The Dangers of Big Tech's Interest in Your Financial Data
Our understanding of the value of personal data has risen dramatically over the past years. Who of us doesn’t hesitate, even if only for a split second, when filling out an application form for a loyalty card or before clicking on a cookie consent button when browsing the web? And which company has never paid a data protection lawyer or mused how to ensure its customer data are not hacked?
Whatever worries we have about the potential misuse of our data, they are multiplied when we are dealing with financial data. I am not talking about the worry that somebody will steal our credit card details but about the fear over our privacy. This fear is exacerbated when financial data is handled by the same companies that can triangulate information about our incomes or payment behaviour with vast troves of other, non-financial, data. But let’s start from the beginning.
Why Big Tech moves into financial services
Today, Big Tech controls mega-industries such as communication, entertainment and retailing. Those are big revenue drivers, but equally important is their strategic significance: they deliver data at crucial points in people’s life such as when their attention is captured (social media), when they actively take an interest in a topic (search), or when they purchase items (e-commerce).
There is, however, one industry that can be considered Big Tech’s ultimate target, an industry that has spurred their imagination more than any other: financial services. It is among the largest economic sectors by and of itself. The global financial market will reach 37.34 trillion USD in 2026, with a compound annual growth rate of 9,6%. In short, entry into finance is the only way that Big Tech’s balance sheets have a chance to continue to swell the way they did in the past. This is particularly important as their corporate valuations are still suffering from the correction of the pandemic-induced overvaluation of tech stocks.
There is another reason why Big Tech is obsessed with getting a foot into finance and it is the reason why users should be concerned about it. Becoming a lord of finance means you know who is sending money to whom, when, for what and how much. It tells you how much money people own, for what they are willing to take loans and what things they hold so dear that they are willing to dish out insurance premiums. Amazon has been setting itself apart from the other tech giants because its data is closest to the purchase decision of the customer and thus more valuable than ‘just’ the information of what people are interested in. Now imagine how valuable it would be to know the real flows of value, not only on your platform but in the entire customer’s life.
Does it really matter who holds our financial data?
Financial data would give the big technology firms an unprecedented edge over their competitors, large and small. But does this really pose a threat to an efficiently working free market?
If prices and innovation are all you care about, there is no reason to bar tech giants from letting you pay with their app, holding your money in their accounts and financing your car. Free is their business model, so no need to fear they will extract higher rents than banks. And it would be hard to argue that the companies working on mobile payments and digital currencies are weakening innovation in an industry where customers have seen little change since the introduction of ATMs and credit cards.
See it as a matter of personal liberty and the picture changes. With every new line of application code, every new cloud server and every new device tech companies put in consumers’ pockets, their power over the users increases. Financial data is the most powerful kind of information. Just think how much credit bureaus charge banks to glimpse at a very limited set of data. Hence, you would expect users to reject Big Tech’s financial offerings, right?
The contradictory stance of users
When the European Central Bank (ECB) did a public consultation in which it asked citizens and professionals about their view of a digital Euro based on the blockchain, the results were quite surprising. By far the largest concern was privacy. 43% of the respondents said it was crucial to them, as compared to 18% that worried about the second-ranked security aspect. This means that more than twice as many people are concerned about whether officials will be able to see their transactions than are afraid that they might actually lose money. Merchants and other companies that were part of the study had similar concerns. After all, trade secrets can be extracted from transaction data.
At the same time, a study by Cornerstone Advisors elicited the acceptance of a possible checking account offered by Amazon. While people easily declare their interest in free products, it is impressive to see how many respondents said they would pay an extra $10 per year for an Amazon checking account: GenZ: 42%, Millennials: 48%, GenX: 38%, and Baby Boomers: 15%. In each group, more than half of those who said they would take the offer also said they would make it their primary account. The most worrying figure for banks, however, should be that 90% of those customers are not paying anything for their current checking accounts.
Those survey respondents that were willing to pay for a checking account by Amazon would basically lay bare much of their life to a corporation that already knows what they are shopping (amazon.com), what they are watching (Amazon Prime) and what they are searching (Alexa).
Information gathered from corporate accounts is even more vital. The account provider can peek into them to extract the names of the enterprise’s best customers, see which of them are paying late or not at all and it could deduce much of the commercial agreements with suppliers, customers and partners. Imagine if the bank, or whoever offers the checking account, decided to compete in their corporate customers’ industry.
Do regulators have to get involved?
Of course, having this kind of information might lead to significant information asymmetries and tilt the market even more in favour of the world’s most powerful firms. But this does not mean tech titans have a quasi-monopoly. In each of the fields they are competing in, there are multiple alternatives, which limit its powers. If Facebook started to charge users for access to its platform, for example, it would very quickly lose its top spot among social media companies.
Nobody forces Amazon’s merchants to take a loan at the platform just as nobody forces online retailers to offer its checkout option. If customers feel Apple and Google are collecting too much data on their spending behaviour, they have a number of credit cards and other apps to choose from.
The contradictory stance on a digital currency issued by a central bank and a Big Tech company can be explained easily. Customers know they can choose any private provider they want but they are afraid that when a state authority issues a product the alternatives might be cut. So, the most important thing lawmakers and regulators must do to safeguard our data is not to prevent horizontal aggregation of power, but to ensure that there is significant competition. This seems a matter of course, but many things have yet to be done to ensure parity between competitors and hence a long-term efficient market.