On the Incumbents and Disruptors Blog, guest bloggers and I will discuss how new entrants are challenging incumbents to improve customer service, convenience, safety, and access to financial products and services. Technological advancements seem to occur slower for financial services than in other industries. Although the focus of this blog will be on financial services, a discussion of industries that have been transformed by disruptor firms and technologies will help set the stage for future discussions. Industries have been disrupted for centuries but consumers are adopting new technologies faster today. For example, telephones took 75 years, televisions took 13 years, Facebook took 3.5 years, and Angry Birds took only 35 days to reach 50 million users (Citi Digital Strategy Team cited in Timothy Aeppel, “It Took the Telephone 75 Years To Do What Angry Birds Did in 35 Days. But What Does That Mean?” WSJ, March 13, 2015).
Disruptions come in different forms. New delivery channels or new technologies replace old ones resulting in incumbents disappearing. For example, Blockbuster and Kodak have basically disappeared from the vernacular of consumers. Kodak chose not to introduce digital technology to its consumers because it did not want to cannibalize its revenue from film. Blockbuster lost its popularity because of streaming and on-demand programming along with newer technologies that enabled movie watchers to download movies without leaving their homes. In both cases, technological advancements improved access, experience, and convenience for consumers.
With the introduction of the iPhone a little over ten years ago, not only were the photography and entertainment industries disrupted but also more broadly redefined how consumers interact with each other and businesses. For example, no longer does one have to wait to check-in at an airport but one can via an app purchase a ticket, choose a seat, check-in, board a plane, and download inflight entertainment. In addition, the ability to use apps to provide services has enabled relatively small players to challenge incumbents and reach scale very quickly.
In this blog post, I will focus on three industries that have been transformed: communication, transportation, and lodging. How disruptors are able to transform these industries will enable us in future blogs to better understand how disruptors are able to remove frictions and give consumers a better experience.
First, the means by which we communicate continue to evolve. Physical documents delivered by the post office continue to be replaced by emails delivered via the Internet. Andy Kessler (“The High Cost of Raising Prices,” WSJ, July 31, 2017) reported that first-class mail volume fell from 103.7 billion letters in 2001 at its peak to 61.2 billion last year suggesting that “snail” mail is being replaced rapidly. As far as voice communication, services like Skype and Whatsapp are commonly used especially for overseas calls instead of services provided by traditional telecommunications providers. In addition, no parent of a teenager will be surprised that they use text messages far greater than voice calls.
Second, in the transportation industry, ridesharing providers continue to disrupt taxi and limousine service providers and may eventually impact car ownership. Research from Sutirtha Bagchi (“A Tale of Two Cities: An Examination of Medallion Prices in New York and Chicago,” January 31, 2017) strongly suggests that some of the reduction in the price of medallions in Chicago (around 80% from 2013 to 2016) and New York City (around 50% from 2013 to 2016) is greatly impacted by the growth in ridesharing companies.
Uber, Lyft, and others continue to change the way people move from point A to point B. Instead of bus or subway routes with predetermined destinations, ridesharing companies can pick up and drop off at precise locations similar to taxis. These companies provide riders the ability to hail rides that they do not see without using a dispatcher. In addition, they offer a cashless payment experience with a dual rating system—consumers rate drivers and drivers rate consumers.
Third, the lodging industry has been disrupted as well. Airbnb, founded in 2008, matches individuals who want places to stay with those who have space to rent. The idea came to one of the founders to rent out space in his San Francisco apartment during a conference where attendees were having difficulty finding rooms. Today, there are over 3 million listings in over 65,000 cities in 191 countries around the world (airbnb.com visited August 2, 2017). Airbnb provides customers with more rooms to rent than any hotel chain.
From these three examples of disruptions some common themes arise. First, there is a greater emergence of platforms where providers are matched with consumers. The more seamless this experience is for consumers, the more likely consumers are going to shift. Second, the technology is easy to access 24/7/365. Waiting for business hours is no longer acceptable. Third, the customer experience is more customized with greater choices to unbundle and bundle products.
While the world has dramatically changed technologically, innovations in financial services have tended to be slower but have started to gain momentum. In discussions with financial technology (FinTech) firms, I have learned that compliance is a major issue and the most successful firms have made significant investments in terms of staff and external assistance to comply with existing laws and regulations.
In addition, providing a strong value proposition for consumers to leave their existing financial service providers is challenging. In many cases, disruptors provide more convenient and better customer service than incumbents. In other cases, incumbents do not find it profitable to serve certain market segments. For example, those individuals who have no or thin credit files are generally not able to get loans from traditional lenders.
In the coming months, I along with guest bloggers will discuss different aspects of the financial services industry where incumbents are facing competition from disruptors. New entrants have started to expand upon incumbent services and often partner with them to provide a seamless experience for consumers. I look forward to engaging in discussions.