Podcast:Behind the hype: Demystifying fintech
When it comes to fintech, there’s no shortage of headlines. According to Chief Operating Officer Rob Goldstein, the hype is overblown — but this doesn’t mean there’s a shortage of opportunity. Rob takes a look at what’s behind the rapid rise of fintech, and why now, more than ever, all companies across industries are technology companies at their core.
Mary-Catherine Lader: We’ve all seen the headlines so much that we might be sick of them: “The Robots are coming for Wall Street.” “AI Is Changing The World, Are We Ready For It?” “This App Will Help You Retire.” So with all the swirl, how do you know what’s real and what’s not? We know technology is changing financial services, we know it’s changing our future, but how exactly is it doing that today?
Welcome to The BID, and to our mini-series, “Behind the Hype: Demystifying FinTech.” Over the next four episodes, we’ll talk to experts at BlackRock and beyond to go behind the hype and take a look at the real application of technology in financial services. We’ll uncover how it’s used, what it means for our future, and how the world might be different tomorrow as a result. On our first episode, we’ll start with Rob Goldstein. He’s BlackRock’s Chief Operating Officer, and the Head of its Technology Business, Aladdin. We’ll discuss the rapid rise of FinTech and why now, more than ever, all companies across industries are technology companies at their core. I’m your host, Mary-Catherine Lader, Chief Operating Officer of BlackRock Digital Wealth. We build technology to help financial advisors and everyday people manage their money simpler. Let’s get started.
Rob, thank you so much for joining us today.
Rob Goldstein: Great. Thank you, MC, I’m so excited to be here.
Mary-Catherine Lader: So you’re Chief Operating Officer of the world’s largest asset manager, but you’re also part of a team that founded a FinTech business, Aladdin, which is part of BlackRock. You have one of the most unique perspectives on FinTech, probably in the world. What is the hype all about, and do you think it’s overblown?
Rob Goldstein: Well first of all, I think that the number one lesson learned that I have in terms of being part of this journey, is that it really is about a strong team of partners. And I think when you look at FinTech today, it’s actually quite amazing because the hype is clearly overblown. I don’t even think there is any question about that. I don’t even think anyone would doubt that at this point. I think we’re actually going through a period now where things are becoming a little bit more realistic and that is actually exciting for us, because we’d rather people focus on what’s real than what’s an illusion. People love talking about things like cryptocurrencies, just as one example. So that’s like really sexy, but at the same time, I think that a very large component of what is exciting to me is when you actually look at the financial services ecosystem, start in the basement and work your way on up, there is so much inefficiency. We are still in a world where most people in our industry still struggle with a common language. A common language for what is a portfolio, a common language for how to think about constructing a portfolio, a common language for how to transmit trades. In many regards, what we have today is this incredible ecosystem where everyone is speaking a different language, and then you have tons of people whose job it is to try to translate among those languages after things break. And what is really exciting to me — and I know many people at BlackRock — is the opportunity for Aladdin to be that common language because the industry really, really requires one. It’s just no one has been successful to date in creating one.
Mary-Catherine Lader: Today many people building distributed ledgers or blockchains are pursuing the same objectives — trying to solve similar problems. What’s the difference, and what do you think about that?
Rob Goldstein: Well, distributed ledgers would be a tool to accomplish it; it wouldn’t be the language itself. One of the things we found as we’ve done as you know MC, very well, enormous experimentation and a lot of it under your leadership with regard to digital ledgers, is that it doesn’t alleviate the problem of someone has to define the language. Once that language is defined, it’s another effective database technology for capturing that. There is a lot of advantages that database technology brings with it. But the language itself, what you put in there, still needs to be defined. A lot of the operating infrastructure is much more complicated than people would ever expect to believe. So the common language is really hard. I think what has happened at an industry level is that there’s been many people who have tried but they’ve tried for one piece. And then they’ve seen that even that one piece is hard, so they focused on what I would think of as more of the lowest common denominator as opposed to the highest common denominator. And one of the benefits of the Aladdin community that we’ve established and just the sophistication of those clients is that through having those clients on one platform with one language, that really creates a critical mass for the common language of the industry.
Mary-Catherine Lader: A lot of those problems have been around for a long time, so why now, what is driving the shift? Why is the hype being escalated so much in 2018?
Rob Goldstein: It’s a good question. I think that a lot of the reason why it’s changed are the broad trends that we all know about. There’s more data than there’s ever been in the world, all sorts of statistics, the 90 percent in the past two years, I think we probably are all tired of those statistics. What we know is that in a year, there will be a lot more data than there is today. We also know computing power in a year will be much cheaper than it is today. It was much cheaper than a year, two years ago, five, ten years ago. So all of those big macro trends are part of it, but I also think that a key, key part of it is that as an industry, this industry has really been focused on technology much more so than any other industries. I think what is happening is that trading volumes and just the amount of information that gets processed, is going up so quickly, so the industry’s requirements are changing and compounding exponentially in such a way that requires that whatever inefficiency has to be extracted out. So what is most interesting is that when I would go to the doctor, and you see it’s like going to an office in the 1960s, they’re writing stuff down, you’re filling out a form, then you see someone type it in, then they don’t have it when you go in the room. You’re like how is this possible? And finance was not like that. Ten years ago it was not like that. Finance has always been somewhat digital, I think relative to other industries, it’s been on the pretty good and extreme end of the digital scale. What is happening now is really the last three percent, five percent, not the first 95 percent, and given the explosion in activity, that’s what is leading to this being the topic right now.
Mary-Catherine Lader: So everything you said — you’ve used no jargon, super simple terms –
Rob Goldstein: I’ll start the jargon — ask me a question that’s good for jargon.
Mary-Catherine Lader: But identifying those opportunities, understanding how they’re exciting, having an idea as to how you could execute on them requires a lot of knowledge, a lot of industry knowledge and that is perhaps a barrier that financial services may have in attracting talent. So how do you think about translating that to someone who is also thinking about solving other technology problems that they experience every day on their mobile phone?
Rob Goldstein: Well, to me one of the most awesome things about both financial services but also what we do at BlackRock is that there really is an infinite number of hard problems that are unique. Finance has always been an information processing business. People used to process the information through writing it down in really big books, then they processed it on mainframes, and now they’re processing it in different ways. But this is one of the biggest big data businesses, one of the biggest opportunities for machine learning. This is one of the most natural places to apply artificial intelligence. And one of the things that I’ve learned is that it’s very attractive, including for people who have multi-decade careers or people in the academic fields, who have been doing this stuff their whole lives with no financial services experience, at some point, they want to try to tackle these problems because they recognize how hard they are to solve, which is also quite exciting.
Mary-Catherine Lader: Do you think it’s relevant to ask whether an asset management company is a tech company, is a FinTech company — is that a non-sequitur question?
Rob Goldstein: Some colleagues would disagree, I personally believe it’s a weird question, and not only do I believe it’s a weird question, I think it’s a silly question. And the reason why is very simple. So, I think if you are in the stage coach business today, if you are in the stage coach business in 2018, you’d be in a technology business. Now I always have had that thesis, and as I was preparing to talk at a conference once, I actually started to research the stage coach industry.
Mary-Catherine Lader: And it exists?
Rob Goldstein: It exists, and funny enough, they pride themselves on doing everything by hand like they did in the 1800s. So I was very disappointed because my thesis was proven wrong, and then as I did more digging, one of the things that they pride themselves on is they actually used the tools that were the same tools from the 1800s to build the stage coaches. So, then as I went another layer deep, I figured out that those tools that they use, those tools were actually built by 3D printers. So when you really look into it, in 2018, there really is no business that isn’t a technology business. It’s just the reality of it. I think whether you’re running a restaurant, an asset manager, a hospital, whatever it is, a grocery store, at this point, technology is used to do everything in your business. And I think that great businesses, no matter the industry, have a natural cadence with regard to looking at all problems through the lens of how can technology solve this problem? And they’ve not only done that at the most senior levels, but they’ve permeated that throughout the whole organization.
Mary-Catherine Lader: So what got you interested in the asset management business?
Rob Goldstein: It’s an interesting question. What got me interested in the asset management business is probably not the most comfortable story to tell, but when I was graduating university, I basically asked a bunch of people, what job in financial services — because I knew I wanted to work in financial services — I said what job in financial services pays the most, and you have to work the least? Because I assumed that is what you’re optimizing for. And they told me at that time, and this was in 1993, this would have been, they told me at that time you want to be an institutional bond salesperson. And I said okay, that sounds awesome, how does one become an institutional bond salesperson? And they said, well you have to get a job for a couple of years, then you go back to business school, and then you could enter a program to be an institutional bond salesperson. And I didn’t really want to go back to school, but someone told me, if you could get a job in analytics and survive through that, that typically gives you a pass in terms of not having to go back to business school. So that was the path that I pursued. So I started working at BlackRock. And my strategy was to work here for a couple of years, and then use that as an opportunity to go to the sell side and be an institutional bond salesperson. Obviously that didn’t happen, but I think it’s really interesting because it says a lot about the world, not so much me, but the world. If you go back to the mid-90s, the institutional bond salesperson, that was the job. The analytics person, the technology person, the data person, that was definitely not the job. And if you fast-forward till today, basically in the institutional bond salesperson has been largely replaced, displaced, repriced through technology, and the rise of the analytics, the data, the technology people, they’ve effectively taken over a very significant chunk of the financial services landscape, and importantly, they’re now the rock stars, they’re the sexy guys, whereas the world was a very different place 24 years ago.
Mary-Catherine Lader: Speaking of opportunity, you’re so focused on execution and scale, are part of your refrain as COO of the firm, making sure that now this organization of roughly 14,000 people is still delivering every day. What do you see as some of the ingredients for scaling a business and successful execution and how do you identify them at the outset?
Rob Goldstein: It’s something that we’ve thought a lot about, and I think the number-one ingredient for scale, funny enough, is having a tremendous amount of hope. And I know that seems like a very weird thing to say. I’m not someone who believes that hope is a strategy, in fact, I often will remind people that hope is not a strategy. But when I say “hope,” so many of the things that we did at BlackRock five, ten, fifteen, twenty, thirty years ago, people had hope and people had vision that we were building not for the tiny problem we had that day, but this was going to be massively big. So a big part of scale is a mindset of process, of technology, and of people, and importantly, it’s a mindset of always doing the extra steps required initially to solve the problem you hoped to have in five years or ten years, as opposed to the problem that you’re experiencing that day.
Mary-Catherine Lader: You’re talking about hope in the context of building a business, but a lot our business is really about making other peoples’ hopes and dreams come true, by managing their money so they can retire, so they can send their kids to college. It’s still way too complicated. There are a lot of companies trying to use technology to simplify it. Do you think tech can help close that divide?
Rob Goldstein: I actually believe this is one of the most important issues of our time, and I say that as a citizen of the world, not as an employee of BlackRock, in that when you look at the world today, the statistics around people saving and investing for their retirement, they’re actually sad. It’s actually a place where you really need to have a lot of energy to have hope, and a big part of the reason for that is, it is frightening today to figure out how to save, how to invest, and not have it seem completely overwhelming. And I say that, it’s frightening for me and I know what I’m doing. So for people who aren’t in this industry, I could only imagine how overwhelming it is for them. I think technology, if you really look at what has happened in this information age we live in, what it’s done, is it’s created an environment where people can learn on their own. They can learn on their own in their own way, on their own timeframe, and they could learn however they so choose. And I think the number one requirement that BlackRock has is to make sure we recognize that no matter who our clients are, if you look at BlackRock’s assets today, roughly two thirds of them are retirement assets. And that responsibility is a remarkable responsibility. But those people, many of them don’t understand what is actually happening, and I think the ability to help them understand what is happening is something that we have to spend more time and energy on, and we’re trying. But it’s hard. Because the reality is that the ecosystem of financial services today is really complicated. I’ll give you an example that’s a recent example that I personally experienced. I refinanced my mortgage a few months ago, and this is after the financial crisis, and after the financial crisis, there was unanimous support broadly on the requirement to simplify getting a mortgage, and make sure that the people who are getting a mortgage, mom and pop, understood what was going on. And I will tell you that the new revised documents are like impossible to follow. They are completely insane. They are not comprehensible by normal humans to be honest, I don’t know if they’re comprehensible by humans. And when you look at that, we have to be able to do better.
Mary-Catherine Lader: In what timeframe do you think we’ll have an easy way to understand where your next dollar needs to go?
Rob Goldstein: These are not problems that are solved overnight. I think that there is many forces that are bringing it together. I feel going back to the pension and retirement problem, companies feel a much greater responsibility to help their employees including through financial literacy. Interestingly, I think in a world of much lower unemployment, it creates more requirement for companies to really make sure their employees recognize the benefits they’re getting and value them appropriately. I think technology is an incredible enabler in this. I think that financial products are becoming more transparent, easier, I think the ability for example, to build a portfolio through ETFs is a major technology breakthrough that obviously is transforming the industry quite quickly. So when you bring all these things together, there is just enormous not only opportunity, but enormous change that is happening. But even when there is enormous change, it still takes a while for it to really impact and I think that it will get there. There are mechanisms for people of all different stages — you look at a tool for example like Acorns, and a tool like that is effectively helping with all of these things also for a very specific demographic of the market.
Mary-Catherine Lader: So you’re an optimist?
Rob Goldstein: I am an optimist. I started working at a company with 80 people and $19 billion dollars under management, so how could I not be an optimist?
Mary-Catherine Lader: In the spirit of optimism and looking ahead to the future, I’m going to ask you if you think these things will be part of our everyday lives, and when, five, ten, fifteen, twenty years.
Rob Goldstein: Awesome.
Mary-Catherine Lader: Gene editing.
Rob Goldstein: Ten years.
Mary-Catherine Lader: The singularity, or humans merging with machines.
Rob Goldstein: 10,000 years.
Mary-Catherine Lader: Electric numbers outnumbering gasoline powered vehicles?
Rob Goldstein: 15 years.
Mary-Catherine Lader: RFID chips in our skin?
Rob Goldstein: In the United States or other countries?
Mary-Catherine Lader: Excellent question, how about China?
Rob Goldstein: Pass.
Mary-Catherine Lader: The United States?
Rob Goldstein: Not for a long time.
Mary-Catherine Lader: And on that note, thank you so much Rob for joining and sharing your story about BlackRock and how you think about FinTech today.
Rob Goldstein: Great. Thank you.
Mary-Catherine Lader: Tune into our next episode of The BID where we’ll demystify big data with Jeff Shen.
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