We were watching change wash across the financial sector…

We were watching change wash across the financial sector…

by freshwateradvisors December 03, 2018

For many years, as the technology advisor to Mayor Daley of the City of Chicago, and the co-founder and CEO of what is now 1871, we learned how to interpret and use proactive data points to gain new insight into the relationships that exist between the Davids and the Goliaths of the finance sector. We were beginning to see startup fintech companies that were disrupting centuries-old financial institutions, and we joined a chorus of voices, encouraging and literally building common ground for collaboration.  

One of my all time favorite examples of this phenomenon was Archipelago’s merger and acquisition of the New York Stock Exchange in 2002.  Archipelago, a Chicago-born trading platform for the efficient flows of equities, was created by former floor trader Gerald Putnam. 12 short years years after launching, it  merged, acquired and then built the operating technology platform for the 150 year old New York Stock Exchange.

Fifteen years after Archipelago acquired the New York Stock Exchange, in 2017, two thirds of early stage venture funding rounds went to fintech startups. This, in the same year that Fidelity would re-mark their portfolio holdings of fintech investments down by 20%.  These strong and pertinent data points seem to create strongly contradictory market data signals.

The market is booming?

Adding to the complexity of the equation is the fact that the number of financial services incubators and accelerators around the world would grow to more than a thousand.  Thousands of incubators have created thousands of new ideas in the fintech space. A new economy of financial service technologies and innovations has been created with such abundance that financial institutions must either adapt, integrate, or perish.

Without a thoughtful and agile approach to partnering and engaging meaningfully with this new vanguard of startups and technologies, stalwarts in the financial sector will lose competitiveness. The vanguard of fintech innovation is currently fueled by advancements in machine learning, rapid access of data repositories of historical financial information, and algorithmic trading techniques pioneered by former floor traders.

The market is booming, and it is very noisy.

The Value we create at Freshwater

We at Freshwater help corporations in the financial and insurance industries find the relevant  thread through all the noise in the market. Our scouting takes us around the world, and is curated specifically for our clients’ innovation priorities. Additionally, we help our clients think in new ways about priorities they may have yet to envision, but that are being seeded by the startups, accelerators and incubators we monitor and scout.

Today, names like PayPal, Braintree, Prosper and Lending Tree are household names.  It feels like they have been around forever, but they are just 20 years young. Corporate transformation across the financial services sector, marked by the demutualization and transformation of 150 year old financial exchange, grounded in the sale of butter, eggs, cattle, and corn would transform themselves into the world’s largest futures and derivatives market, that could now be accessed by individuals in their homes, pop up trading arcades, through the innovation in trading screen applications, creating a new parity in market access.  This would inspire some of the most beautiful new innovators and entrepreneurs to leave their corporate positions and their teaching roles in mathematics, statistics and economics classes to launch newly-mined fintech ventures.

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