Disruption is all good, until traditional business refuses to play ball.
The six largest companies on the globe by stock market value are Apple, Amazon, Alphabet, Microsoft, Facebook and Alibaba. With the exception of Apple and Microsoft, four of these six companies did not exist 25 years ago. None of them existed 45 years ago. This neatly illustrates the monumental transformational effect that technology can have on the global economy. While it is tempting for every generation to imagine that it is approaching the “end of history”, the wheel of time continues to turn and the norms of today become outmoded tomorrow.
In recent years, many analysts have begun to discuss the New Digital Economy, which refers to the sector of the global economy that has been made possible by digitisation. Whereas the Internet economy of the 1990s involved expanding the potential customer base of conventional businesses through web sales, the new digital economy refers to businesses that could not exist in the absence of modern ICT technologies such as mobile communications, the Internet, cloud computing, AI and blockchain technology.
Fish don’t notice the water
Take ride-hailing Apps like Uber or Lyft, for example. All aspects of their business is native to the mobile internet, and couldn’t function outside of it. From linking customers to private car drivers, to rating and paying for the service, to locating the pickup and drop-off, their entire business model is completely reliant on the digital ecosystem. Thus, such firms could not have existed in their current form before the advent of smartphones, mobile internet and cloud computing.
The new digital economy has parallels with another concept currently in vogue, the “gig economy”. Indeed, a report by Pew Research Center noted that a common characteristic of firms in the sector is that they maintain “little if any inventory”. Just as Uber enables private car drivers to connect with passengers, home-sharing services like Airbnb, VRBO and HomeAway enable private individuals with a spare room or apartment to connect with customers interested in renting. Similarly, crowdfunding websites like Kickstarter and GoFundMe connect entrepreneurs developing new products or services with customers who are willing to invest.
However, each of these segments has faced challenges with the traditional institutions in their field — hotel, taxi and investment regulations to name but a few — because the disruptive nature of the NDE. For players in the fintech, blockchain, crypto, AI and gaming segments, the challenges are still there, but somewhat different. As they are doing something completely new, they don’t face obstacles from the status quo — instead, they must struggle to gain access to the basic support infrastructure of business from legacy institutions that can’t, or aren’t willing to recognise the validity of their business models.
It’s new, not bad
For these segments, the stumbling block comes from the banking sector. Traditional corporate banking accepts clients on the basis of risk assessments, and their risk modeling processes are based on the lessons learned in the past — which makes it very difficult for them to work with disruptive models, no matter how prospective they may be.
This is having an increasing impact, particularly among those businesses at the cutting-edge of innovation. For example, the Australian crypto currency exchange myCryptoWallet recently needed to suspend withdrawals because a major Australian bank closed its bank account without notice. And this is clearly not an isolated case: the UK Financial Conduct Authority (FCA) reported in 2017 that “we have witnessed the denial of banking services first-hand across a number of firms… Difficulties have been particularly pronounced for firms wishing to leverage DLT, become payment institutions, or become electronic money institutions.”
This isn’t a sustainable status-quo. The new digital economy clearly has the potential to be a central driver of the global economy in the decades to come, but in order for many innovative businesses to flourish, however, banking services will need to be developed that are fit for purpose in the digital age. Initium group has been founded with the vision to provide those services and power the economy of tomorrow.
About Initium Group
Initium Group is a future multi-jurisdictional corporate banking group committed to supporting the growth of its clients. We intend to become the bank of choice for the promising and solid businesses building the new digital economy and are open to investors to participate in our future.