This week on FinTech Profile we have something a little different to share with you; we are introducing a new content series featuring a once monthly piece of thought leadership that will run alongside our regular weekly startup profiles.
Our thanks to Philippe for contributing this thought provoking article.
What do multinational tech giants Google, Apple, Facebook and Amazon (GAFA) have in common with the traditional banks? On the surface, the answer may be “not much” – but this isn’t stopping them from making their move into financial services. Apple Pay is going global with its recent UK launch, meanwhile Google announced its revived wallet service Android Wallet earlier this year and Facebook is soon to be integrating payments options into its messenger services.
Despite this buzz amongst the tech giants, the traditional banks – with their strong heritage and (believe it or not), legacy customer trust – are not going to disappear any time soon. More to the point, customer-centric, forward-thinking companies like these four tech corporations have no desire to get bogged down in the complexities of trying to become a traditional bank and struggle with the new regulatory landscape. However, there is a genuine fear amongst banks that they will be forced to become the mere white labels of GAFA.
The same heritage and experience that is a traditional bank’s biggest asset is also its worst enemy. Running on creaking architecture that was developed in a pre-internet era, banks can’t innovate fast enough to suit customer’s needs in the way that these technology giants can. In reality, a bank’s products and services are completely undifferentiated from their competitors. One loan, credit card or mortgage is really no different from any other offering, which is why we are so infrequently inclined to switch our bank account providers – quite frankly, what would be the point?
Google, Apple, Facebook and Amazon may have only been around for an average of 20 years between them, but there is a reason their revenue has gone from zero to tens of billions in that time – their ability to adapt and redirect efforts at a moment’s notice and offer a seamless, customer-focused experience. While there is growing dissatisfaction with banks, consumers are engaged with these technologies – these are the services young people use on a daily basis.
The future of banking
If banks’ biggest fears were to be realised, these technology companies would utilise their loyal (and enormous) base of customer relationships: if you trust Facebook, why not secure a loan through the company? In reality Facebook would not provide the loan itself – this would be dealt with by the traditional bank. Facebook would act as an intermediary, to ‘auction’ your loan request to a pool of providers and decide the best one for you. However as the customer, you would have no idea that this process had taken place. As far as you are concerned, you have gone to Facebook to gain a loan and Facebook has delivered on that request via a completely frictionless process – a far cry from the process of battling through confusing marketing waffle from a traditional bank, which all essentially looks the same anyway.
There is a reason banks fear this potential future scenario: the bank’s relationship with the customer and subsequent opportunity to upsell, would be completely lost. As a consequence, banks would be forced to compete merely on price – creating significant pressure on their margins and profitability, and a destructive ‘race to the bottom’.
The new reality?
Every time we hear another story of banker corruption or widespread systems outages, the relationship between banks and consumers weakens further and we head closer to a future where banks are no longer the face of their own financial solutions and services.
A few years ago no one would have believed that such a move would be possible, but with challenger FinTech solutions already shaking up the industry beyond recognition, a future where banks continue operating as part of the current oligopoly now seems far from likely. As interest in FinTech from technology giants continues to grow, along with the power and market share of the likes of Google, Apple, Facebook and Amazon, these companies appear best-placed to reshape the future of the financial industry.
If you have something valuable to say around the subject of FinTech and would like to contribute some opinion of your own, please email emma@fintech profile for submission guidelines.