Disruptive Innovation in Digital Banking: Building Effective Ecosystems Around Digital Finance Service
Disruptive Innovation in Digital Banking: Building Effective Ecosystems Around Digital Finance Service
Massive digital disruption is now the norm in the banking industry. Whether it's deposits, payments, or loans, the disruption pervades the industry, shaking it from top to bottom. Banks must integrate their functionality with their existing systems, completely refurbish them, or risk alienating their customers and losing business in an extremely competitive environment.
Any industry evolves along a path of constant improvement, and the consumers of these advancements are always the most demanding and profitable customers. An organization's value-creation mechanisms are inherently resistant to change. As a result, leading companies prioritize meeting the most demanding customers while implementing long-term innovations.
What is Disruptive Innovation in Banking?
The term "disruptive innovation" refers to the process by which a product or service establishes itself at the bottom of a market and then relentlessly moves up, eventually displacing established competitors. While there is little evidence that banking is an exception to the rule, bank and credit union executives still have time to read, understand, and act on the handwriting on the wall.
Disruptive innovations at the start of the journey cannot meet the needs of major consumers because they need to be better developed, resulting in poor performance. However, disruptive innovations are gaining popularity among niche customers who prefer them based on specific criteria. Price, operating conditions, key features, simplicity, and so on. Disruptive innovations begin by filling these small niches' needs.
Massive bank resources, combined with a slew of digital banking innovations being developed today to meet the needs of major customers, could give the impression of market dominance and future success. At the same time, true digital disruption in the banking industry can go unnoticed and completely change customer behavior and game rules.
Opportunities and Threats of Digital Disruption on the Banking Industry
To discover what can be done, we must first understand what characteristics will characterize banking innovations that will lead to digital disruption in the banking industry.
Disruptive Innovation is Difficult to Implement
The issue is that disruptive digital technologies provide simpler and often less expensive solutions. Future-oriented organizations should pay close attention to innovations that simplify service and reduce costs, and there is still a way to solve the inability to integrate them into the existing business.
Expand Disruptive Innovations in Micromarkets
Large financial firms must generate a significant amount of revenue from a large market to demonstrate expected growth to shareholders and cover the costs of a large team. The bank's size, work culture, and decision-making mechanisms do not correspond to the growing micro market's small size and flexibility requirements. As a result, small startup teams of a few people are more likely to succeed in innovative banking.
Unlocking the Embedded Finance Opportunity Through Building Effective Ecosystems
Companies from various industries want to use finance to give their customers a seamless experience. It demonstrates the importance of the customer lifecycle — which begins with the first interaction with a brand and continues through the after-sale experience — over the product or service lifecycle. The retailer can differentiate itself and create more value by making the overall customer experience simpler, faster, and easier.
Financial service providers can assist non-financial companies in improving their customers' experiences by making finance more convenient. It is made possible by integrating financial services into non-financial value chains, known as embedded finance.
The ability of ecosystems to create long-term value fuels the Financial Service industry's optimism about them.
References:
https://www.theuxda.com/blog/iphone-success-5-ways-to-predict-banking-disruption
https://technologymagazine.com/digital-transformation/How-digital-ecosystems-in-finance-are-evolving
