3 Examples of Financial Companies Responding to Disruption From Platforms

Technology firms such as Alibaba, Amazon, Facebook and Google have grown rapidly over the last two decades and their services edged in slowly into the financial services sector — becoming a source of threat for incumbents and new entrants.

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The so-called Big Techs have used their direct interactions with customers to collect data and offer a range of services that exploit the network effects, which has led to further user activity and generated yet more data.

Sarah Kocianski, head of research at fintech consultancy 11:FS, says,

“The big tech firms will continue to add services that are peripheral to banking to their existing offerings, without going full-stack banking.”

3 Examples of Financial Institutions and Fintechs Standing up to Big Techs

Big techs have been encroaching into the financial services territory and now banks and fintechs have started to respond to the competition.

Digital Lending Platform From Goldman Sachs 

A bank as big as Goldman Sachs has the capability to run any competitor out of the market or acquire them due to their size, reputation, expertise and excess capital.
But the bank instead chose to create a new digital lending service platform called GS Select, and extended the capabilities normally reserved for its Private Wealth Management (PWM) clients to non-PWM, non-GS clients.

Opening up their data and other assets like this means independent advisors can now access GS assets through GS Select, and borrow up to $25 million to on-lend to their clients.

This represents a big shift in the way traditional banks are taking advantage of Open Banking and creating new business models.

Innovation will be an important tool for businesses to stay competitive. Consider this, P2P lending platforms Prosper and Lending Club accounted for $26 billion in loan issuances by the end of 2016, and Goldman Sachs’s loans receivable that same year stood at $49.7 billion.

Retail Banks Band Together to Take on Payment Platforms

Payments platforms like PayPal and Venmo have given retail banks a serious run for their money, and money transfer startups like Wise challenged the traditional cross-border payments model supported by banks and service providers like Western Union.

In 2017, to push back against this unmeted growth, over 30 banks came together to launch Zelle. Bank of America, Wells Fargo, JPMorgan Chase, Capital One and many others stood up against the rise of Venmo by enabling peer-to-peer payments directly from a consumer’s bank account.

Platform Model in Hedge Fund

The hedge fund sector is also moving away from its standard 2-and-20 hedge fund compensation structure consisting of a management and a performance fee and embracing a more open platform model.
Fintech startup Quantopian created a crowd-sourced hedge fund that gives away tools and data for free to allow anyone to create their own quantitative investment strategies.

When they put the best-performing strategies to use, the innovators are paid.
Other fintechs like Numerai and QuantConnect are taking a similar platform-based approach to hedge funds.

The platform business model in finance is not only disrupting financial services but also opening up the industry to everybody, and in the process democratising access to financial products and lowering barriers to entry for fintechs.

Sign up for the Oxford AI in Fintech and Open Banking Programme to learn about the disruptions caused by Big Tech platforms and how financial institutions should prepare to face possible disruption from platforms.

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