Law of the jungle
City must wake up to march of tech titans Matthew Lynn
What is the biggest threat to the City? Frankfurt ripping out the heart of its business, while Paris, Dublin and Amsterdam nibble away at the margins? Traders fleeing as it gets frozen out of the single market, and banks find somewhere more global to base operations? To listen to many of the leading figures in the financial services industry, you would imagine that Britain leaving the European Union was the biggest danger ahead of them, and so long as they could fix that everything would be OK.
But there is something far scarier out there. Amazon, Apple and Google. This week, it emerged that Amazon is working on launching a low-cost current account. Apple is pushing forward with its payment systems and Google has just revamped its offering. The tech giants have the trust of consumers, the data and the skills to conquer the finance industry – and if the City doesn’t respond soon it may be too late.
Probably the worst news any CEO can get right now is that Amazon is muscling its way on to their turf.
The big beast from Seattle is the most ruthlessly competitive company in the world. So plenty of banking bosses will have felt a shiver of fear when they heard it was working with JP Morgan on the launch of current accounts. Even worse, there has also been speculation it might move into fund management.
It is far from alone, however. Apple has already launched Apple Pay, and is spending a lot of money making sure everyone knows they can use their iphone instead of cash. In January, Google announced that it was combining all its payment services into Google Pay, a sign that it might be about to make a bigger push into financial services.
In truth, the tech giants pose a potential threat to traditional financial services that few people, in what has long been one of the UK’S most important industries, seem to have woken up to yet. When it comes to challenging the banks, insurers and fund managers, they have three big things on their side.
First, people trust them. Amazon Prime has 90m customers in the US alone. Globally, the company has an estimated 244m users. There are 800m people with an itunes account. There is hardly anyone left, in the developed world at least, who does not have some sort of Google account. Android has 2bn users. Those are vast numbers. They might complain about it, but people largely trust those companies to store vast amounts of financial information about them. They won’t take much persuading to trust them to store their money in a bank account as well.
Next, they know about data. Lots of financial products are basically about collecting information and processing it efficiently. The tech companies already have all the data anyone can imagine, and they know how to mine it better than any competitor. Amazon or Google could probably operate an insurance company as easily as any rival, and would be well-placed to offer consumer loans as well. After all, Amazon already knows what you can afford and your spending patterns. A Google fund management operation might be just as formidable. No one knows consumer trends better, or can spot growing companies more quickly.
Finally, the tech giants are all brilliant at innovation. They constantly try out new ideas, and don’t mind junking them when they don’t work. One of the mantras at Amazon is that people should “fail quickly”: they launch a product, see if it works, and move swiftly on to the next one if it doesn’t. They have the software engineers and marketing muscle to create dozens of new ways of selling finance, and see which ones customers like. Traditional banks are terrible at new stuff. The ATM was a good idea, but that was 40 years ago and there hasn’t been much since then.
There is a lot of speculation about how technology is about to turn automobiles, television or retailing upside down. It might well do. But financial services will be far more vulnerable than most people inside the industry yet realise. If the Amazon current account is only the first signal of a wave of new products, then the City should be very worried. And it should be working out how it can respond while it still can.
‘The tech giants are brilliant at innovation, constantly trying new ideas’