Ask State Street chief executive Jay Hooley what keeps him up at night, and he might tell you it’s all the emerging technologies that are shaking up the staid financial services industry.
“I increasingly became worried that we are sitting on this 225-year-old company,” Hooley recently recounted, “and we’re not moving quickly enough.”
Now State Street isn’t exactly a Luddite. The Boston financial institution has invested gobs of money upgrading its technology, from creating a patented private cloud infrastructure to launching a business unit that uses data and analytics to help clients manage risk and lower costs.
But that wasn’t nearly enough. So Hooley dispatched 15 of the company’s best and brightest around the world to spend six months researching the next big things in financial technology, or fintech.
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His marching order: “Come back with a plan to disrupt us.”
That’s not something you typically hear from a Fortune 500 CEO. Usually it’s upstarts threatening established players. In this case, Hooley wanted State Street to push itself to innovate — because if it didn’t, it might get left behind.
The result: the creation of a virtual center over the summer that pools employees together in Boston, China, and California to explore emerging technologies. Then in September the company launched a series of pilots to implement some of these ideas. More on this later.
Hooley was telling this story at a panel I moderated at the University of Massachusetts Boston earlier this month as a way to get more students interested in fintech. For Boston to be a leader in this space, it will need all the talent it can get.
This CEO doesn’t think fintech will be another passing fad. Far from it. While Hooley calls the global credit crunch that led to the Great Recession a “nightmare” for big banks like his, he doesn’t think that’s what historians 50 years from now will remember about this period.
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”It’s not going to be about the financial crisis,” Hooley said. “It’s going to be how technology disrupted financial services.”
Take blockchain, for example. That’s the technology that underpins bitcoin, the alternative digital currency generated by a global computer network. Blockchain is the ledger of all transactions made with bitcoins, and now there’s an effort to apply that software code to traditional banking.
As former Wall Street wunderkind Blythe Masters told Bloomberg in August: “You should be taking this technology as seriously as you should have been taking the development of the Internet in the early 1990s. It’s analogous to e-mail for money.”
Here’s why: Blockchain shortens delays in transactions by taking out the middleman and potentially paving the way for instantaneous movement of funds. For starters, that means no more waiting two or three days for checks to clear.
At State Street, there’s a pilot to deploy blockchain internally, another one involving a consortium of 30 banks, and one other that works with startups who use the technology.
Another big insight from State Street’s tech exploration: Just how focused the Googles, Apples, and Amazons of the world were on the financial services business. It’s no longer just worrying about BNY Mellon or Fidelity Investments.
And increasingly the competition will be global. Hooley offered another anecdote about being in Hangzhou, China, three months ago, where he was invited to visit Ant, the financial services arm of Alibaba, China’s version of Amazon. Alibaba is headquartered in Hangzhou, where State Street also has a campus. The two companies, as Hooley put it, have watched each other grow up, often stealing each other’s employees.
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This time Hooley was there to check out what Ant is up to these days. He quickly got an education in how quickly the new economy moves — especially in a lightly regulated market like China. Alibaba began tracking customer purchase and payment patterns, and based on that was able to launch a bank to extend credit.
“Here’s the punch line: In China, they have 400 million customers they are doing this for, it is all real time, and it is run on a public cloud,” Hooley said. “One of the big challenges for fintech is to help developed companies disrupt their infrastructures so they can look more like Alibaba in China than they do Putnam and State Street in Boston.”
The good news is that all the panelists — including Putnam Investments CEO Bob Reynolds and fintech startup founder-CEOs, John Fawcett of Quantopian and Vivek Gupta of Covrd, all agreed that fintech is in the early innings.
Boston — with its mix of fund firms, technology prowess, and academia — has the ingredients to be a leader in this field. Just earlier this year, FinTech Sandbox launched in Boston, a nonprofit that helps startups connect with data partners for free. State Street held the group’s first demo day in October.
Of course, New York and Silicon Valley are also vying to dominate fintech. And like State Street, Boston has to recognize it needs to step up in order to get into the game.
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Shirley Leung is a Globe columnist. She can be reached at shirley.leung
@globe.com or on Twitter @leung.