money was through their phones. Over the years, the mobile money segment has increased its offerings from facilitating transactions to savings, loans, and investing. This has been the backbone of the country’s economy forcing all banks to partner with them for survival. As of 2020, the firm’s market share of cashless transactions stood at 85% and it is the most profitable company in East & Central Africa.

Other than filling a vacuum created by the bureaucratic banking system, big tech has also been consolidating its offerings and finance is the last pillar in this system. For example, Facebook has been connecting people over the years and it wants people to send money in the simplest way possible, just like sending a text message. This frontier will help them build on their data about an individual’s consumption behaviour starting from what they buy, at what price and location, not forgetting the time/day they are likely to spend. All tech companies are competing in this frontier with each targeting its largest user markets. For Instance, Facebook is looking to expand its financial services in India and Brazil. Apple is expanding AppleCard in America and Europe while Tencent’s WeChat Money is rapidly expanding in Asia. With such developments, consumers have witnessed a sharp decline in transaction costs with companies such as Ant, through its Alipay, not charging for transactions in Alibaba’s portfolio.

Technology will continue playing a bigger role in the financial sector and with this, there comes more concerns on dominance, data privacy and efficiency. These issues have raised conflicts with commercial banks lobbying for more regulation owing to the fact that their market has been taken over by these firms. A good example is Brazil’s regulator suspending the use of WhatsApp Pay and Chinese regulators delaying Ant’s IPO as they draft new laws regarding online financial services. Kenya has also implemented tougher rules on online lenders to curb predatory lending.

In addition to this, regulators are more concerned about data privacy and competition. This has seen a rise in antitrust proceedings being filed against these tech giants. This is with the aim of ‘leveling the playing field’ which was once abused by banks through predatory lending leading to the greatest financial crash in modern history.

Bigtech in most cases, came to fill certain gaps in the financial sector. These efforts should be uploaded especially in emerging markets where it has promoted financial. Going forward, tougher rules regarding data privacy should be legislated to prevent misuse of personal information. Also, regulators especially central banks should encourage innovations which promote inclusivity as they try to lower transaction costs, which is a business barrier in developing economies.

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