Financial services regulation is evolving to catch up with the digital revolution, but is it ready for the big tech takeover? In this article, Rabya Anwar will consider how big tech companies will impact the future of financial services.
Having reigned exclusively for much of the past century, over the last decade traditional banks have had to spar with some fast and furious young contenders, as a long line of digital disruptors have stormed the ring. In a bid to compete, traditional banks have embraced the digital tools and digital services made popular by their neobank rivals.
However, in the coming decade, a more fearsome opponent is set to enter the financial services ring – the tech giants. Far from the humble start-up origins of many of the neobanks, big tech banks are not joining the race from the starting line. In fact, they are some of the world’s largest global corporations with boundless infrastructure, resources and customer pulling power.
Whilst the average bank was paying less than half a percent interest on savings accounts earlier this year, Apple announced that it would pay 4.15% annual returns to its customers.
The future of digital banking
In terms of how the future of digital banking will change as a result of the tech giants entering the banking industry, in the short term, immediate shifts are unlikely. This is because until the tech giants obtain their own banking licences, they are tag-teaming with established banks. A prime example of this strategy is Apple leaning on Goldman Sachs to help issue the AppleCard and other prospective Apple-branded banking services.
In the short term, banks are beginning to invest in high-tech solutions to improve their services and compete with the threat of tech giants stepping into their market.
Over the long term, a few points are determinative for the future of the digital banking industry. As the future of digital banking is reshaped by tech giants entering the field, how will financial services regulation evolve to manage the big tech takeover? Will financial services regulators be empowered enough to respond to any attempts at a big tech takeover?
Overall, introducing new players into an established market increases competition and usually leads to every service provider improving their services in a bid to maintain existing market share and attract new customers. Prices for services sometimes decrease when new competitors are first introduced and so this benefits customers. But this is only the case as long as competition between big techs and banks remains fair and as long as anti-competitive practices or attempts to takeover or monopolise banking services are stamped out from an early stage.
As long as big tech entrants to the banking world are providing one of many alternatives from which customers may choose, the big tech entrants would be a valuable addition to the banking industry.
The real question is, how long will big tech play tag-team with traditional banks? Do the tech giants see their arrangement as a marriage of convenience, a team sport or perhaps a baton race where they plan to eventually grab that baton from the traditional banks and make their own solo sprint to the finish line?
If you have questions about the financial regulation of big tech services, please contact Rabya Anwar.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.