From ride-sharing app Uber to Facebook to Google, it is no secret that the rise of successful tech firms usually involves pain for other companies that had previously served whatever market has been tapped by the new upstart.
Banks are no different.
While the competition posed to banks from technology firms isn’t widely discussed in the media, it is well-understood by those in the financial services industry. Last fall, a survey conducted by French retail banking association EFMA and Indian IT giant Infosys found that banks considered tech firms to constitute their biggest competitive hazard, with almost half rating the threat as “high.”
The challenge was tartly summed up by JPMorgan Chase CEO Jamie Dimon, who last spring said big tech firms “want to eat our lunch,” adding “I mean every single one of them, and they’re going to try.”
For banks, today’s wave of competition from the tech sector is seen as especially acute because it involves both the hugely-capitalized global IT behemoths like Apple and Google Diamon was referring to, as well as smaller “fintech” startups like TransferWise (above right), Banking Up and OnDeck, which allows small companies to bypass banks when securing lending.
Of course, these tech firms generally aren’t interested in fully replacing banks, not least because of the ever-growing web of costly and burdensome regulations genuine banks are forced to deal with. This is why researchers like Forrester are confident to predict that there won’t be a “Google bank” anytime soon. But if Silicon Valley isn’t working to eat the banking sector in one bite, there is still the ongoing threat to the industry from being nibbled to death, with fintech firms stealing away banks’ various business lines one by one – especially the most profitable ones.
Unfortunately for banks, there isn’t an option of just wishing away the IT “threat,” as tech-savvy customers come to expect banking and transfer services to be as powerful and easy-to-use as the other, increasingly mobile-first, B2C technology they use in their lives. Indeed, recent research in the UK market found that more than a fifth of consumers there had left a bank because of what they considered sub-par tech, and more than half said a new entrant to the banking market would have an advantage in trust over its existing rivals if its customer-facing tech was notably superior.
So banks are not only obliged to constantly up their consumer-facing tech game, but need constant vigilance about the inherent conflict and ongoing competition between banks and the tech sector.
“Because of our long record in serving banks we are acutely aware of the competitive concerns these institutions face,” says János Kóka, CEO of Cellum, which has developed mobile wallets and other mobile payment systems for a number of international banks. “When we sign on to help a bank expand or enhance its mobile offering, a constant focus for us is helping that bank not only take advantage of the opportunities offered by the latest mobile payments technologies, but deal with the new competition in the space.”