It’s one thing quitting banking for fintech if you want to disrupt the consumer market, but if the targets for a fintech start-up are investment banks, asset managers or insurance firms – so-called business-to-business (B2B) firms - it’s tougher nut to crack.
“Investment banks are different animals,” says Huy Nguyen Trieu, a former Citigroup MD who now runs a fintech training company called the Centre for Finance, Technology and Entrepreneurship. “You might think they need your product because you’re solving a problem and saving them money. But the people making the decisions in banks are thinking about their resources - the people affected by the changes, what needs to move, and how it’s going to change their culture. It’s not a rational thought-process.”
Fintech firms are queuing up to pitch to banks, so much so that ING tells us that it has a "fintech scouting team" that seeks out suitable candidates. Even then competition remains stiff - Ian Hollowbread, director of the Chief Administration Office for Wholesale Banking, UK region at ING, says they receive up to 10 pitches every month on “everything from regulatory, compliance, risk, data and trading applications”.
It therefore helps to have an 'in', and that usually means having a banker on board with the right connections. B2B firms are now broadly divided into two groups - those started by former bankers who believe that they have a solution to a big headache for institutional financial services organisations, and more established fintechs hiring in former bankers to help them sell into what is still a relatively closed community.
“All of these fintech firms are facing the same growth challenges,” says Mark Beeston, the former COO for global credit trading at Deutsche Bank who now runs fintech VC firm Illuminate Financial. “They need to bring in skills beyond the founding team. That means hiring a chief revenue officer, head of sales or a COO to scale the company. They usually come from the financial sector.”
Peter De Clercq is a former managing director at Barclays who recently launched a fintech firm called Quantessence, with the backing of €675 trillion post-trade firm Euroclear. He started the firm in 2014, but spent the past three years trying to tie up the deal with Euroclear, and gauging investment banks and insurance firms' appetite for the product. “I have no idea how people could sell their product to a bank if they have no connections,” he says “I know a lot of people from my time at Barclays and Goldman, and they will take a call and listen. If people haven’t heard of you, or you’re coming from an industry completely unconnected to finance, it’s very tough,” he says.
While fintech firms want to hire in bankers, there’s one big downside for those used to financial services pay packets – a significant cut. These sort of roles typically pay a base salary of anywhere between $65-130k depending on the size of the firm, according to fintech headhunters. The real money comes from commissions when they secure a lucrative contract with a large financial institution, or potential equity in the company. By comparison, base salaries for sales and trading professionals hit $125k at associate level after just three years in the industry, according to figures from Selby Jennings.
“I’ve met hundreds of bankers who want to move into fintech,” says Beeston, whose firm provides both funding and advice to fintech start-ups. “The first question I ask them is how much of a paycut they can take.”
“The salary is a big issue, but it’s not the main one,” says Nguyen Trieu. “Most bankers struggle in a start-up environment. They don’t speak the language and they often don’t have what it takes to succeed without the support network of a large institution.”
Still, there’s no shortage of senior bankers, traders and sales staff heading into senior roles in established fintech firms. Oliver Aikens, a former executive director within Morgan Stanley’s structured finance and securitisation team, joined Prodigy Finance as its head of capital markets in London, Matt Cullimore, who worked in Morgan Stanley’s prime brokerage sales team for nearly nine years, took a sales role at fintech firm OpenGamma in February.
But senior bankers are far more likely to be their own boss, often sticking close a problem they faced during their banking days. De Clercq’s firm tackles the individualisation of Constant Proportion Portfolio Insurance (iCPPI) – a project he worked on at Barclays. Leo Labeis, a former MD at Goldman Sachs who worked on MiFID II requirements for the bank’s markets business, launched regtech start-up REGnosys in May.
Hollowbread admits that the "the majority of fintechs include ex-bankers who understand the environment and context in which we are operate".
For bankers who make the leap into entrepreneurship, however, there’s a real risk that they’re going to spend a significant period of time earning hardly anything at all.
Beeston, who launched credit default swap trading processing firm T-Zero in 2005 following his exit from Deutsche Bank, said that his income “dropped by 90% overnight” after leaving banking.
“People need to know what is the minimum amount they can live on sustainably for five to seven years,” he says. “That might be £50k a year after making millions in a senior front office role. If you’ve got school fees and an expensive mortgage, this is not easy. They need to think honestly before deciding it’s something they want to do.”
De Clercq believes that the possibility of failure should be a motivating factor for those who are really serious about quitting banking for fintech.
“A lot of bankers say they’re starting a fintech firm, but it’s more of a hobby. They’re already wealthy, so have no focus,” he says. “I went all in. If it failed, it would be really bad for me. For a lot of people, failing means they just go back to spending more time on the golf course.”
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