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However honestly and passionately entrepreneurs might believe in a disruptive power of their solutions, most of them mistake some sort of innovation (business model, operational, UX, etc.) for a massive transformative force. Meanwhile, innovation is not always disruptive and should not always be considered as an existential threat to institutional providers. Instead, innovation can be supportive and be facilitating for mainstream players and just create new opportunities for institutions instead of replacing incumbents.

Adding another layer of security in a financial application, redirecting surplus from unpaid claims to charities, or creating a better online experience is not really a disruptive innovation, but it certainly is a great security-focused/marketing/operational efficiency/customer-centric move, to be fair.

Not to say that technology startups worldwide are not a source of disruptive innovation, but it is worth mentioning interesting advancements such as the use of alternative ways to score customers, replacement of legal counsel with AI, bringing behaviometrics into scene and more. These types of solutions are not shuffling parts of the existing ecosystem to put them together in a new way, but are creating different, better ways to look at the same thing/process.

Disruption defies the conventional state of a particular industry and proves (through a reality-check, not a VC funding flow) that a completely different way of doing something or an application of different technology can be more successful than the way things are done traditionally. Insurance and lending are probably the most vivid examples of industries, where the innovation of the business model is widely mistaken for a potential disruption and replacement of institutional players.

Redirection of funds flow is not a disruption

While InsurTech startups and alternative lenders often tend to antagonize institutions, they often forget to (or don’t want to) mention that the same institutions stand behind a substantial part of funds those technology startups spend on covering claims and lending out through so-called P2P platforms. In addition, the same institutions have built the supportive ecosystem that allows startups to prosper and gain any minor traction they gained in recent years (it is really minor if we compare AUM of banks and tech companies, for example).

In alternative lending, the capital lent through leading P2P platforms is, in most cases, institutional money and has nothing to do with P2P at all. For example, in April last year, Prosper, one of the largest online marketplaces for credit, announced a $165 million Series D financing, led by Credit Suisse NEXT Investors along with JP Morgan Asset Management, SunTrust, BBVA Ventures, Neuberger Berman Private Equity Funds, Passport Capital, Breyer Capital and others.

Or let’s take a hedge fund called Third Point, which led a $200 million investment round in SoFi in February 2015. FinTech-focused VC firm Life.SREDA brings a lot of similar examples, listing Goldman Sachs, BlackRock, Alibaba, and even Google as making deals in the space.

Alternative lenders serve as an institutional channel to reach groups of the population that cannot be yet considered eligible for an institution or are just more attracted to a tech-savvy solution. Successful alternative lenders like Prosper are innovating loan distribution channel, but cannot be really considered an alternative to institutions as they just redirect institutional money under a different dressing. The fact that three of the largest FinTech investors are international financial institutions — Citi Ventures by Citi, followed by Goldman Sachs and JP Morgan, speaks of the real source of ‘innovation’ in this space.

Same goes for InsurTech startups. MetLife, Aviva, Axa, Allianz (which recently invested in an InsurTech startup) and other global insurance companies are the ones shedding barriers for startups to enter the most complex and highly regulated industry, where making it on your own has historically been quite mythical. The InsurTech space is extremely fragmented with startups often focusing on a particular type of insurance as opposed to comprehensive services offered by institutional players.

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