Big Tech and the financial industry
Banks are facing a high level of uncertainty as they cope with post-financial crisis regulations and increasingly serious competition from Big Tech companies. Santiago Carbó Valverde, Professor of Economic Analysis at the University of Grenada (Spain), argues in a recent blog post on the web site of Funcas, an economic and social research think tank, that substantial uncertainty remains surrounding the future of consumer financial services and traditional banks.
[You can read his full blog post on the Funcas web site here (in Spanish).]
[Text in blue below has been translated from Spanish by Randal Gernaat.]
Professor Carbó takes a look into the future of consumer banking services and sees an industry that could be on the verge of tremendous disruption from Big Tech companies. He starts by looking at the way artificial intelligence is already beginning to make inroads into traditional consumer banking services. He asks us to imagine the following scenario, "we ask our virtual assistant (such as Siri, Alexa, etc.) to make an online bid for a used motorcycle (or any other product or service) and once this is successful to make a second bid for a loan to finance the purchase. Both operations will be done in a matter of seconds with differing offers based on the profile of the bidder (which the virtual assistant will understand perfectly).” As this is already a reality today, his key question is how long before this practice becomes widespread.
In these scenarios, traditional consumer banking service providers “would simply offer their standardized products on this platform, losing a big part of their client relationships along with the associated revenues.” Up until recently, banks held a competitive advantage in the information they held on their customers. But in the European Union, “that all changed with the new Revised Payment Services Directive known as PSD2, which allows us to authorize our bank to share our information with other providers, including fintech and Big Tech companies.”
Consumer banks will have to deal with a loss of competitive advantage as tech companies continue to capture large amounts of data on consumers (financial and otherwise), and therefore become ever better at tailoring their financial offerings to individual preferences. Banks are “attempting to counteract these advantages with their superior financial management skills and with increasing artificial intelligence capabilities,” but will confront “both horizontal competition (from the traditional actors) and vertical competition from other sectors (such as technology and communication).“
Professor Carbó points out that the competitive battlefield of consumer financial services in Europe not only lacks regulatory protocols and is poorly defined, but also makes no requirements on the Big Tech companies to share their own data (unlike the banks). “There are no clear regulatory protocols that require Big Tech companies to share their data, something that would be necessary to guarantee competition in information-intensive business sectors, such as financial services.“ As Big Tech continues to try to disrupt the financial services industry, including consumer finance, both the traditional players and new entrants to the field will each bring their own unique advantages. “But the one thing that seems clear is that the future of banking is uncertain.”
