Are tech giants taking over the finance sector?
Tech giants in Australia have experienced accelerated growth after massive investment in research and development for financial technology. As a result, they are also gaining a foothold within the financial sector, but should this be a concern?
According to a report by the World Economic Forum, tech giants – Google, Apple, Facebook, Amazon, and Microsoft (GAFAM) – now pose more competition to banks. This may be due to technology causing an increase in demand for enhanced accessibility to financial accounts. Traditionally, banks have shown slow progress in technological integration and they are now struggling to meet their customers demand, however technology firms have the capability to be much more adaptive. This could potentially cause a massive overhaul of the Finance sector by tech giants and even fin tech start-ups.
With tech firms also enjoying a competitive edge over banks with the amount of financial data at their disposal, these ‘data kings’ are placed in a prime position to rollout tailored financial products to millions of customers. But how can tech giants take over the Finance Sector?
High technology penetration
Australia is becoming a digitally smart nation. With 53% of payments made through cards or mobile payment applications in Australia, many are predicting that by 2022 Australia will be cash-free. In addition, usage of mobile-based tap-and-pay systems has increased by over 200% in the last 12 months.
The infographic below highlights the threat traditional banks are facing from the technology sector with the rapidly changing consumer demands.
Australia has over 16.69 million smartphone users and by 2022 this is projected to increase to 19 million, there is a clear need for banks and tech giants alike to improve mobile payment technologies to support the intensifying demand for smart-banking.
GAFAM’s success lies in their ability to create an ecosystem that can be customised for every single user. With the growing importance of user experience, this powerful paradigm is one that will strengthen and support ongoing investment within digital technology.
Socialisation of finance
Technology creates the possibility for socialisation where access to funds and services are now a lot easier. There are even banks who now offer Facebook logins to get access to their online banking.
Social networks, big data analytics, mobile accessibility, electronic payment applications, marketplace funding models, and people-based marketing are all converging. This is creating a wave of financial services start-ups that can offer compelling new services at lower costs and higher returns, through more efficient customer acquisition channels. While many of these technologies are still in the early stages of evolution, it will accelerate as access to data grows, computer power compounds, and access speeds improve, particularly in mobile.
Millennials are known to be the agents of change in socialising finance as they are highly tech-savvy and this makes them the key to the success. This success will lead to greater transparency, ease of use, always-on access, and increased automation.
Banks partnering with Tech Giants
ANZ recently searched for a Technology provider to partner with in an attempt to bring their innovative experience into the financial services group. As a result, ANZ now offers Apple Pay, Fitbit Pay, Android Pay, and Samsung Pay, making it the only bank in Australia to offer four third-party wallet solutions, in addition to its own ANZ Mobile Pay platform. ANZ was Apple's first major partner in Australia and is the only "big four" bank to offer Apple Pay support. This also led to ANZ being the first in the market to offer contactless eftpos payments in Australia.
ANZ is a great example of how traditional banks are taking the leap forward to stay ahead of their competition.
Are Tech giants’ dominance a threat to Fintech start-ups?
With tech giants sinking their teeth into the financial services sector, is the growth for FinTech start-ups at risk?
Smaller Fintech start-ups specialising in niche areas are disadvantaged compared to larger tech firms as they do not have the marketing muscle, customer base or any financial traction that the latter would have. However, these smaller start-ups can choose to reach out to traditional finance players in the market and offer the possibilities of a partnership. For example, Moneycatcha, an Australian Fintech start-up has recently partnered with HSBC Australia to trial two proprietary Blockchain platforms similar to Regchain – a regulatory compliance tool for financial institutions.
Fintech Australia (a community made up of smaller Fintech start-ups) has also recently partnered with National Australia Bank (NAB), one of the four largest banks in Australia, in organising a Fintech hackathon that took place during Australia’s first Fintech festival – Intersekt. This hackathon is expected to discover new ways for businesses to benefit from improved and smarter access to data in delivering an improved customer experience.
So, while there may be risks, there is also potential growth and success for Fintech start-ups because of increased computing power, open APIs and open source technologies creating an environment for innovation. In addition, these building blocks allow any type of application to be built and scaled quickly. Ultimately, these start-ups, tech giants and big banks will need to continue working together and embrace technology to benefit customers and themselves in a changing economy.
Source: CNBC, Zd.net, Goldman Sachs Global Investment Research, Gizmodo Australia, Business Insider, CIO.com