Some say that fear is an acronym for Future Events Appearing Real. And one of the biggest fears of banking executives is that the four large tech titans – Amazon, Apple, Facebook and Google – will move into banking and come after their clients.
That fear appears to be becoming very real. Amazon already offers several different payment and credit products to customers and merchants. Apple has launched a credit card, in addition to the highly successful Apple Pay. Facebook now has Facebook Pay and is making moves to create a new stable crypto currency called Libra. And Google is looking to offer consumers checking accounts through Google Pay.
What we should be most frightened about with the tech titans’ move into banking is that none of them are banks. Instead, they are building out their offerings through partnerships with existing banks such as Citi, Chase and Goldman Sachs. This allows them to largely avoid the regulatory and compliance costs (and headaches) that come with a banking licence. Secondly, the tech titans don’t need to make money on their banking services. ROE in banking isn’t what it used to be, and net interest margins are declining – but the tech titans are making their money elsewhere anyway. For them, it’s all about creating new value by integrating and leveraging banking services into their other products.
Instead of fearing the tech titans, we need to learn from them to prepare for the future. While they are each very different, their commonalities present crucial lessons for business and digital growth that traditional banks should emulate. Specifically, we can learn from the titans as they:
- 1. Seek partners, and collaborate to add value. The tech titans are partnering with traditional banks and financial services firms to go beyond their traditional boundaries and deliver new value to customers at their point of need. Banks should do the same and take advantage of partners’ capabilities to move quickly and harness the innovation of others. DBS Bank, for example, connects car buyers and sellers via its online car marketplace, developed in conjunction with Carro and sgCarMart.
- 2. Explore new revenue streams. Diversifying revenue is important to the tech titans. In addition to its advertising revenue, Google has Google Cloud, Chromebook laptops and smartphones. Apple is increasingly focused on services such as Apple Pay, Apple Card, Apple Music and Apple TV. Banks need to do the same to counteract the ever-decreasing margins on financial products. Goldman Sachs looks to be doing just that with its recent announcement that the firm is moving into digital banking as a service.
- 3. Develop a continuous innovation culture. The four titans have constantly launched new products, iterated on existing products and acquired companies, both to support their commerce initiatives and to grow overall. Banks need to get over their fear of failure and invest to make the magic happen. Spanish bank BBVA invests in quarterly global gatherings, bringing together hundreds of specialists from design thinkers and data scientists to software engineers and lawyers.
- 4. Create a feedback-centric mindset. Steve Jobs famously said that Apple’s strength was to start with the customer experience and build technology and experiences to support it. Many companies claim they accept feedback from employees and customers, but they do not facilitate easy capture of those insights. Digital bank Monzo’s product development and innovation initiatives are driven by the ideas and feedback it receives from Monzo’s community forum and publicly available Trello boards.
- 5. Aggressively invest in automation to support scale.The concept of robotic process automation (RPA) has been part of the modus operandi of the titans for years, but it is only now starting to gain traction in financial services. In 2019, 57 per cent of financial services firms globally indicated they were implementing, planning to implement or planning to extend their existing implementation of RPA technologies.
Alyson Clarke is a Principal Analyst for Forrester Research. Learn more about Forrester’s research on the Future of Banking.