Big Tech companies have changed the way we consume products and services. Now they’re entering banking
As I take some time out to travel down under through Australia and New Zealand, what’s become evidently striking is the global digital revolution that’s underway.
I’ve seen it in everything from booking my next place to stay (Airbnb), ordering food after a late oubound flight into Brisbane (Deliveroo), keeping entertained on those longhaul greyhound bus journeys through the East coast (Netflix), getting from A to B in Sydney (Uber), and purchasing Christmas gifts for the family back home with one click (Amazon Prime).
On reflection, not only digitalising and commoditising our lives globally, these kinds of platforms have also helped familiarise us all with a frictionless financial experience that has no ‘moment’ of payment.
Big on tech, beginning with banking
Hence the belief system that is emerging in the financial industry is one around how you as a consumer should be interacting with a bank in exactly the same way you’d interact with said platforms. The relationship between bank and customer should be the same as that of the services that shape other aspects of our lives – that is to say – completely intertwined with our wants and needs.
And, if more evidence was needed, the movement of Big Tech into financial services is further validation that alternatives to traditional banking services are now both accepted and demanded by the market.
Giving the nudge
From a user experience perspective, Big Tech companies excel at nudge philosophy. They focus on inducing that dopamine hit we get with every ping of a like notification, with the aim of increasing the time their core customers spend on their platforms and apps.
This is all with a view to improving how they monetise customers – it is key to how they manage to build such enviable revenue machines. Google and Facebook might have excelled at monetising our eyeballs and Amazon getting us to go to town on buying stuff we simply don’t need, but financial services has been a small part of the Big Tech firms’ global business to date. Until now.
Masters of mass personalisation
Let’s begin by considering the strengths of these tech titans from a brand awareness perspective and their daily touch points with users. The first thing to note is that they have the User Experience of mass personalisation down to a tee, getting far more daily engagement with their billions of users, app stores, digital wallets and mobile phones than any of the banks could hope to ever achieve.
This provides plenty of reasons for incumbent banks and Fintechs alike to be concerned with their movement into financial services. They effectively own the user interface of a vast swathe of the market, and are able to build a key differentiator against competitors by way of the sheer breadth of uniquely valuable personal data that their devices and applications collect.
Entering the financial fray
We’re now witnessing the next evolutionary development in the market. Thanks to their capabilities in processing vast amounts of data, Big Tech companies (typically Google, Apple, Facebook, Amazon – AKA GAFA) are pushing into the edges of finance around purchasing and payments.
This raises the question of just how deeply they’ll look to disrupt traditional markets. They have secured competitive advantage in these early stages by operating on the margin of financial regulation – a fact which ironically acted as a deterrent for them to step into this space for so many years .
What about the incumbents?
In spite of ongoing naval gazing from industry experts heralding a ‘Kodak’ or ‘Blockbuster’ moment, humbling the current banking incumbents as we increasingly drift towards a world of frictionless finance, we’re still largely waiting for this to happen.
When we think of the incumbent banks, we need to remember that despite the regulatory hurdles for competition to challenge them, and the shortcomings that were exposed during the Great Financial Crisis, there is a reason why they’ve been in existence for centuries. It is due to their key strength – being relatively good with money and ‘finance’ as a whole. What they’re not so strong at, on the other hand, is the technology side.
The years of neglect of incumbent banks around the use of data and investment into analytics opened an opportunity to the far quicker digital Challenger banks that have emerged across the sector with the likes of Monzo, Starling, Revolut, and N26.
A real challenge
Typified by a rapid pace of delivery, with multiple feature deployments released on a weekly basis, the speed the Challenger banks operate at is simply too quick for the incumbents to keep up with. Even if the incumbents simply attempted to follow their lead, for example, by copycatting features such as introducing Apple Pay or ‘card freezing’, it can take up to 12-18 months for them to release to their customer base.
For the banks to compete with the Challengers, they ultimately appear to have four options:
- Re-build their core bank with the likes of Foundry, Mambu, nCino et al.
- Build a Flanker Brand (vis-a-vis Asto with Santander, Kinetic with HSBC).
- Purchase a Challenger bank (we’re yet to see this happen).
- Last but not least, partner with a Challenger or a Big Tech player.
We’ll explore the ramifications of incumbents partnering with Big Tech companies in the second part of this article, where I’ll look into the nature of these partnerships, issues around data privacy and legislation, and what we can expect from the future of financial services where Big Tech players are very much on the scene.
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