Magazine article American Banker

Payments Innovation Can Be Disruptive, but Not Yet

Magazine article American Banker

Payments Innovation Can Be Disruptive, but Not Yet

Article excerpt

Byline: Subhajit Das

Over the course of several decades, the introduction of plastic has been one of most notable innovations in payments from banks.

However, the last few years have witnessed a steady stream of new payments innovations from the likes of Apple, Venmo and Google. Most of the innovation is "sustaining" in nature, meaning they're important for growth of the industry, but they're not entirely "disruptive." Yet.

Analysis of the payments industry through the lens of Disruptive Innovation Theory tells us these entrants don't pose a disruptive threat to the incumbent cohort of issuers, credit card networks and acquirers, primarily because the incumbents -- Visa, Mastercard and First Data -- are prepared to compete in all segments of the market. Further, the technologies enabling entrants' business models can also be used by incumbents as sustaining innovations, allowing them to retain control of the value network that serves customers.

A truly "disruptive" innovation, on the other hand, redefines the trajectory of performance by bringing products and services that are not as good as those currently available but provide other important benefits, such as simplicity, convenience and affordability. Typically, such innovations require new value networks whose business models are distinctly compatible with that of the disruptor.

Consider the innovation of photocopiers, which entered the space occupied by offset printers in the 1970s. …

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