Jamie Dimon, the CEO of JPMorgan Chase, expressed it well in his 2015 shareholder letter, observing that “Silicon Valley” is coming. These new entrants want to apply more advanced technological solutions and insights from behavioral science to an industry that is profitable but has tended to under-serve its clients.
Airbnb and Uber have demonstrated that disruption from another industry is particularly powerful, because it involves enabling efficiency-enhancing structural changes that draw on core competencies and strategies that the incumbent firms lack. Many other companies (for example, Rent the Runway, which provides short-term rentals of higher-end fashion) are in the process of doing the same thing. Be it peer-to-peer platforms or crowd-funding, outside disruptors already are having an impact at the margin of finance, particularly in serving those who were previously marginalized by traditional firms or had lost trust in them.
The end result will be an industry that serves people via a larger menu of customizable solutions. Though traditional firms will seek to adjust to maintain their dominance, many will be challenged to “self-disrupt” their thinking and operational approach. And, while emerging firms will offer better services, they will not find it easy to overcome immediately and decisively the institutional and regulatory inertia that anchors traditional firms’ market position. As a result, a proliferation of financial providers is likely, with particularly bright prospects for institutional partnerships that combine the more agile existing platforms with exciting new content and approaches.
Read more at http://www.project-syndicate.org/commentary/financial-services-revolution-by-mohamed-a--el-erian-2015-06#MFq5b31oc4yVdQ0q.99
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