It’s one of those words, “disruption.” A digital-era word that has been used and over-used across the digital economy for at least 10 years (maybe more), and has now fairly recently landed in financial services.
It’s in the title, for example, of a new publication from the consulting firm EY (to be exact, the document is called “Disruption In The Life, Pension and Investment Markets”). And although the weakness of my position arises from the fact that I haven’t actually read past the first page of it yet, it still made me ponder, on my journey into the office this morning, whether I think, by digital economy standards, that what we’ve seen so far in financial services really amounts to “disruption.”
Certainly the industry has had to contend with a whole load of change. My involvement is this whole weird world dates back fairly exactly to the passing of the 1988 Financial Services & Markets Act, which introduced various important ideas like the distinction between tied and independent advice, and the changes – occupying all four boxes in every offsite strategic brainstorming’s PEST analysis – have come thick and fast ever since. But by the digital community’s definition of the world, do they amount to “disruption?”
Of course the difficulty I’m facing with this blog is that there is no digital community definition of the word. It’s a judgment call. But I’d say that the first and most obvious sign of disruption is the sweeping-away of tired old legacy players, and their replacement, either immediately or at least pretty rapidly, with shiny new digital players. Uber is disruptive because it’s supposed to kill black cabs. Amazon killed small bookshops. Wikipedia killed encyclopedias. Digital photography killed Kodak, Polaroid and pretty much the whole film-based photography industry.
Or, second, if sometimes the legacy industry lives on, then the “disruption” consists primarily of bringing about a whole new kind of consumer behaviour that the legacy industry had never encouraged. Low-cost airlines, for example, have got millions of us all going off for long weekends in Vilnius or Katowice in a way that sad old British Airways had never imagined. eBay is apparently responsible almost single-handedly for the massive growth in self-store facilities around the country, because huge numbers of us are now trading in something or other – vintage jukeboxes, Norton motorbike parts, low-cost Polish strawberry jam we bought from a bloke we met in Katowice – that we need secure storage for.
If you look at life, pensions and investments for signs of developments like any of these, the picture is pretty mixed. Some legacy players have disappeared, although usually as a result of mergers and acquisitions than anything more dramatic. But with only one big exception – workplace pensions, of which more in a minute – I can’t say that the shiny new breed have achieved any great success. There are certainly dozens of new or newish entrants in pretty much all parts of the industry, but the very large majority are small and struggling.
Disruption may be imminent. In particular, the slew of D2C investment services now coming onto the market under the terrible “robo-advice” descriptor might really change the sleepy old investment industry. And as I just mentioned, as the auto-enrolled workplace pension sector gathers momentum, it may very likely achieve a strange slow-motion kind of disruption, diverting more and more mass-market long-term savings into young brands and businesses like NEST, NOW Pensions and The People’s Pension rather than any of the legacy alternatives (be they pensions company, bank, shop or pub).
But that’s the thing about disruption in financial services. It always seems to be on the point of happening. If you look at all the major sectors of the market over, say, 30 years or more, the only one that I would say has been clearly and fundamentally disrupted is general insurance, where the coming of Direct Line back in the mid-80s really did change everything. Otherwise, on the whole, we wait and hope. Or, in the legacy industry, we wait and fear.