Silicon Valley tried to upend banks. Now it works with them

In 2011, Brett King was promoting his book, Breaking Banks, and creating a start-up that he hoped would do to the banks what Amazon did to the retail industry and Facebook did to media.

“We had grand ideas of being the Facebook of banking, and being a new form of bank account,” King said recently.

Six years later, his company, Moven, has opened only 60,000 of those new bank accounts. King has now transitioned to selling his software to the banks he once scorned, who use it as a component of their mobile apps.

“We realised that if you want millions of users as a bank, it is a very different proposition than building a social media network,” he said.

Silicon Valley has upended a growing number of industries, and it had seemed not too long ago that Wall Street would soon be next. A flurry of financial start-ups rose quickly and grabbed billions of dollars in investments.

King is just one of the many technology entrepreneurs who have since recently run into the enormous moats that surround and protect the existing financial industry.

The venture capitalists who have invested billions of dollars in this wave of new financial technology — think Venmo and Bitcoin — have been left waiting for a breakout star that actually looks like a threat to even a part of the big banks’ business.

“A lot of people set out saying, ‘We are going to displace the banks,’” said Sheel Mohnot, a venture capitalist at 500 Startups who focuses on financial technology. “We realised along the way that you really have no choice but to work with the banks.”

And the difficulty of denting the influence and power of the big banks is only likely to get harder under the Trump administration.

President Trump has said he wants to encourage innovation and new business by cutting back on regulations of all sorts, including financial regulations.

Yet it was the regulations passed after the financial crisis that forced the big banks to reduce their risks in many areas and provided an opening for start-ups like Moven, which were willing to take more risks.

Trump’s plan to dismantle those post-crisis regulations is widely expected to give the big banks more free rein and close the window of opportunity for newcomers.

“The degree to which banks have been caught under the yoke of regulatory obligations is very likely to lighten up under Trump,” said Arjan Schütte, the founder of the venture capital firm Core Innovation Capital, which focuses on financial technology.

Schütte has been moving his firm’s investments away from bank disrupters and toward start-ups that are set up to partner with existing financial institutions.

Even if there has not been a disruption of the big banks, basic financial services available to consumers are changing rapidly, nonetheless.

Americans are now able to send each other money instantly from their phones, thanks to Venmo, and can get approved for a loan in minutes, also from their phone.

The consulting firm McKinsey estimated in a report last month that digital disruption could put $90 billion, or 25 per cent of bank profits, at risk over the next three years as services become more automated and more tellers are replaced by chatbots.

Much of this change, however, is now expected to come from the banks themselves as they absorb new ideas from the technology world and shrink their own operations, without necessarily losing significant numbers of customers to start-ups. Venmo, for, instance, has captured the wallets of many young Americans, but the largest banks have all begun their own versions of the service and some of them say that they already process, as single banks, more instant personal payments than Venmo.

The large banks are also teaming up to start a cross-industry mobile phone application, Zelle, that will take Venmo head-on in 2017.

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