What does the banking industry as a whole have to do with Amazon, Microsoft and Apple? Just about nothing—and down the road, it may turn into a major problem (if it isn’t already).
Consider the many stories emerging from the realm of technology that have to do with financial services. Just last week, Amazon unveiled Amazon Coins, billed as “a new currency for Kindle Fire.” To launch the program, the company will dole out coins to customers (each coin is worth a cent), giving them essentially free access to apps and other services available on Kindle. The company can afford the generosity; late last year, it raised $3 billion through its first bond offering in a long time. Giving customers some free money is a great way to raise goodwill and popularize a new program that represents a new channel for transactions. For their part, app developers get another source of monetization.
See which industry is missing from this process?
Actually, the new “currency” is just the latest salvo in the ongoing battle between Amazon, Google, Apple and Microsoft to seed new apps on their respective platforms: Android, iOS and whatever mobile iteration of Windows happens to be in vogue. It’s not really about new software; it’s about creating mobile and other technologies that become increasingly embedded in the daily lives of consumers and business professionals everywhere. More apps, more users, more transactions, more money—that’s how it works. And at the core of this financially intense ecosystem will be. . .the technology platform companies.
In other words, it won’t be the banks.
The way these conglomerates (and it’s appropriate in this context to see Amazon as a technology provider) are driving app development is itself noteworthy. Each company is using a different model for the platform war, raising comparisons to everything from currency manipulation in China to ‘quantitative easing.’
For the record, it looks as if Apple still has a major advantage, thanks in part to being first to market with a smartphone and tablet. But few leads in the technology industry last very long. Kindle still has significant mindshare through its e-reader fan base, Google has racked up major partnerships for Android, and counting out Microsoft is often a mistake. (The company, which has at least as much in assets as Amazon, has been subsidizing developers to the tune of up to $600,000 per app for the Windows Phone, and the just-released Microsoft Surface Pro will likely have even more support, along with the massive user base for Windows PCs.)
We may also see more platforms emerge and find an audience. Facebook, which has already stirred interest with Facebook Credits, could yet become a financial services platform of its own, enabling consumers to pay bills and transfer funds when they go online to post a comment about a movie.
It’s not quite fair to suggest that banks are already irrelevant, but they may be in danger of getting to that point. The financial services industry has long been seen as the enabler for all other forms of commerce, which automatically brought with it a significant level of power. Is that power corroding?
If the role of enabler moves from banking institutions to technology platforms and the companies that own them, and the center of gravity shifts from Wall Street to Silicon Valley—a status some already crave—will that be a good thing?
We’ve commented earlier in this space how the two industries are dramatically different in their operating philosophies. New technologies considered “disruptive” win praise, while new releases from financial services providers that play the same role create instability and roil the markets. There are always new technology companies climbing into the upper echelons of the industry, while the top tier in banking seldom changes except through consolidation.
It’s not as if banks can’t handle technology—they have huge IT departments to run daily operations and regularly release custom apps designed to draw new business and ease customer engagement. But it may be time to go further.
Could banks do what Amazon did and release their own hardware? Should they partner with Apple, Google or Microsoft to gain more control at the platform level? Is it feasible to compete with those companies on their own turf and develop a banking-centric platform?
We don’t have the answers to any of this yet, but we may need some soon.