It’s no secret that fintech startups have disrupted the financial services industry. As this blog has pointed out before, the convenience and efficiency these businesses offer their customers may threaten the continued relevance of traditional financial institutions. Banks will have to collaborate with fintech startups in order to adapt to the changing landscape of the industry.
That said, it’s easy to focus solely on the role of these new startups when exploring how fintech is changing this sector. The story of small companies revolutionizing an industry and putting established financial institutions at risk is certainly an interesting one to cover. However, fintech startups are not the only businesses seeking to offer improved financial services via the latest technology. Major tech giants are also becoming involved in the fintech revolution.
Branching out into other areas of fintech
One example is Amazon. Initially, it may appear that Amazon’s focus on certain financial technologies is simply necessary to support the company’s e-commerce business. For instance, Amazon has spent the last few years making major investments in payment services and payment infrastructure. Given the fact that Amazon is primarily an e-commerce company, this would make sense. Payment technology plays an essential role in Amazon’s business. It’s understandable that someone learning about these investments wouldn’t automatically assume that Amazon is looking to expand its fintech services in general. However, upon closer inspection, it appears that Amazon is branching out into other areas of fintech.
For instance, Amazon Cash shares a major feature with many other fintech businesses: giving unbanked and underbanked individuals the opportunity to take advantage of financial services that may have been previously unavailable to them.
Amazon Cash essentially allows customers to deposit money in a digital account that can be used to purchase items from Amazon without a credit or debit card. Customers don’t even need a bank account to create an Amazon Cash account. They can make cash deposits at the physical locations of major retailers such as CVS.
Additionally, in an effort to help small business merchants sell more items on Amazon, the company has aggressively expanded its lending program. Amazon also offers credit cards and related products to its customers. The company has even begun to develop insurance products.
Right now, it appears as though the fintech services that Amazon offers are designed specifically for Amazon merchants and customers. That said, as its infrastructure and resources grow, it’s possible Amazon will someday offer general fintech services.
Offering a range of fintech products and services
Other big tech companies may also pose an overlooked risk to traditional financial institutions. This is true even if the companies are not actively developing their own fintech products or services. They may simply offer resources that fintech firms can use to better serve their customers.
For example, Facebook has given forward-looking financial institutions the opportunity to reach customers outside of brick-and-mortar locations. Banco Bradesco, based in Brazil, uses a Facebook app that enables customers to perform essential banking tasks through the social platform. This can make essential financial tasks much more convenient for users. Instead of having to travel to a branch to perform these tasks, they can simply conduct their banking via a social networking tool they already use on a regular basis. It will likely be difficult for traditional banks to offer this degree of convenience.
Additionally, Amazon products that were not specifically designed for fintech services may still support them. Businesses such as Capital One have already begun to allow customers to use Amazon’s Alexa to perform key banking tasks.
Again, this is much more convenient than traveling to a bank. Speaking to a digital assistant in your home when you need to pay a bill or check your balance takes much less effort and time than visiting a branch.
Revolutionizing financial services
Successful fintech companies are also expanding their services in ways that may cause banks to become concerned. PayPal is a major example. For years, PayPal has served as a model for how fintech companies can make tasks such as paying bills and accepting payments easier than they were in the pre-fintech era. Now, PayPal has begun to offer general banking services. Some customers can now use PayPal debit cards at approximately 25,000 ATMs. PayPal also offers financial services such as photo check deposit and FDIC insurance. Essentially, PayPal is transforming from merely a payment service into a genuine digital bank. Since PayPal already has so many users, it also doesn’t face the challenge that fintech startups encounter: trying to convince customers to switch from their own banks to a new firm.
This doesn’t mean that small startups aren’t actively revolutionizing financial services. The role they play in the fintech revolution is substantial. That said, it’s important not to overlook the impact of major, established tech companies. They have the resources to quickly bring fintech services to the masses. Traditional banks should consider collaborating with established tech companies in order to enable both of them to succeed.