Across the globe, the world’s technology giants are increasingly turning their attention to financial services. Apple offers a credit card while Facebook is developing its own digital currency. Google has announced its intention to extend its payment service to offer smart current accounts with budgeting and savings tools. Tencent’s WeChat Pay underpins transactions in the world’s second biggest economy, while the listing of Ant Financial - the financial services arm of Alibaba - would have been the world’s biggest-ever IPO had it gone ahead.
Given the considerable resources the tech giants can deploy, what does their encroachment signify for the financial services sector? It’s likely that, as in many other areas of business, we’ll see a dynamic of ‘co-opetition’ play out, where tech firms and traditional financial institutions are rivals and partners at different times according to specific strengths and circumstances.
So-called Big Tech brings an impressive array of skills to the financial services environment: an ability to create sticky, enjoyable, intuitive user experiences; and a modus operandi of rapid innovation and incremental improvements. With business models built around harvesting and interrogating vast quantities of user information to optimise services and grow revenues, Big Tech is extremely proficient with Big Data.
Another aspect to consider in the relationship is the cloud computing platforms. With services such as AWS, Alibaba Cloud and Azure, technology businesses also operate the infrastructure upon which financial institutions run huge swathes of their operations.
Financial institutions of course bring their own powerful set of capabilities to the dynamic. They have long experience and deep expertise in navigating the complexity and variety of global compliance and regulatory standards. Banks and other established service providers enjoy deep wells of trust among the public when it comes to protecting their details and their data.
The pandemic has accelerated the process of digital transformation across all areas of the world and all sectors of the economy. Big Tech has benefitted disproportionately from this once-in-a-generation shift, recording blockbuster revenues and further entrenching its dominance in areas such as ecommerce and cloud services. The situation is attracting the attention of regulators the world over, who are wary of the risk of stifling competition and crowding out smaller players.
The financial sector however leaves plenty of room for innovation and for nimbler players with deeper sector expertise to flourish. At the moment, Big Tech’s involvement is mostly as a transaction platform replacing cash, facilitating the transfer of funds between bank accounts. Over time, that role will evolve and come to resemble the loyalty programmes we see today with retailers and airlines - however, instead of racking up enough points to get a toaster or one more flight, programmes will be integrated with other financial goals.
The world of financial services is vast and complex. More than 350 billion shares are traded every day, while there are a billion credit card transactions. And in the interactions and transactions of all the businesses involved in these processes, there exists the possibility of innovation - to do things faster, more efficiently or by delivering a superior experience for the parties involved. As we discussed in a previous blog post, the financial sector is currently bustling with energy, ideas and innovation as businesses look to capitalise on the opportunities presented by initiatives such as open banking and regulatory sandboxes.
Big Tech for the most part is likely to only ever skim the surface of this potential and there will be untouched operational areas that offer fertile territory for experimentation.
In comparison, startups and rising fintech firms have on their side speed, agility, and closer proximity to, and understanding of, financial institutions and their pain points. They benefit from focus, an ability to go deep into narrow areas of expertise and deliver solutions closely tailored to the needs of distinct and individual operations - as opposed to a one-size-fits-all approach. In the heavily regulated world of financial services, the ability to innovate requires far more than technological prowess. It demands a detailed grasp of global and local regulatory requirements, and an understanding of the ways that workflows are managed and systems integrated to ensure compliance - all while supporting an appealing user journey. This is a very specific set of domain expertise and one that is commonly drawn to the fintech startup space.
The attention that the world’s great technology firms are giving to the space is welcome. It drives innovation, and keeps firms in the fintech space on our toes when it comes to serving evolving consumer preferences. In a world where Big Tech meets Big Finance, the role of businesses like Quantifeed will be to help the latter evolve their competitive edge - by making operations more productive and efficient, extending services to new groups of customers and creating new revenue streams.
By Ross Milward, CTO and Co-founder