The Alternatives to Traditional Banking CES Panel Recap

The way we bank has changed dramatically over the last decade. Not too long ago, consumers had to wait in line to deposit cash at a local bank branch—today, retail banking has been disrupted by technology. We can deposit, withdraw, and invest money without ever walking into a physical bank. While large traditional banks have been slow to adapt to customers' preference for a digitally-native experience, Fintechs like Chime, Revolut, Sofi, and Wealthfront, as well as tech giants like Apple, Meta, and Amazon have stepped in to fill the void. While this evolution has already taken place on the B2C side, in B2B banking, little has changed. Corporate banking continues to be dominated by enormous offline financial institutions.

The world’s largest corporate banks are too busy serving their multi-billion dollar corporate clients to help small businesses and tech startups thrive. CEOs, founders and business owners expect their financial services to work just as well as the consumer apps they use in everyday life. They want a fully-integrated, digitally-native full-stack finance solution that allows them to access, manage, and spend capital at the click of a button—they want Arc.

For a more in-depth view of my perspective on the current banking landscape, the alternatives to traditional banking, and the future of banking, check out the recording of the panel I participated in at the Consumer Electronics Show in Las Vegas. Enjoy! 
 

Don’t have time to watch the full video? Here a few of the highlights of the conversation:

• “Early-stage founders and software businesses expect a consumer-grade product experience across the full stack. At Arc, we view banking and finance as no exception. We reimagined the entire finance stack from the ground up and in the process, we put software founders back in control of their financial future.”
• “For the first time, [with Arc] startups can log in to one integrated platform, and tap into their future revenue streams to access non-dilutive growth capital. Deposit those funds instantly into a digitally native account that’s eligible for FDIC insurance and has all the essentials that they’d expect from a traditional bank without any of the friction that comes with working with a relationship-driven financial institution.”
• “The proliferation of banking-as-a-service, opened the door for Fintech startups to come in and compete more directly with large banks, in partnership with other banks. That has created a huge problem for the incumbents. If you read Jamie Dimon's annual Letter to his shareholders, you'll see that Fintechs are the number one threat to JP Morgan Chase today.” 
• “While regulators might try to prevent this in the short-term, over the long-term, the consumer is going to win because customers want a technology-driven, digitally-native experience. They want a more frictionless banking experience. They want a faster, better, fairer, and more equitable experience, and that is what's going to drive the change over the long term. That's why 10 years from now, FinTechs, like Arc, will dominate.”
  
   

Transcript of the ces panel on the alternatives to traditional banking

Vartika Ambwani: Good morning everyone. Thank you so much for joining us. We appreciate it. As Robin mentioned, I'm Vartika Ambwani. I'm a director of FinTech at Silicon Valley Bank. Silicon Valley Bank. We're a very much commercial-only bank, very focused on the innovation economy. And we also position ourselves as alternatives to banking because we focus on our clients.

All the way from early-stage pre-seed to public companies. And one of the things that we pride ourselves on is our relationship approach. So not just providing banking commodity solutions, but really getting to know our clients and really focusing on what their needs are and providing them specialized products and services.

So very excited to be here, and thank you again for joining us. I'm going to kick off by giving each of you the mic and just introduce yourself and tell us a little bit more.

Don Muir: Awesome. Thanks so much. Hi everyone. My name is Don Muir. I am the CEO and Founder of Arc. We are building the future of startup finance.

We're a digitally native bank purpose-built for high-growth technology businesses. In terms of my own personal background, I come from a late-stage private equity, a background in New York where I experienced firsthand the pain point of traditional banking and traditional capital markets. When I moved from the east coast to the west coast to go to Stanford for business school, I met with dozens and eventually hundreds and now thousands of founders where I learned that these high growth early stage companies were being underserved by the traditional banks and capital markets.

So we started Arc to fill that gap and that was a couple of years ago. Now we're doing millions in revenue. We have hundreds of startup customers in Silicon Valley and are really excited to be building. future of startup finance and sharing that story with you here today. So thanks for having me.

Melanie Hardin: Hi everybody. I'm Melanie Hardin, and I work at Verizon's Ecosystem and Partnership Group. In the business division, not so much in the commercial, but in the business division. My background is I've spent the majority of my career in financial services working for some pretty esteemed and well-known names.

And I work a lot with private equity. So I'm a global partner network member of a very large, I think one of the largest, one of the earliest, FTV Networks. It's a financial technology partner firm. And I'm an investor in several other partnerships where we invest in either early-stage or mid-stage or late-stage financial technology firms.

So I have a huge interest in this. I have a passion for it. I think bringing these sorts of tools to market helps the consumer, helps the business, and helps the economy in general. Very excited to be here. Thank you very much.

Mariana Danilovic: Mariana Danilovic I'm a managing partner and founder of Infiom, which is a web three accelerator focusing on metaverse with web three.

So we accelerate companies that are later stage. So they have raised a Series A round of funding and or had some revenue that's of significance in the last few years. And we also help larger companies, bridge the gap and enter into the metaverse with Web three. My background has been in venture capital innovation acceleration for the last two decades.

I started my career in financial services. I was an actuary pricing some of the variable annuity products back then. Did some mergers and acquisitions work as well at the beginning of my career. Corporate finance, after. School and now I think it's all kinda emerging together in this new sort of innovative sectors of FinTech and decentralized finance.

Vartika Ambwani: So Don, I'm gonna kick it off with you first. So you mentioned you talked a little bit about art. Tell us more about Arc. Arc is serving its customers and the theme of the session is alternatives to traditional banking. But I also wanna jump. Specialized financial services, which is what SVB does as well. And so does Arc what is the importance of, or what is the value proposition in providing very specialized financial services?

Don Muir: Arc is building the future of startup finance and what does that mean? We're here today as you point out to discuss alternatives to traditional banking, but why do we require an alternative in the first place?

The reality is that most traditional banks, the counterparties that I worked with in my past life working in finance in New York, are offline relationship-driven financial institutions that lack technology. That's fine in a lot of ways for later-stage companies, but in the earlier-stage segments, software businesses that are API driven and expect a consumer-grade product experience across the full stack.

At Arc, we view banking and finance as no exception. We reimagined the entire finance stack from the ground up and in the process, we put software founders back in control of their financial future. We're giving the power back to the startup to run their own business, and manage their finances in one vertical platform. So that's the value prop of Arc.

What it means in practice, in terms of startup banking, is that we're offering all of the bank essentials that you'd get with a traditional offline bank, but we're doing it in a digitally native technology-driven manner. Instant money movement, instant access to funds, virtual card. Spend controls where the CFO can log into your web app and control who has access to capital, and who can issue a new card.

So for the first time, startups can log in to one integrated platform, and tap into their future revenue streams, which is a financial product to access non-dilutive growth capital. Deposit those funds instantly into a digitally native bank account that's FDIC insured and has all the bank essentials that you'd expect for your traditional offline bank without any of the friction that comes with working with a relationship-driven financial institution that doesn't necessarily invest in a technology offering.

And that's the core value prop of Arc today.

Vartika Ambwani: That's awesome, Don. Thanks so much. That was very helpful. Melanie, I'm gonna pass it on to you. So you bring a very interesting perspective. We're here at CES and as we see financial services are moving away from the web to mobile. And one of the big infrastructures or one of the big things needed there is 5g.

So we can build these products. So give us that perspective. Tell us how Verizon is committed to the innovation in financial services and how Verizon is helping the economy or helping the sector.

Melanie Hardin: So how we think about it is that carriers are the rails. So think about a railroad station. Or the loop or whatever. So we are the rails. So whatever, whether it be financial services, healthcare, digital this, digital that. As more people move their activities, and their behaviors from the computer or any other access mode to their mobile, they're moving to the rails. They're moving to the carriers.

In the United States carriers, us being one. And so when we think about what people need in certain domains and whether it be, as I said, healthcare, which is huge right now, digital health is becoming a big, very viable thing. And financial services, the three things people need that we offer through our 5g, and we are the largest in 5g, but through our 5G commitment, our so 5G offers an additional security level and that's critical in financial services and in healthcare as you could imagine.

And the second thing is bandwidth. So as experiences become more immersive, when you wanna talk to your financial advisor, it's not just a phone call or some stated thing on screen as you wanna have it become more immersive. And I'll give you an example of that in a minute. And as you want it to be faster, low latency.

You come onto a platform like a 5G and you get all that. So we are positioned at the embarkation of the future for anything like this. But one app that I was gonna mention, and I don't even know the name, so I'm not plugging anybody here and I'm not invested in the disclaimer, but. Young people have trouble imagining their future in terms of savings.

So when you introduce them to things like a 401K or 403b, whatever it is, depending on where they work, they save a lot less than they probably should. But there's an app that you can put on your phone and it shows you. Aging. Thank God I didn't see this years ago. But yeah, you can look on there and you see yourself, what you look like at 30 and 40 and 50 and 60, and by the time you retire at 70, so that gives you a whole different perspective on saving.

Because now you see yourself in the future. And so there's just an example of an immersive technology where you really would like to see that up close and right up and it's personalized to you that really does help in terms of financial services and our anemic saving rates in this country.

Vartika Ambwani: That's very helpful to hear. One part that I'm really curious about when we were prepping for this session, you mentioned how there are big financial players who are also moving from web to mobile. So not just startups, but really large traditional banks and even government agencies.

Tell us a bit more about that, just in terms of how Verizon is working with them and supporting innovation, moving from very traditional industries to mobile and almost to FinTech.

Melanie Hardin: Yeah, as I mentioned, healthcare and other industries are moving toward it because people don't wanna boot.

I brought my laptop with me and I don't know, I used it once because I had to fill out some report that I was requested to do online and it was a little more cumbersome than doing it on my phone. But, so phones are it, and you ask yourself a question, if you're in FinTech, would you rather lose your phone or would you rather lose your wallet? 90% will say, I would rather lose my wallet. Because I don't care.

And my phone's kind of caught everything on it. In a way, the perspective. If your phone has become your wallet, your phone has become the central part of your financial profile. And you can do everything. You can send money.

My daughter pays me rent. She does it by Apple Pay, my other daughter uses Venmo and one writes a check, which is confounding, so the need for traditional financial services. Are becoming less and less important. It used to be in the old days there was an adage that the more money you have, the closer you wanna be to it.

And so when I worked at one big, large financial service bank they knew that if you had a safety deposit box with them, you would never leave them. It was just those were. We didn't care. We knew they'd be with us forever. But as you've got now with the technology, you don't care about that.

What you care about is I need somebody, I work in Silicon Valley, I work in a startup. I have equity based on my earnings, based on my equity ownership, and this startup. I need a loan and I just need somebody that knows how to do that, right? I don't care if he lives in Alaska or Norway or Finland or Miami.

That's the guy I need. And so I need the technology to be able to do it. So there's a point for you.

Vartika Ambwani: I think that ties very perfectly with our team of having specialized financial services. So not just a one size fits all strategy, but specialized financial services where different stages and different sizes of companies have special.

Very interesting. Thank you. And Marianna, so we are gonna talk about Defi an exciting subject. So tell us a little bit more about what Defi looks like in today's world how are major fans, and major financial institutions preparing themselves?

Mariana Danilovic: Defi is decentralized finance is different.

Does anyone know what defi is? Okay. I presented, to someone yesterday who knew what Defi is. All the finance we know today, FinTech and traditional organizations, they're all centralized finance, which means all of our data is basically in a centralized server.

And I suffered from a couple of credit card breaches on my way to CES where they issued me a new card because there was a breach at the company that issues the credit cards and our data. And this is, I'm of used to it now. I get two or three a year. So the decentralized movement started as the next generation of the internet.

Where those breaches would be more challenging to do because instead of storing everything on centralized servers, it's stored on a variety of servers in a decentralized way, not easily accessible. The additional technology that developed on top of these decentralized networks, which are blockchain networks, is something called smart contracts.

And smart contracts are legal contracts on the networks that are executing financial transactions on your behalf. So they're trustless. If you look at financial services today, there's about 7.4% of the GDP is spent on intermediary transactions and somebody putting that transaction so that it can be executed.

So when you're withdrawing money from a bank or getting a loan, there are multiple trust companies involved in getting that executed in a decentralized finance environment. The smart contractor is in a trustless environment, so it's executed automatically, through technology and that's the movement of decentralized.
You can see how in the early stages of development, this can go wrong. It's supposed to, do a lot of things right for a lot of people, but banks de unbanked and underbanked globally, et cetera. But there are issues with it in terms of regulation, adoption, protection, et cetera.

Vartika Ambwani: Awesome. Thank you for that. We're gonna come back to you to talk a little bit more about Defi in a bit, but Don moving over to you. So you gave us a great overview of 5g and as we know CES, there are a lot of startups here in the audience. Tell us a little bit more about how Arc serves them, and who the ideal client for Arc is.

Don Muir: Sure. Just to make sure I'm addressing the audience here, do we have any startup founders, let's say tech founders or operators here in the audience? Okay, good. A good number. And how many of you have experienced opening a bank account? Yeah, maybe on the consumer side.

So who do we work with? Because we're a software business we can work with companies across the full life cycle at the same marginal cost. So what's interesting for Arc and how we're differentiated from maybe some of the offline more traditional banks is that we work with companies from the seed, pre-seed, and bootstrapped stage, all the way through IPO—across the full company lifecycle.

And we do that through a digitally native platform. Now, the companies that we focus on are growing, typically recurring revenue, high-margin software businesses, and that's our core ICP because we have an embedded financing solution. We're converting those future revenue streams into upfront capital.

We're allowing those customers to deposit those funds into their digital bank account and spend those, spend that cash, help them manage that cash to preserve runway. And to optimize cash flow and minimize burn. So we have a target segment, which is this high-quality recurring revenue SaaS business.

Let's say series A through series C. But the reality is we work with the smallest companies. We work with the largest companies. The unifying attribute is that our decisioning is fundamentally driven by technology. Our approval process our underwriting decisioning is based entirely on the fundamentals of the business.

So traditional market participants will oftentimes care more about who's on your cap table than the fundamentals of your business. The who is more important than the gross margin profile, the revenue growth, your unit economics. With Arc, we use backend API integrations to make automated real-time underwrite and account activation decisions based purely on the fundamentals of your business.

So we're leveling the playing field for founders across the world, and that's unique and opens up an enormous TAM for Arc and for FinTech to move into this market opportunity.

Vartika Ambwani: It's very helpful and very intriguing. Thank you. Melanie gonna pass it over to you. So you mentioned initially in your introduction that you're very, you're involved with the PE firms and you're very close to the innovation that's happening in the FinTech space.

And just in financial services in general. Tell us what you're seeing in the space and where you feel like the innovation will come in.

Melanie Hardin: Yeah, a lot is happening in the space. And by the way, I love Arc. I see very few companies that span from startup to pre Ipo or IPO most of them most private equity firms focus on one segment.

I'm seeing a lot of what they call just catchphrase: embedded finance. And here's what that means. It just basically means non-financial services firms that are participating in some kind of financial event, whether that be payments, which is usually the case, or loans and sometimes DDA or checking accounts.

But for the most part, I'm seeing payments and loans being the two easier forays to go in. You don't need a banking license. You need money. Transmission licenses, which are a little. Somewhat easier. But I'll give you an example. So there's a company out of Tampa called Gale Health like Nightingale, Gale Health.

And at its core, they're a staffing agency for nurses. So nurses go on and you, as we all know, there's a massive. Nursing shortage in this country. So nurses will go on and they'll wanna pick up a shift here, pick up a shift there, maybe you see it before Christmas because they wanna get a little bit of money for Christmas presents.

So they go on to Gail's website or on their app, and they see that there's a shift available tomorrow from two to 10 at this particular hospital or this clinic. They take it and they go, so why is that FinTech, how does that relate to financial services? Because. Within one hour of that nurse walking out of that hospital or clinic she's getting paid.

So they, that's an example of embedded finance and that's what makes that particular company so attractive. And I worked at the largest payroll company in the United States. And so there are lots of people gunning for gig pay I know was here before. There are lots of companies that are gunning for that market because there are so many people moving into the gig economy.

Even nurses that are looking. Shift here, a shift there. And paying them is critical. More than it is, like with a w2, you assume you're gonna get paid on Friday or whatever it is. So that's an example. I think that's really. I like it because it's so far removed from finance, but it's so tied to payments that the marriage of that, those two industries, I think is a great example of what I'm seeing in the industry.

Vartika Ambwani: Yeah, that's a great example. And I think that's what makes FinTech and financial services so special in general because regardless of the industry, you pretty much touch everyone. So that's great. All right, Mariana, moving over to you. We're gonna talk about something very interesting, regulations. So financial services are very heavily regulated.

What are you seeing on the regulatory front? And then tell us a little bit more about how can Defi overcome what we're seeing in the industry at the moment.

Mariana Danilovic: Let's unbundle that because there are a couple of different questions in there. Okay. We're seeing with FTX has nothing to do with Defi.

That's a centralized company. Both of them, Alameda ReseArch and FTX, were centralized operations. Unlike a uniswap or one of those decentralized exchanges, FTX had a management team that was managing the exchange. Now the liquidity issue, I think is a much bigger issue for the whole market, and that's because it's not just on a regulated market, but it's a new market that's growing.
and no one's solved the liquidity issue, company by company and then as a coordinate system. So that's a problem. That's then taken and plugged quite a few companies in this space. That's what happened with FTX. But Defi is the opposite of that.

It's about removing FTX. From being FTX, right? That's what, that's the whole idea of it, is that you don't need these trust sources to manage or mismanage your money basically, that you are self-sufficient. I think IDG had an amazing breakfast. I've been going to their breakfast for decades and yesterday was probably the best I've seen.

They are talking about digital self-sufficiency as the major role of the consumers and consumers want to be self-sufficient and Defi allows them to be self-sufficient without somebody taking over their crypto or their fiat or any other options that they’re invested in. So I believe in Defi.

Because the digital self-sufficiency of the consumer markets and business markets, as you pointed out, would lead us to that sort of decentralized methodologies. They will disrupt current methodologies because the trusted sources will be disrupted. Just like the incumbents were disrupted with the Google and Facebook and Amazon of the world.

That will happen over years. The regulation is coming in a variety of jurisdictions in a variety of ways, so it's even more complicated. So it's a complex, complicated system, but it's the future of everything we do.

Vartika Ambwani: That's very helpful. All right, we are coming close to time, so we will be opening up for audience questions, but just one last question from my side, for each one, So we'd love to just hear about, your outlook on the industry in general and where you feel like the innovation will come next.
So Don, we'll start with you.

Don Muir: Love the question. The last hundred-plus years in banking have been dominated by offline traditional financial institutions that aggregated tens of trillions of dollars of assets and built very deeply entrenched relationships with corporations of all sizes.

Financial services, as you point out, is a highly regulated industry. That regulatory capture has created barriers to entry historically, which made financial services, banking specifically, one of the last frontiers in tech to truly undergo technological change. That's changing through the proliferation of banking-as-a-service providers and other FinTech point solutions. We're seeing a lion's share of the market, particularly early-stage bank deposits, shift away from traditional offline banks to FinTech point solutions in the market.

That trend started just a handful of years ago and has been growing exponentially over the last five years. When I look 10 years out and I think about the needs of an evolving modern-day technology company, which will be every company in 10 years, it's digitally native, it's technology-driven. It's leveraging AI for automation.

It's leveraging automated KYC and KYB processes to approve new accounts in 10 minutes rather than 10 weeks. The biggest change we're going to see in banking and in financial services, quite frankly, is that it will be dominated by technology companies. Publicly traded technology companies will take the place of the large incumbent banks.

Vartika Ambwani: Exciting future ahead. For sure. Melanie, how about you?

Melanie Hardin: I agree with that. There's one thing I would add though, and there's an element of trust. I saw Craig from Craigslist, years and years ago, speak and he said, trust, it's the new black. And I thought that was cool. So I thought I'd quote him.

And it is because everything will be digitally native. You can receive money and send money and get a loan, and give a loan, all this stuff. But do you trust that platform? Do you trust the people who have started the platform, do you trust the oversight? We've seen some lack of oversight with some of these financial FinTech companies starting out.

And do you trust their processes? And there are two elements to trust. There's the intent: the intended trust, and can you trust them for that. And are they competent? You don't trust a three-year-old with a pair of scissors, right? Not because he's ill-intended, but because he is incompetent. At least my three-year-old was.

So I'll just let somebody else speak for their own. But so that's what I think when you talk about the proliferation and the obsequiousness of financial services and as I talked about, embedded finance I think it will take over quite a bit of traditional banking with an element though underlying it of trust.

Vartika Ambwani: Melanie, if I could just ask you a follow-up question? Just in terms of, infrastructure and 5g, where do you feel like that technology is going? In what role it will play in innovating the sector even more?

Melanie Hardin: 5G is trust. Because 5G has added security that other levels don't. So we've, by nature of launching 5g, added big bandwidth, like massive bandwidth and low latency. So you can do things very quickly and you can see a lot very quickly, but there's an added layer of trust. So cybersecurity is where I would see a lot of innovation. I would say cybersecurity is a big place to watch, and that would be in conjunction with trust.

Mariana Danilovic: And cybersecurity in web two is a misnomer. I'm just kidding. No, one could get attacks in every environment, but yeah, that's something that we all have to solve.

We haven't talked about the metaverse. Metaverse as McKenzie's report talks about, should be five, over 5 trillion by 2030, which is just a few years from now. It's not that far ahead. And about half of that is gonna be contributed to e-commerce and FinTech is gonna play a huge role in that and, have a big share of that.

McKinsey does distinguish between the web two metaverse, the meta of the world and Microsoft's, and 120 billion that was spent in just the first half of this year on Metaverse projects by corporates and Web three 40 billion that was spent last year by VCs funding the Web three project.

So there will be a metaverse in the 5 trillion range. Some of it will be from the web. Application. Some will be from web three. And then we had this amazing evening last night with Robin's other speakers who are all just the brightest people here that I've met. And they were all saying isn't Metaverse like that virtual reality environment?

And it's really McKenzie report specifically after interviewing 3,500 CEOs. Fortune 500 s, et cetera said, no, it's the next generation of the internet. So as you start thinking about FinTech and banking and everything that we discuss here today, which I agree with, this metaverse kind of tectonic shift that's happening because McKenzie doesn't care about startups.

They care about the incumbents, right? So they're seeing what you're seeing. The incumbents are coming into that 5 trillion. That tectonic shift is gonna be about immersive internet, this self-sufficient sort of digital native attitude towards it and being, and having access to things when you need it as you need it.

Finally, we have the tech to do it, and we're gonna be seeing that happening next year. I think all the metaverse exhibits here are gonna look very different. They're not gonna be vr.

Vartika Ambwani: Great. Thank you. You three, I personally learned a lot and this was very insightful. We are very close to time, but have some time for questions.So we will open up for audience questions and we have two mics that are running around. Any questions for our panelists here?

Audience: I have a question. As an investor, we hear a lot about FinTech and new companies, and how they will change the world and how they will be a problem for the incumbents, in this case, the banks. But when you look at the world that is not actually what happens right?

Amazon basically gives you everything you want. Apple gives you everything you want. Google gives you everything you want. Which, 20 years ago were companies that, again, they disrupted the world, but it doesn't seem that anything can disrupt them today. In terms of the banks, I would say, for example, in terms of Arc, you seem to be very specific in what you guys are looking for.

You said you got after high-growth, high-margin quality companies. And this is not the general world, of banking. What prevents a big financial institution from actually doing even more like Amazon or Apple or Google does? How do you guys see that going forward? From my standpoint, what I see is that unless we have more antitrust, for example, what it seems is that these big companies are just gonna take over everything.

Mariana Danilovic: In the last 100 years over 50% of the Fortune 500 companies are no longer on that list, and Google didn't really become Google until about 2004. So that's only 18 years ago and Microsoft was around, but Amazon certainly wasn’t as big.

They were about to put 'em out of business. Back then in that, in that downturn period, so we're going through this similar sort of downturn for some of the new techs, and I feel like we're gonna come out very quickly into that hyper-growth mode. And the incumbents can't compete with that hyper-growth mode because  the consumer basically wants more than they can deliver.

They can't jeopardize their existing businesses and they can't do it fast enough to compete.

Melanie Hardin: Yeah, I have a point on that. And I would call out SVB, which seems to have figured it out. And that's because I think of your location, your headquarters is right there. So they had to early on and they jumped on that bandwagon.

But again, I come back to the trust point that I made earlier. Would you take all your money out of Fidelity right now or out of Charles Schwab and put it with a startup that's been vetted and is great, but doesn't have that kind of reputation or FDIC insurance, for example. And so a lot of people right this minute wouldn't, but they will.

So I see, I do see a very threatened environment coming up and I think there are two reasons why. The traditional banks won't adapt and can't adapt and it is what we said here, but also that there's a lot of politics and there's turf inside of organizations. And in particular inside of something so conservative like a bank that people wanna protect it's not simple.

It's my job. “I run this division, I run this group, and I don't want to give it up.” So very few companies are willing to cannibalize their own base very. There are some and I would call out your company. I would also call it Charles Schwab. They also used to be headquartered in the Bay Area, but very few companies will close this down.

When Schwab, for example, launched the Intelligent Investor. Portfolio program, which was squarely aimed at Betterment. And some of the robo-advisors, had 65% or 60% of their assets converted. It was all conversion from existing assets into these intelligent portfolios. Their margins went from whatever to half. They basically cannibalized half their margins and they didn't care because they would rather still have some of their margins than none of their margins.

The other thing, the second reason, I think banks and financial institutions are struggling to compete is because of legacy systems.

I worked for a large payroll company that was using like c plus at some point. They had cobalt people. We couldn't, they couldn't retire 'em, we couldn't get rid of them because they had to keep this system up. So there's that, and they don't wanna jeopardize payroll, God.

You miss your payroll because you were putting in a new thing, or you were integrating a new startup that you just bought. There's your reputation. It’s the same for banks.

Don Muir: I completely agree with both answers.

There's a lot to unpack and address specifically around where we are today versus where we'll be 10 years from now. And why banks haven't changed, and why they haven't adapted. To the rate of technological innovation that we've seen and enjoyed across every other, effectively every other sector in the economy.

The names you mentioned specifically Google, Amazon, Apple. These are FinTech companies. These are now FinTech companies. They use embedded financing. They have embedded banking services.

Apple could be the largest consumer bank in the world five years. So comparing these tech companies that have been driving the pace of technological innovation in the United States and globally to the large offline incumbent banks that have been adverse to change, adverse to adopting technology I think is a really tough comparison to make in my mind.

Now, why haven't banks adapted? As I pointed out before, there's the regulatory environment around you. Enormous barriers to entry in the industry. It makes it harder to compete. It makes it harder for small companies to come in and take away share. And that makes you less inclined to change.

Traditional banks don't want to cannibalize existing revenue streams. That's right. At a bank, you have a p and l structure, you have a managing director who gets paid based on transaction volumes, based on relationships with their clients. They have a book, they have their own p and l. To come in and disrupt that workflow using technology would be turning the entire system, the entire p and l structure for these legacy banks upside down. And that's hard to do. So that creates a lot of opportunity for tech startups and now large tech companies to come in and take share away from traditional banks.

The proliferation of banking-as-a-service, of bass, right? Banking-as-a-service opened the door for Fintech startups to come in and compete more directly with banks, in partnership with other banks. That has created a huge problem for the incumbents. And if you read Jamie Dimon's annual Letter to his shareholders, you'll see that Fintechs are the number one threat to JP Morgan Chase today.

Jamie says they're trying to adapt, they're trying to innovate, and I think they've done a pretty good job relative to some of the other banks in the market. But the reality is Fintechs who have focus, who see this market opportunity, who see that the traditional banks are not adapting fast enough to keep pace with the evolving needs of their tech clients, they're gonna continue to pick up share.

And while regulators might try to prevent this in the short term, over the long term, the consumer is always going to win because customers want a technology-driven, digitally-native experience. They want a more frictionless banking experience. They want a faster, better, fairer, and more equitable experience, and that is what's going to drive the change over the long term.

That's why technology is going to win, and that's why 10 years from now, FinTechs, like Arc, will dominate banking.

Vartika Ambwani: We're right at time. I think the only two words I would say to us to close this out, are regulations and trust, and the reason why we have the market share that we do, it's really primarily based on trust and reputation in the market. Especially when it comes to money and it comes to financial services.

Thank you so much. This was an amazing session. Thank you everyone for attending, I hope you enjoy the rest of the conference.