
'Silicon Valley Is Coming' Warns JP Morgan CEO - pyabo
http://americasmarkets.usatoday.com/2015/04/09/jp-morgan-warns-silicon-valley-is-coming/
======
_broody
For sure, defeating banks in the matter of customer interaction seems like
low-hanging fruit. As the article says, they are too slow, too cumbersome, and
I'll add that they are too unfun, and their sales departments are pushy and
intrusive.

Do we even need monolithic financial entities in this day and age? Most
transactions would be better handled by smaller, specialized and modern
service companies. Banks are to financial startups what taxi driver unions are
to Uber.

And the financial sector definitely deserves a shakedown, after they
essentially plunged the rest of the world into a decade of misery with their
securities fraud during the housing crisis, and went unpunished for it.

~~~
criley2
>Do we even need monolithic financial entities in this day and age? Most
transactions would be better handled by smaller, specialized and modern
service companies. Banks are to financial startups what taxi driver unions are
to Uber.

You forgot one of the most critical functions of banks like this-- large scale
institutional lending.

A business needs to borrow $2 billion dollars -- are you going to crowd fund
that?

A state government wants to borrow $800 million in bonds for a new arena, can
you GoFund that?

A major government wants to store $30 billion of their own currency in a
financial product that will decrease in value against the dollar more slowly
than their currency. Is there an app that helps governments store 30 billion
in assets (or are we naive enough to suggest that bitcoin is a smart
investment?)

A major pension plan serving 100,000 retirees needs their 100 billion dollars
in assets to be managed responsibly, can a 24 year old Stanford grad manage
that?

I think calling Banks the "taxi union against Uber" is painfully naive in the
sense that it only looks at small transactions and consumer transaction while
ignoring the very large institutional business-to-business and business-to-
governments side of banking.

Maybe small business will get their lending needs with new technology but I
just don't see a Fortune 50 company taking a multi-billion dollar loan through
crowdsourcing.

~~~
psaintla
> A major pension plan serving 100,000 retirees needs their 100 billion
> dollars in assets to be managed responsibly, can a 24 year old Stanford grad
> manage that?

Judging by the NYC pension fund, I could manage 100 billion better.

[http://mobile.nytimes.com/2015/04/09/nyregion/wall-street-
fe...](http://mobile.nytimes.com/2015/04/09/nyregion/wall-street-fees-wipe-
out-2-5-billion-in-new-york-city-pension-gains.html?referrer=&_r=0)

~~~
scott_karana
Wow, no kidding! For the huge discount over their current guys at a mere
$1,000,000 a year, I'd happily put the pensions into some Vanguard index
funds... :D

------
kokey
I worked for JP Morgan Chase a couple of years ago, as part of the main
technology division for the entire bank. If I remember correctly, this 'IT
department' had the same headcount as Apple. It was an interesting place.
There was a lot of technologies being used through the organisation, lots of
python and Java code, perl with Mojolicious, puppet and cfengine, desktops
were Linux based terminals connected to virtualised Windows desktops, Hadoop
and Cassandra was being rolled out, interesting things with FPGAs were being
done e.g.
[http://web.stanford.edu/class/ee380/Abstracts/110511-slides....](http://web.stanford.edu/class/ee380/Abstracts/110511-slides.pdf)
I worked with many skilled and experienced people, and nice people too. I have
worked for many multinationals before, and this bank was certainly the most
nimble of them all while being the biggest and most stable at the same time.

~~~
arthurcolle
Why did you leave?

~~~
kokey
I got persuaded to join a start up full time, one I co founded years before
joining the bank. In retrospect I should have remained at the bank.

~~~
arthurcolle
Cool I am starting at GS this summer so I was curious if you decided to move
on from banking or of it was more you deciding to try something new.

------
BallinBige
"Building financial technology is hard. Really hard. Startups are always hard,
but fin tech is a whole different level of self-inflicted pain. You’ll be
regulated. You’ll deal with big banks. They’ll see you as little and cute
until you’re meaningful. Once that happens, they’ll want to crush you out of
existence."

\- Max Levchin [http://fortune.com/2015/03/27/max-levchin-hates-credit-
cards...](http://fortune.com/2015/03/27/max-levchin-hates-credit-cards/)

~~~
rcarrigan87
This has been my experience in most industries. Once you gain traction the
main players will do everything they can to stop you. Frivolous lawsuits are
probably the most annoying tactic.

------
dataker
Most people take SV/WS as a geographical identity, starting a war between the
two. However, rather than war, we've been seeing a confluence. WS is nothing
but a group of workers, morality, tradition and culture.

Right now, WS is not being destroyed: it's merely being mixed into the SV.
Either by bringing its top executives or fostering a 'brogrammer' culture, the
similarity between the two are becoming clearer and clearer.

~~~
nissimk
It's been going on like that for years. Think of all the wall st folks who
made their careers on tech stocks of the past, like Rick Sherlund at Goldman
with Microsoft, and Mary Meeker. The funny thing about the overwhelming
attitude regarding the financial industry on HN is that the venture capital
business is just another area of the financial industry and it has all of the
same (mis)behaviors: managers benefiting from information asymmetry, high fees
for questionable returns / risks, etc.

------
rndmize
I wonder sometimes what is left for banks to do that couldn't be fully
automated (at least on the consumer side). Creating accounts, making deposits,
withdrawals, transfers, paying bills can all be done online or through apps.
Getting a loan or credit card seems to largely be a matter of 1) obtain credit
score 2) calculate terms. Investments can be done through the likes of
Vanguard/Wealthfront/Betterment. I feel like I must be missing something here,
or maybe people really like talking with someone they know at the bank when
getting a loan or mortgage.

~~~
mrfollicle
Agreed. At least from a consumer standpoint. I use an online only bank account
after switching. And there's plenty out there. Better service, fewer fees, and
without a physical "bank" location in the traditional sense it can keep costs
lower. Haven't looked back. I don't need a physical bank to accomplish 99.9%
of my banking needs. With offerings like Ally, Simple, etc I think the
traditional and big banks will only be necessary for non consumer facing
stuff: large investments, mass ACH, trading (including high frequency stuff),
etc

~~~
fluxquanta
I was nervous before switching to Simple, but then I thought about how the
only time I went to my physical bank in the last 3 years was to exchange
currency, and in that time they charged me $300 in fees for one reason or
another. It's been almost a year with zero fees and zero regrets.

~~~
jjulius
I've been using Simple since January of last year, and I am incredibly
thrilled with them overall. I could ramble for days about their outstanding
customer service, how their "Goals" system has significantly improved my own
ability to save money, yadda yadda. Chase was the bank I had to suffer with
prior to switching to Simple, so I have to admit that it makes me ridiculously
happy to see Dimon legitimately concerned about companies that actually give a
fuck about people.

------
presidentender
It's not just that startups are identifying cool new technologies like
cybercurrencies, and it's not just that they're using new models to offer
loans faster. Startups have started to take on markets which banks pretty
clearly knew about, but refused to touch - you can refinance a federal student
loan with SoFi or commonbond now, which was unheard of five years ago.

The problem is that the little guys' competitive advantage seems to lie only
in their willingness to enter the space. Once the market is proven, Wells
Fargo and JP Morgan won't really have a difficult time stepping in with
boringly normal technology and using their giant pile of money to dominate the
market.

What can finance startups do to avoid being squeezed out by the older,
established banks?

~~~
pyabo
The pile of money will be used to buy dominant players of the new
technologies, but they may had problems with margins like record labels.

------
chiph
The problem with starting a new institution these days is that the regulatory
& audit issues mean that you'll be a small bank, with the overhead of a large
bank.

There's also the package integrations to deal with. Banks tend to buy packages
for their core functions, and then (try) and integrate them. There's an
opportunity here for someone who can offer a "Bank In A Box" \-- all the
software needed to start a bank/credit union that is well-integrated and
complete -- from GL/AP to lending, depositor management, ACH + Fedwire
connections, and disaster recovery.

~~~
morgante
I've been thinking of developing a "Betterment in a box."

------
arbuge
>> “Rest assured, we analyze all of our competitors in excruciating detail –
so we can learn what they are doing and develop our own strategies
accordingly,” he said.

Perhaps worrying more about analyzing their customers needs and less about
their competitors would be better.

I also found it amusing he considers PayPal a "new payment technology"...

------
serve_yay
Wall Street, Silicon Valley - what's the difference?

~~~
Sven7
The dress code. That is all. Vampire squids on both coasts.

~~~
klipt
Hey, hey. No need to judge vampire squids just because they look funny.

------
bko
One reason I don't think JP Morgan or traditional banks can compete
effectively with smaller startups is the regulatory framework that they
operate in. New startups can structure themselves outside this framework and
be more nimble.

For instance, Lending Club essentially passes through all credit risk to its
investors with its assets and liabilities perfectly matched. So every dollar
loss in loans is a dollar less to the holders of the notes.

If a bank tried to have this sort of structure, it would be incredibly
leveraged and would require a large amount of capital reserves.

There was a great Bloomberg article addressing just this [0]

[0] [http://www.bloombergview.com/articles/2014-08-27/lending-
clu...](http://www.bloombergview.com/articles/2014-08-27/lending-club-can-be-
a-better-bank-than-the-banks)

------
Sealy
His only mention of Bitcoin:

 _Competitors are coming in the payments area._

 _You all have read about Bitcoin, merchants building their own networks,
PayPal and PayPal look-alikes. Payments are a critical business for us – and
we are quite good at it. But there is much for us to learn in terms of real-
time systems, better encryption tech- niques, and reduction of costs and “pain
points” for customers._

------
chatmasta
Everyone in the tech world, specifically the investors, has known this for a
while. Marc Andreesen could have told this to Jamie Dimon ten years ago.
"Software is eating the world" holds just as true today as it did when he
first said it.

The problem is that "software is eating the world" only in the long term. It's
easy to get behind the mantra when you're imagining software in an idealistic,
abstract sense. After all, just look around you. Software is disrupting
industries left and right. It's cheap, reproducible, and highly leveraged with
low marginal cost. Software is more economically efficient than the incumbent
operations of every industry it disrupts.

The financial industry is unlike any other industry software is "disrupting."
The operations are irrevocably complex because they are inherently driven by
human operators. Each year, more tech creeps in between the operators and the
operations, and software gradually "eats" the industry. But bankers are not
losing their jobs. Why would they? Software is more efficient, it makes them
more money. It gives them more time to focus on improving other efficiencies.
Bankers see software as a resource they can leverage just like anything else.
The more it eats their industry, the more they feed it. As long as it
continues making the bankers money, they will keep their own jobs. As long as
they keep their jobs, they will keep leveraging their resources, which
inevitably increases the complexity of the financial system.

The longer humans are in charge of the financial system, the more complicated
it becomes. I see very little chance of humans relinquishing complete control
of the system to algorithms. There is always a human, or group of humans, at
the top -- that is the nature of politics and civilization. Perhaps the human
has less input as technology improves, but politics still requires that human
to occupy the seat at the top of the economy. Somebody needs to be responsible
for the system. We cannot relinquish all control to the robots.

~~~
eru
Bankers are not one homogenous group. Tellers are different from quants.

------
smoorman1024
Relevant to discuss the viability of different fintech startup ideas:

[https://news.ycombinator.com/item?id=9321019](https://news.ycombinator.com/item?id=9321019)

[https://medium.com/bull-market/a-cynic-s-guide-to-
fintech-3c...](https://medium.com/bull-market/a-cynic-s-guide-to-
fintech-3cd0995e0da3)

I agree that there is some naivety when attacking huge institutions as
mentioned in the article. Particularly when it comes to dodging regulation.
Rather than putting you on top dodging regulation is probably going to put you
out of business when it comes to Financial Institutions.

[P.S. will the Gods of HN please upvote my comment so I can have the slightest
visibility here]

------
cubano
So Facebook basically gave everyone a personalized website and social graph.

Twitter, everyone got their own chatroom.

Instagram, a photo-album.

Perhaps the next killer finapp is to allow everyone to become their own bank?

------
fsk
Banks have one advantage in this area. The have government regulations and
many other laws making it hard to organize competition, such as anti-money-
laundering and know-your-customer laws.

Look at what happened to E-Gold. It was a threat to traditional banking, laws
were changed, and the business was declared illegal (and many of the operators
went to prison for violating laws that were passed after they started
operating).

------
pjc50
On this subject, from the finserve side: [https://medium.com/bull-
market/a-cynic-s-guide-to-fintech-3c...](https://medium.com/bull-
market/a-cynic-s-guide-to-fintech-3cd0995e0da3)

The author applies heavy skepticism, but does rate some of the fintech
business models as worthwhile.

------
huu
I find it curious that pain points is given the inner quotes treatment
whenever the JP Morgan CEO uses that term. It's almost like such a concept
didn't exist before startups started addressing it.

------
niche
I think what is especially interesting about this comment is that Wall St,
which is on the East Coast, uses the internet in very different ways than
Silicon Valley does, which on the West Coast. Both have ground to make up in
this sense; Silicon Valley could be much more in tune with their East Coast
counter parts...

~~~
wcummings
>the East Coast, uses the internet in very different ways than Silicon Valley
does, which on the West Coast

In what ways?

------
diminoten
Maybe this will result in banks upgrading their systems from COBOL/FORTRAN to
something slightly more modern, like... Java/C++.

Or are they just going to skip a generation, and move directly to
io.js/Node.js?

~~~
BallinBige
that made me chuckle

~~~
harryh
Indeed. #ShitHNSays worthy.

~~~
KurtMueller
What makes you say that?

~~~
anonbanker
HN likes to promote upgrading technology stacks to the new hotness (which at
one time was Java, and is now Javascript/Node.js) for no other reason than the
old standard being old. This is often under the guise of "Disruption" when the
good trolls are doing it.

