Big banks bigger techs how policymakers could respond to a probable discontinuity

The banking sector is facing the formidable challenge of responding to COVID-related changes to customer behavior and the adverse impact of economic weakness. In parallel, there is the presence of a potential new class of competitors with powerful networks and deep investment pockets (the so-called big techs). This combination of factors will most likely drive significant discontinuity in the banking sector.

This joint report analyzes the competitive dynamics in major markets. The status quo is defined by continued dominance of traditional banking players, and a niche penetration by big techs and specialist fintech in most major markets. The main question for banks is how to prepare for the possibility of a major incursion of the big techs into their core markets, where this has not happened already. It is possible that big techs choose not to engage in core banking markets, but the general sense from our interviews it is not a question of if but when. Banks may therefore need to rewrite their past formula of success, and transform the way they serve customers, interact with third-parties and make the very fundamental strategic choices of whether they wish to compete as a “network” business model or compete in specific businesses serving others’ network.