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The Digital Story

Adam Green - IBM Global Business Services

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The fine line between disruptors and differentiators

19 April 2013  |  3226 views  |  1

I am often asked to deliver digital channel concepts, products and services for financial institutions that focus on proven market contenders. Yet, as a user, I find myself using services that have been called disruptors. That description carries a negative connotation in circles outside of innovation, but disruptors often become proven contenders. Once they become contenders, they are then known as differentiators.

What’s the difference between a disruptor and a differentiator?

We may have a different perspective if we talked to industry differentiators. Take Pete Kight, founder of CheckFree, for example. He started CheckFree as a way for gyms to accept automated payments from members and turned it into an industry-leading bill pay and presentment platform. Kight was accused of disrupting the control billers had on customers, but he was really creating the stage for what is now known as bill pay. Then there’s Jack Dorsey, creator of Twitter and Square. He, and a buddy named Biz, started Twitter (formerly Obvious) as a way for users to send Web-based, real-time statuses via a short message service (SMS, or what the kids call “texting”). In 2009, Dorsey’s idea for Square originated after discussing an issue a friend had encountered accepting credit card payments. Square has been accused of disrupting the banks, issuers and payment networks, but it has revolutionized the payment industry. Also consider Max Levchin and Peter Thiel, who started Confinity, an interesting idea of reconciling beamed payments from Palm Pilots. Beamed payments: leading-edge stuff, right? Confinity would later be rebranded PayPal. All of these are examples of companies viewed as disruptors that became contenders and are now differentiators.

PayPal has long been called the disruptor. Banks saw it as an alternative network and enemy to all things traditional. And yet the company grew. And grew. And grew. Today, it has 230 million accounts and moves more than $2 million across its rails…every hour! If PayPal became a bank tomorrow, it would be the largest bank in the world. It has an enormous network and user base that towers over other financial institutions. For a long time, it was the way to move money between buyer and seller or friends and family. The company then mastered the online payment approach for e-commerce sites. In May, PayPal made waves with this headline: PayPal Rolls Out To 15 More National Retailers, Announces Deals With 6 Top POS Software and Terminal Makers. That came after its announcement of a deal with Home Depot, the world’s largest do-it-yourself warehouse.

In 2009, PayPal developed relationships with financial technology companies that could be offered to financial institutions. FIS was one of the first to announce a partnership. Banks like USAA announced direct relationships after realizing the value add the network brings to its millions of members, many of whom are active servicemen and women deployed across the globe. Bank of America, Chase and Wells Fargo made their relationship status official with ClearXchange. Rarely do you hear their service mentioned without some form of “the banks’ answer to PayPal.”

While shopping with my wife and son recently, I used Square to pay for popsicles at Steel City Pops, a new boutique popsicle shop and stand in Birmingham, Alabama. The guy at the stand we visited was also the owner, so I talked to him about why he chose Square. It was simple: Square was different. He didn’t need overhead (i.e., register, POS terminal, expensive transaction processing software), he didn’t have to print receipts, and he had a seamless application that he could use to track sales. Perhaps most convenient, though, was the ability to be where his customer base was – on the street, at a mall or catering parties.

Earlier this year, I was talking to a client about the mobile payment landscape. As part of our discussion, I provided my position on more than a dozen companies across the globe. When we finally got to Ben Milne and Dwolla the first response: Dwolla is a disruptor. The very next day, Dwolla posted this on its Facebook page: Dwolla’s First FiSync Banking Customer Goes Live, Eliminates ACH Delays With Real-Time Bank Transfers. Since then, Dwolla has announced and continues to pursue additional partnerships with banks. Why? It strives to be different. In today’s environment, different is good. It might even win.

Personally, I choose to do business with companies that differentiate themselves from the rest (i.e., Apple, Nordstrom, Chipotle, Gilt). As it relates to banking, those that differentiate deserve my attention and/or my money (USAA, Umpqua, Simple, MovenBank, SmartyPig, PNC). At some point, they were all viewed as disruptors because they challenged the standard model; they chose to be something different. And that difference has increased customer awareness, visits, adoption and usage.

The financial services industry is finally leveraging the glossy topics from other industries: intelligent analytics (merchant-funded rewards or predictive analytics), user-generated content, dynamic experiences (customer versus prospect), smarter platforms, tighter integration and others. The most exciting thing is that banks, institutions and financial services companies are finally leading with innovation. Gone are the days where being first to market was a risk; now it’s a competitive advantage. Companies are realizing that they have to lead with digital rather than traditional. Younger demographics are paving the way for older generations. Now is perhaps the most riveting and inspiring time in this industry. Ever.

So, what will be the next disruption? Who will be the next differentiator? How do you think financial services companies can be viewed as disruptors on their way to becoming differentiators? Join the discussion.

 

TagsMobile & onlinePayments

Comments: (1)

Dave Barnes - . - Edinburgh | 22 April, 2013, 07:56

Just thought I'd say how much I enjoyed this. It's the best written article I've seen on this forum in a long while.

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Adam Green

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IBM Global Business Services

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