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If you feel like financial services are constantly being advertised to you - by every possible entity other than your bank - you wouldn’t wouldn’t be entirely wrong. We’ve written extensively about how Embedded Finance is turning brands into banks. Payments were the first major area to be disrupted by Embedded Finance, with tech firms such as Apple, Uber, and Amazon already offering some form of digital wallet / buy now, pay later service.
Now, having had a taste of the financial services game, these tech giants are doubling down. In September 2021, Equitas Small Finance Bank announced that it would enable users to open fixed deposits (FDs) on Google Pay. Just about a week later, Amazon’s financial services unit, Amazon Pay partnered with investment platform Kuvera to offer wealth management services to the e-commerce giant’s customers.
Sure, none of these firms have a banking license (yet), which means they still need the support of financial institutions to offer banking products. But that hasn’t stopped the World Economic Forum from claiming that Big Tech “poses a greater threat to banks’ underlying business models than the more diverse FinTech sector.”
What makes big tech such a looming threat to traditional banks? Let’s take a look.
The lack of banking licenses isn’t as big a problem as it may seem. With the rising popularity of application programming interfaces (APIs) and third-party infrastructure providers, they no longer need to build financial products in-house. Capabilities can be integrated in a few clicks while compliance can be taken care of by FinTechs that specialize in that specific area.
When FinTechs are compared to banks, they’re said to be at a disadvantage when it comes to two aspects - an existing customer base and user trust. And this is where Big Tech has a leg up over FinTechs as well. Take Amazon for example. Amazon Prime has hit 200 million subscriptions in India, and 4000 products are sold on Amazon India per minute. The reason behind this popularity? Consumer belief that the brand will deliver the best quality, on time. So when it comes to consumer trust and a solid customer base - banks and Big Tech are on a level playing field.
Big Tech is sitting on a data gold mine. They accumulate troves of consumer data from both their non-financial and financial activities. This allows them to better analyze customer behavior and assess their risk profiles - even in the absence of traditional bureau data and past credit histories.
How can banks keep up?
The time for banks to go digital was yesterday. And with increasing competition from technologically advanced players, it’s not enough to simply take existing processes online. A truly digital-first approach will involve mapping the end-to-end customer journey and optimizing key touch points - right from the time a lead comes in till collections. There are several technologies banks can leverage to do this. For example:
Big data solutions can increase client satisfaction and conversion rates. With it, banks can segment customers based on their risk profiles, personalize product offerings, and identify opportunities for upselling and cross-selling. Monitoring customer behavior with big data analytics can also help predict and bring down instances of banking fraud.
Artificial Intelligence (AI) has several uses in banking. For starters, It helps improve processes for anti-money laundering (AML) and know-your-customer (KYC) regulatory checks. It also has several applications in customer service and experience - the most popular being chatbots and voice assistants that provide 24x7 support to customers without need for human intervention. When it comes to banking processes, AI is especially useful in automating information-sensitive and error-prone processes such as claims management and collections. This optimizes RoI, ensures speed and reduces costs while improving overall user experience.
Cloud transformation will allow banks to roll out new services, shorten the product deployment cycle, and simplify product testing. It will give them the flexibility to scale back when needed or reverse decisions that have unexpectedly backfired. Leveraging cloud technology also results in immense cost savings - banks will no longer need to build infrastructure from the ground up. Instead, they can use APIs to access pre-existing applications to roll out new products with ease.
At the end of the day, it’s not an us vs them situation. While the RBI hasn’t quite warmed up to the idea of Big Tech entering finance, seeing it as a risk to financial stability, on the flipside, it could enrich the financial landscape with innovation. Banks can ride this wave by leveraging Big Tech’s advantages of speed and convenience while also working on their own digital transformation.