Technology giants such as Apple, Amazon and Google may pose a greater long-term threat to traditional banks than fintech companies, London Business School professor Costas Markides said, warning that control of the customer relationship is becoming the key battleground in financial services. 

In an interview with Forbes Cyprus, ahead of the first Forbes Next Gen Banking & Fintech Summit, which will be held at the Four Seasons in Limassol on October 13, Markides said fintech companies have fundamentally changed banking but are unlikely to displace traditional banks altogether. 

Instead, he expects the sector to move towards a hybrid model, combining competition and cooperation between established lenders and fintech firms. 

Markides said that “fintech companies have been particularly successful in separating individual services from the traditional banking package and offering them more quickly, cheaply or conveniently.” 

These include payments, foreign exchange, buy now pay later services and self-directed investments. 

However, while fintech providers have attracted millions of customers, particularly younger ones, Markides said many still maintain a traditional bank as their primary financial provider. 

The next challenge for fintech firms, he said, is whether they can move from being a useful secondary account to becoming the main financial relationship for customers. 

His expectation is that only a limited number of well-funded fintech companies, such as Revolut or Monzo, will develop into full-scale banks capable of becoming customers’ primary financial provider. 

Most, however, are more likely to remain specialist providers, cooperate with banks, be acquired or struggle to secure the deposits, capital, trust and scale required to operate as full-service banks. 

Traditional banks, meanwhile, continue to hold major advantages through their balance sheets, deposits, risk-management capabilities, regulatory experience and customer trust. 

However, Markides argued that the more serious long-term challenge may come from Big Tech. 

Companies such as Apple, Amazon and Google may not seek to become banks themselves, he said, but could increasingly control the platforms through which consumers make financial decisions. 

As a result, banks risk being pushed into the background, providing regulated infrastructure, capital and risk management while losing direct contact with customers. 

The broader shift, he said, is from financial services being sold as a bundled package by one bank towards a fragmented model in which separate services are delivered by several providers. 

Payments, lending, insurance and investment services can increasingly be embedded into other digital experiences, making the financial service itself almost invisible. 

For banks, this means competition is no longer centred only on products. 

Instead, it is increasingly about customer experience, data, trusted partnerships and integration into wider digital ecosystems. 

Some banks have already responded effectively, Markides said, pointing to KBC in Belgium and DBS in Singapore, which have adopted digital onboarding, real-time payments, data analytics, AI-assisted customer service and fintech partnerships. 

Nevertheless, he said too many banks still treat digital transformation as a technology project rather than a fundamental redesign of the customer relationship. 

Artificial intelligence could deepen that transformation. In the short term, Markides expects AI to improve existing banking models through faster customer service, more accurate fraud detection, stronger lending decisions and greater operational efficiency.

Over the longer term, however, AI could become a financial assistant acting proactively on behalf of customers. 

Such systems could monitor income, spending, risks and financial goals, anticipate liquidity problems, compare products across providers, renegotiate mortgages or recommend actions before being asked. 

That would shift the focus of banking away from selling products and towards helping customers make better financial decisions. 

Markides said banks that succeed will therefore be those that use AI not simply to reduce costs, but to build stronger and more trusted relationships with customers. 

The proposed digital euro could also reshape competition. For consumers, he said, it could provide a widely accepted public form of money for the digital era, operating alongside cash and private payment systems.

For banks, meanwhile, it could provide common European payment infrastructure on which they could develop digital wallets, merchant services and new financial products. 

Still, Markides warned that if banks merely distribute the digital euro while technology firms retain control of the customer interface, lenders could lose valuable data, customer interaction and fee income. 

Fintech companies could also benefit from a more open and standardised European payments environment, though they too would need to compete through the experience and services built around payments rather than through payment infrastructure itself. 

Markides therefore expects bank-fintech cooperation to become increasingly important. 

Fintech firms bring speed, specialist technology and improved customer interfaces, while banks contribute scale, deposits, capital, regulatory capabilities and risk-management expertise. 

“The combination is powerful,” he said, arguing that a fintech may develop a superior idea while a bank may be better placed to deploy it securely and profitably at scale. 

However, he cautioned banks against using partnerships simply to bolt fashionable technology onto an unchanged business model. 

Instead, lenders need to learn from fintech companies in areas such as customer experience, speed and organisational simplicity. 

Turning to Cyprus, Markides said the country has the potential to compete internationally as a financial and technology centre, but not through size. 

Its advantage, he said, must come from specialisation, speed and trust. Cyprus therefore needs to attract technology specialists, entrepreneurs and experienced financial-sector executives from abroad, while strengthening universities, technical education and links between academia and business.

At the same time, Markides stressed the importance of high regulatory standards in areas such as anti-money laundering, governance, cyber security and consumer protection. 

Regulators, he added, must also understand innovation, engage constructively with new business models and provide clarity quickly. 

Rather than attempting to compete across every area of technology, Cyprus should focus on a limited number of sectors where it can build genuine advantages. 

These could include payments, wealth and asset-management technology, shipping finance, regulatory compliance, cyber security and AI applications in financial services. 

Finally, Markides called for a common long-term national strategy involving the government, regulators, universities, banks, investors and entrepreneurs. 

The country, he said, must agree on a small number of priorities and pursue them consistently over a decade or longer. 

“Too many countries call themselves innovation hubs,” Markides said, adding that far fewer build the institutions, capabilities and trust needed to make that claim credible.