Top Three Banking Trends from FinTech Guru, Alex Johnson
Published: 13 April 2023
By May Moorwood
Digital Content Producer
Don’t get left behind – get the low down on the biggest banking trends by reading our latest industry interview with Alex Johnson, author and creator of FinTech newsletter, FinTech Takes. From the hottest innovation in the industry right now, to the greatest threat to banks and the top company to watch in the BigTech arena, read Alex’s take on the latest hot topics in this fascinating interview!
What is the hottest innovation in the industry right now?
“I think the hottest innovation is embedded finance and the ongoing quest to find every place that it conceivably makes sense to embed a financial product. It’s kind of like water on concrete – it’s getting into all the cracks and crevices.” While it is inevitable that some embedded finance initiatives will fizzle out in the long run, Alex tells us that he expects embedded finance to have a real long-term impact for both consumers and businesses. To see this through, we should be taking advantage of the huge quantity of software out there that can be used to further embedded finance – “everything now happens via APIs so we can embed things wherever it makes sense”. Looks like embedded finance is here to stay – so where next?
“I think the hottest innovation is embedded finance and the ongoing quest to find every place that it conceivably makes sense to embed a financial product.”
Where is the biggest threat to banks coming from at the moment?
“I would say the biggest threat is from BigTech companies”. It might seem the clear answer, but Alex suggests that the evolution of their threat has come in two stages. First, we saw BigTech companies like Apple and Google and even Amazon go from indifference towards financial services, to caring about them as a tool to help accelerate their existing business. Although this increased their threat level, their interest was not direct and so concern in this first stage did not need to be high.
“They don’t jump into new markets unless they’re sure they can make quite a bit of money there and I think they have their eye on financial services”
Where we are today (the second stage), BigTech is looking to financial services as a revenue-generating opportunity. We see this in several forms: Google, for example, is much more actively pivoted towards trying to sell to banks, with Google Cloud and the ancillary enterprise software that they offer. “They’re essentially trying to replace the FISs of the world as a mainstay bank technology vendor working with banks – and that’s an opportunity for banks”. On the other end of the spectrum, says Alex, “we have someone like Apple, who is actually taking a lot more of the financial services stuff that they’re doing, bringing it in-house, kicking out their banking partners and trying to do it themselves in order to capture greater unit economics associated with those financial products”. This is a huge risk and expense for companies like Apple – it only really makes sense if they view financial services as a major long-term source of revenue. “When you think in apple adjusted terms, they are worth trillions of dollars […] they don’t jump into new markets unless they’re sure they can make quite a bit of money there and I think they have their eye on financial services”.
The discussion around whether BigTech is a threat or an opportunity is one we’re seeing throughout the industry right now. Do you agree with Alex that, while digital entrants are presenting banks with ever bigger and better technology, they are becoming increasingly threatening in their movement towards financial services?
What is the biggest company to watch in the tech arena right now?
“I’ll give you a slightly off the beaten path answer on this one, but I think that OpenAI is the one I would watch”. OpenAI, the artificial intelligence company behind ChatGPT and a handful of other generative AI tools, is heavily invested in by Microsoft, which has also started incorporating its capabilities into some of its own products including Bing. Generally speaking, we are seeing the flourishing of generative AI technologies and techniques as they begin to work their way into financial services. “We’re still very early in terms of figuring out where it makes sense and where it doesn’t make sense. I think the vast majority of use-cases won’t make a lot of sense of financial services just because we work in a pretty regulated industry and you need to have a high level of certainty and fault tolerance for everything we do”. While Alex tells us that generative AI is not quite ready for any of these tasks, it’s certainly an area into which billions of dollars of R&D are being poured and it’s absolutely worth paying attention to: “I do think it will reshape the way that financial services works, just maybe not in the way that we think it will”.
Alex’s words are right on the money, with the recent anxiety around AI growing ever stronger. Those warning against the development of AI systems, including Elon Musk, seem to be on the same page – AI seems ready to “reshape” more than just the FS industry and “not in the way that we think it will”.
Do you agree with Alex’s top three trends? Have we missed anything in our interview? We’d love to hear your take on these three questions so don’t hesitate to get in touch via LinkedIn on the MoneyLIVE page.
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Creator, Fintech Takes
Alex is the creator and writer of Fintech Takes Newsletter and Podcast, which publish the latest takes on financial technology and the future of financial services. He aspires to be “the most curious person in fintech” and writes about the most interesting questions and trends in fintech, with plenty of analogies and pop culture references!