‘Silicon valley is coming’ said JPMorgan Chase CEO Jamie Dimon in his April 2015 annual letter to shareholders.
Nearly three years on, most would suggest that he was right ‘on the money’.
The context of this statement is that he was suggesting there will be a huge increase in fintech start-ups moving to London, New York and Hong Kong to feed off large financial firms – mainly adding value to their businesses but in some cases causing massive disruption.
I think that although I believe Mr. Dimon was entirely correct, the emphasis we have seen and indeed will see in the coming years will be on the latter part of his statement, technology companies are disrupting the financial sector.
We have already seen some of the ‘Big Tech’ companies moving into financial services in an attempt to steal market share from the banks in the form of things like Apple Pay and PayPal Credit. These are applications designed to help their consumers use their primary service/buy their goods more efficiently but it wouldn’t be a leap for these cash-rich California-based tech firms to create increasingly similar products to the financial firms. For example, Apple Pay uses your debit/credit card details to make payments, would it be a stretch for Apple to host current accounts? With a massive increase in the use of contactless payments through smartphones would it not be easier to pay with your Apple iPhone via your ‘Apple Bank’ accounts rather via Barclays, Lloyds or HSBC?
Apple are already partnered with Barclays to provide credit for purchasing new Apple products. If you held money with Apple would it not be easier to organise credit through them for other things? It isn’t totally unimaginable that in the future we might pay for our mortgages through Apple Pay.
Holding, lending and investing money are central to the profits of the financial institutions in place today. Will they survive in a world where retail customers hold their money with their tech provider (whether Apple, Amazon or Google) and borrow from them? With regards to investing, I mentioned above that Jamie Dimon has already indicated that tech firms are already feeding off the large financial institutions by providing services that add massive value to Investment processes – whether through software (data/algorithms) or hardware (high-performance computing).
Can we see a world where FAAMG (Facebook, Apple, Amazon, Microsoft and Google) give the ‘Big Four Banks (Barclays, HSBC, Lloyds and RBS) a good run for their money?