The financial services industry today is characterized by change. Investor interest and capital is pouring into fintech companies – digital banks, insurtechs, wealthtechs, proptechs and every option in between are shifting how financial services are created, offered and evaluated.
New changes, new challenges
This shift has spurred many traditional financial institutions to take action. Yet, changes aren’t always straightforward. Financial institutions know they need to embrace innovation, and they also have to find better ways to understand and respond to their customers.
At the same time, the shift has put a spotlight on a new area of opportunity for big tech companies like Alibaba, Apple, Google, Tencent and others. These companies have incredible reach, deep roots into their customers’ lives, and robust customer data. Big techs are also constantly looking for ways to provide their customers with more value, to enhance customer loyalty by providing a more integrated ecosystem. Most already offer payments solutions, so extending their offerings to include financial products makes sense. However, there are no strong indicators that the big tech companies want to become banks. The regulatory burden is so far considered too high for their appetite1.
Forging strategic alliances
Big tech and financial institutions are already investing in fintechs to help advance their strategic goals. For example, Tencent led a $35 million investment in open banking focused TrueLayer in the UK this year2.
What they are realizing that partnerships don’t have to be limited to start-ups – working together with established institutions can create value. Over the past 6 months, there have been a number of strategic business relationships announced, such as Google’s partnership with Citibank and Stanford Federal Credit Union, to offer smart checking accounts3 and Apple’s announcement of a partnership with Goldman Sachs to offer the Apple Card credit card4. These will likely only be the beginning.
What they’re now starting to realize is that partnerships don’t have to be limited to start-ups – working together with established institutions can create value.
Making it work
So, what does it take to drive value from partnerships between big tech companies and traditional institutions? KPMG firms' experience working with financial institutions, fintechs and big techs suggests that the areas of central importance are organizational, cultural and strategic in nature.
Here are four key areas where financial services executives may want to focus attention5:
I expect in 2020 to hear even more announcements of new partnerships. However, not all of these will succeed. The organizations that understand how strategic alliances work and are committed to the end result will be the ones able to drive future value.