There are reasons why banks have much to worry about.
First of all, these tech companies are already established brands that have a massive user base and enjoy the consumer’s trust. So when they launch a new product, say a new digital payment platform or an app, it already piggybacks on the company’s formidable reputation and people are more than willing to try it out.
Second, although most payment and transaction options provided by big techs are channeled through banks, these companies end up disintermediating banks from their customers-banks tend to take the backseat and perform the regulated activities while these companies retain the customer relationship. Customers can access financial services without even knowing which bank is providing the back-end infrastructure. Banks end up becoming the “dumb pipes” of the financial services sector.
Third, being technology companies, they have a history of innovation and the capability to build sophisticated, user-friendly interfaces that their customers love. They provide incomparable convenience in the form of mobile wallets and other products to help customers make payments in a hassle-free manner; even credit cards are bypassed. No prior relationship with the customer is needed. New users are acquired at the POS, with all necessary checks taking place in a matter of seconds. This level of convenience makes them hugely popular with today’s digital natives. Banks are falling behind the tech curve when it comes to offering this level of convenience and losing customers as a result. They remain hamstrung by regulatory rules as well as legacy networks which make full-scale digital transformation a painstaking and expensive affair.
Fourth, big techs continuously use vast troves of gathered data-from social media, from transactions, from received messages – to get a 360-degree view of their customers. They analyze this data to accurately predict risks posed by loan applicants as well as curate products for customers based on their past behavior. Traditional banks, despite having access to high volumes of customer data, are not proactive in analyzing it to see how they can improve their customer’s lives by offering more useful products and services.