Big tech firms like Google, Facebook, Apple, Alibaba and Tencent want our payments data. Are we right to share it with them?
“The entry of BigTechs into the provision of payment services raises serious market power and data privacy issues,” Agustín Carstens, general manager at the Bank for International Settlements (BIS), said recently.
Although these tech firms have often only been in business for a decade or two, their market valuations are now many multiples higher than established payments players like the big banks or the credit card companies.
According to Carola Westermeier, our guest on the latest New Money Review podcast, we’re witnessing a growing ‘platformisation’ of finance as the internet companies seek to monitor our financial activity while we’re using their websites and apps.
Carola Westermeier
“Access to transactional data has geopolitical implications”
“The ambition of tech-driven companies to gain access to financial infrastructures is closely linked to the growing importance of transactional data,” Westermeier wrote in a recent paper.
“Payment services such as Google Pay, Amazon Pay and Apple Pay have built their platforms on top of these existing payment systems to collect that data,” she says.
“Access to transactional data and control of payment infrastructures has political relevance and even geopolitical implications,” Westermeier says.
In the podcast, she explains why financial transaction data is so important and suggests that citizens worldwide need to use the financial system in a more conscious way.
She describes the three models currently being used by tech firms to try to build payments businesses and explores their prospects of success.
Westermeier discusses the tensions created by the rise of digital payments and the declining use of cash.
And she talks about the competitive playing field in payments between new entrants and incumbents.
Below are some key quotes from the podcast:
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“Our financial records tell a lot about us, our social networks and our activities.”
The importance of financial information
“Our financial records tell a lot about us, our social networks and our activities.”
“It’s important to raise awareness amongst consumers that they are producing a lot of data with their financial interactions. That’s the first step towards a more conscious usage of the financial system.”
BigTechs build on existing financial infrastructures
“Tech companies don’t want to be banks themselves: they don’t want to meet all the regulatory demands. What they want to do is to embed payments within their platforms. Increasingly, technology-driven companies seek to build their business models on top of financial infrastructures.”
Europe led the way in promoting tech platforms
“Initiatives like Europe’s Payment Services Directives and Open Banking are inherently a push towards platformisation. They demand that banks grant access to their customers’ accounts, subject to the customer’s consent.”
“The [tech firms] who use the application programming interfaces (APIs) of banks want to gain the information about financial transactions, but they have little to give back. So far banks have no plan about how to use this kind of interaction in a reciprocal way.”
“If users decide they want to use, say, Apple or Facebook to access their financial information, then banks will be reduced to an infrastructural role: banks will hold the account information and do the regulatory work, but users will experience their finances through the apps of Apple, Facebook and so on.”
“Increasingly, money is data.”
Money is data and data is money
“Increasingly, money is data. With cash you only have the value of the money itself—you don’t know where it comes from. But with electronic forms of cash you can draw a network graph: there’s a lot of information within the transaction itself. While the value of the exchange is decreasing [in importance], the information that the exchange generates is increasing in importance.”
Fintechs become less disruptive
“Many fintechs, who started off by challenging the established system, have now moved towards a direction of cooperation with banks.”
Tensions over cash and digital payments
“Cash is obviously the most anonymous way of performing a payment. It should still remain an important option within the system. We still have largely cash-based countries like Germany, but then we have countries like Sweden with largely digital payments.”
“The security authorities would be happy to have a lower cash limit to combat money laundering. And with coronavirus there’s been a push towards non-cash payments.”
Regulating the platforms
“Platforms are becoming increasingly subject to regulation, since they are where radicalisation and hate speech happen. In financial services, they haven’t up to now been the biggest players, so they haven’t been the main concern of regulators. The requirement on Paypal, for example, to identify yourself before making transactions is the first step in the direction of regulation.”
“But it might still be the case that the banks perform the identity verification, since you need to provide this information before opening a bank account.”
Apple Pay’s entry into Europe
“This is an interesting test case of the interaction between financial services and BigTech. I’m eager to see if Apply Pay becomes a medium for financial transactions. But it’s a political question as well.”
Facebook/Libra
“Facebook’s Libra project challenges the whole established financial system, which is why regulators quickly said, ‘OK, we have to be very careful with this’.”
“Everyone’s interested to see how widely it will be used and whether this will become a global currency. The question of how to transfer money globally is a super-interesting one.”
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