Tech titans such as Facebook 'bigger threat to banks than fintech'
Amazon, Google and Facebook pose a much bigger threat to banks than financial technology start-ups despite concerns the latter are luring customers away, the World Economic Forum has warned.
The fintech sector, said to be worth around £7bn in the UK, has been a key area of focus for Chancellor Philip Hammond and Bank of England Governor Mark Carney this year amid fears traditional banks could lose customers to cheaper, more accessible new players.
But a report by the World Economic Forum suggests the sector should be directing its worries elsewhere, arguing that start-ups have not grabbed as much market share as expected while existing tech giants have poured money into areas such as artificial intelligence, big data customer analytics and cloud computing.
As financial institutions look to these areas as a way to compete, the report noted that many had become reliant on the likes of Amazon, Google and Facebook for expertise. Big firms including Aon and Carlyle are among the customers using Amazon's cloud computing platform, for example, while the tech giant's voice-activated system Alexa has drawn in Capital One and Liberty Mutual.
Others are using Facebook apps to lure in customers, with Brazil's Banco Bradesco letting customers conduct day-to-day banking through the social networking site.
Although the partnerships are currently working in favour of both sides there is a risk the Silicon Valley firms could decide to launch services in direct competition with the banks and insurers, the paper warned.
“The partnership between banks and large tech companies risks not staying a reciprocal one,” said Jesse McWaters, lead author of the study. “Financial institutions increasingly rely on technology firms for their most strategically sensitive capabilities, but can so far only offer their ongoing business in return.”
Unlike fintech firms, which have to build a brand from scratch, these technology companies - among the best-known businesses in the world - would be "able to pick and choose their points of entry into financial services" she said, adding that they could also take advantage of incumbent institutions’ dependence on them.
"Financial institutions will likely need to walk a challenging line between capitalising on the services of large technology players and becoming dependent on them," she added.
The report said that while many fintech companies such as robot advisers and peer-to-peer lenders have succeeded in shaking up corners of the market high customer switching costs and the rapid response of existing institutions have challenged their ability to grow.
British banks have been concerned about the competitive threat from technology giants for years, with many ramping up their technology budgets or launching their own technology incubators in response.