Disruptive innovation is a word coined by Clayton M Christensen. In his book Innovator’s dilemma, he defines a disruptive innovation as one that offers customers or the market with new and improved services or product as opposed to the traditional product previously offered by the industry. He argues that disruptive innovation can hurt a well managed and fairly stable industry. This new wave has affected a lot of the industries at work globally and almost all, if not all, industries are at a risk of being disrupted in one way or another. Moreover, the internet of things is also a contributor to the disruption where people have sensors for different effects.
I have chosen banking as the industry and I will focus on the Bank of America as I research on the disruptive innovation affecting it as well as its impact. Banking dates back to ancient history where merchants traded between cities and saw the need for activities that assisted them such as the state of banks getting loans and making deposits. However, banking has evolved through the years and many other services been introduced. Today’s banking system cannot even come close to the prior systems, where technological advancement has changed the entire industry. For instance, the Bank of America has been operating for over 200 years and is committed to its success as well as its customers’ success.
Prior to the disruption banks had rules with which it operated by. These rules governed the activities between it and its customers, the mass market. Banks were centralized meaning that the any transactions could be traced to a physical address. These gave people a hard time as they would have to go to the bank for any transactions to be done. This is no longer the case now that disruption has penetrated the market. In short the status quo of how the Bank of America worked prior to the disruption is incomparable currently.
With that in mind, the current state of the industry is completely revolutionized. Banking has introduced to its list of services mobile money transfers among many other services. For instance, the Bank of America rolled out a new service to its customers where they can get savings from retailers depending on their previous spending habits (Rick Rothacker, Reuters)
With such new services, the Bank of America has faced disruptive technologies such as variable customer needs, globalization and digital revolution. The major disruptive technology has to be digital revolution and specifically digital currency. Digital currency is in its own way writing the obituary for corporate banks. In order to continue thriving and existing in the market, banks have to come up with strategies to cope with these new changes. Economic decline is probable in the face of such dynamic inventions.
Digital currency is internet based medium of exchange also known as electronic money. It has similar characteristic to physical currency in that it is used to purchase goods or services in the free market. On the other hand it has advantages over the traditional currency or hard cash.
These advantages are that transfers are borderless and instantaneous as opposed to physical currency which has restrictions in its transfers. Another upside to the usage of digital currency is that the distributed ledgers are transparent therefore they display transactions to all. However, there are some disadvantages for instance, owners of the currency are not traceable and consumer protection is tampered with.
Crypto currencies which fall under digital currency are the main disruptive innovation in the banking industry. A good example is the Bitcoin, which is slowly becoming popular. With Bitcoin, users can mine their own coins and enter into transactions such as buying or selling goods and services without disclosing their identities as mentioned above. Bitcoin threatens the competitiveness and performance of the Bank of America in digital cash transfers and e-commerce industries. This is because its network adopts a peer-to-peer and decentralized model, without the need for clearing services; an internet link and the software are all that is necessary for the client. The downside is that it is non-refundable, thus, transactions are irreversible which breaches consumer protection. Other attributes include their easy set up, speed, decentralization.
Digital currency is a disruptive technology because first it reduces the man power needed in the banking industry. Consumers can use the internet to check their accounts, bank statements, deposit money with the help of mobile banking money transfers. This renders a part of the population jobless which in the long run increases the percentage of unemployed people.
For instance, Apple has developed applications that can be downloaded by a customer and used to check their banking activities online without having to physically go to the bank and filling out paper et al. For example, I have online apps to check on my deposits and transactions online and I use the Bank of America. Therefore, it is an important subject matter because it affects the government of a country through inflation currency. It also increases the rate of cyber crimes as hackers can use the internet to siphon money into their accounts without being easily identified, thanks to its anonymity.
The digital currency disruptive extent cannot be measured as there is no system known to do so. This makes affected industries be at a risk of irrelevance. According to Leslie Shaffer disruptive technology is here to stay and companies should watch out or experience a decline in the profits and growth experienced. The fact that it cannot be measured poses a greater danger than if there was a developed system to curb its ‘disruption’.
The impact is still experienced even though they cannot be measured. Digital currency has affected the banking industry in its job growth such that more and more people are laid off as a result of the advancement in technology. The unemployment rate continues to go up as the activities are now more internet based as opposed to the traditional teller or cashier processes at the banking halls across different countries.
Declining profits has the Bank of America no option but to devise ways to deal with the changes in the way they conduct business, because more and more people are opting for the digital money. In fact, according to The Verge a business magazine Adrianne Jeffries writes that Bank of America believes Bitcoin could become a major means of payment. Generally, the gross net and growth is experiencing problems because of this new technology breakthrough.
In as much as there are many issues surrounding the introduction of digital currency the Bank of America can still take action to remain in profitable. To survive they need to adopt thorough portfolio strategies and enhance industrial specialization. They can also build new credit facilities and encourage value based pricing. Improvement of digital models will also go a long way in helping manage the impact brought about by digital currency.
In conclusion, disruptive technologies are unavoidable. They help steer the economy forward even if they come with undesirable consequences. The impacts by the year 2020-2025 will be worse than the current ones. In an article written by Adrianne Jeffries the Bank of America sees the eventuality of Bitcoin being a major means of payment.
References
Christensen, C. (2013). The Innovator’s Dilemma, Harvard Business Press.
Mason, J. (2013, April 6). Lending club is the first of many disruptive banks. Retrieved May 20, 2015.
Jefries, A. (2013, December 5). Bank of America says Bitcoin could become a ‘major means of payment’. Retrieved May 20, 2015.
Yakowicz, W. (2013, December 6). Bank of America: Bitcoin will be a ‘serious competitor’ to cash. Retrieved May 20, 2015.
Shaffer, L. (2014, March 5). Why we can’t measure disruptive technology. Retrieved May 20, 2015.