Are you there, God? It’s us… fintech –

At the end of this weekend, most of the world woke up to CEO Jamie Dimon and JPMorgan reinventing a mid-sized bank with a wealthy depository class.

There are many hot takes. One you’ll see in most reports, including our sister publication the FT, is that America’s biggest bank did a pretty good deal. One aspect of this deal that I found amusing is that all of First Republic’s branches in eight US states are now rebranded as ‘JPMorgan Chase’ – banks can move pretty quickly when they want to.

One I have yet to see, and one that does and does not go back to the global banking crisis, is that these traumas are all part of the growing pains of youth in a naive tech society and a nascent fintech sector. (Yes, I chose those words “naïve” and “beginning” on purpose.)

But what does this have to do with the technology industry and fintech, and how does it relate to the banking crisis of 2008? I feel it does, but not in the way the writers of a supermarket tabloid would have you believe.

During the last banking crisis, 15 years ago, at the heart of many questions was the US housing market – a housing market experiencing a downturn, which many of the risk models used in the banks did not take into account in their calculations. Not realizing, or including, the possibility that house prices can go down as well as up was one of the countless facepalm moments of 2008 (good times, good times).

Many see the rise of fintech as a direct result of the loss of confidence many felt in the traditional banking sectors at the time. (The availability of open source computing as well as cheaper and faster ways to develop applications was also an important factor.) New fintech entrepreneurs emerged to offer not just better financial services, but entirely new financial services.

They were spurred on by books like Zero to one by Peter Thiel who encouraged start-up entrepreneurs not to create new platforms, operating systems or search engines, but to create something new. Something that would not compete with existing services, but would instead replace them.

Not being a banker was seen as a positive. After all, look at what the “so-called” bankers did to the global economy in 2008. The industry is full of stories of predatory practices that kept customers in debt, drove credit and failed to serve society. Frankly, the incumbent banking industry did itself no favors.

For the technology world, growth was more important than profit. As long as venture capital money continued to flow, fintech start-ups could churn out applications, grow at a “rocket-ship” pace, skirt regulations in the name of “move fast and break things”, and market unpleasant status items like metal cards as a way to offer a ” premium service”.

All of the so-called “innovation” happened in a global environment of low interest rates, with traditional banks watching and cherry-picking the things they were trying to emulate. (I see you high street bank – now offering the ability to freeze a lost debit card, my husband thanks you.)

Just as house prices both rise and fall, interest rates also rise. While a global pandemic, the war in Ukraine and resulting high inflation were probably not on many risk models 10 years ago, the fact is that most of the growth in the tech industry was built on interest rates remaining low – and that environment changed.

There are some commentators looking at how small to mid-sized banks, especially in the US, are surviving the interest rate hike. But for the most part, general community banks in the United States are holding up well. Most depositors at these banks have accounts well below the Federal Deposit Insurance Corporation threshold of $250,000.

The differentiating factor with First Republic, as well as Silicon Valley Bank (SVB) and to some extent Signature Bank, is their association with Silicon Valley-style startup culture. Their customer base was technology entrepreneurs, who routinely kept large reserves of uninsured deposits in these banks. The businesses, run by the customers of First Republic, were driven by a world of low interest rates.

The current banking problems in the US may not be a banking problem at all, but a showdown with the tech culture.

High interest rates have slowed growth in the startup world, and the challenges these changes have brought have been harsh. When money was plentiful and growth in hockey sticks was necessary, investors offered tech companies plenty of toys to play with. In 2023, many companies have put away childish things, trimmed employees and silenced the ping-pong tables.

Fintech’s adolescence has arrived. The offers of the likes of SVB or First Republic, with their free cookies and brands, are no longer enough. The adult world of JPMorgan – with sober risk models that examine moving house prices and interest rates – beckons.

Liz Lumley is deputy chairman of The banker. Follow her on Twitter @LizLum.

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