If you want to maximize revenue growth in retail banking, it’s irresponsible to ignore GAFA.

GAFA is a nickname for the large platform players including Uber, Alibaba, Samsung Pay, Twitter, China’s WeChat, and any social media platform. They get their name from the first letters of the large American players: Google, Apple, Facebook and Amazon.

It would be charitable to say that in recent years the financial services industry has welcomed these large platform companies. In truth, they have muscled their way onto the global financial services scene and are changing the rules.

With Facebook and Instagram setting up pay-out options in South Africa, and Apple Pay finally entering the market, it’s worth looking at how banks can profit from GAFA’s reach.

One way of working with GAFA is to behave like any other business, using their platforms to gain access to customers. Except instead of selling goods, banks can sell credit.

This is what London-based iwoca have done. They offer flexible credit to small businesses across Europe. They partnered with Amazon to provide access loans of between R20,000 and R300,000 to businesses that are selling on the Amazon platform.

The capital comes from incumbent banks and disruptors such as Intesa Sanpaolo, Talis Capital and CommerzVentures.

The lender has similar relationships with global GAFA players eBay, Shopify and PayPal, as well as smaller or regional players such as PayU, Xero Connected and KashFlow.

With over £400 million (R8 billion) borrowed, Amazon Seller Central businesses have given iwoca a 9.7 out of 10 satisfaction rating on TrustPilot. This is important because it means that (for now) the SMEs accessing credit still see iwoca as distinct from Amazon or whatever other channel they are accessing the credit through.

The opportunity that banks have is to understand what they can do that GAFA cannot. In iwoca’s case, it is providing capital. But that obscures other core competencies that banks have and GAFA lacks. Underpinning the supply of credit is risk scoring, which is not something GAFA is doing. KYC is another capability that GAFA is ill-suited to building. Financial institutions are bound by local laws in every jurisdiction they operate in to have robust KYC capabilities. This is something they can provide their platform partners directly. Think of local banks providing credit scores or KYC information to platform players such as Uber or Airbnb, for example.

We haven’t seen a lot of disruption in this space yet. Banks could also conceivably offer their own customers digital identification or digital vaults for use on third-party platforms.

There are many ways in which financial services companies could profit from engaging strategically with GAFA platforms, provided fintechs and banks can do so without giving up their relationship with their customer.

I’m curious what you think. Do you believe the benefits of dealing with GAFA outweigh the risks? Or do you think it’s best for financial services companies to find a way of competing against the large platform players?

Carmen Whateley

Carmen Whateley

Managing Director – Financial Services, South Africa

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