Fintech-istas, who habitually proclaim how closely traditional financial companies resemble roadkill, should take note.
Innovation and entrepreneurship—fueled by advances in technology, design, artificial intelligence and machine learning, and low interest rates—have attacked nearly every vertical in traditional finance. Vast sums of VC capital combined with a still simmering distrust of big financial institutions have allowed new fintech players—Venmo, Square and Acorns, to pick just three—to build huge brands.
In 2018, in the US alone, 659 fintech companies received $11.9 billion in capital investment. According to the same report by CB Insights, there were 1,700 fintech deals worldwide worth $40 billion: a record high. With no sign of a slowdown in sight, this golden era of fintech appears likely to stretch on for years to come.
And yet, several large traditional financial institutions—once viewed as dinosaurs stifled by archaic legacy systems—are beginning to get some skin in the innovation game too.
Back in 2010, Matt Taibbi of Rolling Stone Magazine described Goldman Sachs as “the Great Vampire Squid” with “tentacles wrapped around the face of humanity” sucking money and power from every corner of the planet. Now, with the launch of of a new credit card partnership with Apple, Goldman is a bedfellow with the company once referred to as the most innovative in the world.
Cut to a fintech meet-up in New York City in early April. On the ‘disruptors’ panel, a smart, young executive from an insurtec startup describes the Apple/Goldman venture as nothing more than “an old fashioned credit card co-branding deal.” The crowd nods enthusiastically: fintech-istas do not like the ‘startup-as-disruptor’ narrative to be disrupted by an old-line investment bank, especially one likened to a vampire squid.
Co-branding deal or not, it is a fascinating insight into the strategic planning of Goldman and, most likely, in C-suites across the banking industry. Goldman is solidifying its position in fintech. It is connecting with a new generation and a new type of customer.
There’s ‘DJ Sol’: Goldman’s new and deliberately hip CEO, David Solomon. But it is more than this. Goldman is, for the first time, expanding its brand by reaching down-market. Through its digital lender, Marcus, it is doing business with the masses and taking advantage of its ultra-low capital costs to provide fast online-generated loans to consumers. In a fintech frenzied April, Goldman further announced it would be releasing the code it uses to price and analyze risk on GitHub (the software collaboration site) and leading a $30 million investment into Vestwell, a fintech focused on retirement assets.
Goldman is not alone. Charles Schwab—itself a disruptor nearly half a century ago when it ushered in discount brokerage to the dismay of traditional stockbrokers—announced it was moving its wealth management business away from asset-based pricing. By revamping the standard industry pricing model into a much more millennial low-cost subscription-based pricing model, Schwab is deftly borrowing a trick from Netflix and other disruptors seeking to upend their respective industries. Successful wealth management upstarts and so-called ‘robo-advisors’ are surely asking themselves: Did Charles Schwab just show me its middle finger?
The fintech-istas will readily concede a few victories to a handful of forward-thinking companies that ‘get it.’ The ultimate winners, they will argue, are the scores of disruptive startups and ‘challenger’ banks that will eventually put most of the traditional players out of business. They may well be right.
So much of the evolving financial ecosystem has become networked, digital and programmatic. Traditional players will be forced to buy or rent capabilities from fintechs just to get into the game; they are not capable of building it or doing it themselves.
Most tech talent does not want the culture, the committees, the meetings or the bureaucracy of large, traditional companies (let alone the dress codes and lack of organic snacks); they want to be around like-minded programmers in entrepreneurial settings, around people with the freedom and creativity and the chops to build great software platforms and great apps for customers.
So, the Darwinian struggle between the disruptors and the potentially disrupted will rage on.
In the meantime, we shouldn’t underestimate the ability of a handful of certain large companies to change and adapt. There are, after all, a lot of fintech companies happy to provide the dinosaurs with lifelines. These fintechs will peddle enterprise software, hardware, algorithms, artificial intelligence, digital branding and online lead-generation products and services to the old, stodgy financial institutions, enabling them to survive, and possibly thrive, in the modern, digital, millennial and post-millennial age.
That, plus CEOs ‘side hustling’ as deejays, could keep the old guard alive for some time to come.