Incumbent and Emerging Financial Service Providers

FinTech or financial technology has become an industry of great interest for investors, financial service professionals, consumers, businesses, and policymakers. From 2012 to 2017 Q2, VC-backed FinTech firms raised $50 billion globally (see CB Insights). Additionally, several central banks and international agencies have formed working groups with FinTech leaders or created sandboxes (see IMF and Bank of England). In this blog, Chakravorti discusses what is different about today’s financial technology providers, how the FinTech industry improves financial products, and how FinTech firms compete and partner with incumbent financial institutions.

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).

In his presentation in Madrid, Spain in April 2017, Bob Chakravorti discussed how the financial sector is rapidly changing because of new products and services brought to market by FinTech firms. Specifically, he discusses certain market segments where new entrants are reducing market frictions. He puts forth how incumbent financial institutions should respond to new entrants.