FinTech Disrupting Wall Street With Banking Alternatives

Electronic payment services, crowd-funding and lending vehicles could take a billion-dollar chunk out of big banks

(File: Image)
(File: Image)

On-demand apps are all the rage, with the subset collectively on track to rocket past last year’s record-breaking investment amount.

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But while disruptor services such as Uber, Airbnb and OpenTable have been a bane to taxis, hotels and restaurants, respectively, it seems as though Wall Street could be next up in the crosshairs of the industry.

According to a USA Today report, technology companies that are competing with traditional banks have the Street worried. Think of such financial tools as Bitcoin, crowd-funding and computer-generated investment advice as threats to the “too big to fail” institutions that typically shell out cash for home and car loans, small business loans and more.

“FinTech”–the term used to described this growing industry–could take some $4.7 trillion in revenue and $470 billion in profits away from Wall Street firms, Goldman Sachs predicted, according to the USA Today report.

But while Silicon Valley could benefit from these firms–whose deep pockets could lead to more money being thrown at the tech companies and could be interested in acquiring some of these upstarts–boards at traditional institutions are starting to take notice and assuage stockholders that they are keeping a close eye on the competition. Martin Gilbert, CEO of Aberdeen Asset Management–a firm that manages $500 billion in assets–and JP Morgan CEO Jamie Dimon both recently sent memos doing so just as Wall Street investments and acquisitions of financial technology startups was predicted to increase over the next “18 months and beyond.”

“Right now we’re in the awareness phase. … “Companies that fail to act risk ‘death by a thousand cuts,’” said Anand Sanwal, CEO of CB Insights.

Both firms are said to be interested in technologies that allow clients to manage their portfolios and trade electronically, as well as lend money and make electronic payments. Alternative lending platforms are said to have out 62% of all small-business loans versus the 21% from big banks, Goldman Sachs’ report said. Additionally, payment systems such as Bitcoin can transfer money faster and with lower fees, causing the banking industry to lose as much as $84 billion, it added.

FinTech is likely to be a topic that continues to pop up in conversation, especially as small businesses seek loans and these services continue to generate millions in revenue.

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