Big Tech’s Next Move? Taking on Big Banks

Tuesday, July 25, 2023
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During the last decade, a popular narrative has sprung up telling of the grave threat that fintech startups such as Revolut, Monzo and Starling pose to traditional major players in the banking and financial-services sector. But there has long been a more ominous threat to traditional banks, in the form of Big Tech. In 2022, this threat is set to materialise as Amazon, Google, Facebook and Apple draw on their already overwhelming global reach and resources – not to mention their abundance of consumer data – to diminish the banks’ monopoly power.

Two things play into Big Tech’s hands. The first is the move towards a cashless society. It will soon become the norm to send money via smartphones to known contacts without even leaving a messaging app or logging into a bank account. Because tech is driving and enabling these advances, it will be the technology companies, rather than the banks, that are likely to be best placed to benefit, as the direct role of financial organisations is reduced.

The second is the crucial role user experience now plays in all facets of our lives. This requires the use of real-time data to capture and analyse insights and tailor recommendations to individuals. It’s a process that has long been central to Big Tech’s operations, but requires major upgrades among traditional banks. These improvements are certainly being made and there is renewed focus in the traditional banking world on the integration of AI and machine learning to enhance customer experience. However, Big Tech has a significant head start when it comes to innovating and using their vast swathes of data to respond quickly to consumer trends, at scale.

Big Tech firms also often sweep up the brightest and best in technology talent, leaving many traditional banks struggling to recruit for the roles needed to catch up. This situation will be no different in 2022 as competition increases even more. Big Tech firms were born agile and ready to adapt. They are always thinking years ahead, and the talent they have – and are able to keep attracting – is key to this. Without serious culture changes internally, banks will soon find themselves so far behind they might never recover.

If that isn’t enough to worry the traditional banking sector, the new “strong customer authentication” (SCA) regulations that came into force this year in the UK will also play into the hands of technology companies rather than traditional banks. Combined with the continuing advance of open banking, they will offer Big Tech an opportunity to redefine how consumers pay for things. Both Apple Pay and Google Pay are SCA-compliant solutions, making them straightforward options for businesses taking online payments to adopt. Similar regulations are appearing elsewhere around the world and, again, it is Big Tech that is best placed to benefit.

What may start as a payments war will become more existential for banks. The Big Tech companies already have global customer bases and do not need banks’ infrastructure or capital, eliminating the competitive edge the banks currently have over the smaller fintechs. As consumers increasingly favour the immediacy and ease of tech-enabled smart payments, both for goods, services and in-person cash transfers, the need for banks’ centralised pots will reduce. The likes of Amazon and Google also certainly have the cash reserves to match them.

In 2022, the traditional banking industry will be watching anxiously for technology companies to make their next move. The banks’ choice will be stark: whether to ignore the threat – or to partner with it.


Article by Wired