4. Digital Disruption Flashcards
What is digital disruption?
Challenges faced by incumbents when new technologies and digital business models emerge, affecting the existing value of goods and services
What is Algorithm Banking? What does it improve? (3)
Uses algorithms, data and data science to drive better decisions to improve customer satisfaction, their profits and to sustain relationships.
How does Algorithm Banking affect products compared to traditional banking?
It’s able to develop new products quicker
Banks have had to develop strategies to deal with competition they face in the form of______ (5)
- Algorithm banking
- Big data
- Blockchain
- Peer-to-peer
- Crowdsourcing
What options do banks have in order to remain competitive against fintechs? (9)
- Become a fintech itself
- Become specialised in a service it already has a competitive edge in
- Remove or outsource non essential activities
- Migrate activities to cheaper software platforms
- White labelling
- Use innovation labs to introduce incremental improvements
- Partner with fintechs to solve problems and address regulation
- Fight fintech with fintech - build whole new fintech business
- Invest in or buy fintechs
What is white labelling?
Banks lend their recognisable name to a fintech.
E.g M&S bank is run as a joint venture with HSBC
What’s an innovation lab? Name an example of a bank using these.
A company that a bank collaborates with to accelerate their business via mentoring and providing capital in exchange for equity.
Innovation lab Techstars collaborates with Barclays
What is the most significant issue faced by long standing banks who launch new digital platforms for their existing customers?
Cannibalisation of revenue streams
What is the main difficulty faced by fintech start ups when attracting a customer base?
They need to attract customers from either incumbents or already established fintechs. This is difficult as customers are reluctant to switch providers.
What is the main difficulty faced by incumbents when attracting a customer base?
Because they have the biggest market share, they have the most to lose and people are more willing to have fintechs as their main bank now than ever.
How many people in the UK have a fintech as their main bank?
Around 1 million
What is a flanker brand? What are two examples of this?
A new brand set up by a company which already has an established brand within that market.
Bo (personal accounts) and Mettle (business accounts) set up by RBS. Bo went under in 2020.
What is the FCA Digital Sandbox? What is its aim?
A permanent digital testing environment with the City of London Corporation. Aims to provide support to products and services in the early stages of development.
What are the 3 main features of the FCA digital sandbox?
- Access to synthetic data assets - enables testing of prototype tech solutions
- API marketplace - digital service providers are able to visit and offer access to services via APIs
- Integrated development environment - where applicants can develop and test solutions
What does API stand for?
Application programming interface
Why does the FCA want to encourage competition and innovation?
So consumers can get better deals at reduced costs.
When was personalised banking introduced? What did this look like?
1980s with telephone banking
When was online banking introduced?
The mid 1990s
Who was the first to offer online services to all its customers? When?
Stanford federal credit union, Palo Alto California, 1993-1994
What financial services did fintechs offer when they first emerged? After this, the introduction of which service by fintechs led to them starting to encroach on mainstream banking territory?
Started with payments and remittance (the sending of money)
Begin encroaching when they set up peer to peer lending platforms.
What are peer to peer lending platforms?
Where those who have money can loan directly to those who need it, cutting out the middle man.
What are marketplace banking platforms? Did they help or threaten traditional banks?
Where fintech providers can all gather in one place ( a bit like how Amazon works)
This presented further competition for traditional banks
How were incumbent banks performing in 2012 compared to digital newcomers?
Incumbents offered a whole range of products and services and did moderately well.
Digital newcomers offered only one or two products but did extremely well.
What do the following banks have in common?
Citibank, Chase Manhattan, Chemical bank & Manufacturers Hanover Trust Company
Four major new York banks who in 1981 provided a trial of remote banking services
Who was the first UK provider to offer online banking? When? What was it called? What tasks could be carried out? (4)
Bank of Scotland, 1983, HOMELINK.
- View statements
- Transfer between accounts
- Pay bills
- Arrange loans online
What was the biggest enabler of digital banking?
The launch of the iPhone in 2007, made internet access readily available and people started asking banks for digital
What were the main concerns that banks had about the emergence of online banking? (3)
- Erosion of margins
- Limit cross selling opportunities
- Existing infrastructure would not be able to handle new demands and systems would need to be replaced
What is digital Disruption? Is it an inside out or outside in process?
When new tech or business models emerge that disrupt entire markets or industries.
Outside in process
What is digital transformation? Is it an outside in or an inside out process?
When firms use tech to change how they operate.
Inside out process
Define a disruptive firm.
Those that are totally digital, from top down and bottom up.
What is an OCR? Is it a form of digital Disruption or transformation?
Optical character reader - used to read text
It’s digital transformation because the application of the product and the bank’s role in providing it won’t have changed, only how the documents are processed.
What type of job position has the power to implement the following?
1. Transformative measures
2. Disruptive measures
- Section heads
- CEOs
Is the emergence of cryptocurrency disruptive or transformative? Why?
Disruptive.
Cryptocurrency uses a Blockchain system. This is a totally new system that doesn’t work alongside traditional banking systems. It works against it and is decentralised.
What is a Blockchain system?
One that is used to make digital records of when cryptocurrency is bought or sold. It is constantly growing and new blocks are always being added to the chain.
What are the 5 main types of emerging technologies?
- Biometrics
- Chatbots/RPA
- AI
- Wearable devices
- Video ATMs
THINK: ABC VW
Name 5 different types of biometric technology. What is the role of these technologies?
- Fingerprints
- Finger vein pattern scans
- Facial recognition
- Voice ID
- Iris recognition
Role = make accounts more secure or harder to access without authorization but easy to access with authorization
