The Upside of Disruption in the Financial World

What is disruptive innovation? In her opening address at the Hungexpo conference and exhibition centre, EuroFinance managing director Carolyn Meier told attendees that the term encompasses the whole gamut of change in today’s business environment, from technological and regulatory developments to that created by competitors and new market entrants.

The phrase was first coined by Harvard Business School professor Clayton Christensen, said Carole Berndt, global head of transaction services at RBS, who noted that disruptive innovation encompasses everything from mild disturbance to complete disarray. The latter is the extent of innovation now being faced by the banks, which must contend with new technology, new competitors and an uncertain world.

Technology is lowering the barriers to market entry for alternative payment service providers, while at the same time banks face escalating costs in order to comply with a new battery of regulatory requirements. Moreover, history has demonstrated that in periods of rapid technological change it is the disruptors who usually prevail.

Kodak is a prime example of a traditional company that was displaced by technological change, but other long-established corporate names have been able to revamp, harnessing technology in order to make it an enabler.

“The days when capital was abundant and regulation light have passed into history,” said Berndt. Banks are no longer “spreading themselves thin” but focusing on the specific areas in which their greatest strengths lay. They are also seeking fewer, but deeper relationships with their corporate clients.

Over time, banks might follow the trend established by the airline industry, which initially entered into cooperation agreements, before establishing joint ventures and equity stakes in new groups such as IAG.

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