There is no doubt that big tech companies (such as Facebook, Google, Amazon, Alibaba etc.) are progressively expanding into new markets. The tactics are different – takeover or setting up their own subsidiaries in different business lines – but the result is the same: increasing their market share, by providing more and more services. The financial sector is no exception. In this article we will briefly examine the current situation and the expected future of Big Techs in the financial services industry, focusing on the issue of wealth management.
Big Tech companies have already begun to offer basic financial products and they are going deeper to take on the financial services industry. Let’s see some examples:
- Apple launched its credit card,
- Amazon offers borrowing facilities,
- Google is releasing consumer bank accounts.
It’s important to note that none of them want to become a traditional bank. They use their advantages and offer competitive services without being regulated like banks. In most of the cases they manage this by establishing their services through cooperations with financial companies. These collaborations allow them to take advantage of their strengths – using their digital know how – and avoid “annoying” regulations.
As we can see, these US based firms are now mainly focusing on pure banking services and not wealth management. So why do people think that they are going to enter this area as well? Well, let’s have a look at the Asian market!
For instance, Alibaba successfully attracted clients in the investment funds market. They have started in the financial services sector with a payment solution, setting up Alipay in 2004. In 2014 they took the next step and established their own wealth management services (Ant Financial Group), which is now running the world’s largest money market fund. And this is just one of many.
But that still doesn’t explain why the same should happen in the Euro-American territory. There is one obvious answer, though: Wealth management is a highly attractive business. It is steadily growing (14% per year) and is one of the most profitable markets (the operation margin is around 37%). These are very desirable numbers for everyone, and Big Tech firms have the advantage to break into this market.
They have plenty of consumers and they already know a lot about them. They focus on user experience and flexibly change their offers, if necessary. Customers trust them already, making them more open to use their other services and products, which in turn makes it easier for these companies to expand. Big Techs have an enormous amount of data based on user behavior, and they also have the technology to utilize it. In other words, they have: agility, customer knowledge, brand loyalty, data, distribution capabilities, capital and technology. What else would they need? Nothing.
It doesn’t come as a big surprise that the main focus is on the millennials, who are a tech-savvy generation. They want as easy, cheap and quick financial processes as possible. A Capgemini Study shows that half of them are truly open to use and invest via a platform by a Big Tech.
All in all, most of the experts have agreed about the fact that big tech companies are going to join the wealth management market. So, the big question is not “if” anymore, but “when” and “how”. Based on experience, it is most likely that they will start a joint venture with financial players in the next years. And even though these Big Tech companies are facing new challenges, established wealth management players will have even more to do: they must create new and appealing services to keep their existing clients and attract new ones.