Big Tech and Digital Deposits
There is an obvious opportunity for the largest Technology companies to step into the Banking sector in a more significant manner.
If the Fed decided to remove the BTFP, the Banking sector would quickly hollow out. My sense is that 95% of U.S. banks outside of J.P. Morgan, BofA, Wells Fargo and Citi would struggle to stay in business. Even if the Fed decides to extend the BTFP for another year in March 2024, most banks are not in a great position to extend credit given the enormous amount of unrealized losses they carry and given the fact that the economy is slowing.
Alphabet, Amazon, Apple, Meta and Microsoft have consumer businesses and already play in the Financial Services space to varying degrees with different products. Given the size of their balance sheets, these companies would not require Federal Government assistance the way small and mid-sized banks do.
Alphabet, Amazon, Apple and Meta each have digital wallets / payments products for consumers and businesses as well as other payments-related products. However, I believe Gaming will provide the onramp for AMZN, AAPL, GOOGL, META and MSFT to make a larger push into financial services by storing digital deposits by way of issuing digital coins or tokens. For example, Amazon Coins can be used for app and game purchases across Amazon properties. I can imagine Microsoft changing its Xbox “rewards/points” system to a company-issued coin. The use of digital coins issued by Big Tech for use on their respective platforms will significantly grow in my view, particularly if issuing companies allow the value of these coins to float versus the Dollar, (the Dollar of course will continue to be diluted over time).