Financial services are ripe for disruption. PwC, the consultancy, forecast last week that fintech start-ups could steal 20% of the banking market. And the roster of the world’s top tier business school graduates who’ve joined the fintech wave is growing, from digital currencies to cross-border transfers.
Former Barclay boss Antony Jenkins, who has an MBA from Cranfield SOM, is launching his own fintech venture. Deutsche Bank’s ex-CEO Anshu Jain, who got an MBA from UMass Amherst, joined SoFi, a marketplace lender. And Vikram Pandit, the ex-chief of Citigroup and Columbia Business School alum, has backed CommonBond, a student loans start-up.
Antoinette Schoar, professor of entrepreneurial finance at MIT Sloan, says plenty more are launching ventures, “from peer-to-peer lenders to ‘robo-advisers’”. Julie Morton, associate dean for career services at Chicago Booth, says MBAs are attracted by the prospect of using technology to “disrupt” finance.
Other luminaries who have founded successful fintech companies with the aim of challenging traditional lenders include Renaud Laplanche, an HEC Paris MBA and creator of P2P lender Lending Club. And Aaron Vermut, who graduated from Wharton School, is CEO of Propser, another listed marketplace lender.
The advantage start-ups have, says Raghu Rau, professor of finance at Cambridge Judge Business School, is that banks are saddled with legacy IT systems, and they are subject to stringent regulation.
Fintech has accordingly become one of the hottest sectors, with venture capital investment hitting $4.9 billion in the first quarter of 2016, up from $1.9 billion in Q4 last year, according to CB Insights.
The flood of funding has given several start-ups “unicorn” valuations of $1 billion or more. Among them are Oscar Health, from Harvard Business School, and TransferWise, from INSEAD.
Here are four more b-school start-ups with their fingers on the pulse of financial innovation.
Valuation: $4 billion
Daniel Macklin entered Stanford’s Graduate School of Business fresh out of Standard Chartered where he led medium enterprise banking in Shanghai. After falling in love with Silicon Valley, however, he quit and set about shaking up traditional lending.
He co-founded SoFi, which provides student loans online: It has funded about $10 billion worth of them to more than 150,000 borrowers. SoFi says it’s upending the traditional banking model with cheaper rates, zero fees and better customer service. “SoFi is a disruptor….People are crying out for better [financing] solutions,” Daniel says.
He launched the business in 2011 with Mike Cagney, James Finnigan and Ian Brady, after the former Stanford students reared their venture at the school. Daniel says: “Business school gave us that advantage to be able to develop and incubate an idea in a safe environment. That gave us the confidence that this was a viable idea.” Investors seem to think so.
SoFi has raised around $1.4 billion in equity funding and its latest round, led by Japan’s SoftBank and Third Point Ventures, valued the San Francisco start-up at $4 billion. SoFi has more than 600 employees.
Columbia Business School
Valuation: $700 million
In the summer of 2008, when Jon Stein’s classmates worked internships at the likes of Goldman Sachs and JPMorgan Chase, he was busy learning to code: “I taught myself some flash and started building the first iteration of the front end of the product,” he says.
The MBA graduate adds: “I was fortunate enough to be able to use my time at Columbia Business School to build the idea…That was a real advantage in attracting early traction.”
Today that product, Betterment, is the world’s leading “robo-adviser”. Investors fill out online forms detailing their risk appetite. Software then creates a portfolio and automatically rebalances it with the aim of maximising profit.
Deloitte reckons that algorithms could secure assets under management of $7 trillion by 2025, up from around $100 billion today. In the past 18 months, Betterment has grown from $1 billion of assets to more than $5 billion. “We’ve seen tremendous growth,” says Jon, a former management consultant. Betterment, based in New York, has more than 175,000 customers and around 200 employees. In March Betterment raised $100 million of equity — valuating it at $700 million.
London Business School
Valuation: $500 million
Six years ago WorldRemit won London Business School’s prestigious business plan competition. That, and the school’s angel investor network, helped the international money transfers company raise the $7.5 million needed to launch proper in 2010.
Ismail Ahmed, CEO and founder, says: “WorldRemit owes to the connections I was able to make at LBS, and has benefited hugely from the supportive network of the school.”
Today, London’s WorldRemit processes 400,000 transactions a month to more than 120 countries. It has 230 employees and posted $39 million in revenue in 2015. WorldRemit has raised about $150 million in equity, the latest of which, a $100 million injection from Accel Partners, gave it a valuation of $500 million.
Despite its growth, Ismail does not view the venture as a disruptor: “For the world’s unbanked, tech-enabled platforms can bring about positive change and financial inclusion.” He should know: Before Ismail joined LBS’ MBA for executives in 2008, he advised leading African money transfer companies for the United Nations.
London Business School
Valuation: $480 million
When Marieke Flament first got offered a spot inside Circle, which lets people instantly send payments in a message via bitcoin’s blockchain, she wasn’t sold. But after wrapping her head around the technology’s illustrious potential, she launched the US company’s European business in April this year.
She says: “The blockchain will disrupt many more things than we can envision today — smart contracts, the IoT, and probably how you hold your identity…. This is blockchain 1.0. We're yet to see 2.0 and 3.0.”
The EU roll-out has been made all the more easy by Marieke’s London Business School network; the MBA graduate tapped into its rich talent pool. “That network is hugely valuable,” says the former BCG consultant.
Since its foundation in 2013, Circle’s raised $136 million in equity from backers including Goldman Sachs and most recently China’s Baidu, which funded a $60 million round partly earmarked for Asian expansion. In the past 12 months, Circle’s base of users, who send sterling, dollars, euros and bitcoins with emojis and GIFs through a slick mobile app, has surged by 300%. Circle’s on track to exceed a billion dollars in annual transaction volume.