Discussing how digital has the potential to disrupt an entire industry sector is nothing new. Car manufacturers and rentals, hoteliers, music, media and entertainment companies, and physical retailers have all felt the sharp shock of disintermediation. Entire new markets have been born, which are predominantly peer-to-peer based. Digital disruptors are unafraid to challenge large incumbents in the name of eliminating inefficiencies and creating value from otherwise idle or under-utilised assets, all in exchange for a modest fee for implementing, maintaining and optimising the marketplace.
Big companies and startups have a lot to learn from each other. Working jointly, they can enrich the market place with new valuable products and offerings. Pointing out emerging models, Vanessa Fraiberger draws a picture of the new business operating landscape in which both disruptors and incumbents have a role to play.
Industries that have experienced revolutionary change were generally considered inviolable; they were regulated, protected by licences, or provided a service or value that was perceived no other industry or entity could offer. That was until we discovered that these barriers were in fact no barriers at all. The same services could be offered « better » (in the end user's opinion at least) by combining rented assets, a platform (or marketplace) that enabled users to offer/seek services, and cutting edge algorithms.
In these markets, this revolutionary operating model has become the new normal over the past five years. During this time, this new model has also enabled new players (the American GAFAs, the Asian BATs and others) to redesign and control the economics of the marketplace.
"The most visible start-ups focus on a single service, offering a combination of «client-first» approach, fee transparency, a strong brand and an assertive marketing message."The loudest and most visible start-ups focus on a single service, offering a combination of «client first » approach, fee transparency, a strong brand and an assertive marketing message. Vis-à-vis the corporate banking sector, they play off banks' inefficiencies and sluggish reactivity, and champion «trust and transparency» issues resulting from the multiple bank scandals that have taken place since the sub-prime crisis in 2008.
What does this mean for 'established' incumbents?In the banking arena, it actually seems that recognised players are not expected to roll over and die. Why? Because few, if any, challengers are really keen to become a fully-fledged corporate bank. Instead, they focus on offering a clean, focused service for a fee, unburdened by the past. This approach can fit nicely with established banks' existing frameworks, which can support them or process part of their service. What a number of Fin Techs pursue today is therefore coopetition, a subtle mix of competition and cooperation, whereby the low cost start-up and the incumbent learn from each other, functioning as a team: the former seeking to achieve necessary scale and access to a much sought-after corporate client base, and the latter learning to develop greater agility.
"Failing to anticipate change, leads to inertia and ultimately, irrelevance."Established incumbents – including BNP Paribas – are responding by reinventing themselves, revisiting processes, systems, and indeed values, to answer the fundamental questions: what purpose do we serve? What is our role in this environment with rapidly changing rules?
Irrespective of an incumbent's specific industry, the core purpose of established players is to offer customers a safe and trustworthy ecosystem in which to operate; to help them navigate new regulation; to assist them in their fight against cyber-crime; to share insight and expertise to provide competitive advantage; and to do this in a lean and efficient manner. If they do not offer this ecosystem, if they resist the digital natives, if they miss the opportunity to re-design their solutions and services to drive the system's economics, then yes, incumbents are probably ripe for complete disruption.
The biggest challenge – and indeed danger – faced by an incumbent is, well, that they are an incumbent. The perception, or more accurately misconception, is that disruption is uncertain in that there is no immediate crisis. Failing to anticipate change, leads to inertia and ultimately irrelevance.
Another major challenge is that established players are not digital natives. The beliefs and expectation of incumbents' employees and management teams are based on the status quo. Challenging ourselves to think and act differently, to disrupt our own ecosystem, requires a leap of faith that is extraordinarily hard given the pressures to 'deliver today'. This is the traditional innovators' dilemma: the world changes slowly until it doesn't – as such, it is difficult to feel the urgency to adapt.
So, how do you act when you don't know how an industry is going to unfold? At BNP Paribas, we test and learn by doing; we challenge the status quo in every business line and every functional team. In an area as service-heavy and IT-dependent as flow banking, we are investing in developing people skilled at bridging the IT-business gap, and transversal functional teams that rethink processes and solutions jointly with clients. We learn to embrace coopetition, partnering with Fin Techs and soon hopefully also with Reg Techs (which are viewed by some as the next big frontier), to develop new, agile, efficient and relevant solutions.
Amid all this change though, one element remains constant: a firm focus on our corporate clients' experience. Combining technology with tradition, we aim to streamline, de-layer, optimize, and coopete, all while focusing on strengthening relationships with our customers – something which originated with the merchant banker and the goldsmith and which remains at the core of banking.