How Big Tech could change banking?

No matter which outcome prevails, no one in the financial services ecosystem will be untouched. Here’s what we see are the major implications for all parties involved.

• Big Tech: By moving into areas of banking that require licensing and regulatory oversight, Big Tech firms would need to make a dramatic transition from being innovators, enablers and facilitators to becoming mainstream players in a highly regulated industry where the rules would apply to them directly. They would need to operate strictly within the remit defined by the regulator with respect to customer engagement, outcomes, reporting and disclosures.
  
  This increased oversight would require significant changes to their operating models to allow for stricter due diligence, conduct, reporting and other regulatory compliance requirements.
  
  For instance, if Big Tech were to enter the highly regulated retail mortgage market, they would need to invest in workforce training and development, as well as system and process update. They would also need to make changes to their culture and policies to incorporate wide-ranging regulatory requirements, from initial financial advice to rolling out the final mortgage contract. Furthermore, they would need to consider customer vulnerabilities, risk of harm, customer experience and outcomes from a regulatory standpoint.
  
  Big Tech firms would also need to compete with old, trusted names in financial services and win customer trust from scratch in an industry that requires high levels of trust. Additionally, they would need to consider the impact on their existing partnerships with established financial services firms to maintain their independence and avoid conflicts of interest.
• Existing regulated financial services firms: For incumbent banks, the entry of Big Tech into their territory could be a great stimulus for innovation and change, lest they lose out to the competition. There is great potential for incumbent banks to increase their customer base by leveraging existing relationships to build better and more lasting ones by adopting innovation and change.
  
  For example, they could partner with Big Tech to benefit from these firms’ technology networks and sophisticated use of algorithms, AI and other tech innovations to provide more choice and a better customer experience to retain and enhance their customer base.

• Retail customers: With more players entering the market, retail customers would see a groundswell of new products and services and stand to benefit from fair competition and innovation, at least in the short run. However, customer demographics may have a role to play in determining the extent to which these benefits are realized.
  
  Already, there’s a divide between consumers who are comfortable with technology and would likely readily adopt innovative financial services offerings and those who would not. This divide would likely widen with Big Tech banking and would benefit consumers who are at ease with exploring and using new methods of banking.
  
  It is also likely that Big Tech would be favored by younger, tech-savvy consumers while others would continue to lean toward established banking institutions out of an aversion to risk or reluctance to switch loyalties from their trusted bank.
  
  What’s certain is it’s the customer who will decide who wins more loyalty in the competition between Big Tech and existing regulated firms or if the players can co-exist to benefit all interested parties.
• Regulator: The FCA will need to step up as the regulatory remit expands to new horizons. With its plans to publish a follow-up paper reporting on the feedback it receives to its current paper, as well as details on how it will develop a regulatory approach in response to that feedback, the FCA will need to carefully consider its own role in regulating the expanding markets.
  
  The FCA will need to up its game not only with policy making but also with dealing with increased volumes of data efficiently for enhanced supervision and enforcement. With new players and news ways of regulating—such as outcomes-based regulations—efficient data management and review will be an important consideration. The FCA will also need to enhance the approach and speed with which it regulates and enforces compliance.

Big Tech has disrupted other industries, and retail banking will be no different. This is the time for everyone in the ecosystem to stay aware of the developments happening with Big Tech banking and how they can adapt and partner to remain viable in the years ahead.