Collision between innovators and incumbent institutions is nothing new.
Companies like Uber, Airbnb, and Spotify have changed the way we travel, vacation, and listen to music; now fintech is changing the way we do finance.
These disruptive industries have many similar characteristics but fintech’s path of disruption is distinctly different.
Here are the three biggest differences between the fintech revolution and other disruptive industries.
1. Complying for success
All digital disruptors battle with regulation on some level.
The flat-sharing platform Airbnb is constantly fighting with tax hikes and regulations around apartment rentals.
Uber, the ride-sharing business, is notorious for battling regulation; it now spends more on lobbyists in California than Wal-Mart, Bank of America or Wells Fargo. While disruptors like airbnb and Uber are regulated at the municipal or state level, fintech startups are regulated at every level, making innovation that much more difficult.
The fintech revolution has had to navigate regulatory waters unlike the others.
Instead of fighting to deregulate, many fintech startups use compliance to encourage an effective and sustainable business model.
Fintech frontrunners are even lobbying for regulation and partnering with governments.
Last week Prime Minister David Cameron welcomed a fintech 2020 manifesto in the UK to gain $8bn of technology investment over the next four years.
Working with regulators and embracing compliance gives fintech startups a tremendous competitive advantage, strong impact in the market and a high level of legitimacy.
2. Detonated with a big bang
The fintech revolution has arrived late to the disruption party but not without a big bang.
According to a recent CB Insights report the second quarter of 2015 saw a doubling of global funding in fintech compared to the same quarter in 2014.
The potential of the industry is tremendous considering that financial services made up 9.6 per cent of the UK’s GDP in 2013.
Other disruptive industries, such as the music industry, experienced waves of digital disruption for decades, from physical CDs, to online downloads, and now to paid subscription streaming.
The fintech revolution had a single distinct trigger: the 2008 global financial crisis.
After the crisis banks scrambled to satisfy regulatory requirements and couldn’t function the way they did before.
Recent HBS research shows that small business loans from banks have dropped about 20 percent since the crisis.
The emergence of new technologies along with consumer distrust in banks gave fintech startups the ignition to blast into the disruptive world.
3. Cozying up with incumbents
The relationship between Uber and the taxi industry is far from a cordial one.
Last month hundreds of French taxi drivers blocked roads, flipped cars and burned tires on the streets.
The fear is that taxis will soon be eradicated, just like CDs in the music industry. Where finance differs is that banks and fintech startups are not at war with each other.
Quite the opposite in fact, they need each other. Recent data from Symbid shows that 80% of major banks are incubating, investing in or partnering with fintech startups.
When it comes to finance, banks are too systemically important and carry too much weight in our economies to be completely abolished but they are slow to innovate.
A recent Infosys-Efma report reveals that only 61 percent of banks indicate to have an innovation strategy.
Meanwhile fintech companies can use the backing of a bank to help build a strong customer base and ease regulatory stress.
Unlike other disruptive industries a working relationship is a win for both parties and key to the further development of the fintech revolution.