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scott kirsner | innovation economy

Financial startups build momentum in Boston

Laurel Taylor, chief executive of, at the DCU Fintech Innovation Center.Jonathan Wiggs/Globe Staff/Globe Staff

Earlier this year, a Boston startup called Kensho noticed an interesting trend: Major stock market indexes and exchange-traded funds ticked upward following 10 of Donald Trump’s Republican primary victories. And this week, in the days following Trump’s win, the Dow and Standard & Poor’s benchmarks have had a good run — despite widespread preelection worries to the contrary.

Kensho, which builds software that tries to understand how real-world events affect the markets, is one of the better-funded startups in Boston’s fintech sector. Fintech, which refers to new approaches to financial services, has so far been a small piece of the region’s startup scene. And our fintech activity has been markedly lower than in cities such as New York, London, and Hong Kong.


But fledgling companies such as Kensho and Quantopian, which provides tools that allow anyone to create investment algorithms that buy and sell based on predetermined signals, seem to be gaining momentum. (In July, investor Steven A. Cohen said he’d commit up to $250 million to be managed by Quantopian’s community of algorithm-builders.) And the DCU FinTech Innovation Center, near South Station, is becoming a clear hub of activity. Run by Digital Federal Credit Union, it offers free office space to selected startups, along with mentorship and access to DCU executives.

There are several strong winds blowing through the world of financial services — many of which favor totally new approaches, as opposed to entrenched players.

“Millennials want to learn,” says Sarah Biller, a former State Street executive who is now advising several fintech startups. “They have a tremendous appetite for financial literacy.” Younger consumers also want “hyper-personalized” advice about how to invest and save and probably don’t want to get it from an adviser sitting across a desk from them. Some of the better-known fintech companies are so-called robo-advisers such as Betterment, which are luring investors from big mutual fund and brokerage firms.


There’s also less emphasis on brand name and trust, and more on transparency, Biller says. “We’ve relied on trust for 500 or 600 years in financial services, but younger clients and millennials don’t trust the large institutions. ‘I want to verify; I want to see quite openly that you’re lending to me at the right rates, or investing my money correctly.’ They never again want to be caught up in a crisis like the buried bad loans we had in the 2008 financial crisis.”

Biller was one of the founders of the FinTech Sandbox, a nonprofit organization started in 2014. While it is based in Boston, it provides resources such as market data and cloud-based services to startups anywhere in the world. At a well-attended “demo day” earlier this month, the FinTech Sandbox invited eight companies to give a short presentation to an audience of investors and financial services execs. Only one Boston startup was among them: Finfox, which helps small businesses analyze their finances and automatically keep an appropriate amount of cash in the bank.

The Sandbox has now assisted about 50 startups, Biller says. And its staff of two will be moving into the DCU FinTech Center next month.

Jean Donnelly, the Sandbox’s executive director and a former Fidelity Investments exec, says she’s encouraged by an uptick in venture capital firms in Boston with an interest in fintech, including Vestigo Ventures, launched in April; Hyperplane Venture Capital; Good Growth Capital; and corporate venture capital groups at MassMutual and Liberty Mutual. Still, she says, “there can be a gap in early-stage venture capital funding” available to fintech companies that haven’t yet finished their product or service or found initial customers for it.


Entrepreneurs, not surprisingly, agree that there’s a dearth of funders to talk to locally, as compared with places like London, New York, or the San Francisco Bay area. Havell Rodrigues is chief executive of Adjoint, a three-person startup focused on using blockchain technology, a kind of secure, distributed database, to help manage contracts more effectively. “More venture firms would be good for Boston,” Rodrigues says. “Boston has a decent fintech ecosystem, but it is relatively small.” The company participated earlier this year in a startup challenge in London run by Ernst & Young and was named “Most Investible Startup.”

Explaining the focus of the company, Rodrigues says in most trading relationships, “You have two counterparties, manually processing the same trade independently of each other, and spending a lot of time reconciling it. We automate all that business flow and logic,” and use blockchain technology to “create an immutable record.”

The company is taking advantage of free office space at the DCU FinTech Center. “To a boot-strapped startup like us, that’s huge,” Rodrigues says. About 10 startups work there, but the plan is to host 16 on rotating one-year tenancies. DCU is both looking for startups whose technology it can test out for its own use, but also for insights into emerging trends, says David Araujo, a vice president at Marlborough-based DCU who oversees the center. Right now, Araujo says, DCU is collaborating with one of the startups that has been in the center on a new goal-based savings initiative.


Biller teaches a graduate-level course at Brandeis University on “The Evolution of Technology for Financial Services,” and following Trump’s election this week, she’s adjusting the curriculum to explore the effect that the new administration might have on the fintech sector.

“What does the future hold?” she asks. “It’s quite uncertain.” But on Thursday, Trump’s transition team posted a note on the president-elect’s website declaring the intention to “dismantle” the Dodd–Frank Act signed into law by President Obama in 2010. The legislation was passed in the wake of the financial crisis in the hopes of preventing another systemic meltdown.

Less regulation for banks and other financial services providers might not turn out to be in the best interest of consumers, or the economy as a whole — and “dismantling” is a very different word from “refashioning” — but it could turn out to be a good thing for startups trying to sell new ideas to the industry.

“If Dodd-Frank or Sarbanes-Oxley regulations go away, what does that mean?” asks Ty Danco, an angel investor who splits his time between Boston and Vermont. “I think the next great innovations are going to come from people outside of financial services. We need to free ourselves from the old ways of thinking and be able to give a shot to new thoughts, new startups.”


Scott Kirsner can be reached at Follow him on Twitter @ScottKirsner.