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A disruptive innovation appears

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I was listening to a financier talking about FinTech the other day, and claiming that they are all sustaining innovations and not disruptive.  They were referring to Clayton Christensen’s innovator’s dilemma discussions, where Professor Christensen points to different markets that were destroyed by disruptors.  Those markets include the American car industry, destroyed by cheaper Japanese car manufacturing; the fixed line telephone firms destroyed by cellphone makers; the mainframe computer industry destroyed by the PC disruptors; and more.


There is a flaw in Professor Christensen’s work, which is that the incumbent fails to respond.  That is true of Kodak and Nokia but, in both cases, the change was fast and the management weak.  American car firms – Ford, GM, Chrysler – have not disappeared because Toyota and Honda are around; they responded.   AT&T with $168 billion revenues in 2016 is hardly dead.  IBM, $80 billion revenues, is still going pretty strong.

Equally, Professor Christensen points to markets making commodity products – phones, cars, computers – where there may be giants, but the giants are not protected by layers of law and regulations like the banks are.  That is why banking has not been disrupted to date, and is unlikely to be in the future.

However, Clayton does have a point, but it’s not as radical as those who refer to his work believe.  His point is that if a weak competitor enters the bottom-end of the market, they may have the opportunity to disrupt the market if the incumbent does not respond.  That is true, and that is the case with Kodak and Nokia.  Ford, AT&T and IBM did respond, and survived the change.

That is the case with any change however.  As Charles Darwin notes:

It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.

How true.

Meantime, we need to really understand the difference between sustainable innovation and disruptive innovation, in order to see if there any disruptive change in banking.  According to Matt West (that sounds like a bank?):

Sustaining innovation comes from listening to the needs of customers in the existing market and creating products that satisfy their predicted needs for the future. Disruptive innovation creates new markets separate to the mainstream; markets that are unknowable at the time of the technologies conception.

Sustaining innovation improves what is there today; disruptive innovation replaces what is there today.  Hmmm.  I blogged about this over on The Next Web this week, stating that there are three streams of FinTech innovations:

  • those that serve markets banks don’t serve;
  • those the improve the customer journey by removing friction; and
  • those that work with the banks to eradicate inefficiencies, for example in customer onboarding.

Obviously, the latter two categories are sustaining innovations, as they improve what is there today.  The first category is interesting though, as it is creating and serving new markets.  I pointed at SME financing and crowdfunding as the example here, but that is not going to disrupt.  That is an extension of today.  However, I do see one example of disruptive innovation out there.

I think about this one often.  It is clearly disruptive, but is it noticed by the incumbents?  Have they responded?

Not yet.

What is it?

I’m tempted not to say, but that would be rude.  It’s financial inclusion.

There’s loads of discussions of financial inclusion, and using mobile wallets in Sub-Saharan Africa to create cheap and simple money transfers between people without bank accounts.  This is serving the bottom end of the market, and Clayton Christensen defines disruptive innovation as:

A process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.

Oooh.  We have one.  Are the banks noticing?

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Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, 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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