Fintech will have a lasting effect on banking, Basel Committee on Banking Supervision report says

How Disruptive Is Fintech? What is a disruption? Can we attribute that word to what Fintech companies have done recently? Disruption will mean that the services offered by the previous company are replaced and then become obsolete. In simple terms, a company’s services can be disrupted if a newer company offers services that replace those offered by the older company. That is exactly what disruption is.

Truly, Fintech companies have not disrupted any existing company and the CEO of iZettle explained clearly why disruption will not be the right word to use. He explained that the electronic payment system has existed for years and has earned a lot of trust from its users. He said that the system was so trusted that someone could receive payments from a customer and be confident that the transaction will be completed on the following day in case of international transactions. In most cases, the buyer and the seller may just be meeting for the first time.

He made an example of Paypal and said that the Fintech company did not disrupt the business of card companies like Visa and Mastercard, but only expanded the uses of the card to include online services. In a way, Paypal services were leveraged on an already trustworthy system. If it was going to be disruptive Paypal would have needed to earn the trust of its would-be customers convincing them of its reliability and why they should abandon the other trustworthy systems and switch to theirs.

He also explained that in most cases, the foundation of the system and the payment methods remain the same. Take for example Applepay. The card details are entered on your phone so that you can leave your card at home and make payment using just your phone. The only disruption here is the card that’s left at home.

He used the same analogy to explain why blockchain and cryptocurrencies cannot replace currencies and why bitcoin cannot become the world currency. The blockchain technology is good but it will only provide more room for innovations still based on the existing infrastructure.

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