In 1997, Clayton Christensen published his seminal book ‘The Innovator’s Dilemma’. The Economist magazine called it one of the 6 most important business books ever published. Christensen focused his research on industrial disruption, what we now often call digital disruption, and how companies can change direction when their market changes.
It’s almost 20 years since Christensen wrote that book and it feels like he had incredible foresight. The Internet was still young in the late 90s. There were no smartphones or social media and it felt radical to go to the Amazon website to order a book rather than going to a bookstore. Yet he could see a time when companies need to innovate and change direction completely. I believe we are now seeing this in many industries globally.
- Media: how can people be convinced to pay for news when so much is free and how can we now verify whether news is real or fake when anyone can publish stories?
- Publishing: ebooks were the start, but now Amazon pays authors by the page that is actually read, not by books sold.
- Entertainment: how does the movie business function without DVD sales? How do recording artists make a living when nobody buys albums?
- Retail: customers are demanding a multichannel experience online and offline along with easier ways to pay and better loyalty systems – the omni-channel.
- Auto: what happens when Uber and Lyft are so pervasive that many urban millennials now longer want cars? When will cars truly be self-driving and how does that change the market?
- Insurance: will customers allow their health to be monitored 24/7 in return for cheaper health insurance? Or the same for auto insurance?
One look around at almost any industry today allows us to draw the conclusion that change is taking place faster than ever. It is being driven by digital capabilities and increased customer expectations, but one industry appears to be changing faster than all others – banking.
Research by Accenture predicts that at least a third of retail banking activity will be lost by 2020. That’s just three years away. Some other analyst firms suggest a further collapse over the next decade. Just imagine if you were running a retail bank right now and listening to every industry analyst saying that your business is about to collapse because of fintechs (financial technologies).
The retail banks have decades of process and bureaucracy. They have enormous networks of branches. They have technology that is often completely out of date, but too important to discard. They are also expected to offer a wide range of banking services to customers who might not even be very profitable.
Conversely, the fintechs usually take a single small market segment. They have no legacy systems or expensive branches so they can design a service around the customer that works better than the banks and is cheaper. Faster, better and cheaper. How could any customer resist?
The banks still have millions of customers and many people hate changing their financial service provider, but even if a third or half of their business is lost then that is an enormous change to a very traditional industry.
The answer is for the banks to be more like the fintechs, but in many cases this might not be possible. They might be able to design new customer-centric services, but can these enormous companies offer the same prices as lean startups staffed by a few data experts?
The fintech story is fascinating. We are watching industrial transformation up close and over a short period of time and what is the driver of all this change? The customer and their demand for better services more closely aligned with their needs.
Based on your own interactions with banks, what do you think of the fintech evolution? Would you use a fintech the next time you are thinking of asking your bank for a loan? Leave a comment below, or get in touch on LinkedIn, and let me know.