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”