Not All Innovations Are Disruptive, But This One Could Be

March 13th, 2017


I was listening to a financier talking about fintech companies the other day, and he claimed that their work products are all sustaining innovations and not disruptive. He was referring to Clayton Christensen, a Harvard Business School professor and an expert on disruption. In his research and writings, Christensen has pointed to various markets that were disrupted by outsiders, including the American car industry, disrupted by cheaper Japanese car manufacturing; fixed line telephone firms, disrupted by cell phone makers; and the mainframe computer industry, disrupted by PC manufacturers.


There is a flaw in Christensen’s work, which is that incumbents often fail to respond when challenged by outsiders, which makes their situation worse. That was true of Kodak and Nokia, where the change was fast and the management teams were weak. American car firms—Ford, General Motors and Chrysler—have not disappeared because of competition from Toyota and Honda; instead, they responded proactively and survived. AT&T, with $168 billion revenues in 2016, is hardly dead either. And IBM, with $80 billion revenues, is still going pretty strong.

Equally, Christensen points to industries that produce commodity products such as phones, cars and computers, where there may be giants, but the giants are not protected by layers of law and regulations like banks are. That is why banking has not been disrupted to date, and is unlikely to be in the future.

Christensen does make an important point, although it’s not as radical as those who refer to his work believe. If a weak competitor enters the bottom-end of the market, he argues, they may have the opportunity to disrupt the market if the incumbent does not respond. That is true, and that was the case with Kodak and Nokia. Ford, AT&T and IBM did respond and survived the change.

That is the case with any change however. As Charles Darwin noted: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

How true.

We really need to understand the difference between sustainable innovation and disruptive innovation in order to see if there is any disruptive change in banking. According to Matt West:

Sustaining innovation comes from listening to the needs of customers in the existing market and creating products that satisfy their predicted needs for the future. Disruptive innovation creates new markets separate to the mainstream; markets that are unknowable at the time of the technologies conception.

Sustaining innovation improves what is there today; disruptive innovation replaces what is there today. Hmmm. I blogged about this over on The Next Web, stating that there are three streams of fintech innovations:

  • Those that serve markets that banks don’t serve
  • Those that improve the customer journey by removing friction
  • Those that work with banks to eradicate inefficiencies, for example, in customer onboarding

Obviously, the latter two categories are sustaining innovations, as they improve what is there today. The first category is interesting though, as it is creating and serving new markets. In my blog, I pointed to SME financing and crowdfunding, but that’s not a true example of disruption. That is an extension of what’s occurring today.

However, I do see one example of disruptive innovation out there. I think about this one often. It is clearly disruptive, but is it noticed by the incumbents? Have they responded?

Not yet.

What is it?

I’m tempted not to say, but that would be rude. It’s financial inclusion.

There’s loads of discussions about financial inclusion and the use of mobile wallets in Sub-Saharan Africa to provide cheap and simple money transfers between people without bank accounts. This is serving the bottom end of the market, and Christensen defines disruptive innovation as: “A process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”

Oooh. We have one. Are the banks noticing?


Chris Skinner is known as an independent commentator on the financial markets and fintech through his blog, the, as author of the bestselling book Digital Bank and its new sequel ValueWeb. In his day job, he is Chair of the European networking forum: the Financial Services Club.