GAFA (Google, Apple, Facebook and Amazon) has threatened to wreak havoc on financial services as we know it from as early as 2011. It all began when Google launched Google Wallet. Apple then followed up with the high profile Apple Pay in 2014, Amazon Lending was created in 2012 to support SMEs with loans, and Facebook’s Messenger Payments app was unveiled in 2015 (and is soon destined for the UK). In 2016, Accenture conducted a survey which found that one in three banking and insurance customers globally would consider switching their accounts to Google, Amazon or Facebook if they offered financial services. With an estimated $1.7 trillion collective market value and a customer base exceeding two billion, these four could easily override the financial industry. So why haven’t they?
One possible argument is that GAFA isn’t a natural fit for the financial services as it currently stands. The financial services is host to a cocktail of regulations, compliance, legislation and distribution costs, meaning that operating in this sector can be both costly and cumbersome for those unfamiliar with the environment. GAFA, on the other hand, is by nature fluid and agile. Suffocated by red tape, GAFA has historically struggled to differentiate itself to consumers that are used to placing their trust in proven, stable hands. Yet, as the financial service is placed under mounting pressure to innovate and industry-leaders begin to question the commercial sense of keeping non-financial companies out of the market, this could all be set to change. New special-purpose banks charters granted to Fintech businesses will open up the industry to a whole new host of characters, from challenger banks to disruptive start-ups, SMEs, pure Fintech companies and even – you guessed it – GAFA. The end result will be an industry free to innovate – and free to disrupt.
At this juncture, it bears mentioning that GAFA cannot and will not breathe creativity into the financial services alone. With a number of well-established brands with dedicated innovation programmes already dominating the market, as well as a community of start-ups dramatically advancing the pace of digital transformation within the financial services, GAFA will be entering a market that is already on the move. As the barriers safeguarding the financial services as we know it are lifted, the speed of transformation will only increase. GAFA won’t be innovating in a shackled sector or one that is behind the times in the way the financial industry once was – so it will need to be clever. There are a number of different ways that this could pan out.
#1 A GAFA-managed service
We’re not convinced that GAFA is destined to become an out-and-out financial services provider. Instead, we see GAFA potentially chipping away at the financial services in areas they’re good at – payments, lending, customer engagement and analytics/insight – by improving user experience and simplifying processes. By stepping comfortably into the position of middleman, GAFA can restrict the power of financial organisations, stripping their services back to nothing more than a transactional link in a GAFA-managed chain. And if GAFA comes to dominate the front-end of the financial services, it won’t be long before the invisible force behind the actual process – namely the banks – fades into obscurity. This is worst case scenario for the big banks, but might leave scope for SMEs to offer up an alternative, non-GAFA service.
#2 Super partnerships
There is a real opportunity here for financial services giants to team up with GAFA to form something of a superpower. GAFA’s strengths lie in its innovation and streamlined, customer-centric design, something that financial services organisations will become increasingly reliant on as more competition enters the market with special-purpose bank charters. At the same time, GAFA cannot enter such an established industry without any backing – as has been proven previously. Trust is paramount in the financial services, and until GAFA can convince consumers that they are as risk conscious, stable and secure as the traditional financial services providers, they’ll never get off the ground.
Partnerships between some of the biggest tech brands and some of finance’s oldest and most experienced names could produce just the makeover the industry needs, with both sides focusing on the aspects that they are strongest at. Imagine a financial services provider with the stability and experience of one of finance’s key players, combined with the agility and personalisation of one of tech’s market leaders. GAFA needs the financial giants for their expertise and loyal customers, the giants need GAFA to innovate and ward off challengers; the relationship is symbiotic. This is great news for some of financial services’ leading players, but not so much for SMEs and start-ups who might struggle to take on not just one, but two (or more) behemoths.
#3 A digital arms race
The emergence of GAFA as a key player in financial services will act of the catalyst for Fintech start-ups – just think about what Amazon did for ecommerce or Facebook for social media. With increased competition from a broad range of backgrounds and skillsets, the financial services as a whole will be forced to think outside the box, improving the experience of consumers and businesses alike. This will result in an explosion of new ideas and products as different businesses focus not only on their strengths, but on enhancing and advancing their opponent’s weaknesses. GAFA may set the benchmark for customer experience by optimising data points and personalisation, but the banks will set the standard for efficiency and control, and SMEs might for competitive pricing or strong digital platforms. Instead of going to a provider as a one-stop-shop, consumers may be encouraged to shop around and customise their end-to-end journey, resulting in collaboration between different parties. Start-up and SME services could be bolted onto super partnerships to form new alliances and provide a holistic service, or perhaps different organisations will team up to drive innovation and lend insight within specific projects. We’re already seeing signs of this – some of our clients are currently partnering with larger banks and financial services organisations to drive digital transformation through build-and-run environments – an alternative to slower in-house transformation or traditional platforms. This is one indication of a sector that is moving towards the digital, contemporary and agile through clever partnership. Risk free, user friendly, high touch, informed and reliable – banking of the future could produce a win on all sides.
When we talk of GAFA entering the financial services market, it’s easy to fall into the trap of triggering the call to arms or sounding the death knell. In reality, the future of financial services is more multi-faceted and far more obscure. GAFA entering the financial services will likely accelerate digital transformation, but only in the same way that new start-ups or innovation programmes at some of the major banks will. Each player in the financial services market – from the biggest to the smallest or even the most seemingly out of place – offers something unique to the consumer. The real question is what will happen when the market hits optimum speed – will the different parties hinder each other or work together, and in what capacity? As individuals hell-bent on domination, in super partnerships, in collaborative clusters or as discrete entities focussed on their own strengths that can be combined and configured according to the desire of the consumer? All we know is this: when GAFA enters the market, something exciting is on the horizon.
As a partner to innovative Fintech start-ups, disrupters and some of the nation’s biggest banks, we’re always keen to hear from you, so lend us your insight. Do you think GAFA could ignite a financial services revolution? And how should the major players respond – will they become a cog in the GAFA wheel or something more? Will it be a true partnership or a power struggle? Speak to one of our experts to hear about the latest opportunities in the sector – we work with Fintech start-ups, SMEs, corporates, and some of the biggest names in the financial services.