The FinTech Revolution That Wasn’t: How Financial Institutions Co-Opted Their Disruptors

It’s the disruption that wasn’t. According to a World Economic Forum report released this month, FinTech firms have not found the traction to overthrow incumbent large financial services institutions. In fact, these technologies have actually strengthened them. Here’s how.

How Financial Institutions Co-Opted FinTech

It’s the disruption that wasn’t. According to a World Economic Forum report released this month, FinTech firms have not found the traction to overthrow incumbent large financial services institutions. In fact, these technologies have actually strengthened them. Here’s how.

Too Big to Disrupt?

We often think of start-up companies as the most dangerous things to existing institutions. You only have to look as far as Amazon and Uber to see the impact lean, tech-centirc entrepreneurs can have on legacy industries. But the new report “Beyond Fintech: A Pragmatic Assessment of Disruptive Potential in Financial Services,” finds this has not been the case in financial services.

The research team, — lead by World Economic Forum’s project lead on disruptive innovation in financial services, R. Jesse McWaters — examined the technologies that could potentially impact the financial services industry as we know it.

Their findings point to a financial services environment in which the large institutional players have so much customer inertia that the smaller FinTechs have had a hard time capturing market share. Meanwhile, the report says, “The rapid growth of the fintech ecosystem allows firms to externalize parts of their innovation function,” and, “The proliferation of fintechs provides financial institutions with a ‘supermarket’ for capabilities, allowing them to use acquisitions and partnerships to rapidly deploy new offerings.”

Where FinTech Succeeds and Fails

In summary, the report finds that FinTechs have succeeded and failed in different ways.

FinTechs have succeeded in:

  • Setting the pace, shape and direction of innovation.
  • Reshaping consumer expectations for service and the customer experience.

FinTechs have failed to:

  • Convince customers to switch away from their incumbent financial services providers.
  • Establish a new financial services ecosystem or lay the infrastructure that could support them in the future.

The net effect of FinTech thus far has not been to show consumers new ways they’d rather do things, but to show the existing institutions how they can provide new services for their clients. That’s a huge difference from how similar movements have impacted other industries. Looking market to market, you have to give financial services firms credit for getting on the bus before it runs them over.

Big Tech May Succeed Where FinTech Falls Short

While adding FinTech capabilities makes existing firms stronger, the report does not let them off the hook yet. In fact, it identifies ight major factors that could lead to disruption in the future.

Chief among those threats is the commoditizing impact of large tech companies taking over the plumbing work of financial institutions. While this will drive down overhead and improve the customer experience, thus enhancing customer loyalty, the report sees the shift as something that could eliminate market advantage and differentiation created by companies that do those things well already.

As data and processes become commoditized by “Big Tech,” and customers become more accustomed to the Amazon-like customer experience that could offer, financial services institutions could become more vulnerable to smaller companies and alternative platforms that allow for customized services and higher customer satisfaction.

In other words, the easier it becomes for customers to access equivalent or better services across a variety of platforms, the closer large financial institutions come to the book stores and taxi companies of yesterday.

Blockchain Is Eating Commerce

Blockchain is a technology that has the potential to become a disruptive force in the ever-more digital economy. Its potential value — coupled with friends, clients and business partners asking about it — led me to publish this outline and answers to many of the questions I’ve been fielding. It’s something every Data Athlete will want to understand.

BlockchainYou may not be familiar with blockchain. Many “in-the-know” digital folks aren’t terribly familiar with blockchain; what it is, or how it works. I was surprised by how few were.

Blockchain is a technology that has the potential to become a disruptive force in the ever-more digital economy. Its potential value — coupled with friends, clients and business partners asking about it — led me to publish this outline and answers to many of the questions I’ve been fielding. It’s something every Data Athlete will want to understand.

Blockchain Starts With Bitcoin

Blockchain is essentially a distributed database, which means it’s like the database you know that lives on your server or in the cloud — except that it’s spread copies of itself around the Internet or network. A distributed database has the benefits of fault tolerance and transparency — more than one “node” on the network has a copy of the data. Blockchain also utilizes strong cryptography that prevents changes to the transactions content — they are permanent.

These characteristics were developed to support the exchange of Bitcoin, the now famous crypto-currency that is being used worldwide to facilitate a myriad of transactions.

Bitcoin is said to concern banking institutions and governments alike — as its decentralized nature means no one nation owns or controls it. Bitcoin and its underlying Blockchain are like the “MP3 of currency” in the early ’90s. Bitcoin.org summarizes the power of its decentralization:

“Sending Bitcoins across borders is as easy as sending them across the street. There are no banks to make you wait three business days, no extra fees for making an international transfer, and no special limitatons on the minimum or maximum amount you can send.”

So in order for Bitcoin to be a “free” and universal currency, it could not be centrally managed or controlled; hence, blockchain was created first — Bitcoin actually started the following year.

Furthermore, each and every Bitcoin has a copy of every transaction/exchange it was ever involved in. All of the data on that chain is distributed to every blockchain-distributed journal (or database) across the Web.

What Is Blockchain Used for Today?

Blockchain’s most prevalent usage is in Bitcoin. But remember, it’s an encrypted, distributed database. And so, blockchain technology also securely moves and stores host money, titles, deeds, music, art, scientific discoveries, intellectual property and even votes.

As a (distributed) database that is as open, borderless and secure, blockchain continues to find new uses, and has been adopted by every major technology company. IBM, for example, made an early investment in blockchain technology and IBM Blockchain.

“Blockchain technology also securely moves and stores host money, titles, deeds, music, art, scientific discoveries, intellectual property and even votes.”

Blockchain 2.0 — Triggered, Programmatic Transactions

Blockchain 2.0 is the rapid evolution of blockchain, and where blockchain offers the potential for transformation of the way we engage in commerce and business at an Internet scale.

Remember, blockchain is a distributed, cryptographically secured database. It makes sense that an evolution would allow programming code, or chain code, to manipulate the transactions in a blockchain — and that’s exactly what has happened.

In one example, SAP is using blockchain software to let patients share electronic medical records with doctors or drug makers for a specific time period, such as during medical care or a study.

In another example, they designed a system for farmers’ weather insurance. It pulls rainfall data from sensors in the field, then automatically informs insurers if there’s a drought that would trigger a payout.