Since launching WFTC last month, I have had the privilege of meeting many classmates who have backgrounds and interests in FinTech. Even within the relatively specialized industry of financial technology, everyone has a different perspective and unique goal for what they want to get out of their work with the club. Some people are interested in payments, others in lending. We have members who have worked for or with startups in the personal wealth management space or the big firms in the credit card space, among other things.
One thread that keeps on coming up during these discussions spirals around the nebulous domain of social impact. By this I mean the ability of an entity or endeavor to make a positive change for a society beyond the economic value that accrues to its employees, shareholders and creditors (and the government to which it pays taxes). A related term, impact investing, is defined by the Global Impact Investing Network (GIIN) as "...investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below-market to above-market rates, depending upon the circumstances.
On reflection, it isn't a huge surprise that so many of my classmates share an interest in social impact and impact investing, in particular. The Wharton School is home to the Wharton Social Impact initiative (WSII), an organization at the forefront of research on social impact and the practical applications of the practices it entails. In short, there is probably some selection bias in the sample of people that I call classmates when it comes to this topic. And given Wharton's unrivaled pedigree for finance among business schools, it makes sense that we should find a healthy cohort of students with interests in both of these domains.
The intersection of FinTech and social impact is particularly relevant when one considers the arguments that are often made for the social value of financiers and those working in financial markets. The broad strokes are that well-functioning capital markets allocate capital in such a way as to maximize economic potential for societies at large. Therefore, pursuing a career in banking or investment management can be a morally righteous endeavor because allocating capital and providing liquidity are economic valuable activities. Now, this argument presupposes that the people performing these roles are doing their jobs effectively and that any economic value that is generated isn't captured by a select number of economic entities, rather than society as a whole.
I am not going to argue that I, and my many friends who have worked in finance in the past, present and future, were not economically valuable. However, I would accept the argument that the current global financial system provides sub-optimal outcomes for the majority of our fellow human beings. I would posit that this is due primarily to two factors: first, that the human brain is not adapted to making financial decisions; and second, artificial market distortions imposed by governments. The first of these is something that those who build and deploy financial technology have been working on some time on the consumer side of the market, where companies like LearnVest are giving people the knowledge and tools to make better financial decision. I think there may be bigger opportunities in the B2B realm, where bureaucratic inertia and government regulation create disincentives to adopt new technology. That said, I am too pessimistic to claim that similar potential exists in B2G at the moment, where inertia and regulatory hurdles are much bigger roadblocks.
Because financial technology enables the actors in capital markets and financial systems to operate more efficiently and make better decisions there is a clearly delineated link between FinTech and social impact. Companies like CommonBond are lowering interest rates on student loans by leveraging P2P technology to connect student borrowers with alumni lenders, and mobile banking platforms are bringing financial services to millions of people in emerging markets byleapfrogging the traditional economic entities upon which developed financial systems are built. In essence, the application of technology to finance imposes an ethos of innovation on the financial industry, i.e., how do we solve the problems that users of the world's financial systems are facing? As smaller, nimbler companies are able to successfully navigate the regulatory and competitive landscapes of their respective verticals, they will force the bigger companies to reconsider their focus from protecting market positions to re-discovering and catering to customers needs. If they don't, the big firms won't be so big for very long.
From the perspective of an MBA student who is searching for a career that will make a positive impact on society, FinTech is an industry that makes a lot of sense, particularly for those of us focused on recruiting for early-stage companies. Many of my classmates have extensive experience working for financial institutions which gives them an excellent foundation upon which to develop their technical understanding (essentially, they have the “Fin”, but they need more experience with the “Tech”). Additionally, many of the opportunities in FinTech lie in the B2B channels, where an MBA can bring clear value to a startup right away; this value proposition is often less obvious for early stage tech companies focused on the consumer or that lie in other industries. Using technology, financial institutions can provide billions of people with access to capital and enable them to make better personal and professional financial decisions. This impact is tangible and could be the positive influence that many of my fellow students are looking to have when they graduate from Wharton.
Having a career that is both personally rewarding and makes a meaningful positive difference in the lives of others is a worthy goal. Social impact ventures and the companies that invest in them are providing channels for professionals to realize this duality. Working in the, FinTech industry is one of the best ways for socially-conscious MBAs to start a career or launch a company. I am proud of the members of the Wharton FinTech Club for seeing finance, and the technology that drives it, as avenues to improve the lives of their fellow human beings. I hope that we can collectively play a part in making an impact on our societies by developing and deploying technology to make financial systems more efficient.