Big Tech's Growing Influence on Finance | Insight

What can you expect to learn from this article?

1

How Big Tech companies are expanding their influence into the financial services industry.
2

The response of traditional financial services companies to the increasing threat posed.
3

Financial services companies have the chance to leverage the opportunities created by Big Tech's arrival.

The financial industry and its customers face a new reality in light of technological advancements and a world altered by the COVID-19 pandemic.

In response to this societal change, many seek to capitalize. The growing presence of Big Tech companies within the financial market reflect their desire to expand their influence and fulfill consumers' demand for improved digital experiences.

Big Tech refers to the largest technology companies in the world, including industry giants such as Apple, Google (Alphabet), Amazon, Facebook, and Microsoft.

With more big-tech firms entering the financial services market, offering innovative UX and design services, and raising the bar on service excellence, it highlights how rapidly digital innovation can disrupt markets and pressure the status quo.

Therefore, the question is how established financial services providers will maintain customer interest and embrace the competition of Big Tech while taking advantage of the opportunities of a digitally-driven world.

How is Big Tech utilizing its technical know-how to enter the financial services industry?

Big Tech's delivery of innovative and personalized financial services has announced it as a significant player within the financial sector.

With their knowledge of consumer preferences through data harvesting and analysis, companies such as Apple, Google, and Amazon are well-positioned to leap into the financial services industry. Through their global user base of non-financial products, they can utilize data to learn more about their consumer's financial needs and develop the tailored financial instruments necessary to deepen their connections.

Big Tech's development of banking platforms, payment methods, personalized services and product offerings highlights their desire to gain a significant foothold in financial services. As seen by the launch of the Apple Card, that could result in additional financial tools like debit cards or PFM applications. Alongside Amazon Pay's potential move in-store, it is helping to save on interchange costs for merchants and cutting into the $90 billion sources of revenue for issuers and networks.

And in expanding their brand recognition across new industries and, thus, consumer reliance, they are challenging traditional financial companies.

Challenges faced by financial institutions

For financial institutions, the rise of Big Tech is concerning. According to a recent report, Big Tech companies are ready to seize 40% of the $1.35 trillion revenue made by US financial services from incumbent banks. As excellent digital experiences are an expectation of today's consumer, the knowledge and service excellence of Big Tech companies is causing a ripple effect across the market. Therefore, traditional financial institutions are racing against time to match and deliver digital banking solutions and services and re-think the industry in light of these changes.

Nevertheless, Big Tech's arrival into the financial market space does signal an opportunity for financial institutions to adapt to new realities and shift their mindsets to accommodate a changing world.

Turning a challenge into an opportunity

For financial services providers, increased competition can be beneficial. The rise of new challenges can result in new routes to profitability. In addition, the influence of Big Tech can push innovation and efficiency as companies look to match and supplant these emerging powers.

Consequently, the financial industry has taken meaningful steps to align with a digitally-driven world.

For example, the banking industry, forced to adapt because of the impact of COVID-19, has broadened its business models to deliver increased digital banking solutions and provide exceptional digital experiences for its consumers.

With an improvement in UX and personalization that can drive between 5 and 15% revenue growth in the financial services sector, businesses are seeing the value of embracing digital experiences and following the lead of their Big Tech rivals.

By 2024, an estimated 2.5 billion individuals will use online banking services. Moreover, with advancements in AI and cybersecurity, consumers can secure critical financial information and execute essential tasks in minutes with a few taps on their smartphones. In addition, further signifying the impact of Big Tech is the desire to improve data-analytic capabilities.

According to a recent study, worldwide data creation will grow to 163 zettabytes by 2025, and financial institutions are looking to harness the power of their user's data in the way Big Tech has done in the past. As a result, financial institutions wish to enhance their data-analytic technologies. This allows financial institutions to extract valuable information from their customer data to help support the development of new products, optimize existing processes, and improve the customer experience.

However, with 54% of respondents to a Bain study indicating that they trust at least one tech company more than their bank, financial institutions must find ways to deliver personalized services whilst ensuring the security and trust that are the foundations of their customer relationships.

The future of finance

Technology is profoundly impacting industries globally, especially within financial services.

In a market space where changing banks have never been more accessible, with agility and design considered more valuable qualities than legacy, the competition posed by Big Tech concerns the financial industry's established powers. Therefore financial institutions must reassess their priorities to stay ahead of the curve and the market trends.

The changes to how the financial sector works in a digitally-aligned environment mean businesses must adapt their processes and services to match the rise of Big Tech whilst also symbolizing a fantastic opportunity to adapt and grow in a new world.