According to experts, it could be time for banking companies to sound the alarm. Big technology companies like Apple, and Amazon could be on their way to change the way we look at finance forever. In fact, the research group “McKinsey” has warned numerous organisations that while the latest launch of fintech startups might seem manageable enough – the more big technology groups get involved, the more banks will have to worry about.
Apparently, some of the biggest players in the technology world have begun to break down the barriers between different sectors, because they’re trying to be everything to everyone at once. In fact, Asian tech firms are some of the companies that indicate why banks should worry. For instance, Rakuten – the largest retail marketplace in Japan, currently has about 800,000 users. As well as selling products, that company also issues mortgages, credit cards, and other securities services too now.
In a similar vein, Alibaba of China have begun to explore their options in the banking and financial sectors, with asset management services, and loans. Now, in the western world, we’re beginning to see bigger tech companies taking the same route – albeit at a slower pace. Amazon is now offering loans for mid-sized and small companies, and Facebook is integrating options for peer to peer payments too. Soon, Apple will allow users on iMessage to send cash on their phones.
The Problems with Competing Against Tech
The threat of emerging technology companies taking over in the financial sector presents a serious problem for banks, because those traditional brands still rely on technology giants for things like cloud computing technology and security. This means if the banks end up in direct competition with the tech brands, they could be in serious problems.
Additionally, since people don’t have a great relationship with their banks to begin with, it’s not as though traditional finance companies can rely on their history to save them. According to some reports, about 73% of the millennials in the US would be happy to explore a new financial service from their favorite tech brands – and may actually be more drawn to one of those services, than a new deal from their bank.
According to McKinsey, financial firms could lose their customers to upstarts and new tech ideas within a matter of years. Because technology companies have the opportunity to offer more innovation and convenience than traditional finance brands, they may have to compete on nothing but low margins and commodified services.
What’s Next for Financial Companies?
So, is the end nigh for banking brands? Perhaps, but all isn’t lost yet. According to groups like McKinsey, while the greater amount of competition in the field will put more pressure on banks, they’re not going to extinct immediately. Technology firms have been slow to encroach on the banking field so far because of the problems that they face with navigating financial regulations. On the other hand, banks are extremely skilled in dealing with risk management.
There are still a few ways for financial companies to stay ahead if they’re willing to keep up with the ever-changing marketplace.
Ronn Torossian is the CEO of 5W Public Relations