Disruption in financial services markets happens "gradually, then suddenly." Here's how incumbents can stay relevant and keep innovating.
Technology and data are propelling change faster than ever before, and redrawing competitive lines across every sector — including financial services.
“Nobody stays in their lane anymore,” CB Insights co-founder and CEO Anand Sanwal said in a keynote presentation at the Future of Fintech 2018 conference in New York.
The number of insurgent competitors across every aspect of financial services is multiplying rapidly, partially because the cost of launching a startup has plummeted.
“Lots of people are jumping into what might be perceived as really thin slices of the market,” said Sanwal.
With competition heating up, fin services incumbents “need both will and skill” to stay in the game.
Incumbents in the financial services space have tended to respond slowly to insurgents, or dismiss them altogether and rely on their regulatory lock-in as a safeguard against competition.
“Historically, I think incumbent financial services firms would think about, ‘well, when somebody becomes affluent enough, we’ll then go after them … the problem is now those people … are being served by the likes of Coinbase or Robinhood.”
This is where will comes in.
Incumbent financial services companies have to acknowledge the threat posed by insurgents, and take it seriously.
Failing to respond is not an option — “it’s death.” In the last 15 years, 52% of S&P 500 companies have disappeared because they failed to respond.
The skill that incumbents have to cultivate is embracing an “evidence over eminence” mentality — “gut instinct is no longer enough” when it comes to business decisions.
Part of adopting the skill is reconsidering how corporate innovation currently happens.
Big companies have a “natural desire to invent everything at home” instead of partnering or buying. While there’s nothing inherently wrong with this, it can be an extremely slow process — so even if companies can identify long-term threats, they often don’t move fast enough to combat them.
The evidence-over-eminence mentality can also be a guide for what incumbents should be watching. Keeping an eye out for sudden threats should involve looking at existing competitors and insurgent competitors. These might be startups going after your customer base, or partners expanding their reach.
Companies should also be looking at where profit pools are. Knowing where the big markets are is a good way to identify opportunities and vulnerabilities.
And one more thing, says Sanwal. “Stop with the consortia.”
This report was created with data from CB Insights’ emerging technology insights platform, which offers clarity into emerging tech and new business strategies through tools like:
- Earnings Transcripts Search Engine & Analytics to get an information edge on competitors’ and incumbents’ strategies
- Patent Analytics to see where innovation is happening next
- Company Mosaic Scores to evaluate startup health, based on our National Science Foundation-backed algorithm
- Business Relationships to quickly see a company’s competitors, partners, and more
- Market Sizing Tools to visualize market growth and spot the next big opportunity