Former co-head of largest bond fund discusses what can really disrupt entrenched businesses.
- Not the most disruptive finance technology.
Kicking Bitcoin while its down, Mohamed El-Erian penned an article for CNBC about how technology is taking on finance. In his words “via a democratization process that could gradually reconfigure a notable part of the institutional landscape, particularly in consumer finance, while challenging regulators to adapt.”
While most people would think “Bitcoin,” El-Erian doesn’t even consider it a good example. He claims its impact, “both actual and potential, is relatively limited when compared to ongoing attempts to enhance and democratize lending, borrowing, investing, and payments and settlements.”
El-Erian notes his take on the sequence for disruptive tech:
- A bold innovation suddenly lowers entry barriers for certain activities;
- Mechanisms emerge to enable a larger part of the population to participate in what is deemed desirable but, until now, had been hard to access;
- As the disruptive forces gain traction, existing business models face difficult adaptation challenges, and regulators begin to fall behind; and
- The situation is often amplified by a natural human tendency to overproduce and over-consume hitherto restricted goods and services.
He sees this happening in finance, though the pace is less frantic and less disruptive. According to El-Erian, examples include:
- Internet-driven lending and borrwoing clubs
- peer-to-peer initiatives in consumer financial services
- Digital wallets
- Mobile transfers
He suggests that they reduce costs and provide “fairer risk-pooling outcomes and better credit underwriting.” He doesn’t mention that none of these ideas are particularly new. He does mention that the prospects for each vary considerably.
While this was not the most insightful article on the subject, it is hard to dismiss El-Erian’s statements, given his former position as CEO and CIO of PIMCO, home of the largest bond fund.