In the last five years thousands of new financial technology or ‘fintech’ start-ups have sprung up, promising to revolutionise every aspect of financial services, from personal loans and payments processing to foreign exchange and even fully-fledged bank accounts.
But it’s not these upstarts that the likes of HSBC and Barclays should really be worrying about, according to a report out this week by the World Economic Forum. It says that ‘big tech, not fintech’ poses the greatest risk to banks’ dominance, warning the likes of Google, Facebook and Amazon could soon come along to eat their lunch.
‘The partnership between banks and large tech companies risks not staying a reciprocal one,’ said Jesse McWaters, the study’s lead author. ‘Financial institutions increasingly rely on technology firms for their most strategically sensitive capabilities, but can so far only offer their ongoing business in return.’
With their experience in using big data, cloud computing and customer-facing AI, the tech giants could circumvent the financial services industry’s big players and hoover up a bigger slice of the market than they currently have access to.
‘Tech giants would be able to pick and choose their points of entry into financial services; maximizing their strengths like rich datasets and strong brands, while taking advantage of incumbent institutions’ dependence on them,’ said McWaters.
Of course it wouldn’t be the first time these giants have turned an industry on its head. Google and Facebook may not see themselves as media companies but between them they are expected to rake in 60% of online advertising revenues this year, one fifth of all advertising spend globally. In the US Amazon is projected to account for more than half of ecommerce sales by 2021, and has a 5% share of the country’s entire retail market.
There’s little stopping these behemoths from shaking up many other sectors too. They have lots of cash (Apple alone has enough greenbacks to buy any member of the FTSE 100, or even AT&T, AB InBev or Wal-Mart debt free), payrolls packed with some of the brightest business and tech minds on the planet, and a desire to keep growing and change the world. Here are some of the sectors that could soon feel the squeeze.
This seems like an obvious one. Telcos like Verizon, AT&T and BT have been investing lots of cash in media content like sports TV rights and original dramas, putting them in competition with the likes of Google, Facebook and Amazon Prime video in the fight for consumers’ eyeballs. Meanwhile the giants could be keen to get their hands on their own mobile and broadband networks to control a larger part of the customer experience – and ensure you have the fast, reliable internet access you need to keep consuming their products.
Google Fiber already provides speedy fiber-to-the-premises coverage to a limited number of cities in the US, while Facebook wants its Aquila drones to deliver worldwide wireless internet access. Expect more of this kind of thing soon.
Risk to incumbents: 4/5
Health and social care
These markets are already huge and only getting larger as developing country populations get greyer. There’s huge scope for technological change in healthcare, from monitoring your everyday health with products like Fitbit to delivering remote consultations via videochat and using big data to improve diagnoses. Alphabet's Calico life sciences division, says its 'mission is to harness advanced technologies to increase our understanding of the biology that controls lifespan...[and] use that knowledge to devise interventions that enable people to lead longer and healthier lives.'
But there are challenges too, not least in coping with the sector’s tight regulations and gaining patients’ trust. Alphabet’s AI company Deepmind has already come up against opposition to its work with the NHS and was criticised by the Information Commissioner's Office for an 'illegal' data sharing agreement.
The social care sector is crying out for real change. Nursing homes and home help can be excruciatingly expensive (see the last election’s ‘death tax’ saga), a problem that could be reduced somewhat with the use of automation and technology to monitor people’s wellbeing. On the other hand, there’s value in having a human touch – robots don’t make very good company, at least for the time being.
Risk to incumbents: 3/5
The most expensive piece of electronic tech most of us buy isn’t an iMac or a smartphone, but a car. It’s no secret that several of the tech giants are keen to take on the auto industry. Google parent Alphabet’s self-driving Waymo vehicles have been in development since 2009. With Tesla, Paypal founder Elon Musk has managed to convince a good segment of the population that electric cars can be cool. Apple was in talks last year to buy supercar maker McLaren and is reported to be developing its own electric car, codenamed ‘Titan.’
At one point big tech’s triumph seemed likely to become another inevitable tale of future-focused risk-takers outmanoeuvring an old, stale industry. But carmakers have fought back, investing massive amounts into electric models, autonomous systems and ride-hailing start-ups like Lyft and Gett. That’s unlikely to deter Google and co, but equally don’t expect to see the back of General Motors, Volkswagen or Toyota anytime soon. (There’s perhaps more potential in public transport, whose shortcomings are more about logistics than hardware).
Risk to incumbents: 2/5
This is a big and diverse field covering everything from marketing to management, engineering and law. But what consultancies of every stripe tend to have in common is their workforces of bright, experienced minds. And many are increasingly reliant on data, whether proprietary or procured, when giving advice. The tech giants have both of these assets in spades. Plus who wouldn’t want to learn about employee engagement from a Facebook guru or AI from a boffin at Google?
But a big barrier is conflicts of interest. You’re not going to share your biggest secrets with a potential competitor and given how many pies these giants have their fingers in, most companies fall into that category. McKinsey and Bain can probably rest easy for now.
Risk to incumbents: 2/5
It’s arguably the most important of our industries, keeping your lights on, your fridge cool and your car running, but energy isn’t exactly sexy. At the moment, most of our power comes from the burning of fossil fuels, which Silicon Valley is likely to steer well clear of (because of its capital-intensive nature as much as its environmental impact...).
But finding new, renewable energy sources would be right up the tech giants’ streets. Alphabet has an energy division investing in thermoelectric research and is no doubt exploring similar fields in its secretive X division. It’s not exactly hard to imagine buying your electricity via Amazon in 10 or 15 years’ time either, even if the ecommerce giant acts as an agent, rather than an energy producer.
Risk to incumbents 2/5
Security and defence
It’s hard to imagine Google or Amazon tarnishing their brands by getting involved in the arms trade. But nowadays the security industry is as much about digital dangers as bullets and bombs. Russia and China are much more likely to hack the west’s infrastructure and disrupt its communications than to mount an invasion (in the mean time at least...). That, along with the threat of terrorism and growth in cyber crime more broadly, means we can expect to see the tech giants working more closely with governments on security and defence.
Risk to incumbents: 1/5