Tech giants have the most potential to disrupt finance, a new World Economic Forum report claims.
Fintech has raised everyone’s hopes of competition in finance, but it will be tech giants –Facebook, Google and Amazon – not fintech startups that disrupt financial services.
A new report by the World Economic Forum has found that fintech startups have failed to carve a slice of porterhouse off big financial institutions because big financial institutions are enormous and powerful.
Big tech, however, can do damage as finance moves online and becomes entirely dependent on computers. Big tech companies also have the advantages of scale and brand recognition.
“Financial institutions increasingly resemble, and are dependent on, large tech firms to acquire critical infrastructure and differentiating technologies,” the 200-page report said.
“The coming collision between financial institutions and large techs leads to tough choices for all firms: become dependent on large techs or risk falling behind.”
Based on extensive interviews with industry gurus, the report found that banks were laggards on the next phase of tech, which includes cloud computing, AI and data analytics.
Facebook, Amazon and Google were ahead of the curve, and because they are established and trusted brands, are well positioned to expand into finance.
Fintech has been of some success.
It has helped banks offer cheap services, such as FX trading and loan-making decisions, the report concluded. Fintechs were also importantly setting the stardard for customer service, on which banks have also lagged behind big tech.
But in attempting to scale - as true disruption requires - fintech has failed because it cannot pry customers off their banks. Fintech has also failed to erect barriers to entry, meaning the new ideas it has offered – like robo-advice – have been easily replicated by incumbents.
“New market platforms have rarely challenged incumbents, and instead we see joint ventures and partnerships as the most successful path to scaling up,” the report said.
“Many fintechs have entered the trading platform area (23 new corporate bond platforms alone between 2010 and 2015), but a review of the survivors suggests that a mix of fintech technological innovation and incumbent scale is the winning bet.”