On the first day of CB Insights' Future of Fintech conference in New York, executives from the financial industry’s disruptor class rattled off all the things that big banks and Wall Street are doing wrong.
Securities brokers have charged exorbitant fees for decades, said Vladimir Tenev, co-founder and CEO of Robinhood. The credit card industry still engages in a lot of bad practices that are harmful to consumers, said Harit Talwar, head of Marcus at Goldman Sachs. Human financial advisers are expensive and overrated, said Wealthfront CEO Andy Rachleff.
As such, it will be hard for legacy financial services firms to change for the better and adapt to a digital market, Tenev added.
“These companies aren’t technology or engineering companies,” said Tenev, whose firm is reportedly in discussions to offer banking services to its 4 million customers. “They would need to get more efficient to compete, and that will be very difficult for many reasons.”
The executives also revealed their own plans for the future.
Rachleff publicly discussed for the first time his company’s big bet on software: an ambitious plan to evolve from investment and planning advice to serving as a central financial hub for its clients.
Rachleff explained that Wealthfront’s software will soon be able to automate every aspect of a client’s financial life, taking control of a client’s deposited paycheck and apportioning it into savings, investments and even accounts not held with the robo adviser.
“Our target is people who grew up digital natives,” Rachleff said, claiming that 85% of Wealthfront’s customers are under 45. “They literally say, 'We pay you not to talk to us,' " he said. “That’s heresy to the incumbents.”
Tenev, founder and CEO of Robinhood, is banking on the same digital-native future.
“Our assumption is that the industry won’t stay still,” Tenev said about how the stock brokerage application is challenging its established rivals. “That they’ll lower their prices to survive and compete on price.”
Robinhood recently introduced cryptocurrency trading to its clients. Tenev said that Robinhood intends to break even on the offering in the foreseeable future, but that there were already benefits: Investors interested in crypto had upgraded their accounts with Robinhood to trade its other products.
"We believe this asset has significant staying power," Tenev said. "It would be foolish to say bitcoin is done."
In May, Robinhood was valued at $5.6 billion in a new round of funding. Still, the microinvesting app maintains a frugal approach to innovation, Tenev said.
The company purposefully allocates few resources to creating new products and focuses on hiring a handful of exceptionally talented people instead of a larger pool of "mediocre, less talented people" that incumbent firms keep, Tenev said. He added Robinhood's impact has already been borne out with the decrease in commission fees from traditional brokerage firms.
Offering lower costs to customers was just one aspect of building a future financial services company, Talwar said. "People's relationship with money is broken."
Too many financial service offerings were not made for the benefit of the consumer, Talwar said. "People need to spend, save, plan and need protection, and they want it in a way that doesn't overwhelm them," he said. "Currently the aggregator of all of this is the consumer himself."
That is why the vision for Marcus is to become a financial hub for its customers, Talwar said.
"Marcus is a 21st-century platform: digital, open architecture, planning to serve millions, with products either manufactured or distributed by us," he said. "It will be simple, transparent and always on the side of the consumer."
