With the technological transformation accelerating at fast pace, it’s not only the traditional financial institutions that have cause to worry about the developments in financial services but also Fintechs and disruptors due to the input of huge “GAFA” brands.
Leon Gauhman, chief strategy officer at digital product consultancy Elsewhen, a digital product consultancy which delivers consumer-grade CX to B2B and enterprise clients including Google, Microsoft, Bupa and Spotify.
Here Leon explains why the banking world needs to batten down for the Big Tech tempest ahead.
Leon Gauhman, Chief Strategy Officer, Elsewhen
The relentless pace of technological transformation is causing a tectonic shift in the world of financial services right now – and the shockwaves extend well beyond traditional banking. Fintech disruptors also have cause to be worried.
Neither the legacy players, nor the likes of retail challengers Monzo and Revolut, for all their UX nous, will find it easy to withstand the pressure created by well-financed, data-rich, consumer-focused GAFA brands – Google, Apple, Facebook and Amazon – as they circle the personal finance space.
Increasingly consumers expect simplicity and convenience in their day to day lives – and they demand something similar from financial services. As GAFA shores up its capabilities, expanding from mobile payments into areas such as loans, insurance and even mortgages, combatting GAFA’s end-to-end dominance in a newly democratised landscape will require a cultural reset among sector specialists.
Covid-19 will only accelerate this curve. As consumers negotiate turbulent changes from a largely remote setting, they’ll be reaching for friction-free, flexible tools that unlock their financial potential. And with global pandemic threatening smaller players, GAFA are well placed to emerge as frontrunners. Here are three reasons why financial service incumbents need to plan their response:
1.GAFA brands offer an all-in-one service
At a time when the digital economy has asserted its dominance, attention is the biggest commodity of all; and this applies to finance as much as anything.
The fact is, any of the more than one billion iPhone owners can access Apple Pay (along with the related Apple Card credit card and Apple Cash functions) at the swipe of the thumb. It’s a no-brainer for consumers, who are expertly corralled into another element of Apple’s beautifully designed, all-present ecosystem – a key part of Apple’s strategy across all sectors. No-one baulks at Apple’s increasing influence in their lives since it comes with the pay-off of convenience: running the bulk of your finances from your phone is one less thing to think about. The same goes for Amazon’s fast-evolving offering in the financial services space.
Google Pay is a different proposition, but it also offers an ever-expanding suite of products and services in the kind of holistic approach that all GAFA contenders may eventually adopt. Its fleet of funnelled solutions – including Google Pay, Google Plex and Google PFM – draws audiences closer into its domain in a similar way to Apple. It also has first dibs on the customer relationship, in a land grab that cements its dominance in search.
2.GAFA are really good at product and customer experience
GAFA’s expertise in making products customers love to use poses a major threat to established banks and fintechs. Instant brand recognition, deep-rooted consumer appeal and vast expenditure on R&D, all set big tech apart from the financial sector’s incumbents. Apple, for example, has repeatedly shown it can encourage consumers to pay premium prices to be members of its club – while Amazon Prime is widely acknowledged to be one of the most successful loyalty programmes ever (increasingly imitated by retailers). Meanwhile, with 5.6 billion searches daily and 1.5 billion active Gmail users globally, Google users are clearly comfortable with being part of Google’s universe. It’s fair to say GAFA owns the relationship with the customer.
What’s more, GAFA have deep enough pockets to ward off the risk of banking giants buying out the competition, too. Trying to maintain hegemony isn’t an option for challengers here. But GAFA’s real strength lies in eyeing up lucrative partnerships that marry their reputation for peerless user experience with the knowledge of a financial insider. Apple’s double act with Goldman Sachs and Google’s collaboration with financial institutions such as Citigroup have the makings of financial dream teams that few competitors can hope to emulate.
The strength that Apple and Google, in particular, have in common is that they are hitting traditional banks where it hurts – squarely in the CX. With well designed, intuitive, frictionless interfaces designed around customer needs, GAFA can harness the data and insights they already have about consumers to transform boring financial services tasks by making them more effortless (Apple Pay), more insightful (Google Pay is now presenting spending habits in the form of an easy-to-digest story) and more convenient (Google Pay facilitates searching for receipts in Gmail/photos). This level of customer centricity and insight risks relegating banks to the role of back-room bureaucrats.
3.GAFA brands are hidden in plain sight
The sheer scale of their audience (and revenues) means that any business sector – including financial services – is a potential GAFA target. But this doesn’t mean that the big tech firms need to rush out and open high street banks or launch a Gen Z-targeted app in order to stake their claim. All they need to do is start bolting on financial services to their pre-existing core competencies.
Facebook, for example, has been castigated for its lame attempt to launch a cryptocurrency. But far more intriguing is the social media giant’s decision to launch Facebook Financial, a new unit headed by David Marcus, a former president of PayPal. Devoted to financial services, the new unit will seek to harmonise payment systems using Facebook’s Novi digital wallet. Going forward, Facebook Financial will handle management and strategy for all payments and money services across the company’s platform. In other words, it has the potential to be the de facto financial partner to billions of social media users.
Something similar is happening at Amazon, which is assiduously building its own financial services capability to support its e-commerce dominance.
What’s crystal clear to the strategists at Amazon is that a strong financial services offering (cheaper loans, bank services etc) will encourage greater expenditure in its wider ecosystem. In the short term, that may not look like a conventional ‘bank’, but it’s clear that a Bank of Amazon may eventually emerge as a major threat in the same way AWS did with cloud services.
Looking to the Future
Ultimately the threat from Big Tech may not be the hurricane we imagine it to be: instead, the GAFA disruptors may prove to be a stealthy opponent that creeps up on its competitors unexpectedly – more Trojan Horse than Blitzkrieg. But make no mistake, the danger to incumbents looms large – especially in parts of the world where people don’t have access to traditional banking services.
Regulation is the one potential obstruction to GAFA encroachment on financial services. While Amazon has navigated regulatory issues quite well, Facebook continues to struggle: Facebook Pay, for example, could well be impacted by the same data privacy trust issues that affect the social media platform as a whole. Meanwhile, a stream of regulatory and antitrust legislation also threatens to divert the efforts of Google and Apple, as they seek to gain a foothold in financial services.
The privacy and regulatory obstacles facing GAFA firms as they move into financial services offer some hope for fintech and banks: if they are able to join forces with other innovative third-party companies, they could potentially pivot to the kind of multiservice platform that will endure in a digital age. Community initiatives such as Lloyd’s new cashback partnership with local retailers will also help give banks the spark of everyday relevance they so urgently need.