It’s about time for banks to start monitoring companies like Google Inc (NASDAQ:GOOG), eBay Inc (NASDAQ:EBAY), Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL). Why? Well, a significant amount of online purchases are being made through the websites of these giants. As of now, banks have no reason to worry as credit cards and personal accounts are linked to purchases made online. However, it won’t be long until all these four companies release their own digital payment methods. As investors, it is a good idea for us to keep a watch out for tech announcements related to banking. A significant amount of users prefer purchasing high priced goods online because of competitive pricing. Now that online wallets have already come into the picture, customers might not depend on banks as much as they did before.
In a recent report by Deutsche Bank, non-banking transactions are set to rise to 8% from 6% by the end of this year. This gives financial institutions a reason to worry as customers seem to trust tech companies with their money.
Google’s recent investment – Lending Club
Google Inc (NASDAQ:GOOG) has invested a total of $125 million for a 7% stake in Lending Club. This a peer to peer loan website that offers personal loans to customers at interest rates significantly below those of credit cards and other financial institutions.
Lending Club has loaned out a total of $1.7 billion since 2007. The company has reported 22 quarters with positive returns, and these are consecutive quarters that highlight a commendable growth rate. They’re anticipating a total of $2 billion in loans by the end of the present fiscal year.
Google had a tough time to get their 7% stake in the company. The founders of the company did not allow Google Inc (NASDAQ:GOOG) to purchase any shares directly as they did not issue any new shares. TechCrunch has recently reported that the company might be preparing for an IPO next year.
Google’s has a payment system “Google Wallet,” which is quite similar to eBay Inc (NASDAQ:EBAY)’s Paypal. Credit cards had to be linked to Google Wallet for customers to use this service. With a Lending Club tie up, Google can now offer their own credit service at a much cheaper rate. I wouldn’t be surprised if I see a physical Google credit card a few years down the lane–in fact, Google Inc (NASDAQ:GOOG)’s already set to launch a plastic card to fill your Google wallet.
It’s not just banks that have to worry about such a threat; financial giants Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) would also see a major share of their business being stolen. If everything falls in place, Google could offer a cheaper merchant fees and take the financial market by storm.
Paypal’s plot
eBay’s payment method PayPal has always been a threat to financial institutions. With the introduction of Green Dot, customers no longer require their bank accounts to be linked to PayPal to make payments. Just like any prepaid card, Green Dot can be bought from retail stores and be used to deposit funds into your PayPal account for purchases.
Another very interesting move by eBay Inc (NASDAQ:EBAY) is advising customers to opt for payments via MoneyPak. eBay seems to be attempting to cut out banks from their system, and they’re doing so by informing customers on their website about MoneyPak and how they could avoid bank interest rates and fees by using it.
PayPal has also introduced other payment methods at Home Depot, Abrecrombie & Fitch and Barnes Noble. In addition, eBay has partnered with Coinstar, a service which allows customers to convert their spare change into paper currency via kiosks. Now customers can directly deposit coins into their PayPal accounts and withdraw from their accounts as well.
The two A’s and their story with the moulah
Apple Inc. (NASDAQ:AAPL) has over 400 million users who spend a significant amount of money in the iTunes store. They’ve actually got a customer base larger than that of both eBay Inc (NASDAQ:EBAY) and Amazon.com, Inc. (NASDAQ:AMZN). As of now, credit cards and bank accounts have to be linked to their accounts for payments to go through–but Apple’s already on the look out for other options rather than having to rely on banks for their customers to make payments.
Interestingly, Apple Inc. (NASDAQ:AAPL) has already patented technologies that are payment-related. Wave to pay, peer to peer and fingerprint technologies are included in these patents. Rumors have it that Apple Inc. (NASDAQ:AAPL) is already working on a near field communication (NFC) payment method on their next iPhone release.
Amazon has a very secure and extensive payment system of its own, but sadly customers need a credit card to be linked to their account. Amazon.com, Inc. (NASDAQ:AMZN) hasn’t given into competition yet, as they’re still not accepting payments through PayPal or Google Inc (NASDAQ:GOOG) checkout. They’ve invested in TV shows and cable TV related hardware rather than widening their payment methods, which is working out well for them to an extent. However, with the introduction of brick and mortar payments they might be inviting trouble. Google and eBay have the option of lowering their fees and stealing customers from Amazon.com, Inc. (NASDAQ:AMZN) because credit card payments are the only option available in Amazon.com, Inc. (NASDAQ:AMZN).
Verdict
Investors should keep a keen watch on tech companies and their latest announcement related to the payment industry. Banks and credit card companies might not have the dominance they have now. Let’s face it, consumers would rather have tech companies handling their money with the option for lower merchant fees.
The challenge for credit card companies and other institutions would be to go lower, or at least meet the interest rates of these up and coming competitors. If they do finally bow down and take on this sort of competition, it would require them to make a lot of changes. A big opportunity would arise if we do spot a panic amongst banks and financial institutions.
Ashley Sales has no position in any stocks mentioned. The Motley Fool recommends Apple Inc. (NASDAQ:AAPL), eBay Inc (NASDAQ:EBAY), and Google. The Motley Fool owns shares of Apple, eBay, and Google Inc (NASDAQ:GOOG).
The article Are Tech Companies a Threat To Banks? originally appeared on Fool.com.
Ashley is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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