A Warning for the Financial Services Industry - David DeWolf

A Warning for the Financial Services Industry: You’re on the Cusp of Disruption

800 565 David DeWolf

Let this be your fog horn. The alarm is sounding.

The financial services industry is on the cusp of disruption. The economic pie that we’re so familiar with is in question. Brokerages may be in trouble. Mutual fund managers and wealth advisors should take heed. Banks may be in for it again.

Robinhood is now offering free trading.

In late 2014, Robinhood launched its online trading platform.

Many people see Robinhood as just another digital product. “It’s just new technology. We’ve seen this before.”

It’s not and no, we haven’t, at least not in this industry. This is not another E-Trade. While wildly successful, E-Trade introduced evolutionary innovation into the market. They introduced technology and automated a process in order to reduce the price and make it more widely available to the masses. They optimized the supply line.

Robinhood has changed the supply line.

While their platform is impressive and their customer experience slick, it is their financial model, not their technology, that the financial behemoths should be worried about. They figured out how to eliminate the middle man, and with it the cost to the consumer.

Robinhood is offering free trading. You can now buy and sell stocks for no cost.

Is this the beginning of the end for professional traders? Maybe for mutual funds? What’s next for wealth managers? Don’t laugh. It could happen now. This is how innovative disruption starts.

Robinhood’s traction exploded. Their waiting list grew exponentially in just a few days as they worked to onboard new customers.

Everyone in financial services should take note.

Robinhood is more than a digital product. It is a disruptive business model that is digitally enabled. It has the potential to revolutionize the financial services industry.

This warning shot is fired in the midst of plenty of other uncertainty for the sector.

Disruptive momentum has been building within Financial Services for quite some time.

  • Multiple crowdfunded startups have not only raised capital, but have proven that you can be successful without traditional Venture Capital in the early phases of the entrepreneurial life cycle.
  • Bitcoin is becoming more and more popular. While some of us (read, me) still don’t get it, enough people are intrigued, and enough big companies are accepting it as payment, that you can’t help but note the traction.
  • Digital banks have been launched, promising to do for traditional banking what Robinhood has done for stock trading.
  • The #IceBucketChallenge raised more money for a non-profit than most large scale capital campaigns. There’s no questioning whether digital transactions will be embraced.

Two decades ago, digital media startups began to disrupt the economic pie of the mass media industry. Many laughed, claiming that the large publishers were just “too big to fail.”

Is this the beginning of the end for the Financial Services Industry as we know it?

I don’t know, but I do know that in this digital age, if you don’t lead the disruption, you are at risk of being disrupted.