According to a report by the World Economic Forum (WEF), compared to financial technology (fintech) start-ups, banks are faced with more competitive disruption from tech behemoths.
The report concluded that start-ups had less of an impact than expected, contrary to concerns surrounding small fintech firms drawing business away from the financial services sector.
“Fintechs have changed the basis of competition in financial services, but not the competitive landscape,” Rob Galaski, co-author of the report and Canadian lead for financial services at Deloitte, said in a statement on Tuesday.
“Fintechs now define the tempo and direction of innovation in financial services, but high customer switching costs and the rapid response of incumbents has challenged their ability to scale”.
In the areas of development of technologies like cloud computing, artificial intelligence and big data analytics, the report found that banks were significantly lagging behind tech giants while drawing on interviews with finance and tech industry experts.
The report said that to provide these functions, lenders have instead been turning to tech corporations. Amazon, Google and Facebook were singled out as the three companies dominating the market in these areas of innovation.
several financial institutions including Aon, Capital One and Nasdaq to Amazon’s cloud computing business have bene lured, the report show cased as one example where lenders have come Amazon Web Services for solutions.
“The ability to be a fast follower has proven more important than being first for large financial institutions,” Deloitte’s Galaski added.
“Agile incumbents have used the fintech ecosystem as a supermarket for capabilities, making the ability to nurture and rapidly form partnerships a critical ingredient to banks’ competitive success.”
Comments expressed in the report are far from unique to the WEF.
Arguing that some start-ups lacked a full understanding of the industry they were trying to disrupt, a blockchain specialist at IBM weighed in on the subject.
“Some of the start-ups that are coming in don’t necessarily understand the scope of the transactions that are running all the time, and when you think about banking as an $8-9 trillion industry – that’s a lot of transactions,” Brigid McDermott, IBM’s vice president for blockchain business development, said.
A secure, decentralized network that records transactions is blockchain, or distributed ledger technology. earlier this year, its “Blockchain-as-a-Service” platform, to be used by several of Europe’s largest banks, was revealed by IBM.
McDermott added: “When you come at it as a start-up and you’re trying to look at a small part, do you really have a sense of what the transformation is that needs to happen?”
Various “niche verticals” – smaller vendors that cater to specific markets – could be bought up by larger players, Daniel Döderlein, the CEO of Norwegian fintech startup Auka, claimed two weeks ago.
“There’s a ton of companies out there that have more or less great technology, but they don’t have the marketing muscle, they don’t have consumer customers, and they don’t have any financial traction,” he said.
(Adapted from CNBC)