Few sectors have been disrupted in quite the same way as the finance industry in such a short space of time.

Increased focuses on the convenience, user experience and accessibility that technology is able to offer in this space has given rise to tech-first start-ups that are challenging legacy brands, and big tech firms making a big entrance by using powerful data to provide alternative services to their customer base. We’ve reached a period of significant disruption and something, or someone, is going to have to give.

Each have their strengths, but in equal measure they have their areas of weaknesses which are there to be targeted and exploited by the other two contenders. The incumbent banks, for example, have already achieved regulatory approval, established large customer bases and have a preceding reputation of trustworthiness that puts said customer bases at ease.

Challenger banks meanwhile – the Monzos, Starlings and Revoluts of this world – do not have the same number of existing customers to enable their wholesale growth. That is fast changing, with Monzo, in particular, announcing earlier this year that 35,000 new current accounts were being opened each week. But they have a tech-first approach that incumbent banks struggle to keep pace with, allowing them to prioritise the user experience and make banking a more seamless process for their customers.

That has been the battle for some time now, but as of late a third contender has entered the ring – big tech. Google, Apple, Facebook and Amazon (GAFA) all have some form of finance industry product to their name, from Google Pay entering the market as early as 2011 to Facebook’s stuttering Libra project. In a survey conducted by the Digital Banking Adoption Guide, 58 per cent of respondents predicted that GAFA would, in some way, replace incumbent banks within the next five years, and it’s easy to see why.

Although they suffer the same hindrance of regulatory approval as the fintech start-ups do, GAFA have already amassed millions of users and subsequently procured their data, what’s more this heavyweight group obviously doesn’t require financial backing, having already established incredibly successful business models. For them, launching financial products is simply a way of monetising their existing user bases. Game over, then, and a win for big tech, right?

Not quite. The incumbents still have somewhat a position of strength, and many are beginning to build on this – HSBC has announced Project Iceberg, while Goldman Sachs has launched its digital platform Marcus. The former, while still in its building phase, highlights a potential route forward for the industry as a whole by emphasising the power of partnerships. Although challenger banks are causing legacy firms to look over their shoulder, it’s no secret that they have a natural alignment – the start-ups need customers and regulatory approval, while the incumbents need to take on a tech-first approach. They go hand-in-hand, and in recognition of this HSBC have partnered with more than 100 FinTechs around the world in order to build their own digital platform and ensure the new venture offers innovative and efficient services”.

Few sectors have been disrupted in quite the same way as the finance industry in such a short space of time

Big tech is one step ahead again though, having already begun partnering with existing financial brands to launch their own products which are already in the public domain – Apple’s card is powered by Mastercard, and Amazon’s by Visa. As with HSBC’s approach, this means that existing firms do not have to be inventors of new technology, they simply merge themselves with those who already have a firm grip on the sector. Where this hasn’t worked so well is with Facebook, after Mastercard, Visa and eBay, to name but a few, withdrew from the Libra project over regulatory concerns, proving the need for adequate controls, or an existing player to partner with to provide the front end.

Each of the three contenders has something which gives them a competitive edge over the others, however the majority of the spoils will likely go to whomever manages to overcome their individual challenges first. The legacy banks will have to transform digitally and rapidly; the challengers must find a way to expand their product offering to a larger audience; big tech needs to discover ways of monetising their data either through trusted partnerships who can provide their front end, or by building adequate controls internally that will pass regulatory approval.

The current financial climate is unquestionably undergoing pivotal change and its major players must respond and adapt because ultimately, the future of the finance industry will likely be determined by the organisation with the most effective, seamless and consumer-friendly service offering.  There simply isn’t enough market share for all the stakeholders to offer a complete range of financial products and services, and the legacy banks must invest in digital transformation at a quicker rate, cannibalise themselves by creating internal challengers, or follow suit with the likes of Citibank and Google by creating partnerships. Otherwise they will spiral into further irrelevance and face extinction.

By Justin Hobday, Partner

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Justin Hobday


Justin established Carmichael Fisher LLC and remains hands-on in his role leading many of the firm's key mandates.