Why Mega tech companies are foraying into Fintech


At the start of the decade 2011-20, we saw more and more companies foraying into the Fintech space. Most of these companies were new-age startups, which innovated a new way of doing traditional financial transactions. What surprised many, is when Mega tech companies like Google, Apple, Amazon started to foray into this fintech space. These big tech companies opted to partner with financial institutes to create new offerings. They started with a simple payment mechanism and thereafter have been adding to their offerings. Let’s look at why this collaboration was formed.

Background

In the last decade, we saw a global financial meltdown. Banking & Financial services Institutes (BFSI) companies were looking for an opportunity that would provide a much-needed boost. Steve Jobs in 2007 had launched a revolutionary concept of smartphones. These smartphones fast became the drivers of economic growth.

Previous Success in Digital Financial Transactions

In earlier decades, digital finance front saw some experimentation. PayPal, for example, is recognized as the pioneer of digital wallets. Ant Financial (earlier known as AliPay), launched its service in 2003. With booming e-Commerce, digital payments was a vertical identified, from where the next big growth could be seen. This growth engine was fueled by the comfort of companies that more and more people were ready to make financial transactions digitally. This comfort laid the foundation for mega-companies to foray into what would eventually go on to become fintech.

How did this partnership emerge

BFSI was looking for the opportunity to fuel its growth engine post the financial crisis. Around the same time, the millennials started to enter the working population. This next-gen required a new and simplified approach for their financial needs. Traditional banking and Financial product processes were cumbersome. Technology giants just spotted an opportunity of collaborating with BFSI and providing millennials just what they needed.

Why did BFSI partner with Mega tech?

Providing great UX is not all the reason, why these mega technology companies have joined the bandwagon. BFSI companies have the required setup and the license to carry out financial transactions. In the early dot com era, BFSI invested heavily in the software and its infrastructure. These decade-old systems were great then, but would not be able to scale easily to the needs of new-age technology like cloud computing, AI, etc. BFSI companies needed a growth partner and enabler who would help them with the new technology. Of course, technology is not a BFSI forte, and hence their partnership with technology companies would reveal a new opportunity. Turbulent times post-financial crisis simplified the options in favor of this partnership.

In a country like India where the non-banked population was steep, opening accounts through Jan Dhan Yojna was a massive step. Creating enough bank branches for new created 320 million accounts is not easy. Technology does play a pivotal role in such scenarios.

What benefits did Mega-Tech companies have in Fintech

Technology companies with smartphone advent were able to garner a new customer base. Their main motto has been Data is the new oil. These tech companies were now looking for the next new offering which would help them retain their new customer base. Not only that offer something that would increase the stickiness with the customer base.

Financial transactions were anyway cumbersome for the next-gen in traditional banking. Mega tech companies spotted this as an opportunity and expanded the wings to Financial transactions. To lure their customers further they used mechanisms like cashback etc. These schemes ensured that their existing customer had higher stickiness and importantly generated more data for them.

Will These Digital conglomerates become banks

With a stepping stone into a financial institution, will these digital conglomerates foray into pure-play BFSI is an obvious question. As of today, not many such technology companies want to become a traditional bank. However, with the extent of data that they hold, these tech companies may explore opportunities that will help them gain significant competitive advantage. The major possibility appears to be that BFSI and Tech companies will continue to partner and create great personalized products.

Also Read – How Digital Payments evolved

References
https://www.pwc.in/assets/pdfs/consulting/financial-services/fintech/publications/emerging-technologies-disrupting-the-financial-sector.pdf
https://www.toptal.com/finance/market-research-analysts/fintech-landscape
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