Much has been made of the rise of fintech—the whizzy startups seeking to upend the banking business. While they’ve helped make the industry more innovative, such firms generally haven’t captured much market share so far, according to a report by the World Economic Forum (WEF). Traditional banks are more vulnerable to competition from another source: tech giants like Amazon, Facebook, and Google.
Financial firms like insurers and Wall Street banks rely on these technology behemoths for “strategically sensitive capabilities,” which could backfire if they eventually end up in direct competition, said Jesse McWaters, lead author of the WEF study. In areas of rapid technological advances—cloud computing, artificial intelligence, and “big data” analytics—the likes of Google, Amazon, and Facebook have far more experience than most banks. It would be difficult for the financial industry to catch up with its own capabilities, if it came to that.
Amazon Web Services, the company’s cloud computing business, is already becoming the backbone for financial services (paywall), with companies like Capital One, JPMorgan, and market-data startup Xignite relying on it for data storage and processing, according to the report. (AWS is even sponsoring a derivatives industry event, suggesting just how far it has come from selling books.) Other banks have Facebook apps that let users do routine transactions and use the social network’s data analytics to target customers.
If they go head to head with the banks, big tech companies would probably leverage their rich data sets while exploiting the incumbents’ dependence on them, McWaters said. Amazon already offers credit to merchants on its platform, using sales data to measure risk, according to the WEF report. (It can cut sellers off from its platform in the event of a loan default.) It has made more than $3 billion of loans, and is widening the offering.
For now, big tech companies have mostly stayed at the edges of finance. Wading in more deeply would expose them to heavy amounts of regulation. The WEF report points out that it would also raise thorny questions for policymakers about monitoring anticompetitive behavior and the appropriate use of personal data. Customers themselves could also become a hurdle: They may not want a handful of big tech companies to become even more entrenched in their daily lives.