YouSaid · the spoken record

Jake Schwartz

lines on the record: 36
first: 2015-07-30
most recent: 2015-07-30
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“I think the way the industry looks different over the next 10 to 15 years is going to be very similar to the way that we've seen other industries evolve over the last 10 to 15 years. So think about how different e-commerce looks now or retail looks now than it did 10 to 15 years ago. Think about how different travel is now than it was 10 to 15 years ago or advertising. Financial services for a variety of reasons sort of started this path late in the game relative to all of those other industries. You could say kind of 10 to 12 years behind everyone else. But the roadmap is probably going to be the same. And so when you think about the new entrance and new businesses that were created in all of those categories over that period and the ability that those companies had to take share, to change the way that consumers acted and to generate a lot of growth within the category, I think we're going to see the same thing here.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Environment that we're in right now is obviously a big question. And then what is the regulatory framework look like? From where we sit, it's hard to see the regulatory framework changing that materially at this point in time, but we're just going to have to see.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, if I had a guess, I would guess that from a consumer perspective, if you think about all the things that we talked about, I think underlying a lot of it was one, transparency, two ease of use, and three, lower cost. And all of those things say better for the consumer. The questions, in my mind, and we hit on a lot of different topics here, whether it was regulation or just the cyclical environment, the biggest question in my mind is how do these things inevitably play out? And I think at this point, it's still too early to be able to tell where will the industry be 10 or 15 years now. I think, to his point, from a technology standpoint, I think a lot of the incumbent players have a lot of work to do to get themselves caught up to where a lot of these new players are, whether it means investing more, recruiting, better talent. But there's clearly things that they're going to have to do. I think, like I said, I think the answers to a lot of those things, how do these new companies, particularly where your warehouse and credit risk, how do they evolve when we get out of a benign?”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“I think in terms of, like, as you said, tellers will continue to see banks, business models evolve. You've read about all the different companies continuing to downsize not only their branch networks, but the amount of people that are working them. And I think that's something that's going to continue to happen over the next couple of years.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“If you think about it at this point, banks are clearly reacting to this. I mean, if you think across the industry, I think the last three years, or the first three years, we've seen branches close across the industry. And if you went back to 1990, banks were talking about we needed more branch closures, and I think we got above 100,000 branches over the next five or six years. I think banks are in a little bit of a tough spot right now, and I'll talk a little bit about the lending side, how that differs. But in terms of just distribution, I think the big problem banks face right now is a lot of their new customer acquisition of the clients that Heath was talking about, the millennials who just came out of college and are doing pretty well due to the emergence of technology. But the issue is for a lot of the banks, the lion's share of their revenue pool is still coming from our generation and beyond, our generations and our parents' generation. So physical distribution cannot just go away overnight. And I think it's going to be a bit of a slow bleed down.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Sure. I think the thing that was surprising to us really was how different this generation is approaching financial services and the opportunity there. Because I think a lot of us sort of look at some of the headline numbers around millennials. And this is the generation that hasn't moved out of their parents' basement. It's sort of hard to escape that. But the reality of it is there are a lot of very successful people in that demographic. And whether the engineer right out of college or whether they're that first year associate at a law firm, there's a lot of money in that demographic group that these companies are able to address. So I think if there was anything that it was surprising to Ryan's point about the size of the profit pools, I would say the most surprising thing was specifically the profit pool within that part of the population.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Jake, I would say two things really came to mind when we were going through looking at all these different things. I think first is just the pace at which growth is happening. So I'll use the peer-to-peer lending space as an example.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Yet the whole blockchain technology behind Bitcoin has massive implications for really any kind of asset and the ability to transfer ownership of digital goods. When we think about the value of the technology, we are first pitch, first inning in terms of seeing how companies are actually going to use that technology. So it's fascinating. It's really, really early stage, but it's hard to see a world where that blockchain technology doesn't end up changing the way that we think about asset ownership.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“But the underlying technology has the ability to actually transform the way we do payments in the institutional side. And I know even Goldman's taking a look at that. What are your thoughts on that ability of the open ledger system to change the way we do payments?”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think a big part of it is just the volatility around Bitcoin scares a lot of people off. It was great when we were in some of those periods where Bitcoin only seemed to go up. It's gone down. It's gone up. It's gone down. And I think for a lot of people, the point of having a secure currency the way Bitcoin is supposed to be is having a store of value, having a way to transfer value. And if I'm giving you something that you don't know whether or not it's going to be worth the same amount tomorrow that it was today when I gave it to you, you're going to be reluctant to adopt that for anything that you don't necessarily have to. And so that's a lot of what you're seeing with Bitcoin right now is it's being used in places where it's really the only option to be used. Over time, Bitcoin's going to mature. A lot of that volatility will likely come out of the system and you'll probably see more use cases as it does. But right now, just that sheer volatility in the marketplace for Bitcoin and the value of Bitcoin probably scares off, especially a lot of those developed market users.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. This is a generation that has grown up to question the offer of free. They know that the guy offering them a beach towel in the airport to sign up for a credit card, that there's a hook on the back end of that that's probably not good for them. And I think that's one of the things that really is going to change payments permanently, even beyond just sort of what we're thinking about from a technology perspective.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Gas station these days. You do at the gas station. But if you're one of those millennials that's doing peer-to-peer payments, you're being trained right now to know that when I use my debit card, it's free, when I use my credit card, I have to pay 2%. And I think that's changing the way a lot of this newer generation is approaching using credit. There's also the fact that...”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“What's really interesting about this, Jake, is a lot of this is cultural. And you've got a generation now growing up that in a lot of ways, at least right now, they don't trust credit. 63% of millennials don't have a credit card. And I think what we're seeing that's probably the most interesting part of this is you're finally getting a generation that understands the cost of credit, not just to themselves, not just the 22% APR that they're paying, but to the entire system because you're starting to see an unbundling of this. When we swipe a credit card, we think that's free in a lot of ways. We don't think about the fact that the merchant on the other side is paying 2.5% or 2.5% to...”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“The one thing that I would say to Heath's point is that as these things evolve, inevitably it's going to be about the consumer. What is the value proposition that's improving for the consumer? And like Heath's referenced, at this point, it's still pretty easy to walk up to a terminal to swipe your credit card and to use it. I think as that evolves over time through things like improved loyalty, greater ubiquity of mobile payments, as we see the value proposition for the consumer improving, I think that'll really be the driver for mass adoption.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. So you've got mobile payments, you've got the messaging apps, especially in Asia, messaging apps are a very big part of how people are paying now. And I think that's something that we will eventually, as we've seen with other things that have developed in Asia, will eventually see them make their way over here to the US. And it's going to be up to US consumers to see how quickly those things are adopted. As always, there will be sort of a regulatory overlay to this to a degree because we are seeing regulatory changes both in Europe and the US in terms of how things like interchange or approach the cost of payments. And if there's one thing that we know from the way that technology impacts markets, the cost is going to come down dramatically.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“There's a lot of options that are out there for people to pay, whether it's something very social, the peer-to-peer payments that are happening, whether it's some of the things that you're seeing in cryptocurrency with Bitcoin and the other alternatives that are there, or even in some of the crowdfunded FX transfers that are developing as options for people. At the end of the day, what we're seeing with a lot of this is adoptions pretty challenging, especially in markets like the US and Europe and parts of Asia swiping a credit card is a pretty easy thing to do. But when you get into those emerging markets, that's actually where you see some of the most interesting.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Look at the result of the Jobs Act. You look at the results of some of the regulations that have come out over the course of this year, and that environment for equity investing has been opened up dramatically. Equity crowdfunding, we're still very much in the early stages of some of the biggest crowdfunding platforms, the ones that are largely focused on more of the creative side of things or more what we think of almost as product financing. Those are generally staying out of the equity side of this, but there's a long list of companies that are trying to get into this equity crowdfunding space and are either doing it in some cases very successfully purely in private realms, private investments that are very early stages, what we normally think of as kind of friends and family rounds. But there's a lot of later stage funding that's being done and even secondary markets that are being created here that are taking advantage of the fact that the market for investing”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“It's going to be much more available. Now, the challenge is that's a lot of information for people to have to sift through, so it can be a little bit more of an issue for a lot of investors to work their way through that. But the way things always happen in this space, there's a whole new”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Do. I mean, I think a big part of it is transparency. I think you look at the way these companies are developing themselves and the way that they're using technology and the access to information to open up the books. One of the largest peer-to-peer loan lenders, you can go onto their website and see literally every single performing loan they've ever done broken up by quarter, by tranche, by return. You can see all of the defaults at a level that you would never expect to see that if you were investing any other sort of product. The companies that are doing wealth management in this space are using very, very simplified, very transparent fee structures. The companies that are doing crowdfunding in the space are making all of the performance information around the assets that are investable on their platform or the programs that they're running very open. That's just the nature of the internet. Everything is going to be much more transparent.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“At a leverage ratio was imposed on the banks, which made it harder for the banks to provide wholesale funding to users of that type of thing. So if there was any changing regulations against the largest institutions, which are participants in a lot of these newer models, that could obviously have ramifications. So I would say at this point, it remains unknown. There's a lot of areas that could potentially be regulated, but none of them that really seem to be forefront at this point.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. And I would say historically, where we've seen players trip up in the space is not necessarily on the front end, but it's more on the back end areas like servicing once the cyclical environment changes a little bit. The second thing, and hopefully not to get too technical, is just around risk retention. What's happening a lot of these new players are originating loans and selling them, whether on a peer-to-peer platform or through a securitization. Now, over time, there's what are called the skin-the-game rules where you have to maintain part of a securitization. There's the chance that over time, the way that these guys are set up is they will have a industrial loan company that's set up out of Utah who they will use to channel some of the loans through. Well, regulation, which is uncertain at this point, might say, you know what, the principal and the agent need to hold a piece of the pie, and then that makes them less capital-like, capital efficient organizations. And, you know, that would obviously change the business model. The third piece I would say is regulation by regulating the banks. We've seen this happen through wholesale financing where”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“I think that's an excellent question, Jake. I would just say, look, history tells us that whenever something looks, acts, or participates in activities that banks do, inevitably they do tend to get regulated like banks. However, I would keep in mind these are not deposit-taking institutions, so that just inherently lowers the risk of them inevitably being regulated because they're not putting insured customer balances at risk. Having said that, I think we could probably think about three areas where there could be the potential for regulation. The first is the consumer financial protection bureau. Now, one thing, or the CFPB, which came out at Dodd-Frank. Now, I think one of the interesting things about this organization is they don't regulate institutions, they regulate products. So whether you're the largest money center bank that's issuing mortgages under the qualified mortgage standard, or Heathanide decide that we want to sell mortgages out of the back of our car, they have the right to regulate us. Now, I don't necessarily think that a lot of these new players are doing creates any”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. So that's really what we think of when we think of the socialization of finance that democratization, bringing everything down to the people, but then also people sharing things amongst each other.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Know, hey, I just got my student loan refinanced at 3.5% below what I was paying. Exactly. They want to see a real time feed of what their friends have paid money for and spent money on. And I just sent money $20 to Tina for tickets, that kind of thing. They want to know and they're willing to share because they want to get that same sort of sharing.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Things like within the case of asset managers, things like tax lost harvesting, things like automated investing and daily balancing of the rebalancing of portfolios. So those type of things, even to Ryan's point earlier about the ease of applying for a mortgage online and through, and I don't mean online through a traditional bank where you have to fill out a form and then somebody calls you and you spend the next two days printing out financial statements, but the ability to give a couple of small pieces of information to one of these companies and then have them literally just suck everything else out of the cloud without any involvement from you. That is incredible, you know, that used to require that level of service used to require a personal banker on the other side of it, and now the personal banker is all automated. The other big part of this is the socialization part of it. It is the fact that for the most part we're talking about a generation that's much more open about talking about their finances. They're willing to let people know.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so there's really three parts to the socialization of finance as we think about it. The biggest, I think, the most important is the democratization of services. So think about all those really high-end, what we think of as sort of high net worth kind of services that customers generally didn't have access to unless they had a personal broker, unless they had a big balance with their bank that's now being brought down and made available to everyone because we all have these incredibly powerful devices in our pockets. We all have companies that have made investments in being able to deliver these services efficiently because things that used to require manual entry and someone to sign off on it and someone to stamp a bunch of documents now can all be done electronically and in many cases completely automated. And so the cost of those things has come down dramatically. You've got companies in this space that are doing things for $10,000 minimum balance.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“You know, and I think Jick, one of the things that you're going to get is a different set of answers from an internet analyst versus a financials analyst. And I think the thing that technology investors are seeing in this space that's so similar to other spaces that we've seen this in, whether it's retail, whether it's travel, whether it's advertising is, these are companies that are essentially using”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Channels here. I think third in terms of the cost of pricing, this is one that's a little trickier at this point in the cycle, as Heat referenced, credit losses are at all-time low, interest rates are at all time low. So the average bank who has really low industry funding costs, he's not really having an advantage over these new players. Funding costs are low across the industry. So, you know, at this point, I'd say both on that's on the funding side, there's no advantage for either. But clearly these new companies, because of regulation, have the ability to price these products in a more aggressive manner. The last piece I'd say is risk management. And historically, that was a big differentiator, your ability to price products better for the same unit of risk. I would say that at this point in time remains an unknown. Clearly, in an environment where credit losses are benign for the entire industry. It's hard to tell. I would say based on the initial impressions that we have, it's hard to tell if this is going to be a long-term competitive advantage, but at least for the near...”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“One of the interesting things is when you think about the traditional players in this space, and if you think about just disintermediation more broadly, I think there's really been three or four things that have really defined disintermediation. If you think about just a broader space of this happening, I think one is just lower cost of customer acquisition. You know, I think at this point in time, a lot of the companies that Heath follows and a lot of the companies that we wrote about in the report, they're still in their infancy stage. So it remains to be seen whether or not they will have lower cost of customer acquisition. They will tell you that the customers that we're acquiring, we are acquiring at lower costs. You know, I'd say the second thing is efficient delivery channels. I mean, if you think about it, if you've ever gone through the process of refinancing your home for a mortgage, you end up with a stack of paper about 12 inches high versus if you go to some of the new players where you just take a couple of pictures, send them in, and all of a sudden, you know, your loan gets refinanced. Clearly there's more efficient delivery.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“So the bank spent all this money on branches, on gathering all this data, and all of a sudden these new entrants were able to come in with no cost basis and leverage that data and that technology better to provide credit”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“In the auto industry, the winner is having to pay for the losers. So this resulted in much better profit margins in certain consumer asset classes, and allowed a lot of these new players to come into the marketplace at very attractive margins. You know, I'd say the second thing is the use of technology. Banks historically have had tons of data, but we've never really seen them use it to a really great advantage. We're now seeing new players entering using algorithms, data aggregation platforms, and different types of technology that are helping them identify new potential customers and areas that are helping them better predict their models.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“I think there's a handful of things that we think they have advantages for. I think the first one would be regulation. Now, if you think about this, we had a lot of regulation coming out of the financial crisis. A lot of what we refer to when we talk about regulation is really on the capital side. So, you know, banks were impose rules from Basel III, which basically regulated the amount of capital they needed to hold. And then second, the Dodd-Frank stress test really limited the types of assets they could put on their balance sheet because not only do you need to hold capital for normal environments, you now need to hold capital for a stress scenario, which sometimes made some of these lending categories a bit more uneconomic. The second one relates to regulation really be the Card Act of 2009. And if you think about that $10 to $12 billion number I talked about, really half of that comes from the consumer side. Now, what the Cardac basically did was it said, you know what, issuers now need to price up front, which is kind of similar to what you have.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“But he's matching buyers and sellers. And the interesting thing, and we wrote about this in the report, that think about $130 billion or so of profits in traditional banks today. The shadow banking industry could over time, we think, something like $10 to $12 billion could actually move out of the traditional banks and into this newer class of shadow banks.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Would obviously be peer-to-peer lenders that are using money from main street investors to lend to consumers either to make purchases or to pay down debt. And so this has not only attracted individuals, but it's also attracted institutional investors. Here are the lender is the agent, so he's not actually warehousing the credit risk like a traditional player would.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“Sure, thanks, Jake. So, you know, the term shadow banking was coined by the chief economist of one of the largest asset managers pre-crisis, but he was really more referring to things like funding vehicles, conduits, and structured investment vehicles. You know, when we think about the term shadow banking today, we're really thinking about activities that more relate to lending, more traditional lending, but that's now being conducted by non-bank financial institutions. So activities that used to be conducted by traditional banks. Now, it's a very broad definition. The Federal Reserve had written a report that said there are over 15 trillion dollars of liabilities that are defined as shadow banks. You know, in our series of reports, we focused on a much more narrow way to think about it. So we really focused in on the lending. I would just say to echo what he said, this is really focused on a newer class of shadow banks that we're calling the new era of shadow banks. And I think that there's a handful of companies that's followed us under.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT
“You know, the thing that's driving this is really the intersection of three events that happen. First, you had the financial crisis in 2008 and the regulatory response to it that effectively created a greenfield opportunity for a lot of new entrants in the recovery. Second, following Facebook's IPO back in 2012, a lot of venture capital sort of looked across the entire landscape of Internet and said, what sectors don't have Facebook, a Google, an Amazon yet? And financial services was the biggest one of those. And so you saw a lot of investments being made in financial services with the hope that some company coming out of those investments would be that Google, Facebook, Amazon within that category. And then third, what we've seen is just a very friendly credit environment right now that's seen a lot of both from low interest rates and the availability of capital.”
2015-07-30 · Goldman Sachs Exchanges · The Future of Finance · IDENTIFIED FROM THE TRANSCRIPT