I am thought experimenting because the Financial Conduct Authority is taking Big Tech seriously.
It has released a discussion paper on its UK entry and expansion, and pointed out that several among Meta, Apple, Microsoft, Amazon and Alphabet (MAMAA) already have permissions in payments, e-money, consumer credit and insurance.
How long until they have ticks against mortgages, pensions and investments too?
In 20 years’ time, Big Tech could give clients what they need when they need it
So, let’s play a game: what would the landscape have to look like for Big Tech to make a serious play in UK savings and investments? What might be their pre-conditions?
Pre-condition #1: An addressable market
If Big Tech have shown us anything, it’s that they want to be where the action is; where the consumption is. And that’s with the ‘end’ customer.
We’re safe to assume, then, they’re unlikely to buy into manufacturing without considering existing distribution and whether they can do it better, more cheaply and more digitally.
I see little reason why a peek at a few vertically integrated outfits wouldn’t highlight what’s possible
We aren’t short of providers selling pensions and investments digitally, and no one has managed to break down the importance of proper, in-person (or at least webcam-based) advice. I’m not sure people will suddenly change just because the name is one from which they order stuff off the internet.
So, yes, they could be attracted to the footprints of the heritage providers and salivate at what they could do better — the purchase price for a big lifeco is well within what Big Tech would pay for an app that makes your dinner look nice.
But they could also spy a consolidating market and see a similar opportunity with a golden road to the affluent.
Might Big Tech see consolidation as evidence of an addressable market and of proof of concept?
The savings and investment market is big and everyday enough, but distribution is a problem and so are barriers to entry
Advice is consolidating but few consolidators have really got their act together. Could Big Tech do better?
I’m scoring this one as ‘Maybe’.
Pre-condition #2: An ‘everyday’ market
There’s a good reason Alphabet, Amazon, Apple and Meta have FCA permissions in payments. Even in 2020, with volumes negatively affected by the pandemic, there were more than 35 billion payments in the UK, almost 25 billion of them ‘spontaneous’.
Big Tech likes an easy-in. Might UK financial services regulation be seen as too heavy-handed?
For Big Tech, only ‘everyday’ will do.
Transactionally, per investor, little in regulated savings and investments happens every day, but at a macro level enough of it happens often enough to pique MAMAA’s interest.
Auto-enrolment, after a promising start, remains highly fragmented and inefficient. If Big Tech can marry something like it with extraordinary technology, they could be onto something.
I’m scoring this one as ‘Proved’.
Pre-condition #3: An ‘easy-in’ market
Big Tech likes an easy-in. Might UK financial services regulation be seen as too heavy-handed? As the FCA points out, based on market evidence, partnerships are Big Tech firms’ preferred way in, at least in the short-to-medium term.
Might Big Tech see consolidation as evidence of an addressable market and of proof of concept?
But is there value to be found in breaking into UK savings and investments? And how about UK firms’ tech sophistication and preparedness? Businesses are going to have to integrate into these guys’ systems.
I’m scoring this one as ‘Not proved’.
Back to reality
The savings and investment market is big and everyday enough, but distribution is a problem and so are barriers to entry. Probably too few of these conditions are in place right now.
None of MAMAA is going to look to build any sort of enterprise to serve a few thousand one-person businesses. But I see little reason why a peek at a few vertically integrated outfits wouldn’t highlight what’s possible. And what of financial infrastructure? It’s huge and it’s everyday.
What would the landscape have to look like for Big Tech to make a serious play in UK savings and investments?
Thinking about this takes me back to that old Bill Gates quote about overestimating what can be done in a year but underestimating what can be done in 10.
So, consider a 20-something today, who has grown up with these names and is familiar and comfortable with them. Now roll forwards 20 years, fold in open finance, and it isn’t difficult to imagine Big Tech being capable of giving that individual precisely what they need when they need it.
Mark Polson is principal at The Lang Cat
This article featured in the January 2023 edition of MM. If you would like to subscribe to the monthly magazine, please click here.
Nice article Mark. I’m not so sure the traditional advice market has much to worry about for a decade or two. They mainly service Baby Boomers with decent pension pots and a desire for some TLC: I doubt these clients will ever be tempted into the arms of what many of them perceive to be “those nasty big tech firms”. That said I can see the big tech firms playing within broader community by meeting the needs of younger, less wealthy sections of society. If they can successfully combine the data aggregation aspects of Open Finance with their ever more powerful AI capabilities then I think they could be onto a real winner, i.e. helping EVERYONE to manage ALL of their finances (not just equity-based investments) efficiently and effectively at an affordable price. Personally, I think that would be a really positive outcome for society.