One of the major talking points in the world at the moment is the role of technology as a disruptive force rather than a force for good.
Most certainly, technology is challenging traditional business models in major ways. Through technology, companies like Uber, Airbnb and Amazon have risen to fame. This has cultivated a whole new wave of entrepreneurs.
But is this a good thing? Possibly not.
As pointed out above, technology is driving down unemployment. In the past, when unemployment was driven down, employees found that they have significantly more bargaining power when it came time to renegotiate remuneration with their bosses. The bosses, realising the key skills that they have in the company and the ability of these key skills to maintain the company’s competitive advantage, capitulate and provide the increases that are asked for. This is then made up through increases in the price of the product or service that the company is selling.
This was the model that defined business for many many years. The London taxi industry was a prime example of this. Before a cabbie could drive on the road, they would spend two years studying all of the back roads of London. They would then write a test and be certified. Passengers would then pay big money to these drivers for the use of their knowledge.
Enter Uber, a company who changed the game completely. By making use of navigation software on their smart device, any person could become a cabbie and would charge a lower price than the other cabbie drivers.
Here is the disturbance in the force. We discussed the traditional model above; however, with the progression of technology, when unemployment is driven down, employees don’t necessarily have the same bargaining power with bosses when it comes to salaries. This is causing major imbalances between society and government because they don’t feel like they need to regulate this.
A recent article on memeburn.com discussed the issue of disruption in significant detail.
It pointed out that despite all of the information that we have, and the many dire predictions we’ve seen on disruptive technology and amazing innovation, many companies are using them and in some cases are not at all aware of what needs to be done to manage the risks.
In 2017, Excellence in Risk Management looked at a broad expanse of issues that surrounded the disruptive technology. It found that for companies which focus on the risks, that foresight will open entire new worlds for them and companies that fail to note the risks will find their company in financial difficulty in the years ahead.
In many cases, businesses and individuals are so concerned about these risks and the problems inherent in companies which do not manage them well that they determined that the use of these disruptive technologies was simply not worth the risk.
The memeburn.com article pointed out that a shocking 24% of those who responded to a recent survey said that they would not use any of the 13 most common disruptive technologies.
Of the companies which responded, 46% were using just one to three technologies, 22% were using four to six. Only 9% were using more than six and a whopping 24% were using no disruptive tech and had no plans to change that in the immediate future.
The article added that the problem is that there seems to be a disconnect in understanding about how all pervasive these technologies really are.
The companies which report they will not be using them don’t truly understand the necessity or the requirement and many executives do not understand that they are already using disruptive technology of one type or another.
In some cases, companies which report they are not using internet of things (IoT) are using wearables or connected metering already but have no plan of attack for preventing a breach.
Many companies state they are not and will not be using IoT, yet, according to current projections, more than 90% of all companies are using or will be using IoT devices within the next two years alone.
One of the biggest disruptions that technology has introduced is a new form of crime. Cyber crime is picking up around the world, which is prompting a lot of people to run around shouting out that the internet is, in fact, the Skynet of the Terminator movie franchise.
Under deeper investigation, one can see the concern that people have. The worst enemy that a person can face is the enemy that we cannot see. Cyber criminals are smart, well-funded, and relentless.
This has prompted people to bulk up their cyber security protocols; but are we approaching this in the right way? An article on technologyreview.com suggests we are not.
The journalist who wrote the article spoke with Obama’s former cyber advisor, Michael Daniel, on how we need to overhaul the way we manage the new tool for statecraft.
One of the key questions was how Daniel would describe the moment we are in right now given the threat to governments and public enterprise.
“Where we are right now is that more and more countries are beginning to incorporate cyber capabilities into their tools of statecraft. We need to recognize that it is going to become a tool of statecraft, not just for the U.S. and the high-end players like Russia, China, Israel, and Great Britain, but for almost everybody. As a result, we need to begin to think through how we set up norms of behaviour and rules of the road so that this is not destabilizing,” said Daniel.
He added that we need to get aggressive when fighting cyber terrorism, “by combining the information we have on hand, we can start to actually map out more effective ways to disrupt the bad guys and do it across their entire business process. This is not about a kid in his basement; that’s not the real threat. These are organizations that run like businesses, and we need to start thinking about it in terms of disrupting their business models,” said Daniel.
The growth of technology is being driven by innovation. Sometimes it is bad, other times, it is not so bad. It does not need to be disruptive.
It is clear that technology is changing the landscape of financial services in rural Africa. From the largest banks to the smallest fintechs, financial service providers are gearing up for a world in which finance is digital first and in which anyone with access to a mobile phone can also derive benefits from formal financial services.
The rapid uptake of mobile money in many countries has sowed the seed for a thousand new innovations that could further extend inclusive financial services. An outcome of this success has been that everybody in digital finance is looking for “the new M-Pesa”, in the same way, that elsewhere, entrepreneurs want to be “the Uber of…” An underlying assumption here is that change is generally linear until a special company comes along with an idea that creates nonlinear change, which we often call disruption.
But when you map this idea on to the landscape of unbundling that financial services are currently going through, it is not so clear that disruption is what’s needed. It used to be that a bank, or a microfinance institution, or an insurance company, would aim to provide a vertically integrated service to the customer, from initial acquisition to all aspects of relationship management and back end services. This is changing. Technology, and in particular the ability for different platforms to link with each other, open up new opportunities for collaboration. Not everyone needs to develop the next big product or service – there may be much more value and impact for a fintech company to build a business-to-business solution that works at a specific pain point for a financial institution.
For example, the Fund is supporting a partnership between Juhudi Kilimo, an asset financing company, and the Entrepreneurial Finance Lab to develop a psychometric credit scoring tool for smallholder farmer borrowers with no or limited verifiable credit information. This is a tech-enabled solution for a specific challenge – how to estimate the likelihood of repayment in a data-light environment – that could reduce costs and improve the efficiency of Juhudi Kilimo’s credit processes.
A similar partnership in the Fund portfolio is between First Access, a fintech company, and Esoko, an agricultural information and communications company. The two will develop a rural agricultural credit-scoring platform for lending institutions from disparate data sets, from soil and weather data to mobile phone usage and farmer profiles. The solution has the potential to impact a large number of farmers who do not have traditionally accepted banking histories.
These are great innovations, that could have a real impact on micro and small business finance, but they probably won’t be putting other lenders out of business. And that’s fine. Innovation can be highly effective without being disruptive.