The New Digital-Payments Race
In the classic account of technological disruption, small, flexible upstarts topple large, plodding incumbents because the latter fail to grasp the radical implications of innovations. But in the case of payments systems, central banks are not typical incumbents, and are more likely to facilitate the revolution than be devoured by it.
LONDON – Steve Jobs is said to have had only one business book on his must-read list: The Innovator’s Dilemma, by the longtime Harvard Business School professor Clayton M. Christensen (who passed away earlier this year). Few books have left such a lasting impression on business leaders. And now that central bankers are confronting potentially disruptive innovations in payments, they would do well to absorb its lessons, too.
Christensen showed why incumbent firms often fail to harness the next wave of innovation within their own industries. The problem, he concluded, is not that incumbents are blind to the threats posed by startups, but that they do not recognize the radical potential of new technologies and processes. Focused on short-term profits, they tend to assess disruptive innovations with an incrementalistic mindset, and thus fail even to imagine how a new entrant could capsize an entire sector seemingly overnight.
Throughout the digital era, Christensen’s work has motived many tech startups to pursue disruption with the confidence that incumbents will be slow to respond. For central bankers, then, the key question is whether payments systems themselves are on the verge of being disrupted. After the 2008 financial crisis, it was generally assumed that onerous regulations and capital requirements would deter new entrants to the banking and financial sectors. But that presumption is being challenged, not least by Facebook, which caught most central bankers by surprise when it unveiled its Libra currency last year.