The Innovator’s Dilemma in Financial Services: A Decade of Fintech’s Evolution

A few weeks ago, I was discussing the challenges facing the Belgian company Agfa-Gevaert with colleagues. Once a cornerstone of the Belgian economy as a leader in photographic materials, the company now faces the repercussions of declining sales. Over the next three years, it plans to cut nearly 530 jobs.

Agfa-Gevaert’s struggles symbolize a broader challenge: the transitioning from its analogue past to a digital future. Despite leveraging its expertise in chemicals and digital imaging (e.g. hospital scanners), these ventures have not achieved the revenue levels of its legacy businesses. Decades after the rise of digital photography, the company’s innovations have yet to fully offset the decline of traditional products.

This raises a pressing question: can large corporations truly innovate at the level required to survive in a rapidly changing world?

Agfa-Gevaert is not alone. Many traditional European industries face similar hurdles. Thyssenkrupp, Volkswagen, BASF, and Bosch have all announced significant job reductions, aiming to streamline operations and save billions. However, the deeper issue lies in a lack of recent disruptive innovation.

These companies are trapped in what Clayton M. Christensen, in his 1997 book "The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.", describes as the challenges that established companies face when balancing sustaining and disruptive innovation:

• Sustaining Innovation enhances existing products for current customers, often at premium prices.
• Disruptive Innovation introduces simpler, cheaper solutions that initially cater to underserved or overlooked markets.

While large organizations excel at sustaining innovation, incrementally improving their existing offerings to maintain profitability, but also pushing the performance of their products beyond the needs of their core customers, they often dismiss disruptive technologies as unprofitable or irrelevant—until it is too late.

This inertia of large corporations to disruptive innovation stems from several factors:

• Customer-Centric Focus: Immediate returns are prioritized by serving existing customers, often at the expense of exploring new markets.
• Organizational Rigidity: Established structures and processes emphasize efficiency over experimentation.
• Risk Aversion: Fear of cannibalizing profitable products leads to defensive rather than proactive strategies.

Additionally, when faced with disruption, many companies double down on failing approaches, a phenomenon captured by the "Dead Horse Theory". Instead of pivoting decisively, they form committees, rebrand existing products, further optimize costs or benchmark competitors — actions that ultimately hasten their decline.

The financial services industry offers a fascinating lens through which to examine the innovator’s dilemma. A little over a decade ago, the Fintech revolution was announced as a disruptive force that would signal the end of the traditional financial institutions.

Fast forward to 2025, and while fintech has reshaped aspects of the industry, its impact has been far less disruptive than anticipated. Most incumbent banks remain dominant, with only a few failing — typically due to aggressive investments or poor financial policies (e.g. Credit Suisse, First Republic Bank, Silicon Valley Bank) rather than fintech disruption.

In most markets, incumbents have lost only marginal market share to fintechs. In some markets like Brazil, the UK, and Ireland, the impact has been more pronounced but has not completely disrupted financial incumbents. In many cases, fintechs have grown the market by reaching underbanked and unbanked populations rather than taking customers from traditional banks.

The financial sector has embraced digitalization and mobile-first solutions, resulting in advancements such as:

• Mobile banking apps
• Digital payment systems
• Enhanced customer experiences

These innovations, while significant, are sustaining innovations — they refine existing services rather than transform them. The core underlying financial products like current, savings and term accounts, credits, securities, and payment systems remain fundamentally unchanged.

In contrast, truly disruptive innovations such as peer-to-peer lending, crowdfunding, decentralized finance (DeFi), and Open Banking remain niche, with limited adoption. These innovations have yet to significantly impact traditional players or redefine the market on a large scale. Even cryptocurrencies, which once held—and still hold—the potential to disrupt financial ecosystems, are primarily used as speculative assets, similar as traditional securities, rather than as everyday payment methods. As a result, their overall impact remains constrained.

Looking ahead, Central Bank Digital Currencies (CBDCs) could represent a disruptive evolution. However, since the core mission of central banks is to preserve the stability of the financial ecosystem, CBDCs are unlikely to disrupt the traditional ecosystem.

The limited impact of fintech thus far can be attributed to:

• Customer Loyalty: Trust and financial stability make customers reluctant to switch providers.
• Regulatory Barriers: Heavily regulated markets favor incumbents and create obstacles for newcomers.
• Incremental Offerings: Many fintech solutions repackage existing financial services in more convenient formats rather than creating entirely new models. For example, Buy Now, Pay Later (BNPL) solutions (e.g. Klarna, Afterpay or Affirm) add a convenience layer to consumer credit. Embedded banking (e.g. Stripe or Plaid) and Banking-as-a-Service (e.g. Treezor, ClearBank or Solaris) make banking services more accessible via APIs. International money transfer platforms (e.g. Wise, TransferGo or PayPal) and invoice factoring services (e.g. Stampli, LendingTree or Orbian) offer more efficient alternatives to respectively traditional cross-border payments and business loans.

For traditional industries and financial institutions, survival depends on proactively embracing disruption. To navigate the innovator’s dilemma, companies should:

• Invest in Independent Units: Create agile teams to explore disruptive technologies without legacy constraints. The 'Innovation and Fintech Hubs' established at many incumbent banks were intended to drive such initiatives. However, in most cases, these hubs lack sufficient funding, resources, and the authority to implement meaningful changes.
• Focus on Long-Term Growth: Prioritize transformative potential over immediate profitability. Most financial institutions recognize this and have launched multi-year IT transformation programs.
• Foster Experimentation: Encourage bold ideas and reward innovation.

Many incumbent banks still lag behind in agility, digitalization, and personalization. However, some, like KBC, Nordea, and BBVA, have successfully closed the gap with neobanks by adopting these qualities. Their efforts highlight the potential to innovate from within, provided there is a commitment to continuous transformation.

The lessons of Agfa-Gevaert and the broader financial sector are clear: disruption is not an external force to be feared but an opportunity to be embraced. Companies that fail to adapt, risk becoming relics of the past — a fate financial incumbents must work hard to avoid.

And just because fintech has not disrupted the financial sector in the last decade does not mean it will not in the next one.