Private Banking and Wealth Management: Big Tech is Eating Banking – Are You Prepared to Move?

Ever since software overtook business-as-usual, the power concentration of entire industries has been shifting. Big tech companies have taken over. Industries become technology platforms where big-tech platforms own the client. Are you prepared for big tech’s entry into wealth management?

As of Q2 2020, the Top 10 most valuable companies in the world are Apple, Microsoft, Amazon, Alphabet (Google), Facebook, Tencent and Alibaba. The world’s most valuable banks such as JP Morgan Chase, Bank of America and ICBC are far behind trillion-dollar valuations as achieved by today’s leading tech companies. In addition to this dominance in market size and power, big techs are diving deeper and deeper into financial services. Big techs are driven by the customer. The goal is to dominate the customer’s life. They want to be the one-stop-platform for non-financial and financial services. And they enter the market with large and loyal customer bases.

By accessing existing customers, big techs are able to build on their position of trust to offer frictionless payments and data-driven lending/credit before further expanding into current accounts with wallets. In China, big techs have already entered Wealth & Asset Management services. The largest money market fund Yu’E Bao operated by an affiliate of Alibaba Group Holding, managed already up to USD 270bn in assets in March 2018. Hence, bite by bite, big tech is eating away financial services from payments, to credit markets, current accounts and finally also Wealth & Asset Management services. Banking is losing its dominance. China shows, where the West’s future goes (see table below).

Given big tech’s ecosystem mindset for entering financial services, their focus has mainly been on light-licensed Retail & SME banking to increase the frequency of customer interactions and remove frictions. Thus, traditional banks are still protected by regulatory hurdles which big techs were not willing to take to date in the West. The resulting structure is a provision of financial services in customer-facing layers, while incumbent’s services and infrastructures are applied for the execution (see e.g. Apple Pay). However, Chinese tech companies show what might also happen in western countries. Tencent with its world-famous WeChat application is also the single largest shareholder of WeBank, which issues loans to WeChat users. Big techs are entering financial services, putting pressure on banks to transform their data and technology infrastructure into an attractive end-to-end client engagement to serve today’s increasingly digital clients.

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Author: Daniel Müller, Chief Sales Officer, swissQuant Group