Disruptive Innovation in Banking

A Business Case in Low-Cost Finance. How to Win Against the Leaders by Creating Strategic Competitive Advantage and Real Value for Customers

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The book deals with ideas that have the potential to change the world, and a bumpy road to turn them into business practice. Disruptive innovation and creative destruction are becoming a turning point of the New Economy. They issue an ultimatum: innovate or perish. Banking has a long tradition. Throughout centuries, it has earned its reputation as a trade based on trust, mores and conservative principles; one that is built gradually, with rigour and prudence. It has so far never been associated with technological innovativeness, but rather with the sturdiness of banks’ stately headquarters or modern high-rise office blocks which dominate the cityscape.

The low-cost business model has proved its worth in a variety of fields. It has been particularly successful in passenger air transport as well as retail sales of products and services, where the new approach has changed consumer habits and the way the market functions. Low-cost finance is a disruptive innovation in the business model which is comprised of four basic elements: target client group, products and services tailored to their needs and lifestyle, distribution channels and technology. The development of the Internet and new technology allow the low-cost business model to break the existing paradigm, and ensure high quality at low prices. Its expansion is hindered by high barriers to entry in the financial services sector (capital, regulations, know-how). Nonetheless, wherever banks operating according to the low-cost business model manage to break through, they invariably change the rules of the market in a short space of time. The best examples are mBank in Poland and ING DiBa which have made it to the top three of the largest retail banks in their countries, attracting 3 million and 7.6 million extremely satisfied and loyal customers, respectively. This book tells you how to win against the best by using disruptive innovation, that is the low-cost finance model based on the Internet and understanding of how the New Economy functions.

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