Is FinTech really disruptive?

It’s interesting how often I see the word disruption, or things like incumbent and old. And yet, after almost twenty years of such discussion, has the old incumbent been disrupted? It doesn’t seem that way, as borne out by two articles I picked up on this week:

• JP Morgan remains world's biggest systemically important bank; and
• Why Visa and Mastercard have yet to face their Kodak moment

In both cases, we see how a big old bank and the massive payments network have survived well through the past decade of supposed disruption. But then the question has to be: why are they not being disrupted?

Honest answer: they are, but they recognise that there are massive barriers to disruption. The barriers for entry into a banking system is how to break a 200-year old cartel that does not need disrupting? The barriers for entry into the card payments network is how to break a 50-year old duopoly that doesn’t need disrupting?

So what disruption is happening? Well, most of it is around the periphery of the system. It’s not at the core of the system. When you look at the FinTech unicorns, most are tackling things in the adjacency of banking that can be tackled by the network. For example, Stripe addressing the issues of checkout online; or etoro dealing with how to make investing easier; or Square, now Block, offering easy ways to take and make payments for small businesses.

What this makes me realise is that a lot of disruptors are actually not disrupting. They are adding.

Stripe, etoro and Block have added easier ways to access payments and finance, rather than replacing it. They also use Visa and MasterCard, who have not been replaced. They also accept payments from banks like JP Morgan, who are as systemically important as ever.

So, what is really happening here?

Well, imho, there are two major forces. The existing and the new. The existing force is so well structured that it is hard to change it. It’s a bit like saying let’s create a new political party or let’s create a new car company. Obviously, it can be done – just look at the Green Party or Tesla – but it is a fragile system fighting a stable one.

And there’s the rub. When you have massive infrastructure and engagement, getting people to change is hard. It’s like the well-trodden line I’ve seen so many times of folks who say banks are bad and need to change … but then no one changes their bank. By way of example, when Barclays exposed the LIBOR scandal, everyone said they would leave Barclays Bank and close their accounts. Did anyone do it? Not that you would notice.

When Wells Fargo got caught out with illegal account openings and signatures, everyone said they would leave Wells Fargo. Did anyone? Not that you’d notice.

The list goes on, and the fact is that people may dislike banks but they need banking like they need electricity. People may find FinTechs making payments and cross-border services easier, but these are additions to banking. They don’t replace banks. People may enjoy more services around the world online, but those services around the world online are still backed by Visa and MasterCard because Visa and MasterCard are accepted worldwide.

So, the world may be changing but the traditional firms are still behind that world of change, whether you like it or not.