Banks and insurers have more reason to be concerned about competition from large technology firms such as Amazon and Apple than from fintech startups, a new World Economic Forum report suggests.

The report, which draws on interviews and workshops with hundreds of financial and technology experts, concludes that while fintech startups are driving innovation, they have “fallen short of their ambitions to upend the competitive landscape in finance”.

“Fintechs now define the tempo and direction of innovation in financial services, but high customer switching costs and the rapid response of incumbents has challenged their ability to scale,” says Rob Galaski, Canadian head of financial services at Deloitte and co-author of the report, emphasising that these firms have failed to capture large market share.

Instead, the competitive landscape in banking and insurance is increasingly being shaped by what the report refers to as “high tech” – companies like Amazon, Google and Facebook – which are causing the greatest disruption to traditional players’ value propositions.

This is the case across the whole industry: from payments and online banking to insurance and lending. The launch of Apple Pay in 2014, for example, opened the developed world to mobile payments.

Also in the financing space, the report notes, non‐financial platforms are “emerging as an important source of underwriting data and a point of distribution for credit making”. Using new adjudication techniques, it says, these companies have significantly expanded access to credit for underbanked, especially for “thin file” customers with insufficient credit bureau history to qualify for most loans.

Amazon Lending, for one, offers credit to merchants selling on its platform, using sales data to assess risk. If a merchant defaults on the loan, Amazon can choose to withhold sales on its platform. According to the report, Amazon has already made more than US$3bn-worth of loans since 2011 using its lending platform, and is expanding the offering to reach even more merchants.

The World Economic Forum highlights the fact that these tech companies easily master new technologies like cloud computing, artificial intelligence and big data – capabilities that are becoming critical to the competitive differentiation of financial institutions.

“All three [technologies] are domains where technology giants like Amazon, Google and Facebook have far deeper experience than their financial services counterparts and where scale effects will make it difficult for financial institutions to catch up,” it says.

While many banks today choose to partner with these companies to stay ahead of the game, the risk arises when the companies decide to enter financial services in direct competition with banks and insurers – as they are already starting to do in various areas.

“Tech giants would be able to pick and choose their points of entry into financial services; maximising their strengths like rich datasets and strong brands, while taking advantage of incumbent institutions’ dependence on them,” says Jesse McWaters, lead author of the report and project lead for disruptive innovation in financial services at the World Economic Forum.

But while competition is increasingly coming from ‘high tech’, there is still optimism about the role of fintech. The report notes fintech firms’ importance in laying the foundation for future disruption, reshaping customer expectations and setting new and higher bars for user experience.

The proliferation of fintechs, it adds, also helps banks to improve their own propositions, providing them with a “supermarket” of capabilities and allowing them to use acquisitions and partnerships to rapidly deploy new offerings.

Find out more about these unexpected guests in banking in GTR’s recent video report, where we speak to experts about the challenges and opportunities generated by major technology companies, and how banks can use their presence strategically.

Read the full report Beyond Fintech: A Pragmatic Assessment Of Disruptive Potential In Financial Services.