This blog was originally published 18 December 2020 and is written by Dr Peter J Phillips, Associate Professor (Finance & Banking) University of Southern Queensland.
There’s a novel by Tom Wolfe called Bonfire of the Vanities. Published in 1987, it’s about a bond trader, Sherman McCoy, who, despite his high-flying job as a “Master of the Universe” on Wall Street, is suffering all manner of personal and financial problems.
This appears to be the first reference to Wall Street financiers and traders as Masters of the Universe, a reference that would leave any genuine 1980s kid feeling somewhat aggrieved by the hijacking of the name of their much-loved cartoon series.
"While the Masters of the Universe quietly wielded their power from their east coast stronghold of New York, out on the west coast, in California, a new group was emerging.”
For most people Wall Street has often seemed a curious ‘other world’ to be observed through the lens of film and literature. The multitude of ways in which high finance was reshaping the world’s economy and the daily lives of everyone connected to it went largely unnoticed, probably until the GFC in 2008. But while the Masters of the Universe quietly wielded their power from their east coast stronghold of New York, out on the west coast, in California, a new group was emerging.
The origins of Silicon Valley go back a long way, with its connections to technology, computers and research established by the 1950s. The big computing names of the 20th century like Oracle, Hewlett-Packard and Sun Microsystems, don’t really conjure up images of power. Wealth, yes, and innovation, certainly. We surely saw the rise of the information age and all the changes it was bringing. But did we see the founders and CEOs of these companies as powerful, society-shaping forces?
Even Bill Gates or Steve Jobs, probably the most well-known of the late 20th century software and computing entrepreneurs, didn’t strike people as the embodiment of a new and powerful force. More like prophets with a new product to sell or a new way of doing things to explain. But come to think of it, are the names Zuckerberg (Facebook), Bezos (Amazon), Dorsey (Twitter) and Page (Google), synonymous with power? Possibly, most people are only just beginning to realise why it has become commonplace to refer to all these people, and the many whose names are even less well-known, as the Tech Titans.
“FinTech represents a threat to this traditional business model. The Masters of the Universe are alert.”
In an earlier post to this site, we presented a brief introduction to FinTech. We explained how FinTech is consumer-focused, offering new financial solutions to consumers, often with innovative fee structures (including low or no fees). The most prominent example is international fund transfers but there are plenty of other interesting products, including robo-advisers and products that allow people to get a complete picture of their financial position by pulling in data from different bank accounts, credit cards etc. and presenting everything in one place. FinTech’s defining feature, though, is not so much the products as the providers. The companies offering these new consumer-focused financial solutions are often new firms or firms whose main line of business is not financial services. This includes companies such as Google and Apple.
The traditional financial institutions make a lot of money from fees. Everyone who has had dealings with a bank knows this. FinTech represents a threat to this traditional business model. The Masters of the Universe are alert. Many financial institutions have teamed up with or have bought out FinTech firms with the aim of plugging the ready-made innovations straight into their operations, removing a potential competitor while they were at it. But the threat to the Masters of the Universe remains. And it might be growing.
As many of the smaller FinTech firms found out, tech companies like Facebook have something valuable. Access to this valuable thing is what has driven many FinTech firms to partner with established technology companies. This valuable thing is users. Millions and millions of users. Millions of users mean millions of connections that make FinTech innovations really function. A peer-to-peer lending platform doesn’t work without peers!
As smaller FinTech firms get absorbed by the established technology companies on the one hand and the banks and financial institutions on the other, an open question remains. Will the Tech Titans decide that, with all their users, offering a broad range of financial services is the next logical step to take? Or are financial regulations too cumbersome and only invite unwanted scrutiny? Watching carefully as the Tech Titans ponder this question, we can be sure, are the Masters of the Universe. Maybe, just maybe, the Masters of the Universe might be thinking about how those financial regulations that they have coexisted with, and in many cases helped to shape, might be wielded, by the right hands, should it ever come time to confront the Tech Titans in a struggle for dominance in finance.
Visit the original post with discussion questions.