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Traditional bankers face a challenge from Google's foray into Indian retail banking

Google, a subsidiary of Alphabet Inc., already offers one of the country's two most popular payment wallets. However, Google Pay now wants to promote small Indian banks' time-deposit products, which don't have much of a retail liability franchise of their own. Equitas Small Finance Bank will offer Google Pay clients up to 6.85 percent interest on one-year funds as part of a "branded commercial experience" on the platform, according to a press release.

The decision is significant on a global scale. It demonstrates the shaky nature of financial institutions' grip on basic operations like deposit-taking, as well as their vulnerability to attacks from an online search, social media, and e-commerce behemoths. Fintech firms that lack the size of platform businesses may pose a far greater threat to brick-and-mortar lenders than Alphabet, Facebook Inc., and Inc. Deposit-strapped challenger banks, like those in India, may hand over the keys to digital middlemen with hundreds of millions of active customers. Even larger banks will lose control of banking when the giants invade the stronghold.

China's indigenous tech behemoths have already demonstrated how simple it is to oust traditional lenders from the lending market. Real-time nonfinancial data, rather than credit scores used by banks, can be a more potent prediction tool in a developing network of users. Adding a layer of financial activity to an online platform adds to the amount of data available. Before Beijing intervened to clip its wings, Jack Ma's Ant Group Co. aggressively pursued this edge. In China, Silicon Valley never stood a chance. However, in the world's second-most-populous country, where everything to do with money is increasingly about tapping into an open network, it has a stronger position. The mediaeval moat of Banks has been breached by tech innovation.

For example, the government's digital identification system for 1.3 billion people has rendered paper trails and physical presence obsolete, while banks' time-consuming know-your-customer procedures (verifying an address or being introduced by another account holder) have been reduced to a low-cost utility with standard protocols. A wallet, like a bank, can quickly verify a customer's identification and handle the consent process.

India's deposit-taking institutions no longer have a competitive advantage in moving customer money. Yes, the accounts for sending and receiving money are still held by them.

Customers prefer to pay one another and merchants using Google Pay or Walmart Inc.'s PhonePe rather than using their bank apps or cards. Last month, the two wallets were used to transfer 5 trillion rupees ($70 billion), giving them an 85% share in a market with over 50 apps, including those from banks.

As described by experts at the Bank for International Settlements, this is the power of platforms' data-network-activity, or DNA, loop. When Facebook's WhatsApp Pay is fully functional, the messaging service's half-billion Indian users are sure to give it a leg up in the financial world.

The conditions are ideal for Silicon Valley to enter the banking sector. Equitas has no prior relationship with the Google Pay customer to whom it is pitching fixed-term products. Even after receiving the funds, the lender may not be able to establish a long-term relationship with the saver. When the deposit expires, the funds will simply be deposited back into the original bank account. Because it just takes two minutes for a platform to create a deposit, if another lender offers a better price, idle cash may be transferred there next. Stickiness will no longer be guaranteed by customer loyalty, which is frequently simply plain inertia. The savers will benefit.

If the strategy works, companies like PhonePe and WhatsApp Pay may wish to follow suit. Platforms can readily impact deposit mobilization by extending their insights into consumer behaviour and payment flows for a fee. The lower the commission, the lesser the profit for the banks. India's state-owned banks, in particular, would have to improve their efficiency. Alternatively, they'll have to persuade regulators to rein in the tech behemoths. Last week, Amazon, Google, and Facebook were all competing to build a brand-new payment network in India. However, the central bank has put the licence on hold due to data security concerns. Banks and authorities around the world have been prepared for the challenge posed by Diem, a Facebook-backed initiative that aims to copy major global currencies in order to increase financial access. Even without new payment tools, though, lenders may find themselves on a precipice. An intimidating high-street presence will no longer serve as a ticket to cheap finance as Big Tech asserts control over the flow of yield-seeking savings.

Regulated institutions may be left with a deposit-taking licence — and the bulky rule book that comes with it — but platforms will decide whether a bank's promotional offer is to be publicly displayed or hidden in an obscure corner. The same slow, agonizing fall that ravaged the print media once readers and advertisers moved online and publishers lost control of them could be in store for banks as well.


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