News that a unit of eBay plans to start offering loans to businesses that sell through its website in the UK – pitting it against high street banks, alternative lenders and its former subsidiary PayPal – should come as no surprise. It is just the latest in a string of announcements around the world revealing how big businesses outside the banking sector, usually digitally led, have been seeking to usurp the incumbents as go-to financial services providers.
In April, Russian e-commerce site Ozon said it would be expanding into financial services so it could offer loans to its online merchants. The offering, which will depend on the company gaining a banking licence, will be aimed squarely at small enterprises that are struggling to raise finance through traditional banking routes.
Ozon is ideally placed to make such a move as it can not only see exactly how much business its future loan applicants are putting through its site, but also their customer engagement and other data that will help with the decision-making process.
‘Digital giants benefit from world-class talent, deep pockets, large customer bases with high stickiness, and data leadership’
And earlier this year, Grab, the South-East Asian ride-hailing and food delivery app, announced it had raised US$300m from investors for its financial services arm. It intends to use the cash to set up a digital bank in Singapore to provide financial services to the region’s young, mobile population, who will now be able to use the app for everything from booking rides to taking out insurance and loans.
The move came just a month after it launched a buy-now, pay-later platform. Grab also recently announced a merger with a special purpose acquisition company, raising US$4.5bn in cash to go public in a US deal that will value its shares at close to US$40bn, confirming its shift from startup to big business.
Grab’s move into financial services is an example of how an app that was designed for a particular purpose has grown into a super app – one that users turn to for all manner of different services. Many apps, such as Facebook-owned WhatsApp, will allow people to transfer money without the need for bank details, but the latest trend towards lending and wealth management shows how far the app-driven financial services market has evolved.
In banks we trust
Traditional banks have faced stiff competition for many years from new entrants into the market – everything from well-established consumer-facing brands to fintech startups. But according to Capgemini’s World FinTech Report 2021, while consumers increasingly accept fintechs, they continue to trust traditional banks, with 68% saying they would try a digital-only offering operated by their primary bank.
A recent report from Deloitte, A higher bottom line – the future of financial services, highlights how digital giants, fintechs and non-industry players are increasingly expanding into financial services and disrupting the status quo.
Traditional banks have held onto their customer base because ultimately they are still trusted, but this cannot be taken for granted
As the Deloitte report says: ‘Largely free of legacy burdens, digital giants benefit from access to world-class talent, deep war chests and investment flexibility, large customer bases with high stickiness and network effects, and data leadership.’ In other words, they have the customers, the technology and the cash to make huge inroads into financial services.
The report adds that fintechs share many of the same advantages as the digital giants. Thanks to their understanding of customer experience and data, they are also poised to own many of the financial service customer interfaces of the future.
Looking more widely, Deloitte predicts that non-industry groups such as independent data utilities, tech companies and business services firms are also likely to join the expanding financial services marketplace. ‘Given their independent status, they could be viewed as honest brokers by private-sector players, and therefore better positioned to establish trust,’ the report says.
Security key
‘Trust’ is perhaps the key word here. Traditional banks have held onto their customer base because ultimately they are still trusted, but this cannot be taken for granted. Perceived convenience may tip the balance in favour of new entrants. However, research by Checkout.com suggests that although consumers value convenience, they do so on the assumption that the financial systems at the back end of any app are secure and can be trusted.
This is an area that could prove beneficial to professional accountants as all parties grapple with regulatory and compliance issues. Digital giants, fintechs and players from outside the industry must carefully protect their reputation, engage with regulators, and explore alliance opportunities with traditional financial services providers so that they can overcome regulatory hurdles and gain financial services expertise.
Opportunities
In the past, financial services was seen as a logical career path for many recently qualified accountants. This remains true today, with the added bonus that now, with new businesses entering financial services, there is a greater number of employer options available.
‘Accountants can be attracted to starting positions where they can have influence immediately, so this can add an additional route for ACCA accountants as a growing subsector of financial services,’ says Kathryn Swann, associate director in recruitment consultancy Morgan McKinley’s professional services division. ‘ACCA accountants have had good commercial training to do that job.’
And such positions could be lucrative. Alongside job opportunities for blockchain experts and data scientists, jobs board FinTech Recruitment lists a fintech head of regulatory position paying up to €150,000, while another fintech is looking for an anti-money laundering (AML) manager, who can expect up to €120,000.
