NEW YORK–The fight between banks and technology companies over the future of finance may be getting a little more “intense,” according to one new analysis.
As CUToday.info has reported extensively, big brand-name tech companies have been pushing their way into retail banking, typically by partnering with a financial institution behind the scenes. That includes Google’s recent partnership with Stanford FCU and Citibank.
Having a financial institution that offers federal deposit insurance allows the tech firms to offer the products? But what’s in it for the bank or credit union?
That question, said the Wall Street Journal in its recent analysis, has a “complicated” answer.
‘Not All Deposits Created Equal’
“Yes, it is a way for a bank to gather deposits and earn more fees. But not all deposits are created equal,” noted the Journal, outlining the differences in core deposits, brokered deposits and hot money chasing rate. Those different types of deposits—and even identifying a classification for the deposit—only further complicate the issue, reported the Journal.
“As more of these fintech partnerships emerge, investors in both tech firms and banks will need to ask a lot of questions: Will the deposits be considered brokered? If they are, does that mean the tech company basically controls the relationship with the customer?” the Journal noted. “Or, if they aren’t brokered, does the bank then pay more to the tech firm to bring in such stable funding?”
The report went on to note some of the most intense competition might not be between banks and technology companies but among banks for who gets these deposits. Often, tech companies have been able to get better deals with smaller banks, yet as Citigroup’s discussions with Google show, “big banks see a role here, too.”
The discussion comes at the same time FDIC Chairman Jelena McWilliams said the agency is seeking to modernize the classification of brokered deposits to account for changes in technology and how many consumers use tech to get access to banking, including the rise of “third-party fintech apps.”
Clarification Sought
“One of the FDIC’s goals is to clarify that existing partnerships that constitute a direct relationship won’t result in a brokered deposit,” reported the Journal. “Another is to narrow the definition of who is a broker to exclude entities that aren’t primarily in deposit-moving business; tech companies have argued that should exclude them.”