Tech giants pose ultimate threat to big banks and fintechs? That’s according to a new report by the World Economic Forum which has warned that the biggest fintech disruption to traditional banks won’t actually come from innovative new startups but from established tech giants such as Google, Apple – and even Facebook.

From social media… to the world’s first mass cryptocurrency?

In fact, Facebook could be perfectly primed to lead the market in mass cryptocurrency thanks to its existing base of over two billion users. Intriguingly, the tech giant has already delivered a game-changing corporate restructure as part of its announcement to move into the blockchain market – and although it hasn’t clarified the reasons behind its intentions, market analysts are tripping over themselves to come up with the most likely theories behind this latest turn of events.

Currently, other than confirmation that it is progressing an exploratory blockchain project, Facebook has released few details behind its plans to move into the fintech space. However, blockchain technology is widely seen as having broad applications that far exceed cryptocurrency enablement – from simplified supply chains through to safer contracting. In the case of social media, it could be developed to tackle user privacy concerns; something of particular relevance to Facebook which recently experienced a malicious data breach that affected 87 million users. However, those in the know believe that Facebook is actually interested in creating its own unique cryptocurrency to allow its vast legion of users to post and pay for content. If this occurred, Facebook would be following a number of other technology companies which have already launched their own Bitcoin alternatives and it could potentially even become the first provider of a new global cryptocurrency in the process. With its brand strength, tremendous intellectual asset base and deep financial reserves, it certainly has a tremendous platform from which to leverage such an achievement. And enticingly, Facebook boss, Mark Zuckerberg, has already defined his personal challenge for 2018 as exploring the full advantages of both blockchain and cryptocurrency, saying that he is particularly interested in the question of decentralisation versus centralisation, and the ability for cryptocurrency to put ‘power’ back into the general public’s hands.

The future is – not Bitcoin

Even big thinkers at a government level believe that global cryptocurrencies could be the next direction for innovative companies. A former senior Whitehouse advisor, David Cohn, has said that he anticipates a new worldwide virtual currency to be a reality soon – and one which is not bitcoin, but which is enabled by blockchain. So the playing field is very much open for enterprises ready to take the lead – and tech giants seem particularly interested, enabled and poised to catch the early advantage.

The World Economic Forum weighs in

But what does this turn of events mean for large financial institutions and the broader changing competitive landscape? Are fintech startups still an issue for traditional banks – or are tech giants now the competitive focal point? The World Economic Forum believes it is the latter, finding in its research that start-ups have a lesser impact on the fintech space than previously anticipated. In a report, the body said that although fintechs were defining both direction and tempo of innovation in the industry, they struggled to achieve necessary scale to really make an impact.

The World Economic Forum interviewed a range of experts in the tech and finance industries and found that banks were actually falling far behind their tech competitors when it came to artificial intelligence, cloud computing, big data and other technology developments. It found too that lenders were looking toward tech firms to produce these functions and that Google, Facebook and Amazon were already dominating the innovative space in these fields. Amazon Web Services was flagged up as a key example, with customers that already included large financial firms such as Capital One, Aon and Nasdaq, alongside IBM’s new ‘Blockchain-as-a-Service’ platform, which will also be used by a number of leading European banks.

But is this actually a problem for the financial services industry? Are they even concerned? Perhaps not – as the report concluded that financial institutions were more focused on being fast followers than leading innovators, forging partnerships to leverage the innovations of other providers – whether fintech or ‘traditional’ tech – in order to build their own competitive position.

But what about fintech itself?

Interestingly, the report’s comments have been widely echoed elsewhere suggesting that fintech startups may no longer represent the threat to traditional banks as per original analyst predictions. Why? Because of knowledge and scale. A spokesperson at IBM said that fintech startups often lacked a full understanding of the very industry they were attempting to disrupt and in particular, a failure to appreciate the scope of 24-7 transactions within an $8 trillion industry.

Smart practices may prevail

But with all this in mind, is it a given that banks and smaller fintech firms will fall behind big giants? Not necessarily. A number of big banks are looking to model the best practices of leading fintech firms who are leading the way in defining what customers really want. Those that adopt this ‘learning approach’ may be able to leverage their tremendous asset base to jump ahead in the fintech race and to extend their already powerful brands within existing comfortable customer markets. Other big banks are looking to buy up niche verticals to acquire these competencies and to buy in their position for fintech launches. In these cases, big banks can use their financial muscle to acquire excellent emerging technologies, using their own marketing strength, customer base and reputation to potentially bring real innovation to the market.

So perhaps banks need not yet overly concern themselves about the tech giants of this world, especially if their own focus isn’t actually on cryptocurrency creation – as indeed, it seems unlikely to be – but rather on creating value-adding products that customers actually want to make their financial lives simpler, faster, more engaging and value-creating. The playing field is still open and the fintech industry is still very much in its infancy, offering plenty of profitable scope for those savvy enough to jump in with the best customer solutions.

If you want to know more about fintech then why now check out our previous blog What is Fintech or Open banking: What you need to know

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