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Banking and the wider financial services sector should be more concerned with big techs than fintech competitors, as they look to expand their offerings into products and services.
Speaking on a Sibos 2020 panel, Michael King, Lansdowne chair in finance at the Gustavson School of Business at the University of Victoria said big techs will be more a threat to traditional financial service players than fintechs were six years ago.
“Rather than being threatened by fintech start-ups, which was the initial hypothesis and story being put up by the media. Our conclusion is that banks will be more threatened by large technology companies like Chinese techfins such as Alibaba and Tencent. And the big tech companies in North America, Amazon, Apple, Facebook and Google.”
“These tech companies have the platform ecosystems that embed financial services, including payments, lending, investing and insurance. We believe these tech fins and big tech players will prove to be the real threats to incumbents over the next decade.”
Their other prediction is that there will be more cooperation between financial services and fintechs.
“The most successful incumbents will partner with FinTech start-ups to provide better experience to their customers at a lower cost,” said Richard Nesbitt, professor at the Rotman School of Management at the University of Toronto.
King said that cooperation between the two has been spurred by the fact that for the most part, financial tech and service providers are not competing for the same market.
“[Fintechs] are building a foothold at the low end of the market targeting underserved customers, particularly millennials, whose expectations for customer experiences had been really changed and heightened by nonfinancial companies like Apple and Google.”
Jesse McWaters, global head of digital policy at Mastercard said that in 2014 most bank executives were skeptical of fintechs. Specifically, their ability to build consumer trust, to scale and for the new players to meet the regulatory requirements in the finance sector especially after the 2008 financial crisis.
However, when he reconveyed a meeting a year later, he said the executives’ perspective changed remarkably.
“When we brought that group together, only a year later in January of 2015, they had shifted from this, ‘complacency’, though not universally, to a palpable anxiety. That they were in for a serious fight, that they were going to need to be changes in the way that they ran their business. We've seen over the last five years, the results of that."
For the most part, financial service providers opted to collaborate with fintechs rather than compete with them.
Mcwaters gave the example of robo-advisors, which were brought into the mainstream by fintechs like Betterment and Wealthfront. It was however traditional financial services that were better able to fully utilise this new technology.
“Ultimately, it hasn't been Wealthfront or Betterment, who have been most successful at scaling up this model. It's been the BlackRock or the Charles Schwabs’ of the world, the old guard who have taken those innovations, adopted and internalised them. They have used the existing capabilities that they have in terms of sales force and of pre-existing client relationships, to really drive those models up to full scale."