“Don't worry, we’ve been here before”
Remember Napster, MP3 technology and the magic of ditching your discman in favor of an iPod so you could have 1,000 songs in your pocket?
Remember Tower Records, Sam Goody and when you had to buy the whole CD even though you only liked 2, maybe 3 songs?
Remember :30 second TV commercials, TiVo, Blockbuster, Netflix and not watching commercials anymore (except Sports of course) and not having to go to the video rental shop?
Remember Borders, Amazon and the first time you realized you could effectively buy anything, anytime, online?
Remember Priceline, Kayak, HotelTonight, Uber, Lyft, AirBnB and how they changed the way you thought about travel forever?
Remember the way you communicated with your friends and family before Facebook, Instagram, SnapChat vs. the way you do now?
Remember Elon Musk and Tesla disrupting Detroit?
Remember Square and no longer having to carry cash to buy “artisanal stuff” from artists hustling in “non-traditional retail locations”?
Remember the first time you interacted with Warby Parker in any online or offline environment and how “human” the experience was?
You get the point.
Many industries have had their “Napster” moment and now it’s Wall Street’s turn.
“Why is Wall Street so Late to the Party?”
Contrary to what a lot of the coverage out there is saying, Wall Street isn’t going anywhere, the sky isn’t falling and yes, Wall Street knows a thing or two about technology. It always has.
Wall Street is late to the party for a number of reasons. The biggest being the regulations and compliance inherent to the banking system, infrastructure and processes.
We’re talking money, the way it moves, checks/balances associated with investing it, how companies leverage it to facilitate operations, capitalize on opportunities, grow, take risks etc.
For all those reasons and more, it’s a heavily regulated industry and therefore it doesn’t change as rapidly as the consumer facing industries referenced above. While that’s starting to change, where it gets especially exciting for me is when you start thinking about the nuance of the social web and digital ecosystem.
In comparison to other, less regulated industries, the Street is behind in terms of its native understanding of this nuance vs. the majority of players who have navigated their own “Napster” moments in prior industry transformations.
Understanding the nuance can make a big difference...
"There’s Only One Way to Learn How to Ride a Bike"
When is the last time a banker was caught at work spending too much time on Facebook, Instagram, Snapchat etc? Never.
I repeat, never...and that’s a real problem.
While technology are tools, the social web and digital infrastructure are the connective tissue that enable the Internet to work the way it does today.
Like riding a bike, it’s certainly not something you learn in a classroom. It’s a bit of a “drinking from a firehose” type of situation, especially if you need to play catch up. It’s learned over time, through immersion, experience, trial and error.
There's a reason some the industry's biggest transformational technology leaders and rockstars - (i.e. Marty Chavez, Goldman Sachs CIO) - have real deal start-up stripes they earned outside the banks. They bring a deep understanding of the nuance and ways of Silicon Valley to the office everyday, to successfully affect change.
We’re only in the first inning of a 9-inning game but this lack of nuance is a big hurdle the banks are going to need to address.
"What’s At Stake?"
As a recently published FinTech white paper from Citi pointed out, historically, digital disruption has resulted in a 44% share shift from Physical to Digital over a 10-year period. Market shares shift gradually at first (1.6% per year) and then they hit an inflection point around year 4 where traditional share declines rapidly (6% per year).
For example, while only 1% of North American consumer banking revenue has migrated to digital, that percentage is expected to climb to 10% by 2020 and 17% by 2023
And then there’s the flood of VC money moving into the space at a major clip. According to KPMG and CB Insights, more than $13.8B in VC capital was invested globally in FinTech in 2015, more than double what was invested in 2014.
As Jamie Dimon so eloquently pointed out in his annual letter to shareholders - “There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking”.
"The Bad News is Also the Good News"
Again, the sky isn’t falling on Wall Street because of this 2nd insight. One that I think is especially interesting.
Industrialists need Innovation while the Innovators need Industrialization. Translation, FinTech startups are realizing they need incumbent banks just as much as the incumbent banks need them. For now.
While a partnership such as JP Morgan and OnDeck could serve several strategic objectives, it will be intriguing to see if the Street starts getting Innovation and Creativity faster than the Disruptors get Scale and Distribution or vice versa?
Early stages of the transformation, but there are clearly a lot more questions than answers.
Is today’s generation the last one to use actual credit and debit cards?
What percentage of banking functions and services can be automated or digitized? What are the people implications of enabling talent to be deployed against more meaningful opportunities to contribute?
When will Blockchain replace core financial infrastructure?
Will physical retail banking become more service vs. transaction oriented, offering subscription services tied to wealth creation?
"Empire Strikes Back or a Different Movie?"
Ultimately is this movie going to be of the “Empire Strikes Back” variety or will the incumbents have difficulty rising to the transformation challenge aka their Napster moment?
One thing is for sure, it’s going to be one heck of a ride.