BigTechs – The New Banks?

December 21, 2017

The financial industry – banking in particular – is strongly influenced by new technology and FinTech Startups. The swift FinTech solutions empower every citizen around the world with simple mobile services and products by digital banks.

Now, not only experts of the financial sector dominate the financial landscape, but also BigTechs increasingly enter the stage of modern banking. American tech giants Google, Amazon, Facebook, and Apple, and Chinese wholesalers Alibaba and Tencent offer financial services to their customers.

BigTechs disrupt the financial sector

Some even claim that BigTechs are the true disrupter of banks and insurances. Whereas FinTechs are still dependent on traditional banks and insurances in certain aspects such as customer data base, scalability, and solid funding, BigTechs exceed traditional newcomers and incumbents of the industry in view of data volume and processing. As experts in cloud computing, customer-facing artificial intelligence, and data analytics, they maintain a comfortable position from which they can develop services they can offer through their existing channels and reach their broad customer base. The three domains enable the BigTechs to scale whereas financial institutions still struggle with catching up – let alone surpassing.

“Tech giants would be able to pick and choose their points of entry into financial services; maximizing their strengths like rich datasets and strong brands, while taking advantage of incumbent institutions’ dependence on them,” said McWaters, lead author at World Economic Forum.

Yet, financial players still have time to counteract as Apple, Alibaba and Trencent are merely entering the payments stage with their mobile solutions Apple Pay, Alipay and WeChat Pay. In the meantime, Amazon offers a lending platform for small businesses, and Google provides venture capital funding to young businesses who aim for changing consumer’s lives, and disrupt industries.

Interdependence nurtures a new financial ecosystem

Lacking the deep knowledge of data analytics and an equally broad consumer base, banks turn to tech giants for support and seek acceleration for their innovations via these partnerships:

  • Amazon Web Services (AWS) provides on-demand cloud computing platforms to individuals, companies and governments.
  • Brazil’s Banco Bradesco Facebook app, which allows customers to engage with banking from Facebook, relying on the social network’s customer data analytics to target users.
  • Capital One and Liberty Mutual’s “Alexa” solution (a voice-activated personal assistant), which allows customers to check balances, pay bills and track spending through these devices.

Likewise, the lack of financial expertise makes BigTechs approach financial institutions. BigTechs find themselves in a similar situation: While retail payments is a rather accessible market for new entrants, wholesale payments are more complex. Processing payment transactions for large multinational corporations requires an understanding of local jurisdictions and the management of huge volumes.Since collaboration between incumbents and FinTech startups already creates superior customer experiences and took innovation to a next level, new forms of partnerships between financial institutions, FinTechs and BigTechs will arise. Instead of creating new infrastructures, all parties agree to working together.When combining the strengths of all players in today’s financial landscape – financial expertise, profound experience in big data and understanding of regulatory systems – new services and products for financial activities can be co-created within this new financial ecosystem. Close collaboration and strategic partnerships are key for a successful future.

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