Too Big to be Disrupted?


Today, incumbent goliaths in the financial services industry are relentlessly reminded of how they are about to be disrupted by the onslaught of new startups in the FinTech space. There is often comparisons drawn of how this has already happened with companies like Blockbusters, Kodak and Borders, and that the imminent disruption of banks is inevitable. Much like the rumors of Mark Twain’s death, these predictions are greatly exaggerated.


The fact is that banks are very different to the companies mentioned above, and have business models a lot more resilience than they are given credit for. The role of a bank in people’s lives holds far more importance and much more significance than where they choose to hire a video/ DVD, how they take pictures or where they find a book to read. The disruption of all these retail businesses had very little impact on consumers, and but for a more convenient way of doing things, there was little you had to do to change from the incumbent to the digital alternative. Getting someone to change banks (however easy the switching process), is a lot harder, and the truth is that many people are very loyal to their bank, even if they feel that it isn’t doing a great job. This may be because there is a perception that banks are equally as bad (or good), so changing banks is just a transfer of bad experiences (or good ones) from one to another. Why bother? Yes the 2020 millennial’s represent an opportunity because their needs are different, but I can assure you that by 2020 very few banks will look like they do today.


Now to be clear, I am not saying that everything in banking will stay as-is. On the contrary, I think disruption over the next few years will be rife, disruption of ‘banking’ YES, but disruption of ‘Banks’ NO. The most likely outcome of all the Fintech evolution we are currently seeing is that, when those startups begin to show even the smallest amount of success, the big banks will simply acquire them and use them as a catalyst to digital adoption. We have seen it with the BBVA acquisition of Simple, and I’m sure 2015 will bring further news of Fintech buyouts by banks. It is the age old approach of “if you can’t beat them, then buy them” which giant technology firms have been doing for decades. There is also one other good reason why Banks are so hard to disrupt. When they have their backs against the wall, do not underestimate their own ability to transform themselves, quickly. Very quickly.


Now if we step away from banks, and look at the disruption of ‘’financial services’, it really is a far more interesting topic because I do see some potential casualties on the horizon. – but they are not banks. Like the Blockbuster’s and Kodak’s of the world, there are a spate of large, dominant companies who do not have the business portfolio diversity of banks and are very much reliant on dominating niche corridors of the financial industry. Companies like SWIFT and Western Union should have very genuine reasons to be concerned. If you look at the rise and rise of P2P, Bitcoin, and how cross border and cross currency technologies are going to transform through open source technologies like the Ripple protocol, then it is hard to see how they are going to survive for too much longer with the business model that they have in place now. Similarly, traditional treasury departments are going to have a hard time remaining relevant in an increasingly efficient digital economy, where margins will be cut, and pricing will be decided by algorithms that react solely to real-time demand and supply. The days of speaking to someone on the phone to get a buy/sell rate are soon going to be over.


The disruption of banking will inevitably drive a shift in power for the financial industry, but for the largest banks that have dominated the industry for decades, it is unlikely we will see any Fintech startups threatening their survival. They will either be acquired long before the impact is known, or put to the test in a challenge in which the law and politics will always favor the incumbents.

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