As technology giants expand further into financial services territory, their ambitions could clash with their cloud customers in the financial sector.

Boyden's perspectives on the news and trends that are transforming industries

Fintech has historically been the domain of startups, with more than 25,000 such firms emerging in the U.S., Europe and EMEA between 2018 and 2021, according to Statista. But the industry has grown more challenging for newcomers, particularly in retail banking, as funding dries up and valuations diminish. This is creating opportunities for technology giants, who are well positioned to acquire talent from startups, buy the firms outright, and invest more in their existing fintech businesses.

Additionally, due to recent stock market tumbles, technology giants are looking for gains in markets that are massive enough to make an impact. Not only does financial services have the scale; it also generates vast amounts of data, the stock-in-trade of firms like Alphabet, Amazon, Apple, Microsoft and Meta.

Big cloud providers have established relationships with financial services firms, including exchanges, banks and insurers. These are getting cosier. Microsoft recently announced a 10-year deal to provide cloud computing and data analytics to the London Stock Exchange Group. It will also acquire a 4% stake in the company. Google Cloud and CME Group, the world’s largest derivatives exchange, formed a 10-year partnership in 2021 with the stated goal of transforming the derivatives market. That same year Amazon Web Services (AWS) formed a partnership with Nasdaq to transform capital markets. 

Big tech is also asserting greater influence in the data-rich digital payment market, which is expected to surpass $285 billion by 2029. One particularly successful example is Apple Pay. The mobile payment service was developed in partnership with American Express, Mastercard and Visa, and launched in 2014. Today, three in four iPhone owners have activated it on their devices, according to Bernstein.

Both Apple and Amazon sell credit cards, and are expanding in credit and lending. As The Economist reports, Amazon helps secure loans for merchants on its marketplace. Apple announced in June that it will launch a buy now, pay later (BNPL) service called Apple Pay Later. The BNPL market has exploded in the past few years, and is now worth more than $150 billion. While Apple’s credit cards are underwritten by Goldman Sachs, it plans to manage lending for its BNPL service itself. The company’s fintech ventures have added important revenue streams.

Although their relationships in financial services have helped technology giants enter fintech markets, these relationships could also limit their growth in finance. The financial sector includes some of their most valued cloud customers, who might perceive a competitive threat. Regulators, who often harbour suspicions towards big tech, could pose another obstacle. The long-entrenched institutions of the financial services sector may make it an attractive target for disruption, but they could also stand firm, making it tougher to disrupt.

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