The FinTech investments of GAFAM group, the most powerful in the BigTech category, were 2.2 billion USD in 2020. Which industry's future do BigTechs, which incorporate FinTechs serving in various areas in various parts of the world and expand their partnerships, threaten?
We live in highly interesting times when industries are intertwined. Bankers who state "Banking's future will be outside the banks", investors who express "Software will eat the whole world", e-commerce companies that try to integrate all 24 hours of our daily life in a single super application, and similar examples provide us with significant clues.
The message is clear: "Leave the old industrial differences behind because new industries are emerging!"
The companies in the new era have to transform their focal points on their current expertise not to lose their customers while generating new revenue flows. That is because digital consumers want to act faster, easier, and more straightforward, such as buying, paying, getting paid, and saving money (i.e. living) via the same secure digital identity after introducing themselves with a single touch.
Taking action to meet this demand, the technology industry's giant companies have begun to take extremely firm and committed steps in FinTech in the last decade. On the one hand, there are rapidly-expanding examples such as WeChat and Alibaba in the Far East, while others are the US technology industry's five biggest companies called "BigTech", namely Google, Apple, Facebook, Amazon, and Microsoft (GAFAM). Leaping forward in FinTech, these companies pursue highly diverse strategies to differentiate and generate long-term new incomes.
Although the rising FinTech interest of BigTechs has been drawing attention in the last 4-5 years, these companies that interpret the world well had rolled up their sleeves much sooner. For example, Google Wallet went live in 2011, while Apple Pay entered our lives in 2014...
2020 investments were 2.2 billion USD
First, let's have a quick look at the BigTech companies' FinTech investments in recent years and then highlight the future opportunities and topics some may consider disadvantages.
- Regardless of experiencing disruptions last year due to the COVID-19 outbreak, BigTechs' in FinTech investments reached 2.2 billion USD in 2020. Although this figure corresponds to a 4% decrease compared to 2019, the number of contracts hit 32%, growing by 52%. Briefly, considering the decrease in valuations, considerably more investments, acquisitions, or partnerships are still being conducted.
- Let's get a closer look at the deals closed in 2020. We see that Google is the company with the optimum focus on FinTechs. Google has made 23 investments between 2020 and 2021 YTD, followed by Amazon with seven contracts. GV (Google Ventures) is the most active big tech venture arm by a landslide, participating in 45 FinTech funding rounds between 2016-2021.
"Everyone wonders the money in our pocket!"
In fact, banking is the industry that should analyze this process better. As I stated at the beginning of my article, we have promptly entered an era where "Banking's future will be outside the banks". GAFAM members' interest is the most outstanding aspect of this process. Eventually, everyone focuses on mediating payments somehow, managing people's financial assets, providing loan facilities, and having people pay their expenses on their platforms, regardless of the service offered. Namely, the goal that all these activities seek to achieve is "being the address where money gathers."
Accordingly, we see why GAFAM has recently made a rapid entry into banking. Currently, this interest is continuing through "collaborations" with traditional banks. However, it would not be wrong to say that this trend will evolve shortly.
In this regard, GAFAM companies give consumers the following message: "Unlike traditional structures, I aim to streamline your life instead of figuring out how to make money from you." With this message, their goal is to be the preferred choice of their customers. To sum up, banks are currently facing a substantial challenge. We will see how they will pass the test.
Considering that GAFAM increasingly intensifies its claim to be the FinTech leader, will all these five companies manage to deliver the same success? For example, I believe Facebook is uncertain about what to do. We will discuss the reasons in our next article...
GAFAM = Google + Apple + Facebook + Amazon + Microsoft
FinTech Istanbul Advisory Committee Member, Digital CEO