Digital Platforms Conquer Financial Market

Whether the Internet would change the lives of millions of people – In 1996, Steve Jobs knew the answer to this question: No. Although his status as a visionary is undisputed, as far as this aspect is concerned, history proved him wrong. In a world that is changing so rapidly, it is difficult to make predictions about the future. Nevertheless, Dr. Ralph Müller, advisor and investor in the fields of banking and digital business, dared to do so in his guest lecture "How Digital Platforms Change the Competitive Landscape of Banks, Fintechs and GAFAs" at WHU - Otto Beisheim School of Management.

According to Dr. Müller, the Big Techs Google, Apple, Facebook and Amazon, short GAFA, will turn the financial world around. They have what Fintech is missing: large customer bases. They also have massive budgets for research and development. However, their greatest potential are the platforms themselves. These enable producers and consumers to exchange information and create enhanced value for both. Industry-oriented platforms such as Amazon and Co. have a self-reinforcing cycle, according to which an increasing number of suppliers causes an increasing number of customers and vice versa. This platform economy is increasingly important for the financial industry. So far, GAFAs have shown little interest in entering the financial market, but this is about to change, according to Dr. Müller.

Two trends have significantly influenced this change of mind: On the one hand, it is the customer himself who is used to a certain level of service, to offers such as Same Day Delivery, Online Self-Check-in and Delivery Tracking, and who is now demanding this service across all sectors. On the other hand, new technological inventions such as APIs, Application-Programming-Interfaces, are opening the market for new business models. Together with the Payment Services Directive (PSD2) issued by the EU in January 2018, APIs enable new financial service providers to specialize in a small part of the banking system, thus providing a Fintech-friendly environment.

By eliminating intermediaries, the platform, product and utility could be provided by different companies. Big Techs would qualify for providing the customer interface and the customer interaction – services they have already installed. The advantages for Amazon and Co. are obvious: Customers never have to leave the app and, in addition, the platforms collect data about their spending patterns – and, after all, data is what GAFAs want.

Nevertheless, the road to becoming a financial platform service provider is not paved. Developing further markets could lead to a company size that generates mistrust. Furthermore, scandals concerning data protection could cause problems.

Whether GAFAs, Fintechs or traditional banks will ultimately win the race for dominance in the financial market cannot be predicted with absolute certainty - as the example of Steve Jobs has shown. However, investors currently favor GAFAs and Fintechs. For Dr. Müller, the winner of the future banking system has already been determined: It is the customer.


The guest lecture was part of Professor Dr. B. Burcin Yurtoglu's "Financial Technologies" course in the Master of Science program.