A few months ago our CEO Jeroen had a vivid discussion with tech analyst Benedict Evans about the influence of Big Tech players on the financial industry. On the question if banks should fear the upcoming Big Tech & platform companies Evans swiftly answered “They’re like seagulls. They fly in, make a lot of noise, crap everywhere and then fly out.”
Triggered by this statement, we decided to dig a little deeper on the subject because the playground between the two is definitely changing. How deep are these changes? Should the banking scene fear an intrusion of Big Tech? Or is it mostly just noise? And how should financial services players act on this change?
Big Tech vs. big banks: what’s the deal?
Let’s start by taking a look at what’s happening. Big Tech companies tend to get more and more intertwined with banking’s digital products and services. Amazon’s cloud computing & storage is used as infrastructure, IBM steps into the bank’s digital touchpoints with AI technologies & voice interfaces, Google Ads acquires new customers and Facebook and other social media platforms engage with these new customers.
For all of these cases, it looks like banks heavily rely on one or more products, services or platforms offered by these Big Tech players. Consequently, this makes banks more dependent on such players and we can only expect to see this trend continue in the (near) future.
Big Tech & platform companies not only make banks dependent on their services, they also start to integrate financial services into their own product offerings themselves. After all, they own the end-to-end customer relationship, which gives them a deep understanding of customer behaviour, allowing them to provide financial services at a key moment in the customer journey.
Moreover, new regulations, like PSD2, facilitate this trend. By providing Big Tech & platform companies with new opportunities to integrate financial services in a very elegant and seamless way, it allows them to own the touchpoints - and thus the relation - they have with their customers. It is no longer about having a big network of physical branches and a very personal one-on-one relationship, it’s about the most efficient delivery of banking services to the customer in real-time.
A quick glance at Uber, Shopify & Stripe
Let’s take the example of Uber. The well known peer-to-peer taxi service platform recently launched their own debit card for their drivers. Not to become a bank, but to take away friction in onboarding new, ‘unbanked’ drivers, thus growing their business. Today, Uber can pay these drivers up to three times per day using their new ‘instant pay’ service, which is only possible via the Uber debit card. By doing so, Uber is quickly acquiring new SME bank accounts all over the world because they want to accelerate the growth of their business, which banks were slowing down.
The e-commerce platform Shopify takes it even a step further. They partnered up with the payment platform Stripe. Not only to offer payment services to their clients (‘Payments’), but also offer their users API-based services like ‘Treasury’ and ‘Capital’. The former allows you to manage your accounts and pay your bills, while the latter offers easy access to credit, based on your company’s cash flow. All integrated into the Shopify platform. This Banking-as-a-Service solution allows Shopify to be even more relevant to its customers while also ‘owning’ the full customer journey.
What does this prove?
So, what do the examples of Uber, Shopify and Stripe have in common? It’s key to note that nor Shopify nor Stripe nor Uber are banks or have the ambition to become one. Yet by partnering up with existing financial services providers and making smart use of API’s they are able to offer their users the financial services they need, at any time, in any place.
This exceptional ease-of-use and strong relevance to the consumer leads to a great user experience. Moreover, by doing so they swiftly claim bigger parts of the customer journey. Parts that were previously ‘owned’ by banks.
What can you, as a financial service provider, do?
We like to stress it one more time: will players like Google or Amazon step into the market with their own bank? No. Will they provide software that can improve your products or services? Yes. But how should you react to these developments?
Gaining insight into the increasingly common playground between banks and tech companies is a crucial step. Understanding this is essential to think about the future. Now that the playground is shared, it’s time to decide on the rules. For starters, ask some critical questions: how can you, as a financial service player, become a tech company? How do you stay on top of this trend and stay relevant in the coming years?
To seek the right answers, it’s important for banks and financial service providers to reflect on the following aspects:
- Really understand the customer journey: what are their needs, what are their challenges, how to provide value? Getting and understanding the full picture will allow for making the right strategic decisions.
- Think about domain-driven architecture: is the ambition to become the main platform or will you integrate with existing platforms?
These topics are a superb starting point but do not yet cover the whole load. In part two of this blog post, we will dive deeper into these action points and try to formulate an answer to what you, as a financial services provider, can do to stay relevant in an increasingly digital environment.
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Do you want to find out more about the future of banking & technology? Go watch our panel discussion on Shifts in Banking.