For many years now, the competitor banks held a prominent position in leadership in the payments sector. But the fast growing digital payment technology advances are signaling opportunities for the new market entrepreneurs to affect this status quo. To rise through these odd and in order to maintain their position high, it is effective to develop more strategies and analyze their competitors to assess their strengths and weaknesses comparing to their key factors and backgrounds of data, trust, cost, innovative methodical approaches and the alternative methods. The banks are facing increased competition from card networks, payment platforms, contender banks and big tech players, which is upsetting the payments ecosystem or the banks. It is true that the position these banks hold are because of the underpinning strong trust by their customers in the massive scale but these things should be taken for granted as trust is a layered concept. It solely depends on the transactions being reliably processed, responsible data use and, increasingly, an expectation that organizations’ are acting in their customers long-term interests.
The latest Oracle digital banking survey fixated almost solely on Gen Z and Millennial customers showed that 64 per cent would commend their bank for various spending, savings, borrowing, and investing products, but 56 per cent said they would be eager to switch to banking solutions presented by one of the big tech companies. And at the end of 2020, 15% of Gen Z and millennial consumers deliberated their ‘primary’ account to be with a contender, up from 4% at the start of the year. Banks being placed on the goldmine of the consumer data should start utilizing it more effectively for their and the clients advantage. The data by itself is of no value but it holds a great power when effectively organized, translated and leveraged it as something meaningful, for the consumer insights and value add products and services that has emerged as a main competitive denominator. Owning the legacy infrastructure also makes it bit hard for these banks to compete on cost which holds more value now that the margins are evaporating, and payments are becoming instant, invisible and free. This limits the chances of exploring the alternative payment methods. So it becomes very important for the banks to recognize where the competition might excel while they bolster their strengths and address these challenges.
The big tech GAFA (Google, Apple, Facebook, and Amazon) companies are the unexpected entries that represent theoretically the greatest viable threat to incumbent banks. One look at China, where Tencent and Alibaba have proven to have a dominant position and huge payment volumes through WeChat and AliPay, is sufficient to keep bank managers up at night.
It is clear that incumbent banks are beneath substantial and sustained outbreak from various competitors and the truth is, this competition is only going to increase. J.P. Morgan CEO Jamie Dimon notes, incumbent banks should expect to see very, very tough, brutal competition in the next 10 years. And when asked why JP Morgan envisioned to focus on buying FinTech and tech firms, Dimon noted that their new competition is Apple, Amazon, Google, WeChat and AliPay rather than other banks. Therefore these banks must focus on the combination of a clear and executable data strategy with flexible tech solutions and having partners’ expertise in improving the data driven positions to promote trust and reduce costs, analyze the scale advantages, drive innovation and support the alternative payment methods.