Tech Giants are a Much Bigger Threat to Banks than Fintech Start-Ups, World Economic Forum Warns

Financial tech start-ups have become an area of huge concern for traditional banks, with fears that cheaper, more accessible new players will be able to steal customers away from traditional brick and mortar banks in the coming years.

So much so that British Chancellor Philip Hammond and Bank of England Governor Mark Carney have highlighted that the rise of such fintech start-ups will be an area of key focus for the UK government in the next few years, especially highlighting how such changes will affect FCA UK Brokers. However, such fintech start-ups may not be the only factor that traditional banks have to worry about.

A new report by the World Economic Forum suggests that the banking sector both in the UK and globally, shouldn’t be so worried about the rise of financial tech start-ups, but instead, major technology giants like Amazon, Google and, Facebook.

The report from the World Economic Forum argues that financial tech start-ups haven’t grabbed as a larger chunk of the market share as was initially predicted. Meanwhile, existing tech giants, with large infrastructures already in place, are continuing to fund research into big data, cloud computing, and AI.

The biggest warning to come out of the report is that many large banks are becoming increasingly reliant on these tech giants. Financial firms like Aon, Carlyle, and many others are taking advantage of Amazon’s cloud computing infrastructure to run the online side of their business, making it almost entirely dependent on Amazon. At the same time, the tech giant’s artificial intelligence Alexa is becoming increasingly used by banks as a way to offer their customers convenience.

Meanwhile, Brazil's Banco Bradesco recently launched a partnership with social media giant Facebook to allow its customers to conduct banking through the social network. As it stands, tech giants and banks are working in co-operation, each to their own interests, however, the WEF warns that may not always be the case.

Going forward, there’s a very real risk that some of Silicon Valley’s biggest players will choose to cut ties with the banks that rely on their infrastructure and instead launch services in direct competition. When you consider the technological capabilities, combined with brand recognition of tech giants, it’s easy to see why banks should be concerned about facing competition from them.

There’s also the argument that many tech giants, like Amazon, are better equipped to deal with the more modern aspects of banking, like forex trading, for example. Considering companies like Amazon already operate on the global stage, they’ll be much better placed to accommodate such trading than traditional banks.

Whilst it’s difficult to deny that brick and mortar banks are going to lose some business to financial tech start-ups, the World Economic Forum’s warnings that tech giants like Amazon, Google, and Facebook pose a greater risk is well founded.

The question is, how will those banks counter the threat from tech giants? Will they choose to simply concede or scramble to adjust their technological prowess?

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