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Why banks and building societies need to do more to stay ahead of big tech

Facebook may have shut down its crypto project, but Apple is now offering savings accounts. Should banks and building societies be worried about major tech brands poaching their customers with new financial services offerings?

Facebook may have shut down its crypto project, but Apple is now offering savings accounts. Should banks and building societies be worried about major tech brands poaching their customers with new financial services offerings?

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30th May 2023

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Jerry Young

With the news that Apple has finally launched its much-anticipated savings account in partnership with Goldman Sachs, attention is once again on the role companies like Google, Amazon, Facebook, and Apple (GAFAs) might have in the future of financial services.

It’s a complex picture: GAFAs have the technology, reach, and investment to make major waves in banking and payments, but banks and building societies have owned the space for decades, and have the edge on consumer trust.

As tech brands push harder to carve out their own niches in payments, ecommerce, and savings, banks and building societies can’t simply rely on their incumbent position. Maintaining loyalty requires constant effort—and there are certainly lessons that traditional organisations can take from the way tech brands create and refine their user experiences.

Major tech brands have the potential to make waves in financial services

These major tech brands have all the pieces in place to become big players in the financial services industry, beyond their already-dominant position in mobile payments. (Google Pay, for example, is available in 62 countries, while consumers can make purchases with Apple Pay in 76 countries and territories.)

Between them, these brands have billions of users around the world, all feeding massive amounts of personal data into their systems every time a person uses one of their devices or logs in to a profile. Nearly three billion people have a Facebook account. With an embedded position in people’s lives, there are ready-made avenues for capturing customers—which traditional finservs need to go looking for.

Above all, their model is entirely user-focused, which means they could have the edge when competing against established banks and building societies that still have work to do on their customer experience. All that data they collect is perfect for building tailored journeys for financial services, and offering customers personalised products that fit with their lifestyle and preferences.

The GAFAs of the world are also nearly unrivalled in the amount of investment and resources they have to put behind new initiatives, allowing them to experiment more and commit more heavily to potential services.

The shift from digital payments to full-service finance isn’t simple

However, there isn’t a totally clear path for GAFAs as they eye up a position in the financial services landscape. There’s a big leap between acting as a middleman for payments and offering a full-service banking experience that meets consumer demands. The drive for convenience means more people are looking for a centralised approach to all their finances—current accounts, savings, loans, mortgages and more—and it’s unlikely that GAFAs will be able to provide that full-service approach.

Though many people use GAFAs’ services without much thought, many others are concerned about how big tech brands use and manage their personal data, which may hold them back from sharing the financial information necessary for banking. For example, research indicates that just 18% of consumers trust social media companies to keep their personal data secure, which could stymie any plans in this space.

There are also major legal considerations; financial services is a highly regulated space around the world, with different legislation covering different territories. Big tech’s global footprint means more reach, but also real headache when it comes to navigating all the different requirements—and regulators are acutely aware of the potential for these brands to become monopolies if left unchecked.

Indeed, Facebook parent company Meta shuttered its cryptocurrency venture known as “Diem” and sold off the related assets in early 2022 after regulators pushed back with concerns about security, cybercrime, and Facebook’s power in the market. Crypto in general is becoming far more stringently regulated, even in previously permissive countries, which may make it a less attractive long-term proposition for blockchain newcomers.

With no one-size-fits-all approach to offering financial services on a worldwide scale, GAFAs would need to commit heavily to adapting their offering for each country, or restrict their operations to a few major markets. Both approaches could limit the value of getting involved in the sector compared to new ventures in their own industries.

Banks and building societies need to match GAFAs’ pace

Just over a year on from when we last considered the potential impact of GAFAs on banks and building societies, and there’s not been a whole lot of movement—yet. But that doesn’t mean the threat is gone entirely.

As a brand, Apple is known for its clean interfaces and slick user experiences; and that’s emulated in its new Apple Card savings account. In a direct competition on customer journeys, GAFAs are likely to win out against many traditional banks. That’s because their user-friendly approach to their core offerings—whether that’s ecommerce, software, search, social media, or technology—provides a strong foundation for seamless, rewarding customer experiences.

To compete on that front, banks and building societies need to turn their attention to their own experiences. It’s not enough to provide good services; they need to be delivered in a friction-free digital environment and offer a personalised product that’s matched to the customer.

That digital component is key. If GAFAs continue to move into the financial services space, they’ll already have the high-quality technical infrastructure they need to support their banking tools. Many banks and building societies, on the other hand, lack that modern infrastructure thanks to decades of working with legacy systems. Whether it’s in direct opposition to GAFAs or simply keeping up with customer demands and disruptor banks, digital transformation is a must.

So, consumers aren’t getting ready to leave their banks and building societies in droves in favour of major tech brands just yet. But as Apple’s announcement shows, these brands are continuing to make progress into the financial services industry, looking to expand their grip on consumers’ everyday lives. If traditional banks and building societies want to hold onto their position in the sector, they need to focus on increasing loyalty through the products and journeys they provide.

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