Technology will do to banking what Uber has done to taxis
He doesn’t wear a tie. He’s got long hair. Tim Vasko doesn’t look anything like a Wall Street banker.
But Vasko is, if not the new breed of Wall Street, the near future of it. He’s the founder of Finaeos, a 5-month-old technology company that offers back-office, compliance and capital raising for smaller companies and startups. If it works, Finaeos will be able essentially to provide those bread-and-butter Wall Street services at a tenth of the cost of what, for example, Morgan Stanley MS, -0.18% might charge a client just for a consultation.
The word “disruption” is overused when it comes to new tech products, but, as Vasko said, when it comes to financial technology, “it really is true.”
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Indeed, bankers and brokers know the end is near. That’s because there are hundreds, maybe thousands, of Tim Vaskos looking to pick the low-hanging, overpriced fruit Wall Street has been selling consumers, companies and investors for years.
Financial technology, or “fintech,” is remaking every part of the business, from payments to lending to advice to investing — even to money itself. And with each new breakthrough, the big margins Wall Street once commanded for its proprietary services are disappearing.
So, for two days last week, Wall Street visited Silicon Valley. They came from the likes of American Express Co. AXP, +0.49% Barclays BCS, +0.01% and J.P. Morgan Chase & Co. JPM, -0.27% They came to join forces with these disruptive startups rather than be beaten by them.
The gathering, called Finovate, wasn’t the first or only one of its kind. Financial technology conferences where vendors seek to strike big deals with banks and brokerages large and small have been happening for decades. Wall Street, after all, is a technology business. Think of the automatic teller machine or the computers running algorithmic trading.
What’s different of late is that rather than cater to banking needs — say a back-office or compliance software system or a mobile-payment platform that can be sold to banks under a white-label arrangement — many of these new technologies are simply subverting existing banking services. Products such as Finaeos can certainly be used by financial institutions, but it just as easily can stand alone.
On the retail side, Moven, which launches next month, is a bank account with an analytic component. Think of it as a Nest tfor your spending. It’s a step up from the innovations made in years past by Mint.com, a budgeting and account-aggregation platform now owned by Intuit Inc. INTU, +0.12% or Simple, a streamlined, app-based bank launched in 2012. Moven isn’t a bank, but it is a gateway to CBW Bank, a community bank based in Weir, Kan., that has been a testing ground for new bank startups.
While those products replace existing Wall Street offerings, many technologies are exploiting markets that traditional banks and brokerages don’t serve. Money Amigo, for example, is an online bank aimed at underbanked consumers who have poor or no credit. It has an emphasis on the Hispanic market and features low-cost money transfers.
Clearly the traditional Wall Street is under siege from just about every angle by fintech startups. If it’s not the companies and products mentioned, it will be one of the dozens introduced or on display last week: StockViews, Finicity, Hedgeable, Vouch and Draft among them.
Wall Street obviously wants to capture these technologies before it’s captured by them. And they’re buying or leasing with these third-party vendors at such a rate that the New York Department of Financial Services warned that they’ve put themselves at cybersecurity risk.
None of this, of course, means that big banks and brokerages are disappearing any time soon. The hurdles to becoming a regulated deposit-taking or registered securities institutions remain high.
That said, some of the hurdles are falling. Earlier this month, itBit Trust Co. was granted a bank charter in New York. And sure enough, itBit, a bitcoin trading platform, was at Finovate last week touting its regulatory validation.
Ultimately, the itBits and Finaeos of the world may not be the endgame winners. After all, Netscape, Webvan and AltaVista each looked to be industry leaders at a time when then-nascent World Wide Web was transforming commerce. Just because Google Inc. GOOG, -0.33% , Amazon.com Inc. AMZN, -0.20% and others won out doesn’t mean the end wasn’t near.
If the likes of J.P. Morgan and American Express and Fidelity want to survive the next decade, they needs to pay heed to the Tim Vaskos of the world. There are too many of them to defeat.