Categories Finance, Technology

Banks at risk as tech firms trespass into the financial services territory

Tech firms have become so popular that they are already quite ubiquitous. In fact, they are like The Mad Titan Thanos, often foraying into other realms to conquer them. The traditional banking industry is no different, and could likely face extinction unless it fails to boost its digital footprint and innovate to meet the rapidly evolving consumer demands.

In its Fintech – Global: Bank of the Future report, Moody’s predicts tighter competition ahead between technology giants, traditional banking companies as well as an array of innovative fintech start-ups. The report cites US mortgage data to back its argument, which revealed that more than half of the home loans obtained in 2017 were through online platforms. The analysis also showed that nearly 70% of millennials preferred online platforms for full or partial borrowing, compared to just over 40% of Baby Boomers.

Separately, the rating agency added that the banking industry has been more welcoming towards new entrants these days by loosening regulations on them.

Paypal board at a expo
Image courtesy: @francois

This analysis is backed by to Citigroup’s (C) Bank of the Future report, which predicts that North American banks will see tech giants seizing as much as 34% of its revenues from lending and savings, as well as investment activities by 2025. Meanwhile, the credit card segment is expected to remain relatively immune to the revolution.

Fintech startups were initially the primary threat to the banking companies, which shook the loyalty base they often prided in. But banks often resorted to acquiring the start-ups or forming partnerships with them to avoid slipping into the oblivion, besides launching their own innovative labs. According to a CB Insights report, 2017 saw the maximum number of acquisitions by US banks.

The analysis also showed that nearly 70% of millennials preferred online platforms for full or partial borrowing, compared to just over 40% of Baby Boomers.

As more tech firms including Facebook (FB), Amazon (AMZN) and WeChat try their hands at every possible service, banking giants might want to reconsider their survival strategies. It is also possible that we may see numerous tech-banking consolidations in the future through mutually beneficial deals.

The trend has probably started with last week’s deal between UK-based Barclays and PayPal (PYPL), in a move to enhance digital payments. The partnership is expected to allow customers manage services of both the firms together with better ease. Therefore, it may be said that while the threat looms ahead large as ever, it also poses vibrant opportunities for banking firms in the form of smart consolidations.

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