Financial technology (FinTech) as a niche is dead. No, it’s not going away. Rather, financial technology is on the cusp of becoming so entrenched in every aspect of global finance that we’ll stop thinking of it as a niche and start thinking of it as the core of how financial services is delivered to consumers, corporations and institutional investors. The rise of FinTech will actually accelerate the already blurred lines between bank and nonbank institutions, between an algorithm and a human salesforce, and between the work of machines and the work of flesh-and-blood professionals.
It’s an interesting time to make this claim. Some of the trends that drive excitement in startups—including low risk premia and a focus on growth over profitability—are shifting, and many industry analysts predict that startups and technology more broadly are about to face a long, cold winter.
Although the financial services industry is not completely immune from these trends, there’s more at play than the cyclical aspects of the market. The way financial services and insurance is delivered has changed far less than in other industries as a result of technology, meaning there are simply more opportunities to improve it.
With these trends in mind, I want to explore a few questions: Why now? What does it mean for Wharton graduates and current students? And for Wharton itself?
FinTech is no longer a niche.
When Michael Bloomberg started his eponymous company more than 30 years ago, he was finance’s early technology adopter. One way to think about technology in finance crossing the chasm is Goldman Sachs’ recent declaration that it is now, first and foremost, a technology company.
Where once, venture capital firms scoffed at the burdens of launching a startup in financial services, there are now few sectors generating more attention. The Economist cites global growth in investments in FinTech startups as rising to $12 billion in 2014, up from $4 billion in 2013. That’s before the massive round for SoFI and other high-profile deals in 2015. Investment growth is happening in enterprise solutions, payments and marketplace lending. It’s also happening in some of the more staid parts of the industry, including wealth management, retirement and insurance. No part of financial services, no matter how complex or stuck in old ways, seems to be out of bounds for technology disruption.
It’s effect on Wharton has already been felt.
When I started my MBA at Wharton in 2013, FinTech was still a term that elicited blank stares from many of my classmates. This was despite the fact that CommonBond had launched out of the MBA program two years earlier and investment in the industry was picking up.
What a difference two-and-a-half years makes. CommonBond recently raised $275 million in warehouse funding, with total funding now over $600 million, and Motif, founded by Hardeep Walia WG01, has continued to generate buzz, customers and a rising valuation. The Wharton FinTech club was born in 2014, and its impact has been significant on student interest, internship opportunities and awareness of Wharton as a hub for FinTech thought leadership that extends beyond Huntsman Hall. And a number of promising early-stage FinTech startups hum along, including Tesorio, ModernLend and our startup Abaris.
What this means for Wharton.
I can’t tell you how many classmates looked to make the switch from finance pre-MBA to technology post-MBA. I’ve seen statistics from Career Services that are telling in this respect. (See here.) There’s a lot of opportunity to improve the student experience and integrate the latest financial technology into the classrooms. A finance professor should be just as up to speed about Symphony, Kensho or Digit as an entrepreneurship professor. Wharton’s pre-professionalism is one of its greatest strengths, and integrating technology into all aspects of the curriculum will go far in further solidifying that role by having graduates who already understand how the latest technology impacts finance.
I think it also means better supporting entrepreneurs building finance businesses by creating a more efficient way for Wharton alums to connect with FinTech startups. There’s a clear benefit for both sides of this trade. The incumbent gets a peek into the future. The startup gets a better sense of the challenges to adoption it is likely to face.
What it means for Wharton alumni.
Embracing technology in finance squarely puts you on the right side of history. Few would contend with the assertion that the future of finance will be more data-driven and technologically based. The opportunities to cut costs and grow existing markets or create new ones are vast. Finance is becoming more transparent and focused on delivering better outcomes to the consumer. The best-run businesses benefit from this trend.
All of this is not to say that there won’t be bumps along the way, including solutions that don’t hit the bid. But the benefits of being early rather than late should outweigh the cost. Just ask Bloomberg.
It’s easy to make the argument that we’re undergoing an evolution, rather than revolution with respect to technology in financial services. Where FinTech companies operate depends on the sector and in all cases lies somewhere in between those two endpoints. At the end of the day, technology in finance may not meet every founder’s loftiest promises in the time frame predicted, but rest assured that massive change is underway. There’s no reason why Wharton as an institution and as an alumni network shouldn’t lead the way.