This Advisor argues that disruption in banking is not being driven by technological achievements like artificial intelligence, decentralized platforms, or mobile computing, which inevitably lead to new business models and sector paradigm shifts. Instead, changes are the result of: (1) technology commoditization and (2) industry actors pursuing strategic interests and repositioning themselves within the sector as disruptors, innovators, and fashion-setters. If we can envision a technology agora where technological artifacts are developed and commoditized and interested parties exercise influence over innovation choices, we will see that fintechs and banks are not so much competing with each other as they are collaborating.
A Technology Agora
An agora was a physical space where citizens in ancient Greece or Rome assembled to sell and buy commodities, acquire new knowledge by listening to the teachings of well-respected philosophers, and engage in the political process by deliberating important issues and electing city officials.
Commercial, learning, and political activities all happened in the same space, and a philosopher’s teachings might just as easily reflect the political status quo as be in opposition. This idea can help us understand how disruptions occur in banking and finance, especially in cases where emerging technologies are thought to be the cause of those disruptions.
A technology agora can be understood as a space where technological artifacts are developed and commoditized. The process includes knowledge, expertise, and discourse that help frame those artifacts, explaining their purpose and linking them to specific business contexts. It’s also a political arena where participating actors pursue their interests and exercise influence over innovation choices, including the choice of one technology over another.
In banking and finance, the technology agora is populated by vendors like Microsoft and Oracle that specialize in products and services for the sector, business consultants, industry analysts and other industry gurus, governments, and interest groups aiming to coordinate activities of the other actors and influence the direction of technological innovation.
In this agora, banks buy technology products and vendors sell them. Consultants and experts talk about products and suggest how the technology could be used more efficiently while pursuing their strategic interests and positioning themselves as influential actors. Governments either promote technological innovations or ask banks to exercise some restraint around them.
After the 2008 global financial crisis, a large wave of fintech start-ups entered the banking technology agora with fresh ideas, expertise in novel technologies, and risk-seeking attitudes. For most, those start-ups were seen as a threat to established institutional and market arrangements in banking and finance. Traditional banks were mostly perceived as rigid organizations not keen to adopt new technologies such as blockchain. A disruption seemed to be in the making: innovative entries into the technology agora would challenge the incumbents and ultimately displace them.
There is evidence, however, that established banks and fintech start-ups were not in a competitive relationship. On the contrary, banks were busy forming strategic alliances with fintechs to benefit from new products without being involved in their development while fintechs sought access to financial resources and expertise that could help them broaden their customer base. At the same time, dominant software players and multinational technology corporations remained rather unengaged in fintech experimentation, limiting themselves to observing the start-ups.
This suggests that although fintechs are an innovative force in the technology agora, their impact on banking and finance is misunderstood. They aren’t trying to disrupt existing banking models — they don’t have the financial resources or existing industry networks, and they lack compliance and legal expertise.
In fact, fintechs find their way into the agora by acting as idea entrepreneurs and pitching use cases to established players, hoping they’ll be selected by a large bank for an accelerator program, after which they’ll receive funding or be assimilated. In reality, fintech start-ups are more “tech” than “fin,” positioning themselves on the supply side of the technology agora, alongside existing technology suppliers.
Thus, it’s not banks that should fear competition from fintechs; it’s traditional technology suppliers. Collaborative relationships between established banks and fintechs are pushing technology suppliers like IBM to become more agile in an effort to maintain their position as leading technology suppliers in banking and finance.
As we look into the technology agora, we see an influx of start-ups pitching visions of the future to established banks. Established banks control which of those start-ups will be allowed into the agora. Meanwhile, the larger technology vendors are in an awkward position: they have established track records with large banks but realize that relying solely on this would be a mistake (they must instead engage more fully with the fintech movement).
[For more on technological disruption in banking and finance, see: “Understanding the Technology Agora in Banking and Financial Services.”]