The next big acquisition craze: Fintech

Kaja Whitehouse | USA TODAY

Show Caption Hide Caption Wall Street turns its eyes towards financial technologies Emerging financial technologies has Wall Street companies worried that if they don’t asses the threat they could suffer from similar disruption problems that have plagued publishing, retail and travel industries. Kaja Whitehouse reports.

The next big acquisition craze could result in more khakis-wearing tech geeks on Wall Street.

Technologies that compete with traditional banking businesses, like bitcoin and computer-generated investment advice, have Wall Street worried they will soon face the same disruption issues that have plagued retail, travel and publishing industries. The emerging financial tech industry, dubbed fintech, now threatens to grab $4.7 trillion in revenue and $470 billion in profits from traditional Wall Street firms, Goldman Sachs recently predicted.

The good news for Silicon Valley is that deep-pocketed Wall Street firms will seek to stave off the competition by throwing money at the space through investments and acquisitions, experts said.

Aberdeen Asset Management, which manages $500 billion in assets, recently tasked its board's innovation committee to study the problem and to scout for financial technologies to buy, said co-founder and CEO Martin Gilbert.

"My point is, let's not be complacent about this," Gilbert said. "Let's not assume that Google is not going to enter asset management because it's a regulated industry."

Aberdeen is not alone. In January, the New York Stock Exchange announced a strategic investment in Coinbase, a bitcoin wallet provider. And last month, JP Morgan CEO Jamie Dimon warned that "Silicon Valley is coming" in a letter to shareholders.

"There are hundreds of start-ups with a lot of brains and money working on various alternatives to traditional banking," Dimon wrote in the letter, which sought to reassure investors that the behemoth bank is prepared to deal with the problem.

Anand Sanwal, CEO of CB Insights, which researches private companies for interested investors, predicts Wall Street investments and acquisitions in financial technology start-ups will take off in the next "18 months and beyond."

"Right now we're in the awareness phase," Sanwal said. Companies that fail to act risk "death by a thousand cuts," he added.

Gilbert said Aberdeen is interested in technologies that will allow clients to manage their portfolios and trade electronically. Other technologies that have piqued Wall Street's interest include newfangled lending platforms, such as LendingClub, electronic payment systems, such as bitcoin, and computer-generated investing advice, such as Wealthfront.

*Alternative lending platforms, which often match non-bank lenders to borrowers, are doing well in part because they are popular with small-business owners, which can have a tough time borrowing from banks. In January, for example, alternative lenders generated 62% of all small-business loans, compared to just 21% by big banks, Goldman said in a recent series of reports about the impact emerging technologies on the financial services industry.

*New payments systems like bitcoin threaten traditional banking because they allow people to transfer money faster and with lower fees than banks. The industry could cost banks $84 billion, Goldman said in the same research series.

*Start-ups like Wealthfront and Betterment compete with brokers and wealth managers by providing cheaper, computer-generated investment advice. The two companies collectively boast more than $3 billion in assets under management.