Responding to disruptive business model innovations: the case of traditional banks facing fintech entrants

The revolutionary changes brought by fintech entrants (“Fintechs”) in the financial services sector has caused severe turbulence in the operational and service activities of the incumbent ‘traditional’ banking organizations (“Banks”). Prior research in strategy and marketing literatures has suggested several general options for incumbents’ strategic responses to entrants with disruptive business models, such as competition, alliance or acquisitions. So far, however, no research paper has offered a systematic framework to guide an incumbent bank’s choice of the appropriate strategic response based on its assessment of the nature of the threat posed by a fintech entrant in its domain. In this conceptual article, we first review the evolution of the current fintech challenge to well-established traditional banks taking a marketing perspective that amalgamates key marketing concepts with an understanding of millennial lifestyles. Next, we define four categories of the type of threat posed by a fintech entrant to an incumbent bank by distinguishing between high and low levels of market-centered disruptive threats and technology-centered disruptive threats as perceived by the incumbent. Based on this categorization, we identify with supporting rationale the incumbent bank’s most appropriate choice from the strategic options of Buy, Make, Ally, Hold or Exit considering the type of fintech threat it faces. We also provide several case examples from the Indian context to support our prescriptions.