Apple CEO Tim Cook introduces Apple Card during a launch event at Apple headquarters on Monday, March 25, 2019, in Cupertino, California. Noah Berger | AFP | Getty Images

When Apple announced its credit card last month with a big, splashy announcement, Goldman Sachs was a major reason behind it. But you wouldn't know that based on where the bank's CEO was standing. David Solomon wasn't on stage in Cupertino, California, sharing the spotlight during the product announcement on March 25. Instead, it was Apple's Tim Cook touting their effort as the most "significant change in the credit card experience in 50 years." Goldman Sachs' chief executive stood clapping in a crowd with the other onlookers. The 150-year-old Wall Street bank — responsible for the actual lending part of the credit card — was just a footnote in the presentation.

The bridesmaid role is something big banks may have to get used to. As tech giants begin to wade into consumer finance, they'll need someone to handle the critical and complicated banking aspect. The banking industry faces the dilemma of embracing the back seat, or losing what could be valuable partnerships with tech giants that have hundreds of millions of customers. "Banks and financial services companies are acutely aware of the threat from the big tech companies," said Gerard du Toit, banking consultant at Bain. "It's a classic prisoner's dilemma — they don't love it, but if tech companies are going to become an important source of distribution for them, what else are they going to do?" Solomon picture tweet At stake for the North American financial industry is up to 40 percent of the $1.35 trillion in revenues that could migrate to tech companies like Amazon or be lost to price competition, according to McKinsey. The risk for banks rushing into partnerships is that tech companies will own the customer relationship and branding in these deals, keeping the most lucrative parts of that relationship, according to the consulting firm. Tech giants such as Amazon and Google parent Alphabet have already taken steps to encroach on banks' turf in areas ranging from small business lending to payments. That's because of their need to fuel revenue growth in new verticals and strengthen their grip on existing businesses. Big U.S. tech firms are also preparing for a global battle: Chinese tech giants like Alibaba and Tencent have already become juggernauts in payments and investing thanks to their mobile payments apps. Apple's new card backed by Goldman Sachs and Mastercard typically works with Apple Pay, the mobile wallet that lets customers pay with their iPhones. The feature is increasingly important to Apple as it leans on services revenue to offset the slowing growth of iPhone sales. Google, meanwhile, has Google Pay, a similar online system that lets customers buy things in the app store or tap to pay on Android devices. Facebook, which lets users make payments via its Messenger feature in certain markets, is also reportedly working on a way to use cryptocurrency to facilitate payments through WhatsApp. Du Toit said Google and Facebook appear to be getting into payments to make it easier for a customers to follow through with a purchase based on advertising. For instance, Facebook offers a feature through Instagram that allows users to buy products directly inside the app. Data from such transactions can be valuable to prove to advertisers that it worked, and the customer actually bought something, du Toit said.

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And then there's Amazon, which has a small-business lending arm that has facilitated more than $3 billion in loans to more than 20,000 of the merchants on its e-commerce platform. It has a debit card-like product called Amazon Cash, which allows users to put money into an Amazon wallet and buy online without a credit card. There's also Amazon Pay, which lets consumers buy things on other sites without reloading their credit card information. Amazon's playbook seems to aim at building a closed-loop system and cutting out another middle man, du Toit said. "There's massive cost savings from not having to pay interchange on a purchase — there's immediate savings on the back of that," the Bain consultant said. "But second, it starts to deepen into the relationship with the customer and fulfill the mission of being able to sell anything that you could possibly want to buy online."

'We're not trying to be banks'

Despite their push into financial services, U.S. tech giants have stopped short of becoming banks themselves, in part because of the historic wall separating banking and commerce. Since the 1933 Glass-Steagall Act, companies involved in commerce couldn't also become banks out of fear that a hybrid company would make irresponsible loans to itself or unfairly deny competitors' loans. Walmart, the world's biggest retailer, tried for nearly a decade to break that barrier by establishing its own bank. Whether it attempted to buy a local bank or apply for its own charter, each time the giant was stymied by a consortium of regulators, lobbyists, lawmakers and watchdogs. It eventually gave up, withdrawing its request for a charter in 2007. "We're not trying to be banks," said Brian Peters, executive director of Financial Innovation Now, an alliance of companies including Amazon, Apple and Google that advocates for e-commerce technologies. "We're approaching those customers the way we typically approach customers as technology companies, and doing our best with the financial partners that we have. For a while, that's the way it's going to be."

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