In­no­vate Dig­i­tally

The Economic Times - - The Edit Page -

Digi­ti­sa­tion has the power to trans­form whole in­dus­tries.… The process of dis­rup­tion tends to have a calm be­gin­ning fol­lowed by a storm of pro­found change. The ba­sic propo­si­tion is usu­ally both sim­ple and pow­er­ful: a pre­vi­ously exclusive ser­vice be­comes avail­able to a broad user base in a more cus­tomer-friendly way.

Most im­por­tant, it is of­fered for a frac­tion of the orig­i­nal price. At this point, in­cum­bents typ­i­cally ei­ther go into de­nial about the cus­tomer’s de­sire for a bet­ter prod­uct or ser­vice or ques­tion the com­peti­tors’ abil­ity to gen­er­ate sus­tained prof­its in a lower-mar­gin en­vi­ron­ment. As we have seen re­cently in the mu­sic, pho­tog­ra­phy and mo­bile-phone busi­nesses, stand­ing back from the ac­tion can be fa­tal.

Cau­tion­ary tales from th­ese sec­tors have helped clar­ify the chal­lenge for many banks. Time will tell which of bank­ing’s struc­tures re­main in­tact, but I con­tend that dis­rup­tion is more likely to open up new seg­ments for part­ner­ships be­tween star­tups and in­cum­bents than to usher in an era of head-to-head com­pe­ti­tion.

So far, the most sig­nif­i­cant signs of dis­rup­tive in­no­va­tion in fi­nan­cial ser­vices have ap­peared in pay­ments and lend­ing. Dom­i­nated by a hand­ful of es­tab­lished play­ers, th­ese two ar­eas are now home to more than two-thirds of the world’s fin­techs val­ued at above $1 bil­lion, also known as ‘uni­corns’. In­cum­bent banks, ar­guably, are not in­vest­ing enough to re­tain their lead­ing po­si­tion.

From “Why part­ner­ships are ap­peal­ing”

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