Financial Services Disruption: Gradually And Then Suddenly
Ernest Hemingway was known for his stories about a lost generation, bullfighting, and big game hunting, but one does not generally associate Hemingway with ideas of innovation and disruption. Yet, in his 1926 novel The Sun Also Rises, Hemingway creates an apt metaphor for the nature of innovative and disruptive change. When a character in the novel is asked “How did you go bankrupt?” he replies, “Two ways, gradually, and then suddenly”. How better to describe the process by which innovation and disruption can creep up on an industry or an organization, resulting in a sudden shift in the landscape.
Leading financial services firms are facing unprecedented pressures, from technologically savvy customers, from hard-pressed regulators to Washington DC politicians of all political spectrum, and from aggressive new market entrants. This wave of financial services innovation and disruption possesses serious potential to unsettle perhaps the most traditional and central industry in our economy. The American financial system is what Hamilton built. Today, longstanding incumbents — major banks, insurance companies, asset management firms — are under competitive siege.
In the context of this backdrop of change and convulsion, I recently participated in a day-long program, organized by The Economist, which focused on the challenges, as well as the opportunities, posed by innovation and disruption in the financial services industry. The program, “Finance Disrupted: Fin Tech Comes of Age”, highlighted the forces that are gradually reshaping the financial services industry today. How will the financial services industry, as we know it, evolve? What impact will change customer’ behavior, and generational shifts have on how financial services are delivered? How will regulatory demands and expectations limit or accelerate innovation and disruption? Who will emerge as the leaders in the industry over the next decade?
The Economist program brought together more than 200 policymakers, senior business leaders, entrepreneurs, and leading thinkers, to share perspectives and debate issues arising out of technological and business innovation and its impact on incumbent financial institutions. The sub theme of the program was the emergence of Fin Tech firms as a potential threat to large financial incumbents, such as the “Big Four” retail banks — Citi, JP Morgan, Bank of America, and Wells Fargo. Representing the perspectives of the Fin Tech sector were executives including PayPal President and CEO Dan Schulman, Square CFO Sarah Friar, Lending Club CEO Scott Sanborn, and Kabbage Co-Founder Kathryn Petralia.
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