Your Phone is Now Your Bank: Are You Ready for Disruptive Innovation?
This article was originally posted on 12 June 2013.
A couple of thoughts immediately came to mind when I first read this short article. Those thoughts were prompted by a couple of observations about the finance industry I originally heard from strategy guru Professor Gordon Hewitt of the University of Michigan:
The first was his retelling of the punch line from a conversation between two people discussing the future of banking. The punch line was in response to the assertion that banking was relatively safe from disruption because we would always need banks and went something like “We might always need what banks do but that doesn’t mean we’ll always need banks”.
The second was a question I’ve often heard him ask which reinforces the point made above. That question was “Which global bank did Ebay approach to handle real-time payment systems?” The answer of course is “none!” That’s because the traditional banks weren’t in the online payment processing game. But a small company called PayPal was. In less than 15 years PayPal went from start-up to processing around 60% of all transactions undertaken on the internet. What’s astonishing is that when you look at the list of the top 5 companies handling payments on the web (in 2012), none of them is a conventional bank. For the most part they obviously didn’t see the online payments explosion as being something that could one day disrupt banking.
The real kicker for me is that I suspect that if you asked the executives at most banks whether they had disruption and disruptive influences under control the answer would be “absolutely!” I have no doubt they’ll have the evidence to show they’re onto it – the slide packs, the graphs, the charts, the special projects etc. My instinct however is that, when it’s all said and done, the incumbents are still way off the mark. And I think the fact that the major banks don’t really factor in the online payments space more than 15 years after it emerged is evidence of that.
But it’s not just banks. This is a deeper problem for incumbents in all industries. And the source of it is often an arrogance that comes from believing that the world can’t do without you doing what you do the way you do it. I see it all the time in professional services. There’s no doubt a deep psychological explanation for it. Whatever the explanation, the reality is that it’s dangerous because it leads to complacency in relation to both the question of vulnerability and beliefs about what’s required to really get on top of that vulnerability and ensure that you’re not overlooking major shifts in the market.