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GAFA: a threat to the banking sector?

Published May 15, 2020 - 2 mins reading time
Bank watch
In recent years, the GAFAs have set out to conquer the banking sector, offering products in the form of partnerships or launching their own crypto-currencies. How far will the big digital companies go? Could their initiatives make banks disappear? Here are some answers.

GAFAs target the payments market

GAFA could soon become banks in their own right. In 2019, Google announced the launch of a current account offering this year. Called "Cache", this project is based on a collaboration with Citigroup, one of the six biggest American banks, and a micro-credit institution. The American giant is pulling out all the stops to win over Internet users. Indeed, the current account is likely to be free of bank charges, an undeniable advantage over traditional bank offerings.

Google isn't the only one looking to break into the banking and payments market. A few months ago, Apple teamed up with Goldman Sachs and MasterCard to offer a no-fee credit card, a way of keeping its users in its ecosystem. For its part, Facebook is behind Libra, its future crypto-currency. The association recently applied for a payment system license in Switzerland.

These players have many advantages over the banks: a comprehensive, accessible customer experience, a large customer base and real technological advances. Yet today, a majority of Internet users do not trust them, particularly when it comes to data management. On these last points, banks have a card to play.

Incumbents must reinvent themselves

While for the moment the GAFAs are favoring a partnership approach with banks and insurance companies, in the longer term their strategy will be to offer even more addictive services. Against this backdrop, banks, which have lost 75% of their value since 2008, need to reinvent themselves. To retain their customers and win new ones, these establishments can improve the quality of their services, lower their prices and focus on defending their users' digital identity.

At the end of 2019, the Financial Stability Board warned of the GAFA offensive in banking, recommending that regulators and supervisors "be particularly vigilant about the impact of such competition on the viability of existing business models". The incumbent players, who know they can rely on their wealth of data and their ability to adapt more easily to regulatory changes, will have to innovate to cope with the advances of the big digital companies in their perimeter.