Following our previous exploration of digital identity, the discussion at Fintech Week London focused on a fintech coopetition strategy between big tech and big banks. During this session, key speakers included David M. Brear (11:FS Group), Mark Hartley (BanKiFi), Ronit Ghose (Citi), Rita Martins (HSBC), and Karan Jain (NayaOne).
Experts explored the merging and partnership of big banks and fintech startups. Despite stiff competition, opportunities exist for big banks and big tech to collaborate. This cooperation allows both sides to thrive together in a changing market.
The Evolution of Digital Banking
Technology has played a vital role in the complex banking industry for decades. Internet banking gained traction in the 1990s. Today, however, contactless payment is an everyday occurrence. Drofa Comms notes that fintech has become a disruptive force for traditional institutions.
Furthermore, some financial technologies are transforming how users access services. This poses significant competition to major banks. However, many fintechs struggle to scale up due to licensing problems. As a result, they often look to traditional banks for regulatory support.
Why Big Tech Has an Edge
Corporations like Google, Amazon, Meta, and Apple pose great competition to banks. Open banking has accelerated this trend. Most tech companies use cloud computing and customer analytics. They also use AI to offer personalised digital financial services.
Because these firms provide an exceptional customer experience, they have become key contributors to our modern cashless society. Google Pay and Apple Pay, for instance, are outstanding examples of this shift. They successfully challenge traditional finance systems.
The Rise of In-House Financial Services
Apple recently announced plans to bring more financial services in-house. This includes payment processing technology and “Buy Now, Pay Later” (BNPL) products. This ambitious “Breakout” strategy will reduce the company’s reliance on outside solutions. It will eventually replace existing fintech partners.
Amazon Web Services also dominates by offering vital financial services. These include Amazon Pay and Amazon Lending. The latter offers flexible financing to small businesses. These corporations use data to respond quickly to consumer trends.
Impact on Developing Economies
Big tech has a powerful influence on financial systems in developing nations. Expanding tech companies in emerging markets have increased service efficiency. Markets in India and Africa often have more developed payment technologies than Western countries.
Developing countries benefit more from big tech solutions. Users there access services that are cheaper and more convenient. Furthermore, Women Lead highlights that citizens in these regions often trust big tech more than traditional banks.
Can Traditional Banks Compete?
Tech giants understand certain financial areas better than their counterparts. Traditional banks have excellent infrastructure and licenses. However, they can hardly catch up without a data-driven mindset. They must adopt a customer-centric approach to change the narrative.
Some institutions are building new partnerships with fintechs. These collaborations enhance the customer experience. Banks assist with regulations and provide API access. In return, they receive immediate access to advanced technology.
The Future of Blockchain
Business models will change drastically with blockchain technology adoption. This tech will revolutionise the entire industry. It introduces reduced transaction costs and enhanced networking efficiency. It also increases security to minimise fraud.
Implementing blockchain streamlines payments, retail banking, and asset trading. Traditional banks must now negotiate a challenging path. They must capitalise on the services of their “coopetitors” without becoming entirely dependent on them.
Impact of Big Corporations
This year, Apple announced it was developing and planning to bring more financial services in-house among a payment processing technology and Buy Now, Pay Later (BNPL) product. This ambitious “Breakout” will reduce the company’s reliance on outside solutions and replace fintech partners.
Amazon Web Services also dominates in offering vital financial services big banks provide. They include Amazon Pay (a digital wallet and payment network), Amazon card, and Amazon Lending (which offers fast and flexible financing to small businesses).
These cornerstone corporations not only have an advantage when innovating and using their user-based data to respond quickly to consumer trends, but they also often sweep up the brightest tech talent, leaving many traditional banks struggling to recruit for the roles.
The impact of big tech companies on the financial systems has even more power in developing economies. According to a Financial Stability Board report, expanding big tech companies in emerging markets has increased the efficiency with which financial services are provided. Surprisingly, the current markets in Asia (India specifically) and Africa have more developed payment technologies than developed countries. Why? Developing countries tend to benefit more from big tech solutions, having access to financial services that are cheaper, convenient, and tailored to users’ needs. Besides, citizens of such countries have minimal trust in big banks.
Do Big Banks Compete with Big Tech?
The question is, can big banks compete with big tech in offering financial services? Tech giants have already acquired a more profound understanding of some financial areas than their counterparts. Although big banks acquire excellent infrastructure and licenses, they can hardly catch up unless they rapidly adopt a data-driven and customer-centric mindset to change the narrative.
Some banks and traditional institutions are building new partnerships with fintechs to help them stay up to speed with the IT sector. Such collaborations help them enhance their customer experience and offer exceptional financial products or services while improving their brand in developing nations. Its benefits go both ways: banks can assist in navigating the regulations and give API access to their fintech partners. In return, banks receive immediate access to advanced technology to save time and resources.
More importantly, we can expect business models to change drastically with blockchain technology adoption. It will revolutionise the entire industry, introducing reduced transaction costs, enhanced networking efficiency, and increased security in digital transactions to minimise fraud. Implementing blockchain technology in the financial sector means streamlining everything from payments, retail banking, and asset trading to accounting. Considering that, traditional banks must negotiate a challenging path between capitalising on the services of their big tech “coopetitors” and becoming hooked on their capabilities.
