Will Big Tech Firms Topple Banks?

Not too distant past

In 1993, when I was a new employee in a public-sector bank in India, I remember the employees’ union calling for strikes and lock-outs because the bank management was planning to introduce computerization. Employees and associated stakeholders have always been averse to change. A disruption to the routine brings in anxiety, fear of the unknown, fear of obsolescence, and loss of jobs.

In the financial services space, technology in some form or the other has always been changing the game. It is said that more than 5000 years ago, when the ‘written word’ was the disruptive technology in vogue, it was first used for recording financial and commercial dealings. Since then, emerging technology has consistently changed and helped in the evolution of (or disrupted) the way we handle finances and transactions. In the early money-lender days, introduction of coins and paper currency would have been a major change. And so would have been the first usage of signature verification, invention of double-entry book-keeping and cheques. And it sure continued with the not-too-distant introduction of ATMs, credit cards, online banking, e-commerce and so on.

Disruption in other industries

With the advent of Amazon, Uber, Airbnb we have seen major disruptions in the way we shop, travel and stay. Many have been saying that the banking and financial services space is ripe for a major disruption. Will current technology trends like AI, Big Data and Blockchain make banks irrelevant? Like the shopping, taxi services and hospitality businesses in the last decade, will the next big disintermediation be in the financial services space?

Ground reality

Is it true that big tech firms pose an existential threat to traditional banks? Let’s look at the ground realities:

1. Traditional banks are seen as slow, bureaucratic and inefficient and in many geographies as irresponsible, greedy and unethical (a recent survey said almost 20% of customers are looking at switching their banks)
2. Big tech firms, telecom companies  and e-commerce firms have been infiltrating the payments and remittances space, which were otherwise under the domain of traditional banks (m-pesa, Google Pay, most recently Libra by Facebook)
3. Unbanked areas are being served by new-generation micro-finance firms and other non-banks using innovative technology solutions (mobile phone and POS terminals based banking services in rural markets in Asia and Africa)
4. Crowd-sourcing is a trend that is catching up (raising funds for projects through websites, portals)
5. Big Tech firms can succeed quickly on a large scale in financial services (Alibaba launched one of the largest money market fund in the world using the balances of leftover cash from online spending)
6. The Millennial generation wants everything digital. They like being offered choices and in co-creating experiences. They find it easier to relate to big tech firms
7. Social media platforms have huge databases with matured analytical models. (It is conjectured that WhatsApp has a customer base of almost 2 billion; Google is a market leader in search for years and knows what you are watching, buying, doing)
8. Big tech firms have the largest budget for innovation, product design and development
9. The top talents prefer working for the big tech firms.    

Final take

The banking industry is surely set for a major disruption. But as in all industries not everything will get disrupted. The smarter ones will survive; some will be forced to change; the slower ones will become extinct.

Data analytics and customer intelligence will play a big role; digital will become mainstream. Organizations showing IT agility and willingness to partner with customers will weather the storm. The traditional banks willing to adapt to the changes and to adopt the best practices will survive and thrive. At the same time, some big tech firms and some small niche players will be offering competitive bank services.

In future, we all will need banking services, but we may not necessarily turn to banks for it.