By FintechOS · February 01, 2022
5 minute read

Digital disruption – or digital destruction? The innovation dilemma for banks

digital disruption

When going digital, incumbent financial institutions can learn from first-movers, observing the victories and failures of pioneers

Key Takeaways:  

  • Disruption doesn’t need to mean destruction, because incumbents can learn from the example set by pioneers and first-movers
  • Disruptive technology is now available to all banks, offering them the abilities once only available to cutting-edge fintechs

The rapid development of digital technology over the past 70 years has showed us that the path of progress is rarely linear and predictable. Looking back, it looks there is a clear straight line to be traced between the technology of then – and the technology of now. But this is almost never the case. A road to the future has false turns, dead ends and gigantic potholes which trap many of the travellers that pass along it.  

Unfortunately, the arrival of the new often leads to the destruction of the old, a process that was memorably dubbed creative destruction by Joseph Schumpeter, an Austrian economist. This phrase describes the replacement of outdated ideas, technologies and innovations by new ones. Today, we’re more likely to talk about disruption than Schumpeter’s “perennial gale of creative destruction”. But these two words describe a similar concept. When am innovative company wields innovative new technology, it disrupts existing markets, slays the giants and lays waste to everything that went before. Which probably sounds pretty exciting if you’re the new kid on the block, but borderline terrifying if you’re an incumbent.  

At FintechOS, it is our belief that disruption doesn’t need to lead to destruction. Digital challengers and neobanks have gained a head start on traditional financial institutions which gave them a particular advantage during the “gale” of digital transformation forced by the pandemic. Digital players had access to the latest technologies, allow them to move forward at a rapid pace.  

But incumbents can learn from these first-movers, using the benefits of observing the victories and failures of pioneers. Our technology allows banks to build products as good as those delivered by cutting edge fintechs in a matter of weeks, not months or years. Which is why we want to tell the world that digital disruption is not a destructive process, but a creative one.  

The Great Destroyer?  

The concept of destructive technologies was first coined by Clayton M. Christensen in an article written in 1995 called Disruptive Technologies: Catching the Wave.  

Christensen set out some the reasons why incumbents might falter in face of disruption in his book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. 

He wrote: “The very decision-making and resource-allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies: listening carefully to customers; tracking competitors’ actions carefully; and investing resources to design and build higher-performance, higher-quality products that will yield greater profit. These are the reasons why great firms stumbled or failed when confronted with disruptive technological change.” 

Disruptive technology does not automatically destroy companies – although it can harm those that are complacent or stuck in their ways. Just ask Kodak, which developed the first digital camera in 1975 and then shelved it for fear of ruining its bread-and-butter film business, before falling into a slow nosedive which saw it filing for bankruptcy in 2012. Companies that respond to digital disruption can even benefit by sitting back, watching challengers take the risks and then implementing the best ideas from the upstarts that rose to take them on.  

Creative Disruption 

We know that incumbent institutions can face problems when innovating, even though developing new digital products, journeys and experiences is now a matter of survival, rather than a ‘nice to have’. Friction can be caused by siloes, legacy technology and problems integrating new systems with pre-existing architecture. Until now, it has been difficult to introduce the data-driven, customer-centric and seamless end-to-end experiences. FintechOS can help.  

Our pre-built automation blocks, industry platforms, and low-code framework offer cutting-edge functionality right out of the box. Banks can drastically reduce the time and cost of implementing digital journeys and experiences. They can also benefit from personalization, allowing products to be tailored to customer needs as well as the requirements of the wider business.  

The new capabilities offered by FintechOS will disrupt your business for the better. But they need not destroy anything in the process. The FintechOS Lean Core offers banks and financial services the opportunity to bring products and services to market at unprecedented speed, allowing them operate a full-stack for just the products and services they want to start with, without running into scaling problems later on. 

It can be used to launch a new brand or service which can grow quickly, yet is flexible enough to pivot and grow with the business. Incumbents will have pre-existing legacy systems which are too important to simply scrap. FintechOS works on top of older systems, integrating data from internal siloed sources as well as more than 150 other business solutions. Our customers don’t need to tear down their legacy systems, but instead can turn them into foundations for their new digital products.  

We can bring you the disruptive technologies used by fintechs and challengers, without the actual disruption to business as usual that often accompany ambitious digital transformations. And there will be absolutely no destruction – unless you really want it.  


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