initialy published : 25/10/2016
Fintechs can help banks innovate and thus counter the web giants. By Stéphane Olmi, Managing Partner, AEC Fintech
Customer experience, fueled by users’ personal data, is now at the center of corporate strategies. This new grail is the strong point of the GAFAs who have been collecting millions of data per second on each of their customers for years. Already offering payment services, they could soon use this data to offer their billions of users a range of personalized and increasingly extensive financial services. To resist this steamroller, banks, insurance companies and fintechs will inevitably have to form an alliance to counter these new entrants with their phenomenal financial clout.
The dream of industrialized personalization is underway. Like no other tool, the Internet, with the help of Big Data, has made it possible to build, day after day, an impressive knowledge of each Internet user, of his private life, his tastes, his uses and his interests, including the most intimate. This data, of immeasurable value, is at the heart of the battle for customer experience that three categories of players in the financial sector are waging today: traditional players (banks, insurance companies, mutual insurance companies and social protection groups), Fintechs and new entrants, whether they are the GAFAs or players from emerging countries such as Alibaba.
GAFA: formidable competitors
The user data collected by the GAFAs has enabled them to erect barriers to entry in terms of customer experience that no bank could overcome, even at the cost of colossal investments. Present today on a minority fringe of financial services, they could be interested tomorrow in more extensive services such as credit or asset management. With their colossal financial clout, they could simply buy up Fintechs to become formidable competitors to banks and insurance companies. Taking advantage of their high popularity among the Y and Z generations, they could then offer adapted and personalized financial services, accessible with a simple click, and eventually overtake the traditional players.
An unprecedented strike force in economic history
We only need to look to Asia to understand the phenomenal strike force that is available to these GAFAs and their ilk to serve their financial projects. In China, Ant Financial recently raised $4.5 billion to expand into financial services. Is this start-up unknown to you? Not for long. Valued at $60 billion, according to the Wall Street Journal, it owns Alipay, created by Alibaba, the Chinese Amazon. It already has 450 million customers in Asia, the size of the United States and the United Kingdom combined. In rural China, Ant Financial provides payment, insurance and financial portfolio management to about 140 million users. This company has a bright future ahead of it. According to the World Bank, more than two billion people in the world have no access to a bank or financial services, mainly in Asia, Africa and Latin America. Ant Financial, has already set foot in India by investing in Pay TM, a local Fintech.
Banks, insurance and fintech: the necessary alliance
The fact that these players are able to raise so much money and conquer so many customers in such a short time is indicative of the extent of the threat that GAFAs pose to traditional players such as banks, insurance companies and other mutuals. It is no coincidence that these same GAFAs are now looking with great interest at Fintechs. Fintechs represent the shortest way to innovate and establish themselves locally, while freeing themselves from the regulatory burden of banks. A 2016 Eurogroup Consulting study counted 130 fintechs in France. For the period from 2011 to 2015, the same study estimates that $40 billion was raised by fintechs worldwide, including $31 billion in 2014 and 2015 alone. So, Fintech and GAFA, same battle? Same digital culture, same flexibility, same desire to disrupt traditional banking: what if they got together? Banks have no interest in it, far from it.
Time for reconciliation
The time for fierce rivalry is over. Courted by the GAFAs, fintechs are now choice allies for banks and insurance companies. This duo, like a hybrid engine, has all the assets to work with a double regime. As Internet natives, Fintechs will bring the agility and competitiveness necessary to deploy winning local and international business models. Banks and insurance companies are themselves undergoing a digital transformation. Fintechs will help them innovate, be more responsive and improve their quality of service. They will also enable them to evolve their platforms to put the customer experience at the heart of their strategies. Fintechs will gain in legitimacy and sustainability. Banks and insurance companies will bring them their trustworthiness, their expertise and their large customer base. Only this collaboration will be able to produce barriers to entry that are sufficiently dissuasive to counter the GAFAs and other internet giants. The new generation of connected customers is ready for this 2.0 bank and insurance, which they are calling for. So one word of order: banks and insurance companies: get ready for Fintech!