A Tale Of Two Cities
Investment banks and tech startups. Chalk and cheese.
There remains a cultural gap between the domains of technology and finance. Nowhere is this more visible than in the US, where Silicon Valley and Wall Street sit three thousand miles apart – antithetic in character, ideology and culture.
The same is true of The City and Tech City. For years the two London districts have existed in ignorant bliss of one another, despite being a stone’s throw apart. Now the fintech movement is blurring the lines between the two, with ever-closer integration between banks and startups.
The global rise of startup culture – with its utopian worldview, laissez-faire working style and air of self-conscious authenticity – poses a number of challenges to banks. Tech companies have philosophies that make them more agile and less bureaucratic. They have lower overheads and are built to scale. And they are attracting the world’s greatest technical talent.
For years, it was the banks who mopped up talent from leading universities. The ascent of the tech giants has demonstrated that with technical prowess comes prestige, money and status, and graduates are attracted to jobs where they can “make a difference” and “be a part of something.”
And with compensation between the finance and tech industries now fairly similar, banks face an uphill battle in the war for brain cells. This is not just because tech companies offer ping pong tables and free lunch. More importantly, it’s easier for ambitious and idealistic people to relate to the problems being solved in Silicon Valley than those being tackled on Wall Street. Let’s face it, artificial intelligence, autonomous vehicles and social media are a lot sexier than regulatory compliance.
How can banks compete with startups and tech firms? Firstly, by being thoughtful and strategic around what type of infrastructure they try to build themselves versus what they buy from best-in-class vendors. Goldman Sachs CEO Lloyd Blankfein has repeatedly said, “We are a tech company,” which is partially true. But it simply doesn’t make sense to build a piece of commoditised infrastructure internally, when a vendor can supply something better and cheaper. This is why we created Origin – by helping issuers and dealers in the debt capital markets to connect effortlessly and intuitively over our platform, we save everyone the need to invest in expensive and clunky proprietary software that precludes cross-industry adoption.
Secondly, gone are the days when technology can be considered just an “ancillary expense” that is meant to be minimised or outsourced. Banks need to recognise that it’s now a fundamental driver of revenues, especially in a financial world that’s become overwhelming data orientated. Hedge funds have known this for a long time, which is why they are some of the most cutting-edge technology firms in the world, with a laser sharp focus on software, hardware and technical talent. For many hedge funds, the AI or algorithm or supercomputer is the secret sauce that drives returns and revenues. And when you look at the history of places like DE Shaw, Renaissance Technologies and others, you’ll see they were all founded by PhDs, rather than MBAs.
Slowly, banks are waking up to this reality. But more can be done, especially in terms of organisational structure and management culture. Traditionally, the head of the business is a former trader or banker that focuses on front-office recruitment, revenues-per-head, and bonuses, while the COO deals with monitoring (read: minimising) infrastructure spending. With technology now driving business rather than just supporting it, the relationship between those two leadership roles needs to be reconfigured. The head of the business needs to recognise that tech isn’t just ancillary – it’s fundamental to revenue generation. Once these organisational changes become second nature to the industry and technology is truly valued and prioritised, technical talent will flock to banking.
On more a personal level, I love running a fintech business, but I also believe it’s not a bad thing to have started life in the corporate world. We fully believe that one of the main drivers of our success so far is the fact that we’ve lived and breathed the problem that we’re trying to solve, having worked on the trading floor for a number of years.
Many recent graduates are seduced by the startup lifestyle, but end up spending years building trivial apps and gadgets that the world really doesn’t need. In reality, it’s just too hard to achieve product market fit if you don’t have a deep, intuitive understanding of the market you’re working in – especially if it’s fintech. In many cases it’s better to start out in a more traditional corporate environment and witness first-hand exactly what problems the world is facing; then you’ll be much better placed to conceive of a good solution. After all, when all the ping pong tables, free beer and product roadmaps are cleared away, problem solving is what remains. That’s what being an entrepreneur is all about.