Learning Objectives:

• Define digital transformation in the banking context.

• Understand how technology is driving business model changes.

• Analyse the disruptive innovation model and its application to finance.

2.1 Defining Digital Transformation

Digital transformation in banking is “the digitisation and automation of processes” . As the University of South Wales module states, it is about “how emerging technologies, such as artificial intelligence, blockchain, open banking and digital platforms, are transforming financial services and redefining relationships between providers, customers and regulators” . Digital transformation is not just about adopting new technologies; it is about fundamentally rethinking business models, customer relationships, and organisational culture.

2.2 Business Models and the Creation of Value

The digital transformation of banking has led to the emergence of new business models [citation:5,6,7]. The University of South Wales course uses the Business Model Canvas (BMC) as a framework for understanding how FinTech companies create, deliver, and capture value . The UCL module highlights that FinTechs disrupt incumbents “through either better business models (and economics) or through utilising emerging technologies” . This can involve:

• Platformization: Building platforms that connect multiple user groups (e.g., lenders and borrowers on P2P platforms) .

• Data-Driven Models: Using data and analytics to offer personalised services and improve risk assessment.

• Cost Leadership: Offering lower-cost services by automating processes and eliminating physical branches.

2.3 The Disruptive Innovation Model

The concept of disruptive innovation, developed by Clayton Christensen, is central to understanding FinTech’s impact on traditional banking [citation:5,6]. It describes how new entrants, typically with simpler, cheaper, or more accessible offerings, can disrupt established markets. Christensen’s theory suggests that incumbents often focus on serving their most profitable customers, leaving them vulnerable to disruption from below . FinTechs often start by targeting underserved segments before moving up-market to challenge incumbent business models. “Disruptive innovation: An intellectual history and directions for future research” is a key reading in the University of South Wales module, highlighting the theoretical importance of this concept .