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If you ever needed proof that California-based techies live in a bubble of self-deluded superciliousness, where (to their minds) nothing of any value ever happened until Silicon Valley or Ayn Rand ideologues came along, look no further than the following article from Techcrunch posted this weekend.
As the opener paragraphs report (our emphasis):
Money is pouring into fintech. In 2014, global investment in financial technology startups spiked to more than $12 billion. That’s three times what it was just a year prior, according to Accenture. There have also been some huge funding wins this year. Most recently, zero-commissions trading app Robinhood announced $50 million round and financial education site NerdWallet attracted $64 million in funds. Those are big, headline-grabbing numbers.
But only using funding as a benchmark can mean focusing too heavily on consumer fintech – and ignoring another large fintech opportunity. Recently, Business Insider analyzed Goldman Sachs’ business segments and said that it had more engineers and programmers, at 9,000, than Facebook, Twitter or LinkedIn. The headline captured BI’s takeaway: Goldman Sachs is a Tech Company.
In Silicon-Valley-land it’s seemingly big news that Goldman Sachs may be, and may always have been, a technology firm. Who knew?!
But it’s not just Goldman that’s a technology firm, reports Techcrunch, the go-to site of the tech world. Apparently there’s a booming technology industry surrounding exchanges, hedge funds, banks and proprietary trading firms! Again, who knew?!
Certainly not Silicon Valley startups, which Techcrunch implies have been kinda stupidly wasting their time focusing on consumer finance solutions when they could have been going for the much bigger low hanging fruit associated with the institutional finance industry.
Finance and Silicon Valley also have a lot in common, meaning high-flying techies should feel quite at home operating in the sector.
For example, did you know, reports Techcrunch, the financial industry also embraces the “fail fast” mentality? And that with institutional fintech you can prove the business model quickly because, unlike consumer fintech, you don’t need to wait for a bear market to figure out if your model has revenue legs?
As Techcrunch concludes:
Fintech startups in the trading space are still open to disruption, but aren’t subject to individual investors’ emotions. For that reason, this sector deserves closer attention.
Financiers, your secret is out.
Silicon Valley has cottoned on to the fact that your industry depends as much on technology and platform hubs as theirs does — and has done so before Tim Berners Lee was even a glimmer in his father’s eye — and that you too make your money from gathering other people’s information, secrets and data, regulatory arbitrage, charging rents or commissions for platform access, forging cartels or monopolies and then using all that information against your users.
So should financiers be worried? Or is it the case that technology firms figuring out that banks do exactly what they do — but have done so for centuries instead of decades — doesn’t necessarily imply they’ll learn the hard lessons bankers have already learned any quicker?
After all, if the Medicis were the Satoshi Nakamoto of their day, they’ve now had more than 600 years worth of feedback and “failures” to perfect their models and fine-tune their strategies.
Meaning, we presume, that if there’s low-hanging institutional fintech fruit out there for the picking, it could just be that it’s there for a reason.
In any case, for those techies who feel like doing the unthinkable before plunging into the world of finance — i.e. some historical research — here’s some useful further reading on how social networks, living off screens, mobile notifications were all done first not in Silicon Valley but in finance hubs like Chicago, New York and London (H/T Wong Joon Ian):
Socio-Technical Agency in Financial Markets: The Case of the Stock Ticker, Alex Preda (Social Studies of Science Oct 2006)
Where the Common People Could Speculate: The Ticker, Bucket Shops and the Origins of Popular Participation in the Financial Markets, 1880-1920, David Hochfelder, (Journal of American History, 2006)
Out of the Pits: Traders and Technology from Chicago to London (Caitlin)
Favourites of Fortune: Technology, Growth and Economic Development since the Industrial Revolution (David Landes, 1991)
Victorian Investments: New Perspectives on Finance and Culture (Nancy Henry, Cannon Schmitt 2009)
The Carrier Wave: New Information Technology and the Geography of Innovation 1846-2003 (Peter Hall)
Innovation Technology and Finance (Arnold Heerjte 1988)
We’ll seal things off with this FT editorial snippet, also from 1889, lamenting the introduction of the ticker tape (the internet of its day) and how it enabled the rise of bucket shops in the first place, but why it isn’t necessarily in the interests of the incumbents to fight against the technology or for that matter the new entrants using it to gain market access:
It is, therefore, to be regretted that men who are invested with such authorty as those from whom this inconsiderate measure has proceeded, should be blind to the patent fact that there is “ample room and verge enough” here in New York for the existence of both the New York and the Consolidated Exchange – and that it is for the best interests of both that they should regard each other not as rivals to be destroyed, but essentially as allies whose prosperity was in no wise fraught with prejudice one to the other.
No point in ruining a good thing for everyone, for instance by actually diminishing the size of the financial commission/rent market.
In the words of Michael Corleone, much better to keep your friends close and your enemies closer, wisdom passed on by his father. (And in time, no doubt, your enemies will trip up anyway, at which point you will not be obliged to offer them a bailout.)
(As an aside, Apple is now to be referred to as the new Pimco.)