Over the past few years, big tech companies have had a huge impact on the financial sector. Big Tech firms are upending the traditional banking sector by offering payment options and even creating their own financial products.
This article will examine the effects of big IT companies on the financial sector as well as the difficulties and possibilities they present.
Big Tech Companies' Effects on the Financial Sector
The entry of Big Tech companies has caused a significant transformation in the financial sector. These businesses are using technology and data analytics to provide customers with cutting-edge financial goods and services.
Here are some ways that Big Tech firms are influencing the financial sector:
- Payment Options: Large tech businesses offer payment options that are quicker, more practical, and more affordable than conventional payment options. Customers can use their mobile devices to make payments utilizing services like Google Pay, Apple Pay, and Samsung Pay, for instance. Consumers are becoming more and more interested in these payment options, particularly millennials and Generation Z, who favor electronic payment methods.
- Digital banking: Major IT companies are introducing their own digital banking systems that provide a variety of financial services and products, such as credit cards, loans, and savings accounts. As an illustration, Amazon introduced Amazon Pay Later in India, allowing customers to pay for products over time. Additionally, Google has announced plans to partner with Citibank and Stanford Federal Credit Union to introduce its own checking account.
- Robo-Advisory Services: Big Tech businesses are using their data analytics skills to provide customers with robo-advisory services. Using algorithms and machine learning, these businesses offer portfolio management and financial guidance. For instance, Google's robo-advisor platform, Google Advisor, provides users with individualized investment recommendations based on their risk tolerance and investment objectives.
- Blockchain Technology: Major tech firms are looking into using this for financial transactions. Without the use of middlemen, blockchain technology offers a secure and transparent way to conduct financial transactions. For instance, Facebook has revealed plans to introduce Libra, a cryptocurrency that will be based on blockchain technology.
Big Tech Companies' Challenges in the Financial Sector
Despite the opportunities the financial sector offers, Big Tech companies face a number of difficulties, such as:
- Compliance with Regulations: Big Tech firms must abide by international regulations that are specific to the financial sector. These rules aim to safeguard consumer rights and maintain the stability of the financial system. For Big Tech companies, especially those who are unfamiliar with the financial sector, compliance with these standards can be a substantial burden.
- Customers' worries about data security and privacy have a negative impact on customers' faith in big tech corporations. These worries are especially important in the financial sector where clients must divulge private financial data. Big Tech firms must show they can be trusted with clients' financial information.
- Competition: Established financial institutions with a significant market presence and long-standing clientele compete with big IT businesses. These organizations have made technological investments to enhance their own goods and services.
- Data leaks and hacker attacks are two cybersecurity concerns that big tech organizations must deal with. These dangers include the potential for large monetary losses as well as reputational harm to the business.
Opportunities for the Financial Sector Provided by Big Tech Companies
Despite these difficulties, Big Tech companies offer the financial sector a number of major opportunities, including:
- Innovation: Big Tech firms are renowned for their inventiveness, which can spur the creation of fresh financial services and products. By offering more options and better services, these innovations can help customers.
- Big Tech firms are upending the traditional banking sector by offering innovative payment methods, online banking tools, and robo-advisory services. The financial sector may become more competitive and effective as a result of this disruption.
- Financial Inclusion: By offering financial products and services to under-represented communities, big tech businesses can aid in the promotion of financial inclusion. As an illustration, Amazon just introduced Amazon Cash, a service that enables users who do not have bank accounts to add money to their Amazon balance. Similiar to this, customers in India may make digital payments using Google's Tez app without having a bank account.
- Data analytics: Large IT organizations have access to a wealth of data analytics tools that can be leveraged to provide clients customized financial products and services. Better client experiences and greater customer loyalty may result from this.
- Partnerships: To benefit from their knowledge and regulatory compliance, big IT businesses can collaborate with well-established financial institutions. For instance, Amazon has collaborated with JPMorgan Chase to give loans to small firms, while Apple has joined with Goldman Sachs to establish its own credit card.
The Rise of the Super Apps: Could Big Tech Be a Greater Menace to Banks than Fintechs?
Big Tech firms are increasingly influencing the financial sector, to the point where they could be a bigger threat to banks than fintechs. With their massive customer bases, vast resources, and technological expertise, these companies are well-positioned to disrupt traditional banking models and create new financial ecosystems.
One of the most significant ways in which Big Tech firms are influencing the financial sector is through the development of super apps. These apps are designed to provide users with a wide range of services including financial services, such as payments, loans, and insurance. By offering these services within a single app, Big Tech firms are creating a one-stop-shop for customers, making it easier and more convenient to manage their finances.
One example of a super app is Alipay, the financial arm of Chinese e-commerce giant Alibaba. Alipay started as a payments platform but has since expanded to offer a wide range of financial services, including loans, insurance, and wealth management. It now has over 1 billion users worldwide and has become a major player in the Chinese financial sector.
Another example is WeChat, the popular messaging app in China. WeChat started as a messaging app but has since added a wide range of features, including payments, loans, and investments. It now has over 1.2 billion users worldwide and has become a major force in the Chinese financial sector.
Big Tech firms are leveraging their vast data resources to offer more personalized financial services. By analyzing user data, these companies can offer tailored financial products that meet the specific needs of individual users. This could include personalized investment portfolios, customized insurance policies, and personalized loan terms.
These personalized services are a major threat to traditional banks, which often offer more generic products that do not take into account the specific needs and preferences of individual customers. With their vast data resources and technological expertise, Big Tech firms are well-positioned to disrupt traditional banking models and create new financial ecosystems.
Furthermore, Big Tech firms have an advantage over fintechs in that they already have massive customer bases and are highly trusted by their users. This trust could help Big Tech firms gain a significant share of the financial market quickly, especially if they offer more competitive products and services than traditional banks.
To respond to this threat, traditional banks will need to adapt to the changing landscape of the financial sector. This could include partnering with fintechs and Big Tech firms to offer more innovative products and services or developing their own super apps to compete with the likes of Alipay and WeChat.
Conclusion
By offering customers cutting-edge financial products and services, big IT companies are revolutionizing the financial sector. These businesses are upending the conventional banking sector by making use of their technological and data analytics capabilities.
Although they have problems with trust and regulatory compliance, they offer great prospects for innovation, disruption, and financial inclusion. It will be intriguing to see how Big Tech companies will influence the future of finance as they continue to increase their footprint in the financial sector.
