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The Myth of Disruption in Financial Services

John Gaffney |

I’m not the only one who had an anti-disruption week.  The mainstream press has suddenly picked up on the topic as a firecracker in the ear of senior level executives. I don’t agree with the severity of The New Yorker’s assessment for example, that disruption is a fear-based and unhealthy concept, but for financial institutions it is an important phrase to pick apart.

My anti-disruption week started with a Father’s Day gift of a Kindle. Then, in the early afternoon, I met a friend for coffee in that place where most people meet for coffee where I live: the bookstore. Disruptive technology at 9; old school bookstore at 2. Go figure.

The phrase “disruptive technology.” It is 11 years old. It was invented by Harvard Business School professor Clayton Christensen for his 2003 book “The Innovator’s Dilemma.” Disruptive technology, said Christensen, had the power to disable business models. It also had the power to unseat executives who didn’t recognize these technologies and bail on the status quo in time.  Along the way the phrase, along with its cousin “disruption,” has been more overworked than “thinking out of the box.”

You won’t need to look too hard to find the phrase attached to financial institutions. Banks, to quote just about everyone, need to be disruptive. There has been some great writing on the topic, and some legit contenders for “disruptive” status. Peer-to-peer lending, and mobile payments are the usual suspects. But look past the phrase and you’ll find that these are not disruptive technologies, by Christensen’s definition, and it’s not just a matter of semantics. Christensen has recently replaced “disruptive technologies” with “disruptive innovation,” which describes 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.” Payment innovations are not going to displace established competitors. They are more “collaborative technologies” than disruptive ones, and the difference will impact short-term marketing strategies. They are a rather loud version of the voice of the customer. No more; no less.

True disruptive technologies are rare. Obviously the Internet and mobile devices are the poster children. Also: Digital photography, digital music, on-demand video. These completely changed entire business models and drove entire classes of trade out of business. The marketing strategies for the companies and businesses being disrupted were largely desperate and ineffective. Blockbuster LLC, for example, positioned itself as a weak Netflix Inc. competitor when it should have changed its inventory mix, stressed its immediate gratification advantage and closed underperforming stores. Eastman Kodak Co. met digital photography by slashing marketing and R&D when it should have amped up both of them. It filed for bankruptcy in 2012 and emerged in 2013 with a renewed focus on commercial printing.

True disruptions are born from great ideas that the consumer eventually catches up with. Mobile payments and peer-to-peer lending, as well as some of the other “disruptions” are technologies that were driven by consumer need. Mobile payments are consumers asking to transact more conveniently. They are not about to displace or replace any other payment methods. Peer-to-peer lending is the consumer asking for more convenient, accessible and personal lending. It hasn’t sent any banks running for the hills.

Innovations in payments technologies are collaborating with the consumer. Marketing them can be done with smart planning, fact-based decision making and above all patience. Messaging for collaborative technology can be about value, convenience and security. Merchants can integrate them with the same spirit and skill. But when you label them as “disruptive” you run the risk of impulsive and reactive decisions.

By the way, the bookstore in my town sells a lot more coffee than books these days. Just sayin.’

Topics: Inclusion, Mobile, Payments Strategy, Retail Trends

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