November 18, 2019

European fintech weekly: HSBC eyes new partnerships and is Google becoming a bank?

An HSBC exec explains why acquistions of challenger banks could be on the cards and Google dips its toes into banking

Isabel Woodford

4 min read

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1. HSBC is stepping up its fintech game

HSBC is still Europe's largest bank (by assets) but it has faced rocky times in recent months, including an ousted chief executive, dwindling profits and a series of job cuts. Its digital offering has also faced criticism for being stuck in the stone age.

So as part of its efforts to steady the ship the bank is now embracing fintech, according to Omer Ahsan, HSBC's head of customer propositions and innovation.


It's a major change of tune, Ahsan admits.

"Initially fintechs were met with resistance by banks. Particularly when they achieved widespread adoption they were perceived as a threat," he told an audience at London's Cass Business School at an event attended by Sifted.

"But over time we recognised that some fintechs could build solutions much quicker if we developed them in-house... Now our preference is to build less and partner more. So there’s definitely more to come."

That doesn't mean "in-house" engineering is completely dead, however. Last week HSBC begun beta testing its app-only business bank Kinetic — following in the footsteps of NatWest/RBS, which is building its own small and medium enterprise digital bank Mettle, and Barclays, where former Starling exec Megan Caywood is leading the digital charge.

Ahsan explains that Kinetic needs to be built in-house as a fully-fledged banking arm. He argues, however, that overall HSBC is now "more open to collaborating where it makes sense from a client perspective", praising the agility and customer acquisition rates of fintech companies.

For now HSBC's handful of fintech partnerships are limited to larger firms like NepFin and Tradeshift, which has 900 employees. But it may soon look to smaller fintech partners, by offering in return global scale, market dominance, institutional trust and brick-and-mortar branches (still in demand outside of 'the London bubble').

Separately HSBC has also already committed to a series of late-stage "strategic investments" in fintech businesses like Bud, an open-banking platform.

"There needs to be an identifiable value proposition and we need to achieve a good understanding of the solution. They also need to have credible management teams," Ahsan said of HSBC's portfolio.

Notably, Ahsan also predicted that Europe's challenger banks will eventually consolidate amid diluted returns. As such, he says big banks are "waiting in the wings" to pounce on potential future mergers (in other words when the challengers concede lower valuations).

2. Google is launching current accounts — why?

The Wall Street Journal reported last week that Google wants to launch US current accounts within Google Pay in 2020.

It's not the first big tech company to pitch the idea — last year Amazon was reportedly in talks with JP Morgan to do the same. China's Alipay offers a similar iteration orchestrated by its parent company Alibaba.


So does that mean Google is becoming a bank?

The short answer is no (although honestly who even knows anymore; banking has become synonymous with fintech and fintech is everything).

Google won't have a banking license, meaning it won't be able to store users' deposits (or loan them out for that matter). It also isn't even looking to brand the accounts under Google's name.

But by leveraging a US partner bank Google will be able to facilitate a broad financial-services offering, as the European challengers have done stateside.

Starling's Anne Boden theorised that Google could become the gatekeeper of different banking services and accounts.

"You could access your banking apps without leaving the Google home screen, just like you do with Google maps," she told Sifted.

She added it would be "quite difficult" for Google to officially become a bank in the future given the regulatory obstacles and public trust issues.

"People find it difficult getting their brain around their supermarket being their bank [like Tesco and Sainsburys]. I don't think they really want to bank with a Google or an Amazon."

To be sure, the FT's Lex column highlighted that Google is only executing a "soft-shoe shuffle" into banking — the search engine's partner in crime Stanford Federal Credit Union has only $2.6bn in assets (that's about double the size of Starling). So it's still early days.

So then, why is Google going down this path?

The natural answer is data. Although Google told the Wall Street Journal that it doesn't intend to sell customers' spending data it could use it for its own advertising intelligence.

The same logic goes for Facebook, which has just unveiled Facebook Pay to allow in-app payments (seemingly an alternative to its crypto project Libra). Facebook Pay will initially be available in the US exclusively.

Jakub Zmuda, chief product officer at London payments scale-up Modulr, also told Sifted he welcomed the move.

"This new disruptive wave of tech players entering the payments space should not be seen as a threat to fintech. Partnering with 'big tech' presents a fantastic opportunity for fintechs to bring greater innovation to the market and distribute their products [to] big tech’s extensive consumer channels," said Zmuda.