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How to disrupt Wall Street

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Re: How to disrupt Wall Street

#21

Post by stcredzero »

gdberrio wrote: post #12

Disrupting Wall St. implies not just making a "new" UI/UX/Interface for banking clients (like Mint or Square), it implies looking at changing the Banks inherent Business Model. Can Silicon Valley pull it off? Well, from a foreigners perspective (commenting from Lisbon, Portugal) Silicon Valley has a very engineer centric perspective on problem solving, and while engineering inputs may be useful, this is not an engine…

Banks business model...they solve what we economists call "Adverse Selection" problem: how to sort good from bad credit. They are basically information arbitragers. They pool your credit info, compute a score, and sort loan suppliers with loan demand. The cost of doing so is expensive for an individual investor.

So one way to disrupt banks would be to put these resources in the hands of an individual.

Social Networking might be a good research direction to solving the P2P information problem solving, by revealing our preferences.

I heard or read somewhere that much of the lending for small businesses and startups happened through one's personal network. Here may be an excellent opportunity for Facebook. This is also an area where the information asymmetry is often reversed. (For example: Your crazy uncle Zeb might look a good credit risk to the bank, even though you know it's all because your aunt was managing the money until she ran off to Belize with the plumber last year.)

Re: How to disrupt Wall Street

#22

Post by gdberrio »

stcredzero wrote: post #21
gdberrio wrote: post #12

Disrupting Wall St. implies not just making a "new" UI/UX/Interface for banking clients (like Mint or Square), it implies looking at changing the Banks inherent Business Model. Can Silicon Valley pull it off? Well, from a foreigners perspective (commenting from Lisbon, Portugal) Silicon Valley has a very engineer centric perspective on problem solving, and while engineering inputs may be useful, this is not an engine…

Banks business model...they solve what we economists call "Adverse Selection" problem: how to sort good from bad credit. They are basically information arbitragers. They pool your credit info, compute a score, and sort loan suppliers with loan demand. The cost of doing so is expensive for an individual investor. So one way to disrupt banks would be to put these resources in the hands of an individual. Social Networki…

"So one way to disrupt banks would be to put these resources in the hands of an individual."

Well, not quite, IMO.

Because technically those resources are not the Banks own resources. They are the Deposits. That's why Banking is an inherently leveraged business (and unstable by definition). You take deposits to fund credit, making money circulate (and earning your fee's for the "job", aka, arbitrage).

And, by putting the resources the Bank has in the hands of an individual creates another bank, i.e., a single institution whose porpuse is to evaluate and arbitrage information assimetries and balance fund demand with fund supply.

"Social Networking might be a good research direction to solving the P2P information problem solving, by revealing our preferences."

Yes, it could, but it implies they go over the engineering culture they have. It's not an engineering problem, it's an economics one. It's like Google trying to solve a Customer Support problem. They're really not good at "human interaction" ;) Point is, you don't solve it with some hard coding. You solve it with proper incentives structures and market design.

Re: How to disrupt Wall Street

#23

Post by yummyfajitas »

stcredzero wrote: post #21
gdberrio wrote: post #12

Disrupting Wall St. implies not just making a "new" UI/UX/Interface for banking clients (like Mint or Square), it implies looking at changing the Banks inherent Business Model. Can Silicon Valley pull it off? Well, from a foreigners perspective (commenting from Lisbon, Portugal) Silicon Valley has a very engineer centric perspective on problem solving, and while engineering inputs may be useful, this is not an engine…

Banks business model...they solve what we economists call "Adverse Selection" problem: how to sort good from bad credit. They are basically information arbitragers. They pool your credit info, compute a score, and sort loan suppliers with loan demand. The cost of doing so is expensive for an individual investor. So one way to disrupt banks would be to put these resources in the hands of an individual. Social Networki…

how to sort good from bad credit...So one way to disrupt banks would be to put these resources in the hands of an individual.

This has already occurred. It's called a "credit report" and is available even to individuals (my landlord, for example).

Re: How to disrupt Wall Street

#24

Post by gdberrio »

dabent wrote: post #20
gdberrio wrote: post #14

Earlier quoted context omitted.

As a trader, I totally agree!

I'd love to hear what the pain points of using Bloomberg are.

The complexity of the platform is cumbersome.

In first place you need a special purpose terminal (the Keyboard essentially) because you need special functions, that are only found on that keyboard.

Second the usability of the thing. It's just appalling. To search a quote you need to know codes similar to the names of x86 CPU register (not jocking... you want to search by topic? TNI . Want to view some equity analysis? Hit NN ). The interface is confusing, cluttered, horrible to navigate through, and concept of "back" is skittish at best.

For the privilege of a steep learning curve, horrible design, proprietary formats, little integration with outside tools (except for Excel) and a horrible looking keyboard, you pay 1500$ a month.

They are, however, the best source for Data in the market. Stocks, futures, fixed income, you name it, they have a price quote for it.

So yes, it's a good market for disruption. But (there is always a "but"): it's not a easy market to get in, and bloomberg as a very good choke on the Banks. The other competitor is Reuters. And IMO, it's easier to disrupt B2C companies. B2B reminds me of the "Nobody ever got fired for buying MS". Well, no trader desk director ever got fired for buying Bloomberg.

Re: How to disrupt Wall Street

#25

Post by lefstathiou »

dabent wrote: post #20
gdberrio wrote: post #14

Earlier quoted context omitted.

As a trader, I totally agree!

I'd love to hear what the pain points of using Bloomberg are.

I've actually put a lot of time and thought into this very question and am happy to discuss with you further. gberrio has hit a lot of the points. No one can compete with their database of deals and pricing but I think that so much changed post Lehman that you can get away with going back to 2007.

Re: How to disrupt Wall Street

#26

Post by MrMan »

I am not sure Wall Street needs disrupting, other posters have noted that because it is so competitive disruptions constantly occur. But one thing could change Wall Street a lot -- if for some reason the core function of capital raising, either through issuance of debt or equity, was less necessary, then Wall Street's role as a middle man would be reduced. What could cause companies to need less capital to carry on growing their businesses? Or what could cause capital to be more readily available?
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