A growing reliance upon large tech vendors could hurt financial institutions.
Banks may have been told for the past few years that fintechs are coming to steal their business, but it’s actually the tech giants they should be fearful of.
The likes of Amazon, Google, and Facebook are greater threats to banks’ traditional lines of business as fintechs have failed to disrupt the competitive landscape.
That’s according to a World Economic Forum (WEF) report, Beyond Fintech: ‘A Pragmatic Assessment Of Disruptive Potential In Financial Services,’ which found that although fintechs may have changed how financial services are structured, provisioned, and consumed, they have not managed to successfully establish themselves as dominant players.
The report said that fintechs did manage to seize the initiative and define the direction, shape and pace of innovation, and had also reshaped customer expectations, however, the high cost of switching, and with new innovations not being sufficiently material to warrant the shift, the shift away from incumbents has been overestimated.
The report also states that fintechs have struggled to create new infrastructure and establish new financial services ecosystems.
For financial organisations, there have been opportunities created from the rise of fintechs, but the report highlights that these institutions are increasingly dependent on large tech firms to acquire critical infrastructure and differentiating technologies.
For fintechs, the report says that they have opportunities to work with large tech companies that could broaden their reach, whilst they may also be attractive targets for incumbents seeking to acquire technical talent.
Tech vendor’s impact on regulators will raise questions as to how large tech companies are treated under traditional regulatory frameworks, this, the report says, will have a “large impact on their interactions with financial institutions.”
WEF said that financial institutions will need to find ways to partner with the large techs without losing their core value proposition, but due to all firms risking becoming dependent on large techs, this will necessitate the loss of some control over both costs and data.
For incumbents, they will have to compete with techs for talent, which could drive up the cost of technology talent. They also run the risk of falling behind on new tech offerings if they minimise their engagement with the large tech vendors.
The full report can be found here.