In 2017, the World Economic Forum (WEF) released a report which cited ‘Big Tech’ as a greater threat to banks than fintech. Three years later, says Eelco-Jan Boonstra, managing director of EMEA at Mambu, this continues to hold true as we’ve seen technology giants such as Google, Apple and Facebook move deeper into the world of finance.
The emergence of COVID-19 has put an added spotlight on this issue for banks as they grapple with the repercussions of the crisis and how to evolve with the changing industry.
Multiple European countries have officially entered into a recession, with many more predicted to follow suit as a result of the global pandemic. Consequently, the financial services industry is under increasing pressure as lending continues to decline and some customers default on debt. Financial institutions are being forced to adjust their processes and carefully weigh risk exposure vs innovation.
While the move to digital banking was already well underway prior to COVID-19, the crisis has accelerated this shift as it forced more people and businesses to move to digital channels out of necessity, and many financial institutions continue to struggle to meet these demands.
Skyrocketing growth of Big Tech
In comparison, Covid-19 has ‘contributed to the skyrocketing growth of Big Tech’, according to Rick Sherlund, Bank of America Merrill Lynch vice chairman of Technology Investment Banking, as people became more reliant on these services of Big Tech to work, entertain, shop and socialise from home. For instance, WhatsApp, Facebook and Instagram saw more than 40% increase in usage during the pandemic.
This ongoing period of social distancing has resulted in long-term shifts in society, as working from home becomes the norm and people adjust to living with the ebbs and flow of the associated restrictions. As a result, the dependency on Big Tech will likely continue to grow. This provides further incentive for these companies to take a more meaningful step into the world of banking and further capitalise on this trust and engagement.
In order to ward off this threat, it’s important for banks and financial service providers to be proactive in how they create their customer experiences and innovate. In many ways, fintechs are well prepared to cope with this powerful shift of reality and can play a major role in helping banks compete and survive during these unpredictable times.
Cloud, AI and customer analytics
According to WEF, ‘cloud computing, customer-facing artificial intelligence (AI) and ‘big data’ customer analytics’ are the three domains that are becoming ever more crucial to competitive differentiation among financial firms. Fintechs are built to be agile, with cloud-native technology and a mobile workforce that allows for operations to continue anywhere and to scale with demand, thereby providing the support and specific solutions necessary for banks to innovate and compete. The challenge is executing rapidly and effectively. This is where traditional banks can learn from the fintech playbook.
The last few months have clearly taught us that no one can predict the future with any degree of confidence. Few doubt that the pace of change will continue to increase and that Big Tech will continue to remain a dominant force in our lives. The extent of this presence in the world of banking remains to be seen; however, it is crucial for banks to act now to strengthen their long-term position in the industry.
The author is Eelco-Jan Boonstra, managing director of EMEA at Mambu.
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