Tech Giants Serve Underbanked Community, Rattles Banking Space

Fintech services are well-poised to deliver seamless banking experience to the underbanked world that accounts for a significant portion of the world population.

Increasing penetration of internet and smartphone usage are leading to rising adoption of mobile wallets, digital payment applications and virtual credit/debit cards especially among the people who don’t have access to banking services.

Tech giants like Apple AAPL, Amazon AMZN, Alphabet’s GOOGL Google and Facebook FB are aggressively leveraging advanced technologies including AI, blockchain, data analytics, Augmented Reality (AR/), IoT and ML to penetrate the underbanked.

Further, online payment software providers like Square SQ and PayPal PYPL are also leaving no stone unturned to expand their presence in the emerging economies in order to reach the underbanked customers.

Year-to-Date Price Performance

Google-Apple-Facebook-Amazon’s (GAFA) Aggressive Stance

The GAFA group comprising the tech behemoths is gaining traction in the financial services market on the back of evolving customer behavior.

The search giant’s initiative of integrating Google Wallet and Android Pay under one umbrella, Google Pay, remains a major positive. Robust peer-to-peer payment service and reward system offered by Google Pay is aiding the search giant’s momentum across the underbanked and banking customer.

Further, Google recently announced the integration with PayPal by which Google Pay users can access their PayPal account as a check-out option. The latest integration enables Google Pay users to switch between their saved payments methods, now including PayPal, apart from debit and credit cards and other options.

Furthermore, Google’s growing global footprint is a major catalyst. The company has partnership with four banks of India namely Kotak Mahindra Bank, HDFC Bank, ICICI Bank and Federal Bank and aims at offering instant and pre-approved customer loans via Google Pay, consequently providing digital lending services.

Additionally, the company recently introduced the long-awaited gold financial service via Google Pay. Google has teamed up with bullion refiner, MMTC-PAMP, for the same.

Google parent Alphabet currently has a Zacks Rank #3 (Hold).
Meanwhile, Apple is gaining traction on the back of its well-performing digital wallet, Apple Pay, which has recently expanded to the Netherlands and all set to make its way to Slovakia this month only.

Additionally, the iPhone maker carrying the Zacks Rank #3 has launched a kind of credit card called Apple Card in collaboration with Goldman Sachs and MasterCard. Notably, the card gives 2 percent cash back on Apple Pay transactions and 3 percent on direct Apple purchases. There is no teaser rate and users don’t need pay late, fees, annual charge of international fees.

Further, Facebook is delving deeper into the banking and finance sector aided by its blockchain tools. The social media giant is gearing up to roll out fiat-backed cryptocurrency, Facebook Libra, which can be stored in digital wallets and be utilized to transfer funds or make purchases anywhere in the world.

Facebook’s Libra is expected to hurt revenues of the banking companies due to lower fees.
Meanwhile, this Zacks Rank #3 stock continues to gain traction in the digital payments market with the expanding user base of Facebook Messenger.

Additionally, Amazon offers Amazon Pay, Amazon Cash and Amazon Lending, all of which have gained solid momentum across the underbanked customers as these services provides financial inclusion to the ones without bank accounts.

Further, Amazon which carries a Zacks Rank #3 is in talks with J.P. Morgan Chase in order to create a checking account. Further, it introduced a digital financial advisor called Cora by utilizing its AR/VR techniques.

Recently, Amazon unveiled a new credit card namely Amazon Credit Builder in a bid to serve the customers with bad credit score.

Where Does Square & PayPal Stand?

Square which carries a Zacks Rank #2 (Buy) has re-applied for special industrial loan company license (ILC) with Federal Deposit Insurance Corp (FDIC). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, approval of the company’s application will provide it a bank licence which in turn will aid it in penetrating the potential banking sector. This will aid the company in serving the small and underserved businesses by providing them deposit accounts and business loans.

Further, PayPal’s robust Venmo and checkout services of One Touch are bolstering its presence in the payment industry. Notably, PayPal carries a Zacks Rank #3.

Conclusion

Per Accenture estimates, “more than a third of the world’s adult population make little or no use of formal financial services.” Bringing them within the financial infrastructure can yield revenues worth $380 billion. This presents significant growth opportunities for the technology companies in the long haul.

Moreover, endeavors of technology companies to address the needs of the underbanked poses serious threat to the banking sector in the long haul.
 
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