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We are not being disrupted, just rearchitected [#SIBOS]

I had this chat with a banking friend, and realised when he used the word disruption for the eighth time that this is the word of the year.

Last year it was sanctions, this year it’s disruption.

Disruption

Everyone’s talking about disruption and yet, I don’t see this as disruption in the sense that most are using the term.

As I’ve blogged before, I see a fintech bubble, a lot of fintech start-ups, a lot of great ideas and a lot of noise, but  I haven’t seen a single breakthrough company so far.

In fact, if any company gets anywhere near a breakthrough, I reckon they will be acquired or smashed and, again, I contend that disruption is the wrong word.

The reason it is the wrong word is that it has an implicit underlying theme that the disruption will see the destruction of the banks, as we know them.

It won't.

Instead, I see new business models, new ways of doing business, new opportunities to do things different, new technological concepts such as the blockchain, new things.

I also see disruption, but more from inside than outside the industry.

Disruption means fundamental challenge.  Disruption demands transformation.  Disruption means that banks are broken and need to be changed.

I see that all of this is true, so how come I don’t call it disruption?

I guess it is because I don’t see the banks responding to this as disruption.

What I see is that banks are evolving and, over time, transforming.  Banks are making incremental changes and, over time, these changes are fundamental.  Bank are changing and, over time, that change will be radical.

So banks are being disrupted but more from within, through rearchitecting their business models and structures, than from without.

Banks are being re-architected by new business models, new ways of doing business, new opportunities to do things different and new technological concepts.

As I’ve described it before, banks are moving to component based models.  Banks are moving to partnership based models.  Banks are turning their legacy structures designed for the physical distribution of paper through a localised network into a digital structure that can support the digital distribution of data through a globalised network.

That is the disruption, but it’s not a disruption.

Disruption is the wrong word.  It’s a rearchitecting of the model.

The model is broken.  The model was built for the wrong structure – paper.  The model is being redesigned for data. That is an evolution of the model.  That is a fundamental change, but it is a change the banks are more than capable of managing, and they are.

Banks are rearchitecting their business, their models and their structures to be far more focused upon digital.

And this is where it gets interesting: digital at the core.  It’s what I bang on about all the time: banks need to design for digital at the core.  Banks need to have digital foundations that are IP-enabled, and then add on their access forms to that digital core.

This is the massive change ahead, and the rearchitecting of banks to be digital at their core is the journey we are all taking.   It’s not a disruption, but it is a fundamental change, so can we stop talking about disruption and start talking about new architectures please?

Just a thought.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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10 comments

  1. Chris, I believe we rather don’t see disruption, because banks and the banking business is ‘Too Big to being Disrupted’.
    The political and social context doesn’t allow banks to being disrupted. Banking business is in contrast to the music, IT telco and all the others a very protected business, even much more after the last crisis.

  2. For me the essence of what you are saying is that it is impossible to make a big bang change! Some banks have tried, 3 year programmes have become 5 year programmes or worse have failed. For me the paradigm shift will be achieved by evolution not revolution or in the current vernacular Kaizen small steps. Yes I appreciate that Challengers are more agile, but they don’t have critical mass. Banks must change and they must start that journey yesterday but the change needs to be in small manageable steps towards a coherent scope and long term vision?

  3. Nihat Erdem @mutercim_

    I do agree. This is not disruption, this is an oppurtunity for or even a pressure on banks to evolve. Digitalization should start anyway one day. Now we see it’s the time.

  4. on new architectures……will block supersede stack? http://www.finextra.com/blogs/fullblog.aspx?blogid=9990

  5. You may not like the term but banking is being disrupted. Read Christensen’s book. Call it what you will but banking is changing, the old way of doing things is being disrupted.

  6. You may not like the term but banking is being disrupted. Read Christensen’s book. Call it what you will but banking is changing, the old way of doing things is being disrupted.

  7. Hi Kevin
    I know Clayton’s book well – it’s one of the best – but banking is not like cars or steel mills, due to the regulatory structure. Therefore, having said banks would be disintermediated in the 1990s, destroyed in the 2000s and disrupted in the 2010s, I find such claims lack credibility.
    Banks squash competitors or acquire them, and their licences give them plenty of time to react and protect and evolve.
    Chris

  8. Hi Kevin
    I know Clayton’s book well – it’s one of the best – but banking is not like cars or steel mills, due to the regulatory structure. Therefore, having said banks would be disintermediated in the 1990s, destroyed in the 2000s and disrupted in the 2010s, I find such claims lack credibility.
    Banks squash competitors or acquire them, and their licences give them plenty of time to react and protect and evolve.
    Chris

  9. I agree with you that banks are rearchitecting – but most of it seems to be more enabling digitisation of current models. Meanwhile digital disrupters (small and large) are reinventing what banking means by incorporating lending, payments and financial insight into other verticals. So I think we’re being disrupted and I don’t think regulation will give us plenty of time. It feels like Kodak vs Fuji all over again.

  10. I agree with you that banks are rearchitecting – but most of it seems to be more enabling digitisation of current models. Meanwhile digital disrupters (small and large) are reinventing what banking means by incorporating lending, payments and financial insight into other verticals. So I think we’re being disrupted and I don’t think regulation will give us plenty of time. It feels like Kodak vs Fuji all over again.

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