Former Wall St titans shake-up banking with fintech investments

They made their name on Wall Street. Now, they are trying to disrupt it.

Some of the world’s highest-profile bankers have poured millions of dollars into the booming fintech sector during the past year as they tap into new technology providing online financial services from payments and lending to digital currencies and cross-border transfers.

Earlier this month, Blythe Masters, the former JPMorgan banker who pioneered the use of complex derivatives, was said to have turned down the job of running Barclays’ investment bank to focus on Digital Asset Holdings, a New York-based start-up trying to cut banks’ back-office costs by using technology associated with bitcoin.

Other luminaries who have swapped banking for fintech with the aim of challenging traditional businesses include Vikram Pandit, the former chief executive of Citigroup, and John Mack, the ex-boss of Morgan Stanley.

Hans Morris, the former president of Visa, who launched Nyca Partners last year to finance and advise fintech start-ups, said Wall Street’s top bankers have been attracted by the scope to develop new, nimble products without being held back by intense new regulation required at the traditional banks.

“The cliché would be ‘regulation is driving me crazy’. It’s not like that,” said Mr Morris. “It is the scale of what has been asked and the constant wave of new regulatory initiatives. That’s what gets you down.”

Free of stringent regulation and legacy IT systems, fintech has become one of this year’s hottest sectors, with start-ups attracting billions of dollars of investment. In the third quarter alone, global investment into venture-backed fintech companies such as marketplace lending hit a record $4.85bn, according to CB Insights, a data provider to the venture capital industry.

Goldman Sachs has estimated the emerging fintech industry could snatch more than $4.7tn in revenue and $470bn in profit from traditional financial services companies.

The flood of money into the sector has also pushed up the valuations of start-ups, with several - including Funding Circle and TransferWise - achieving so-called “unicorn” valuations of $1bn or more.

Some of the movers shaking up the old-world of finance are featured below.

Vikram Pandit, former Citigroup CEO

Since he was ousted from Citi in 2012, Vikram Pandit has become one of the most prolific investors in fintech start-ups. The Indian-born banker steered Citi through the financial crisis, but now his investments are in companies that are trying to wrest business from established banks.

Among the 58-year-old’s investments is CommonBond, an online provider of student loans. It raised more than $100m in debt and equity from investors including Mr Pandit in September 2013. The company says a typical CommonBond customer — 32 years old with a FICO credit score about 770 and a six-figure salary — pays about $14,000 less over the lifetime of the loan, compared to a government programme.

In 2013, Mr Pandit was among a group of investors who ploughed $2.7m into Orchard, a data and infrastructure provider for the marketplace lending sector that also counts former Goldman Sachs co-president Jon Winkelried as a backer.

Mr Pandit’s fintech portfolio also includes MMKT Exchange, which is developing technology to improve liquidity in the secondary market for loans. More recently, this year he made an undisclosed investment during the $58m fundraising round for TransferWise which valued the cross-border payments company at almost $1bn.

John Mack, former Morgan Stanley CEO

John Mack wasted little time in trying to shake-up the very business at which he spent more than three decades. Since stepping down as chief executive of Morgan Stanley in 2011, he has invested in a clutch of fintech companies, including Lending Club and Orchard.

The 71-year-old banker was one of an array of high-profile investors who helped raise $130m for Dataminr, which analyses social media to create alerts for traders, in March 2015. The fundraising valued the company at about $700m.

Along with former US Treasury secretary Larry Summers and several prominent venture capitalists, Mr Mack also sits on the board of Lending Club. His 2.4m shares in the marketplace lender were valued at $36m when it floated on the New York Stock Exchange in December 2014, but are now worth just under $33m as the company’s shares have slipped in their first year of trading.

In September, Mr Mack participated in a $10m initial funding round for credit-rating start-up NEFT, or New England Funding Technologies. The company allows borrowers to update credit scores in real-time and hopes to launch its first product, the mPowerCredit platform, in 2016.

Joe Saunders, former Visa CEO

After a long career in the credit card business, Joe Saunders, 69, was appointed as chief executive of Visa in 2007. He steered the global technology and payments company to its initial public offering on Nasdaq in 2008, then the largest IPO in US history, before retiring in 2012.

A year later, he helped launch Green Visor Capital, a venture capital firm focused on early stage fintech companies. “Over the past few years, the changes brought about by the adoption of new technologies has been dramatic and will only accelerate in the months ahead,” Mr Saunders said this year.

In September 2015, Green Visor led a $1.5m investment round in payments start-up Kash, a San Francisco-based start-up that aims to disrupt established credit card networks. As part of that fundraising, Mr Saunders joined the board as chairman.

That same month, Green Visor also participated in the $8m venture financing round for Cloud Lending Solutions, a technology provider to marketplace lenders and other finance companies. Other investments include DataFox, the research and analytics platform, which raised $5m in July.

Hans Morris, former Citigroup banker and ex-Visa president

Hans Morris spent 27 years at Citigroup, rising to become the US bank’s chief financial officer and head of finance, technology and operations for Citi Markets and Banking. He left to become president of Visa from 2007 to 2009 before moving to private equity group General Atlantic in 2010.

In 2014 he founded tech venture capital firm Nyca Partners with a plan to invest $20m-$25m over 18 months in financial technology companies focusing on alternative consumer credit, merchant payment solutions and financial infrastructure software. “We bring together expertise on the financial system with lots of Silicon Valley connections,” Mr Morris said at the time.

In addition, Nyca has invested in Indiegogo, a crowdfunding platform that competes with Kickstarter, and Affirm, a company founded by Max Levchin, PayPal co-founder and former chairman of Yelp, that seeks to create a new way for consumers to apply for short-term credit.

Mr Morris is also an investor alongside Vikram Pandit in CommonBond. He held a $4.3m stake, or almost 290,000 shares, in Lending Club at the time of its IPO and sits on the lender’s board.

Blythe Masters, former JPMorgan banker

A former JPMorgan veteran, Blythe Masters made her name as a pioneer of credit default swaps, the complex instruments which became infamous for helping fuel the mortgage crisis of 2008.

Since leaving the US bank in April 2014, Ms Masters has become one of the most outspoken Wall Street advocates for blockchain, the database technology that underpins the controversial digital currency bitcoin. In 2015, she joined blockchain start-up Digital Asset Holdings as chief executive to create products to streamline slow, paper-based parts of the financial services machinery, such as settlement.

The company has made several acquisitions since the beginning of the year, including buying San Francisco-based Hyperledger and Budapest-based Bits of Proof for undisclosed amounts. In October, Digital Asset Holdings bought Blockstack.io, which aims to provide private blockchain services to the world’s finance industry.

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