Define Disruption

It was an honor to be asked to participate on Brett King’s Breaking Banks anniversary show. It was frustrating, however, that every time Voice America added someone on Skype, *I* was the guy who got dropped from the call (yeah, I know: it’s called karma).

Even more frustrating though, was missing an opportunity to rebut and clarify something. When asked about the prospects for disruption in the banking industry, the participants chimed in. When it got to be my turn, I said something like:

“Hate to be the wet rag here, but I don’t think we’re going to see a lot of disruption in the US banking industry. In fact, the title of an upcoming report that I’ll be publishing is The Coming Credit Card Boomlet. We won’t see a boom in credit cards, but we will see an increase as young consumers switch their payment behaviors from debit to credit in order to maximize rewards points, and an uptick from the next wave of Millennials who are currently 15 to 20 years old.”

My (former? jk) friend Jim Marous followed by saying (again, something like):

“I disagree with Ron. I think we’ll see a lot of new technology developments….”

And Jim went on to say some more smart stuff, but honestly at that point I went silently ballistic.

I immediately tweeted Jim to clarify that I did NOT say we wouldn’t see new technology developments, just that we wouldn’t see disruption (I missed my chance to chime in what new tech developments we’d see, thanks to the technical difficulties).

Brett took a break, and I was off the show. He then brought on a Skinner and Birch, one of whom said disruption was inevitable, basically saying that I must be crazy (though definitely not mentioning me by name).

Sigh. Thankfully, I have a blog to vent and explain myself (to the seven people who read this).

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It’s unlikely you–or any of the guests on Brett’s radio show–will convince me that I’m wrong about my take on the near-term prospects for disruption. I’ve stated my position in a post here title Disruption Delusions in which I argue that the so-called disruptors in the banking space are merely filling niches (as we learned recently, disruptor-candidate Simple has 33k active customers–after what? 5 years?–or about as many customers as a large city Bank of America branch).

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What’s missing in this argument discussion is a common, and agreed-upon definition of what disruption is.

I take my definition from Clayton Christensen’s work. He talked about disruption in terms of technologies–not individual companies. The development of new technologies “disrupted” the economics and business models of a particular industry, and–when adopted and deployed by a number of new entrants into the market–caused “disruption.”
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Yet the discussion on Breaking Banks–and I’m sure it’s similar to discussions all over the place–focused on individual firms that were bandied about as potential disruptors.

I heard little, however, of exactly what new technologies they were bringing to the table that would be the cause of disruption. Even more, I heard no talk of technologies that potential disruptors were bringing to the industry that existing banks aren’t already adopting and deploying en masse.

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Today’s discussions about disruption are similar to the discussions 15 years ago during the dot-com boom when it was thought that the Internet was going make brick-and-mortar banks–often referred to as dinosaurs–extinct.

Turns out that today, like millions of years ago, when you’re standing in front of a dinosaur 10 times bigger than you, and who wants to eat you for lunch, standing there and saying “You’re going to be extinct in a few years” won’t save your sorry little ass.

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Among others, there are two reasons in particular why I’m not moving from my view that disruption isn’t happening: 1) funding source, and 2) credit.

In another post I recently published, I discussed the speed bumps on the path to payments disruption. One of the points applies equally as well to payments as it does to banking overall:

“If, when a consumer uses an alternative (or “disruptive”) payment method, if the money has to come out of a traditional bank, is the traditional bank really being disrupted? True payments disruption isn’t going to happen until we change how and where we deposit our paychecks.”

Second, the niche that the so-called banking disruptors have filled are predominantly with young Gen Yers who are new to financial services (and adulthood, for that matter). To assume that their needs won’t change over the next few years as they become older adults–and get married, want to buy a home, have kids, need to save for the kids’ education, etc.–is a risky assumption.

They’re going to want and need credit. Mortgages, credit cards, other loans. None of the potential disruptors I heard mentioned on Breaking Banks today fill any of these needs.

Today’s dinosaurs established banks may find that taking on a new deposit customer will require making a credit-type underwriting decision in order to determine how good a potential credit customer this consumer is or will be. Or maybe they’ll give up trying to get deposit-only customers, and require credit customers to open a deposit account (so they can tie the funding source to the credit use).

And today’s so-called disruptors will be niche players serving consumers with no credit needs.

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Or maybe I’m wrong.

But I did learn one lesson the hard way today. Should’ve taken a cue from Bill Clinton, and when asked about the potential for disruption, I should’ve said “Define disruption.”

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