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Back in the day, IT was just one department in banks, largely responsible to maintain hardware and keep the software running. It housed techies who didn't care about what was happening to the banking function. That has drastically changed now and in the present data driven business models, tech savvy players have a clear edge to leapfrog in the market. In the bigger picture, most tech firms are heading to grab their pie in the finance cube. Fintech has shown maximum traction among startups last few years and from customer verification to micro-credit, there is huge build up going around. However, like the e-commerce space, there might be consolidation soon.
Globally, the five big tech heavyweights- Alphabet, Amazon, Apple, Microsoft and Meta (with combined revenue of over $1.5 trillion) along with scores of other biggies as well as new age startups are trying to cash upon the opportunity. They know that financial institutions might lack in the smart data crunching ability which they have through their unique models in AI and data analytics. Financial Markets are already being tapped by these firms. Microsoft has taken a 4% stake in London stock exchange and is providing cloud -computing and data analytics services.
Google has already tried up with CME, the biggest derivative exchange and Amazon has already announced its association with NASDAQ. All banks and insurance companies are using cloud computing services in a major way. Digital payments have already created disruption and big tech is there too with the likes of Google Pay, Apple Pay and Facebook Pay. They have seen limited success compared to the Chinese WeChat Pay but there have been important lessons learnt.
Now, the next move is retail credit and already the companies have started experimenting with buy now pay later type of schemes. Distribution is one of the key advantage, big tech can offer with lower cost which can be further subsidised with the deep pockets. Once consumers cement their relationships with big tech companies, banks and traditional finance companies might lose clout.
The tech companies are already looking at newer verticals to grow as recession and stagnant growth in core services has been challenging. With so much interest in the sector, will the big tech companies gobble up banks in future? The regulators seem to be undecided but big tech and consumer finance are increasingly becoming inseparable.
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