View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Technology
October 26, 2017

Alibaba & Amazon pose bigger threat to banks than fintechs

Platform giants are the real threat that should be keeping banks away at night.

By James Nunns

Banks may well be focusing on the challenge to their market domination from fintechs but the real threat could be coming from somewhere else.

Amazon and Alibaba are the real threat to the banks’ market domination thanks to their growing interest in the “distribution” side of banking, according to McKinsey.

Although these two platform giants are two of the big threats, there’s also the likes of Rakuten Ichiba, Google and many more that are looking to utilise their massive customer bases to challenge the banking status quo.

The likes of Alibaba are considered a significant threat thanks to their growing reach into asset management, lending and payments, whilst Rakuten is already distributing credit cards to customers.

– UK fintech shrugs off Brexit fears and nears record investment
Alibaba injects $15bn into IoT, FinTech & Quantum Computing
– World Economic Forum: AWS & Facebook a bigger threat to banks than fintech startups

McKinsey said: “The manufacturing end of many businesses is fading from view, as the platform companies increasingly dominate the distribution end of multiple businesses, providing a wide range of products and services from a single platform.”

Manufacturing generates 53% of industry revenues, however, only 35% of profits and a 4.4% return on equity. Meanwhile, distribution – the key area under threat and sales side of banking, accounts for 47% of revenues and 65% of profits, meaning that the return on equity is much higher at 20%. In essence, this would be a really bad part of the business to have eaten by competitors.

The threat is such that the report suggests that ROE in the industry could be cut from 8.6% last year to 5.2% by 2025.

Content from our partners
Green for go: Transforming trade in the UK
Manufacturers are switching to personalised customer experience amid fierce competition
How many ends in end-to-end service orchestration?

Whilst banks have somewhat nullified the threat from fintechs by forging partnerships with the market newcomers, McKinsey suggests that banks need to combat the new threat from platform giants by building partnerships and monetising their data.

“Banks that successfully orchestrate a basic ecosystem strategy, by building partnerships and monetizing data, could raise their ROE to about 9% to 10%. Banks that can go further and create their own platforms might capture a small share of some nonbanking markets, which would elevate their ROE to about 14% — far above the current industry average.”

Banks need to take advantage of their strengths such as with consumer trust and their access to customer data – something they’ve had for decades and failed to capitalise on.

Topics in this article : , , , ,
Websites in our network
Select and enter your corporate email address Tech Monitor's research, insight and analysis examines the frontiers of digital transformation to help tech leaders navigate the future. Our Changelog newsletter delivers our best work to your inbox every week.
  • CIO
  • CTO
  • CISO
  • CSO
  • CFO
  • CDO
  • CEO
  • Architect Founder
  • MD
  • Director
  • Manager
  • Other
Visit our privacy policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.