FinTechs’ Data Empires

In 2020, Starbucks, the ubiquitous American coffee company reported that an eye-watering $1.28 billion worth of stored value was currently loaded on prepaid Starbucks cards around the world. The stored value card, part of the Starbucks loyalty program, is integrated with the Starbucks app for convenient digital payments. In South Korea, Starbucks fifth largest market, this build-up of cash has caused tension amongst financial services leaders, who claim the company has the potential to become a FinTech that could disrupt and challenge traditional financial services, without being held to financial regulatory standards.

Kim Jung-tai, the chairman of the South Korean Hana Financial Group, for example, stated that it will be more fitting to call Starbucks “an unregulated bank, not a mere company”. Analysts fear that Starbucks could potentially make the move into financial services including loans and currency exchange, and with stored value cards exceeding the value of cash deposits at many traditional banks around the world, the idea isn’t too farfetched.

However, the real threat is not the loss of deposits and revenue that financial services might suffer if Starbucks were to tap into this potential, but rather the loss of data – customer transactional data. The move by many big technology firms to usurp customer interaction from traditional financial services with their own payment apps is a growing concern, with analysts suggesting that traditional banks, insurers and asset managers could be pushed to the back office. Traditional financial institutions would take on a utility role by offering FinTechs access to their infrastructure, such as credit management systems, as a third party.

This has led to the development of a new operating model – the marketplace – where various financial products and services can be offered to a customer through one central interface. When we consider that the Starbucks app was the most popular mobile payment app in the United States in 2018, we get a glimpse at its potential, however, the likes of Apple Pay, Google Pay, PayPal and Venmo have caught up in the last few years.

While Starbucks remains a coffee chain for now, nowhere is the disruption of a marketplace operating model and the power of customer data more visible than in the example of Ant Group’s Alipay. Based in China, Alipay is the world’s largest mobile payment platform with over 700 million monthly users. It also offers additional services including credit, insurance and money management accounts that all compete with the traditional financial service companies of China.

Alipay’s credit card and unsecured loan products are placed front and centre before the customer in the Alipay mobile app while partner banks, who actually administer the loan in the backend, pay Ant a fee for arranging the loan. Alipay has been so successful that it now boasts a larger retail credit book than any Chinese bank, luring customers away from traditional finance. Chinese banks have grown frustrated, often citing that Alipay experiences much less stringent regulation than traditional financial services companies.

This level of disruption and unbridled access to customer data has led to increased action from Chinese regulators, which intervened in cancelling the Ant Group IPO and have continued this year to focus on anti-monopoly activity and bolstering financial technology regulation. In a clear example of how powerful Alipay’s data is, the People’s Bank of China requested that Ant Group turn over its data to the state-controlled credit scoring company to jumpstart their credit scoring industry, which had suffered from chronic data quality issues. Ant Group now considers their data to be the organisation’s most valuable asset.