The EconomistNovember 23rd 2019 Finance & economics 652
1Pal, says Second Measure, a data firm. This
contrasts with the explosive growth of We-
Chat Pay and Alipay, China’s “super-apps”.
These allow shoppers to pay for nearly any-
thing, from tea to taxis, by scanning a qr
code. Launched in 2013, they have over a
billion users each. They process transac-
tions worth a third of China’s consumption
spending and are now big lenders in their
own right (see chart on previous page).
But the comparison is unfair. China was
able to leapfrog the world because of per-
missive regulation and a lack of existing
digital-payment methods. The rich world
already had a decent credit-card system,
points out Aaron Klein of Brookings, a
think-tank, limiting the appetite for novel
solutions. Financial red tape also binds
more tightly in the West. To operate as pay-
ment institutions across America, new-
comers need a licence in every state.
That makes the gafas’ move into retail
banking even more puzzling. Since the fi-
nancial crisis, credit provision has become
one of the world’s most regulated activi-
ties. That constrains returns on capital and
profits. Western lenders’ valuations are a
fraction of tech firms’, notes Sankar Krish-
nan of Capgemini, a consultancy. Why
would Big Tech want to be a bank?
The answer is twofold. The tech giants
may not yet know exactly what they want,
says Martin Threakall of Modulr, a fintech.
Silicon Valley likes to place bets and see
what sticks. And they probably do not actu-
ally want to be banks—as long as consum-
ers do not notice.
At bottom, a bank is a balance-sheet, a
factory that turns capital into financial
products (eg, loans and mortgages) and a
sales force, says Dave Birch of Consult Hy-
perion, a consultancy. The first two are
heavily regulated, and Big Tech is uninter-
ested. That is why the giants have turned to
banks to do the tedious bits. Apple’s card is
issued by Goldman Sachs, and Amazon’s
ones by Chase, Synchrony and American
Express. Google’s accounts are backed by
Citi and a banking union.
Rather, the tech giants covet distribu-
tion. Their smarter systems and lack of
branches should enable them to strip costs
out, says Tara Reeves of omers Ventures,
the venture-capital arm of a Canadian pen-
sion fund. More important, selling bank-
ing products should lead more people to
use their payment systems. Apple and Goo-
gle want one more reason for consumers to
“keep their phone under the pillow at
night”, says Lisa Ellis of MoffettNathanson,
a research firm. Amazon wants payments
in-house so users never leave its app.
But above all, the gafas want data. They
are already good at inferring consumers’
preferences from browsing patterns and
location. But spending patterns are more
useful. They could be used to assess ads’
performance or promote products. An in-vestor says tech giants could even start dis-
pensing financial advice.
It may take them some time to get there.
Current accounts are “sticky”: according to
Novantas, a financial consultancy, only 8%
of American retail customers switch bank
each year. Yet they should enjoy having
more choice. Free perks and a great user ex-
perience could sway them, especially if
they know that a bank is in charge of the
sensitive bits.
Lenders will also welcome Big Tech—at
least initially. Distribution accounts for
half of operating costs at America’s typical
retail bank, says Gerard du Toit of Bain, a
consultancy. Tying up with a gafawould
be a neat way to access new deposits, a
cheap source of funding.
Yet as Big Tech starts to own consumer
relationships, banks could lose clout. They
may be forced to give away more data andfees, says Andrei Brasoveanu of Accel, a
venture-capital firm. They could end up
akin to utilities, providing low-margin fi-
nancial plumbing. Squeezed profits could
lead to a wave of mergers and closures. Dig-
ital upstarts will also feel the heat, espe-
cially if Big Tech cross-subsidises its finan-
cial offerings.
Regulators have so far seen new en-
trants in financial services as a welcome
catalyst for the innovation banks have
failed to foster. That could change if the
giants charge in. At the Web Summit Mar-
grethe Vestager, the European Union’s
competition commissioner and a gafa
sceptic, mused about the risks to democra-
cy if tech firms become too powerful to
oversee and regulate. “We can reach for the
potential,” she told the amped-up audience
in Lisbon. “But we can also do something to
control the dark sides.” 7A
fter a weekof resignations and exclu-
sions, the Vatican faces the very real
risk of being reduced once more to the sta-
tus of an international financial pariah. In
the coming days its officials are due to an-
swer a detailed questionnaire for Money-
val, Europe’s anti-money-laundering and
anti-terrorist-financing watchdog. The
picture they will have to paint could scarce-
ly be less reassuring.
The Financial Information Authority
(aif)—the Vatican’s regulatory body and
the cornerstone of a nine-year campaign to
dispel the Holy See’s image as a refuge forhot money and shady dealings—is no lon-
ger eligible to receive intelligence on sus-
pected financial crime from its counter-
parts in other states. The aif’s president,
René Brülhart, has left (the Vatican an-
nounced on November 19th that his con-
tract would not be renewed). Half his board
has since resigned. And the authority’s di-
rector is suspended from duty.
Earlier this month the Egmont Group, a
network of more than 160 national finan-
cial-intelligence agencies, barred the aif
from the secure communications system
its members use to swap information. TheVATICAN CITY
It is hard not to stray from the path of the financially righteousThe Vatican’s financesGood intentions
Cleansing of the Temple