Digital economies are affecting long-standing trends and rules in various industries as traditional boundaries and defining parameters disappear. In the financial services (FS) sector, the heat is on as a once tightly-closed industry faces disruption on many fronts.
First, it was nimble FinTech firms that appeared to pose competition. But, now banks often view these tech-savvy startups as collaborators, although some threaten direct rivalry. And just as the FinTech dust settles, a new and potentially more disquieting competitive wave is coming from BigTech firms.
As with similar influential labels, such as Big Oil, Big Tobacco, and Big Pharma, the term BigTech can make the threat of these large, internet economy-based firms seem daunting. The fact is, BigTech firms have huge customer bases and data – and they’re now venturing into the financial services domain.
High adoption, low friction
Most BigTechs call the United States (GAFA: Google, Amazon, Facebook, Apple) and China (BAT: Baidu, Alibaba, Tencent) home. Technologically advanced – as well as application- and data-centric – they are entering FS with a tech and data management mindset. Moreover, expertise in creating a frictionless customer experience prepares BigTechs to use customer data to effectively manage credit risk and working capital as they segue into financial services.
BigTechs are selectively choosing their points of entry into the FS value chain and maximizing their dataset and brand strengths. Google and Apple mainly used technology and data when they targeted payments services and then gradually moved into other areas of financial services. Amazon and Alibaba are focused on providing the next level of customer experience, by leveraging customer data and analytics. These firms improvise and continuously reinvent themselves to step up their game for customers.
GAFA firms have started to position themselves and are poised to capitalize on financial services. Meanwhile, BAT firms, China’s most successful and influential internet companies, have been instrumental in moving Chinese commerce from cash-heavy to cashless. BAT has launched several digital banks in China and is making a significant impact on established banks. With payments a prime focus, BigTechs have benefitted because they don’t need physical branches, have low overhead, and enjoy a competitive technological advantage.
Amazon and Ant Financial started with payments but soon set their sights on other areas within the FS value chain. Amazon is making itself known in small and medium-sized enterprise (SME) lending. Amazon offers competitive loans to its SME e-commerce platform sellers based on their sales history. Since 2011 Amazon Lending has made more than $3-billion in business loans ranging from $1,000 to $750,000 to help small and medium Amazon businesses grow their enterprises.
Meanwhile, Ant Financial operates Alipay, the world’s largest mobile and online payments platform, as well as Yu’e Bao, the world’s largest money-market fund, and Sesame Credit, a third-party credit rating system. Ant Financial unveiled facial recognition payment technology through its Alipay services in 2017.
In March, Apple launched a seamless payments experience backed by the firm’s robust security measures. Apple Card is a virtual and physical card that can be used for both regular and Apple Pay purchases at any place Mastercard works. Its app companion automatically categorizes purchases and reminds users where they were made. The card’s design makes it easy for users to see interest charges, spending, and cash-back allocations. Apple leverages machine learning and Apple Maps to label stores within the app and uses that data to track purchases across categories such as food and drink or shopping. The company is promising no late, annual or international fees, and no over-limit charges.
Amazon’s 1-click experience encompasses viewing and reviewing interactions with customers – a full commercial relationship, including credit cards on file – and integration into consumers’ digital devices to enable anytime/anywhere purchasing. The firm has successfully and significantly created impact without a traditional banking license and may be considering a move to full-fledged banking.
BigTech, big impact
Massive customer bases, excellent data capabilities, and advanced tech resources allow BigTechs to build around their core offerings with value-added services that appeal to customers (such as in-app wallets that lead to a portfolio of products and services).
As the API-driven online economy gains momentum, BigTechs will be able to create an ecosystem around their core offerings to provide one-stop shopping solutions for consumers. With access to a vast amount of customer data and expertise in data synthesis, GAFA and BAT might even consider consolidating their positions as a platform provider.
As part of the World Retail Banking Report 2018, bank executives said non-banking players are affecting the FS value chain across all lines of business. Further, they believe established banks will feel the impact if BigTechs assume customer-facing roles and snatch customer relationships ― reducing established firms to a utility-provider role.
Non-traditional FS firms impact on the banking value chain
Note: The percentages represent banking executives who believe banking products and services are highly impacted and gave a rating of 6 or 7 on a scale of 1–7 for each area of the value chain.
Sources: Capgemini Financial Services Analysis, 2018; 2018 Retail Banking Executive Interview Survey, Capgemini Global Financial Services.
Across the globe, banking is now available through virtual assistants – Amazon’s Alexa, Apple’s Siri, and Google’s Assistant – that allow customers to check balances, pay bills, and in the not-too-distant future, send money with a voice command.
GAFA or BAT may not launch a bank of their own in the months ahead, but they are well positioned to gradually chip away business from established banks. With high Net Promoter Scores®, these firms have emerged as aspirational brands that enjoy perennial customer loyalty, which may portend an imminent threat to traditional banking firms.
Today, the service orientation of banks appears to be evolving to accommodate lifestyle-driven factors. Armed with customer analytics tools that extract segment-specific insights, BigTechs are prepared to deliver relevant products and services incisively. Clearly, game-changing BigTechs are forcing many banks to rethink product strategy and business models.
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 CNBC, “Chinese tech companies are growing more powerful, and banks are turning to them for help,” Evelyn Cheng, August 28, 2018, https://www.cnbc.com/2018/08/29/fintech-chinese-tech-firms-grow-powerful-banks-turn-to-them-for-help.html
 Forbes, “How Amazon Is Impacting Small Business Finance,” Rohit Arora, March 13, 2018, https://www.forbes.com/sites/rohitarora/2018/03/13/how-amazon-is-impacting-small-business-finance/#7746d8c64dad
 Ant Financial website, http://www.antfin.com, accessed January 2019.
 The Verge, “Apple Announces Apple Card Credit Card,” Chaim Gartenberg, March 25, 2019, https://www.theverge.com/2019/3/25/18277417/apple-pay-credit-card-announcement-goldman-sachs-event-2019
 Net Promoter Score is an index that measures the willingness of customers to recommend a company’s products or services. It is used as a metric for gauging overall satisfaction with a product or service and loyalty to the brand. Net Promoter Score and Net Promoter System are registered trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld.