Innovation in Finance

It used to be that if you were entrepreneurial and innovative, an investment bank was a good place to work.  Banks were creative.  They were extremely nimble, and quick to iterate.  Customers were in all kinds of niches and the investment banks could fill them.

Post going public, post financial crash, and especially post Dodd-Frank, that’s not the case at banks anymore.

Banks are boring burn out places for creatives.  Additionally, the strategy for banks now is protecting the kingdom.  They are under assault from all kinds of disruptive technology.  The wars being waged today are very small, and don’t impact their bottom lines yet, but it’s coming.  Lending Club was the first salvo and there will be plenty of others.

People are that are entrepreneurial are leaving traditional Wall Street firms and starting their own.  This is good for the NYC startup ecosystem.  In Chicago, I am seeing ex-traders some pretty cool firms and I am seeing algo/HFT programmers leave to do something else.  After a while they get bored just trying to make the code go faster.

In my experience at CME, the best ideas bubbled up from the floor. Members would come up with better ways to do things, new contracts and find new customers.  That entrepreneurial culture is gone.

Companies like Ycharts and Riskalyze cater to this growing base of creative, entrepreneurial people.  They provide unbelievable data and service at a very low price.  They are also more powerful than the traditional software banks use internally.

Some hedge funds are starting to see it too.  They are investing in startups.  I am not sure if that’s a good idea or bad idea.  The money isn’t liquid and the analysis isn’t the same.

In the next ten years, we will see the roots of finance attacked heavily.  There were no investment banks in the US prior to the early 1900’s.  What value do they bring now?