Over the last decade, a common narrative has emerged describing the dire threat that fintech firms like Revolut, Monzo, and Starling pose to conventional big players in the banking sectors. However, a more worrisome threat to traditional banks has long existed in the form of Big Tech.
This threat is expected to further materialize as Amazon, Google, Facebook, and Apple leverage their already massive worldwide reach and resources – not to mention consumer data information– to undermine the banks’ monopoly strength.
Two factors in favor of big tech
- Transition to a cashless society. Sending money to known contacts via smartphones without leaving a messaging app or entering into a bank account will soon become the standard. Technology is driving these advancements. Tech firms are expected to benefit the most if the direct role of financial institutions is decreased.
- User experience. This critical role uses real-time data to capture and analyze insights and adapt recommendations to people. It’s a procedure that has long been crucial to Big Tech’s operations, but it necessitates significant changes for traditional banks. These advancements are unquestionably being made, and there is a renewed emphasis in the traditional banking business on integrating AI and machine learning to improve client experience. On the other hand, Big Tech has a huge head start when it comes to developing and exploiting vast swaths of data to adapt rapidly and at scale to consumer trends.
Big Tech firms frequently snare the brightest and best in technological expertise, leaving many traditional banks scrambling to fill the responsibilities required to catch up.
Big Tech companies are adaptable, and most offer tech support for merchant accounts. The new “strong customer authentication” (SCA) requirements that went into effect in the UK will also favor internet companies over traditional banks. When combined with the ongoing advancement of open banking, they will provide Big Tech with an opportunity to reshape how customers pay for items. For example, Apple Pay and Google Pay are both SCA-compliant solutions, making them simple to use for businesses accepting online payments. Similar policies are emerging everywhere globally, and once again, Big Tech stands to benefit the most.
What may begin as a payment battle may be more existential for banks. Big Tech businesses already have a worldwide client base and do not require bank infrastructure or cash, removing the banks’ competitive advantage over smaller fintech. Moreover, as people prefer the immediacy and convenience of tech-enabled smart payments for goods, services, and in-person cash transfers, the necessity for banks’ centralized pots will diminish. Amazon and Google, for example, almost definitely have the financial reserves to equal them.
The traditional banking industry will be waiting for technological companies to make their next move with bated breath. The banks now have to decide whether to ignore the threat or collaborate with tech firms. Unfortunately, without significant internal culture reforms, banks will quickly fall so far behind that they may never recover.
Blair Thomas has been a music producer, bouncer, and screenwriter. For over a decade, he has been the proud Co-Founder of eMerchantBroker, the highest-rated tech support merchant account in the country. He has climbed in the Himalayas, survived a hurricane, and lived in a gold mine in the Yukon. He currently calls Thailand his home with a lifetime collection of his favorite books.