By Bernard Lunn
That is a common Banker refrain at conferences. When the BigTechs (Google, Apple, Facebook, Alibaba etc) move into financial services it will no longer be a David vs Goliath story. It will be Goliath vs Goliath story. It will be BigBanks vs BigTechs.
We covered some of the BigTech move into FinTech about 9 months ago. These profiles need updating but you can at least see the direction of travel:
Financial Services will be collateral damage from a bigger war about how to monetize content.
With the ad revenue line under threat, BigTech will go more aggressively after big niche markets such as finance and healthcare where they can get transactional revenue.
To break into these markets, BigTech will offer massively lower prices (10x lower) because that is the logic of Moore’s Law. Consumers will benefit (and consumers vote, so I don’t expect Regulation to be a good moat for Banks for much longer).
I assume banks are not reassured to know that their market is only a niche that is collateral damage in a bigger war!
Stock up on popcorn, this one will be spectacular.
It is mostly a positive for Fintechs who will be acquisition targets for BigTech. A very, very small number of Fintech ScaleUps will become BigTech themselves. There are also be plenty of niches (particularly in B2B) where BigTech is not interested and Fintechs can grow without a destructive battle with BigTech.
A few global BigBanks will compete with BigTech. Increasingly they will become financial services platforms used by an ecosystem of Fintechs and smaller Banks.
The other banks (about 9,000) will do well by using platforms offered by BigTechs, BigBanks and Fintech ScaleUps and using these platforms to stay close to their customer without big IT investments.
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I believe there is a risk of oversimplifying. Regulators will not allow GlobalTechs to invade and implant a digital banking model without proper due diligence on aspects such as security, sistemic risk, sustainability, competition and so on. Digitalisation is unavoidable, but the way to the goal is truly complex
Thanks. Regulation is a key issue for Fintechs, BigTechs and BigBanks alike and it is difficult. We have written about Regtech in the past and will continue to do so. This post was just highlighting that BigBanks worry more about BigTechs (which are too big to buy and won’t run out of money if VC dries up).
Agree with ecomyths. In the US you cannot operate without a license. Many distressed banks have been acquired and recapitalized since the crash but I do not believe that any new banking licenses have been issued since then.
I believe fintechs should not be using back door by buying licences through acquisition of distressed banks. The question is whether requirements for banking license should be the same or not that this of an incumbent bank. Note than startup fintechs are verticals or may become a combination of some verticals, and never as complex as an incumbent bank. In fact, I believe many incumbents are now rethinking on the future business models, and many would like to simplify the existing one. Same applies to the taxi regulation. Uber deserves some regulation, but not the same it exist for the current taxi industry. A real challenge for regulators, which should examine applications on the basis of customer protection, security, … of a model much simpler than current banks (by the way, bank´s balance sheet & P&L structure is often quite difficult to understand)
Excellent point and yes a tough issue for regulators to wrestle with. A banking license cannot be like an asset that is divorced from the underlying quality of service provided by the entity that owns that license.
[…] Banks can buy the Fintechs it is the Bigtechs they have to worry about. […]