KEY POINTS

  • Google, Apple, Facebook, Amazon, and Microsoft (GAFAM) are gaining recognition as the next potential payments disruptors. Each of these five companies has introduced features and offerings that have the potential to disrupt specific parts of the banking system. For example, Apple, Google, and Microsoft provide mobile wallets that enable consumers to pay for goods and services via their smartphones, while Amazon offers loans to small- and medium-sized businesses (SMBs) selling on its platform. Facebook, meanwhile, allows users to make peer-to-peer (P2P) payments via Messenger.
  • Given the broad reach and hefty resources of GAFAM, they could have a major impact not only on the payments industry, but also on the overall financial market. All five firms count massive digital user bases — GAFAM has products that have been adopted by millions of users, and in some cases, billions. They also have access to a tremendous amount of capital — Apple, Microsoft, and Google had over $400 billion combined in cash at the end of 2016.
  • However, it's unlikely that any of these firms will completely upend traditional banks. The financial sector is strictly regulated, making it extremely difficult for even the strongest challengers to enter the space. Moreover, firms that do manage to clear the barriers face stiff competition from legacy players, which consumers still trust most — 60% of respondents to a BI Intelligence survey stated that they trust their bank most to provide them financial services. Meanwhile, the ongoing proliferation of financial technology firms, or fintechs, makes the market even more competitive.
  • It's more likely that GAFAM will make a dent in very specific segments of the financial services industry. Through the use of digital wallets, these tech firms will likely reduce the brand awareness of payments providers, and could eventually cut them out of the transaction chain completely. Additionally, companies like Amazon have already proven that tech companies can thrive in the SMB loan space. In the future, these companies are likely to increasingly siphon business away from traditional channels as they continue to build out their loan offerings.
  • Legacy players will have to move quickly to mitigate the looming threat posed by GAFAM. There are two primary ways to accomplish this: by partnering with tech firms for specific services, essentially losing [...]