Chris Skinner reveals a clear example of disruptive innovation, but has it been noticed by the incumbents, and have they responded?

I was listening to a financier talking about fintech the other day, and claiming that they’re 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 disrupters. These 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 disrupters, and more.


There’s a flaw in Professor Christensen’s work, which is that the incumbent fails to respond. This is true of Kodak and Nokia, but in both cases the change was fast and the management weak. American car firms – Ford, GM, Chrysler – haven’t disappeared because Toyota and Honda are around. They responded. AT&T with $168bn revenues in 2016 is hardly dead. IBM, $80bn 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 aren’t protected by layers of law and regulation like the banks are. That’s why banking hasn’t 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 doesn’t respond. This is true, and is the case with Kodak and Nokia. Ford, AT&T and IBM did respond and survived the change. This 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 is 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’s there today, while disruptive innovation replaces what’s there today. Hmmm. I blogged about this over on The Next Web this week, stating that there are three streams of fintech innovation:

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

Obviously, the last two categories are sustaining innovations, as they improve what’s there today. The first category is interesting though, as it’s creating and serving new markets. I pointed at SME financing and crowdfunding as the example here, but that isn’t going to disrupt. That’s an extension of today. However, I do see one example of disruptive innovation out there. I think about this one often. It’s 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?

READ NEXT: The top 10 trends in banking innovation

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Image by Lightspring,

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.


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