‘Web titans a bigger threat to banks than new fintech’

Financial institutions could be too dependent on their services, warns the World Economic Forum

AMAZON, Google and Facebook pose a much bigger threat to banks than financial technology start-ups despite concerns the latter are luring customers away, the World Economic Forum has warned.

The fintech sector, said to be worth around £7bn in the UK, has been a key area of focus for Chancellor Philip Hammond and Bank of England Governor Mark Carney this year amid fears traditional banks could lose customers to cheaper, more accessible new players.

But a report by the World Economic Forum suggests the sector should be directing its worries elsewhere, arguing that start-ups have not grabbed as much market share as expected while existing tech giants have poured money into areas such as artificial intelligence, big data customer analytics and cloud computing.

As financial institutions look to these areas as a way to compete, the report noted that many had become reliant on the likes of Amazon, Google and Facebook for expertise. Big firms including Aon and Carlyle are among the customers using Amazon’s cloud computing platform, for example, while the tech giant’s voice-activated system Alexa has drawn in Capital One and Liberty Mutual.

Others are using Facebook apps to lure in customers, with Brazil’s Banco Bradesco letting customers conduct day-to-day banking through the social networking site.

Although the partnerships are currently working in favour of both sides there is a risk the Silicon Valley firms could decide to launch services in direct competition with the banks and insurers, the paper warned.

“The partnership between banks and large tech companies risks not staying a reciprocal one,” said Jesse Mcwaters, lead author of the study. “Financial institutions increasingly rely on technology firms for their most strategically sensitive capabilities, but can so far only offer their ongoing business in return.”

Unlike fintech firms, which have to build a brand from scratch, these technology companies – among the bestknown businesses in the world – would be “able to pick and choose their points of entry into financial services” she said, adding that they could also take advantage of incumbent institutions’ dependence on them.

“Financial institutions will likely need to walk a challenging line between capitalising on the services of large technology players and becoming dependent on them,” she added.

Mr Carney warned only four months ago that the rapid growth of fintech firms could damage the stability of funding at traditional banks if too many savers move away from mainstream

‘The partnership between banks and large tech companies risks not staying a reciprocal one’

lenders, but the findings from the World Economic Forum suggest the threat from new players has been overblown.

While many fintech companies such as robot advisers and peer-to-peer lenders have succeeded in shaking up corners of the market, the report said high customer switching costs and the rapid response of existing institutions have challenged their ability to grow. It pointed to successful US robo-advisers such as Betterment and Wealthfront, which had respective assets of $6.7bn (£5.2bn) and $4.4bn at the end of 2016 but are still dwarfed by offerings from existing institutions such as Vanguard. Vanguard Advisor, for example, had $47bn in assets at the end of last year.

British banks have been concerned about the competitive threat from technology giants for years, with many ramping up their technology budgets or launching their own technology incubators in a bid to keep up with large American rivals.