Report: Large Technology Firms Driving Competition in Banking, Insurance

Financial institutions’ drive to become more “experiencedriven” is opening the door to potential competition from global technology giants, according to a report published by the World Economic Forum (WEF). According to the report titled: “Beyond Fintech: A Pragmatic Assessment of Disruptive Potential in Financial Services,” the challenge to banks and insurers was as a result of large technology firms hollowing out the value proposition of these institutions by carrying out more core functions, even as banks and insurers lean ever more heavily on them to compete.

Another finding of the report, which aimed to examine the impact of innovation on the financial ecosystem, was that fintech start-ups, while achieving success in terms of changing the basis for competition, have had less impact than expected in disrupting the competitive landscape. “The partnership between banks and large tech companies risks not staying a reciprocal one,” lead author of the study, Jesse McWaters, stated.“Financial institutions increasingly rely on technology firms for their most strategically sensitive capabilities, but can so far only offer their ongoing business in return.”

The report was based on interviews and workshops with hundreds of financial and technology experts. It highlighted cloud computing, customer-facing artificial intelligence and “big data” customer analytics as three capabilities becoming critical to the competitive differentiation of financial institutions.

All three were domains where technology giants like Amazon, Google and Facebook have far deeper experience than their financial services counterparts and where scale effects will make it difficult for financial institutions to catch up.

“As a result, many banks and insurers are turning to technology firms to provide these core functions. Examples include: Amazon Web Services (AWS), which provides services to dozens of finance companies, including Aon, Capital One, Carlyle, Nasdaq, Pacific Life and Stripe. “Brazil’s Banco Bradesco Facebook app, which allows customers to conduct day-to-day banking from Facebook, relying on the social network’s customer data analytics to target users.