Tech giants poised to challenge big banks, warns new study

Research suggests consumers have limited loyalty to traditional retail banks and would prefer to bank with 'GAFA' - Google, Apple, Facebook (!) or Amazon

Major technology companies are poised to challenge the dominance of traditional retail banks, according to new research.

A study from Peru Consulting has found that a majority of IT leaders (57 per cent) believe it's likely that so-called GAFA companies (Google, Apple, Facebook and Amazon) will join the UK retail banking sector within five years.

One-third of consumers (36 per cent), rising to 50 per cent among 'millennials' (25-34 year olds), have said they would consider switching to GAFA retail-banking services. The promise of better quality technology, along with more innovative products and services, is cited as the basis of their reasoning.

"Consumers increasingly expect to receive a highly personalised service from their retail banks in line with their positive experiences with online retailers," says Ian Robinson, principal consultant at Peru Consulting.

"GAFA companies have already harnessed the power of big data analytics and algorithmic programming to provide targeted offers to individual customers and retail banks will need to be aware of the power that this brings.

"There is an enormous opportunity for traditional banks to evolve their customer experience and learn from innovation introduced by a diverse range of new market entrants. But technology teams are already under enormous pressure to respond to growing cyber threats and maintain extensive legacy systems and networks."

Risks to big banks posed by GAFA innovation appear to be severely underestimated by banking IT leaders, the study has learned. Over 95 per cent of respondents failed to identify the temptation of new technology, such as mobile apps, as the biggest reason for customers to switch banks.

"Traditional banks need to decide if they can turn the corporate ship around fast enough in the face of growing competition, or take a considered look at which lifeboats to launch," Robinson adds.

"Building on and executing new IT strategies, refreshing architectures, creating innovation hothouses, acquiring the right businesses and driving efficiency programmes are just some of the lifeboats that may need to be launched."