FinTech and BigTech
2019 was a record year regarding M&A activity in the FinTech sector. Especially in the US, a couple of large mergers resulted in a few enormous payment services providers. Besides this consolidation in the FinTech industry, some of the worlds largest and well known tech companies have launched their own payment technology or have plans to do so. Think about how Apple Pay is widely used across the globe nowadays, taking part of the profits of regular consumer banks. In addition to checkout in stores with your mobile phone or watch by using Apple Pay, Facebook has launched its own service called “Facebook Pay” which enables users to make purchases in Facebook’s apps more easily. Next to that, Facebook announced that it is developing its own cryptocurrency called Libra, which would enable users to transfer money to each other via for instance Whatsapp. Besides the payment industry, there are plenty of other financial services that could be replaced by tech companies in the future. For instance, think about Airbnb starting to offer mortgages to its users. Thereby, not only new FinTech companies are a threat to traditional consumer banks but also the already well-known BigTechs.
Threat or blessing?
The question rises how all those technological developments in the financial sector are affecting traditional consumer banks and the current financial system. On the one hand, the developments from tech companies may increase competition with traditional consumer banks and thereby foster innovation. On the other hand, large tech companies like Apple, Facebook and Google might become even more powerful than they already are when they gain market share in the financial industry as well, which is something that many might not prefer. In addition, tech companies launching their own cryptocurrency to facilitate payments, such as Facebook’s Libra, could interfere with the ability of central banks to control monetary policies.
In contrast, the innovations from FinTech companies could also be an opportunity for consumer banks, although not every bank will be able to grab this opportunity. Traditional consumer banks do have a competitive advantage over FinTech companies when it comes down to consumer confidence and size of the consumer base. For banks, a collaboration with tech companies might accelerate their services and increase the usability of it. Therefore, large traditional banks might become dependent on FinTech companies and vice versa.
Personally, I believe that it is not necessarily a bad thing that services offered by traditional consumer banks get disrupted by FinTech or BigTech companies. It fosters innovation in a controversial industry and I personally believe that consumer banks have failed to innovate over the last decades due to their controversial strategy and culture. Therefore, it might not be that bad for this industry to get disrupted. However, it is important that the innovative applications of those tech companies do not undermine the regulatory power and authority of central banks.
Do you think that FinTechs and BigTechs foster innovation and are a blessing for the controversial banking industry or do you see it more as a threat?
References
References
Clarke, G.Why big banks are losing to tech giants over open banking. Retrieved from https://www.forbes.com/sites/ginaclarke/2019/01/10/why-big-banks-are-losing-to-tech-giants-over-open-banking/
Customers in the spotlight: How FinTech is reshaping banking. Retrieved from https://www.pwc.com/gx/en/industries/financial-services/publications/fintech-is-reshaping-banking.html
Greeley, B. (2019a). Facebook’s libra currency is wake-up call for central banks. Retrieved from https://www.ft.com/content/6960c7a4-f313-11e9-b018-3ef8794b17c6
Lemmens, P. (2020). M&A in fintech: When will the music play again? Retrieved from https://www.robeco.com/nl/visie/2020/05/ma-in-fintech-when-will-the-music-play-again.html
Liu, D. (2019, -11-12T17:00:57-08:00). Simplifying payments with facebook pay. Retrieved from https://about.fb.com/news/2019/11/simplifying-payments-with-facebook-pay/
Verhage, J., & Surane, J. (2019). Big tech is coming for banking: Experts predict fintech’s 2020. Retrieved from https://www.bloomberg.com/news/articles/2019-12-23/big-tech-is-coming-for-banking-experts-predict-fintech-s-2020
Hi Duco, nice introduction to this topic! Personally, I agree with your opinion on the disruption of traditional banks. That sector has remained relatively the same for the last decades and new players will force them to reshape their business models and really think about how they can add value for customers. It will be interesting to see how BigTech will enter this field. Apple has enormous litquidity and has already launched Apple Pay and its own creditcard in the United States. Do you think it will add more ‘banking’ services in the future?