Move Over, Wall Street: Silicon Valley Is Invading Your Turf

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If you ask most people where the greatest threat to Wall Street's nearly 100-year dominance as the world's leading financial center would come from, places like London, Zurich, Tokyo or even Beijing might be suggested. But more and more, it looks as if the threat to Manhattan's financial crown will come from right here in the USA.

Silicon Valley appears to have Wall Street in its sights, aggressively funding a new generation of tech startups whose goal is to disrupt the financial services industry and attack Wall Street with a strategy and an attitude they have never faced before.

These new fin-tech companies are younger, more flexible and -- with deep-pocketed venture capital firms backing them -- less concerned about reaching financial profitability in the near term. Unlike most venerable Wall Street companies, they are private entities that don't have to please the stock market with share prices or quarterly earnings nor support an infrastructure top-heavy with partners, associates, directors and VPs that would make Gordon Gekko cringe.

Crowdsourced Earnings Estimates

Estimize is an example of this new type of company that is putting Wall Street on notice. Founded in 2011 by former quantitative hedge fund analyst Leigh Drogen, Estimize crowdsources company earnings estimates on an open and transparent platform -- the opposite of the opaque proprietary model big Wall Street firms use -- and then makes those numbers available to the public for free.

According to multiple peer-reviewed research papers, the Estimize approach provides more representative data for earnings, which come from more than 4,000 analysts who contribute to their web-based platform. The company says this translates to earnings estimates that have proven 69 percent more accurate than traditional Wall Street analysts. Drogen says the last figure "shows that our philosophies are winning against the stale old philosophies regarding sharing of data within the financial community."

"I want Estimize to lead the change in how the financial community shares information and points the spotlight on certain individuals based on a meritocracy."

Major players in the financial research industry already recognize that change, including Bloomberg, which offers Estimize earnings estimates through its platform.

Zero Commission Stock Trades

In the brokerage space, Robinhood, which is backed by Marc Andreessen and Google Ventures, is bringing the stock market version of the Holy Grail to investors -- zero commission stock trades.

With its mobile-only platform, Robinhood allows customers to trade any amount of shares, as often as they like, for no fee. According to co-founder Vladimir Tenev, Robinhood's model doesn't depend on commissions for profitability, which should cause traditional brokers to quake in their boots. Instead Robinhood charges other companies to build upon its platform.

This means that a consumer could use a third-party mobile app like Twitter, StockTwits or Yahoo Finance and trade stocks seamlessly via Robinhood for free.

What should particularly worry Wall Street is that companies like Estimize and Robinhood don't think in traditional terms on a number of issues. For example, the first 11 hires at Robinhood were not financial advisers or brokers, but programmers, because it views itself not as a financial company, but a tech company.

This philosophy also informs the way they market their product -- forgoing a brick and mortar presence or Superbowl adds -- to reach their target audience. With just a website, a social media campaign and the buzz from tech media, Robinhood has had more than a quarter of a million people sign up for brokerage accounts.

Follow the Job Market

A key reason that tech firms are competing in the financial sector is that the 2008 crisis cut jobs on Wall Street, causing many new highly skilled college graduates to look elsewhere for employment.

One example of this comes from a recent survey by Harvard's newspaper. The Crimson found that only 31 percent of graduates were planning to pursue jobs in the financial sector, down from 2007, when the number was 47 percent.

The macro trend also bodes well for tech, as Moody's Analytics predicts that 450,000 new workers will be hired in the high-tech industry by 2015, compared to only 230,000 for finance.

It would be premature to count Wall Street out quite yet. Financial companies have faced wars, recessions, populist politicians, regulatory reforms and Occupy Wall Street, and have come out more profitable than ever. But the emphasis on product before profit, and the speed in which they can build and adapt their products to consumer needs, may give fin-tech companies the edge they need to dethrone the wolves of Wall Street.

No man is an island, or even a peninsula, so I encourage your feedback in the comments below. And don't forget to pick up my book, "Trading: The Best of the Best -- Top Trading Tips for Our Time."

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10 Comments

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dquandle

Just what the country needs, mega-criminals in Silicon Valley taking over from the mega-criminals on Wall Street.

March 31 2014 at 12:51 AM Report abuse rate up rate down Reply
hugh.thompson

I think its great to have competition. After all that's what made this country great. We need ALOT more competition to deflect the take over of this country by Wall Street and their corporate take over of America. We also need to stop MERGERS in this country because its nothing more than a MONOPOLY. The word change from monopoly to merger just circumvented the laws against them. LOL

March 30 2014 at 7:27 PM Report abuse +3 rate up rate down Reply
Iselin007

Don't forget to watch CBS " Sixty Minutes" tonight about how "Wall St" is fixed.

March 30 2014 at 5:45 PM Report abuse +2 rate up rate down Reply
gyates2213

nice to see Wall street being outsourced through out the country

March 30 2014 at 2:31 PM Report abuse +3 rate up rate down Reply
Iselin007

Last week I saw a media report on cable how the Steel companies in the US want something done to stop the unfair cheap overseas steel. The Steel industry fears this could be the last of the American Steel production if the gov does'nt act in their favor.

March 30 2014 at 2:18 PM Report abuse rate up rate down Reply
Iselin007

You should find a demand for third world Visa workers suspect. The disassembly of American manufacturing and displacement of American tech engineers over the decades by Asia speaks for it's self. I feel the decline in America is due to the greed of those with the power to manipulate the politicians.

Coincidence? I think not!

March 30 2014 at 2:01 PM Report abuse +1 rate up rate down Reply
morphiss7

Love it. I hope they take wall street down. We need a exchange run by others than NYSE. I see a time coming when the average investor wont need Wall Street at all. I hope its soon they have been scruuuuing small investors for years !!

March 30 2014 at 12:54 PM Report abuse +2 rate up rate down Reply
Drew

the main people coming to USA are NOT the "brain drain" from other countries, but high school dropouts from Mexico. We are getting 10X as much 3rd World Riff Raff (poor people coming to USA for free Food, Free Health Care if poor they get Medicaid)...etc...etc. All on backs of American taxpayers. They outweigh the high IQ Indians from Bangalore and smart Asian Chinese and Japanese Immigrants by 10:1. USA is mainly getting low-skills people from Haiti and Mexico and similar streaming into USA to go on Dem-Party-Welfare. VP Biden wants more to come to be Democratic Party Voters--- voting American citizens money into their pockets.

March 29 2014 at 8:29 PM Report abuse -2 rate up rate down Reply
1 reply to Drew's comment
mac2jr

Wrong, the people coming from Mexico and Central America are usually workers, workers that work in our factories and fields and do not have access to our 'welfare' systems. These people are also the people that have created tens of thousands of new U.S.A. tax paying, people hiring businesses in much of the southwestern portions of the U.S.A.

The deadbeats are those American Companies that hire H-1B folk at discounted wages or like the ones I worked for in PA got up to half of the hired foreigner's salary paid for by the local government that wanted to 'justify' new schools and housing projects, or owned the local RE and stores.

March 30 2014 at 1:00 AM Report abuse +2 rate up rate down Reply
1 reply to mac2jr's comment
Iselin007

Macjr:

The H1B and other visas are being misused. The EB-5 visa allows the rich to buy there way into the US if they spend $1 million and create 10 jobs. Those jobs end up mostly going to non US citizens!

March 30 2014 at 5:03 AM Report abuse +2 rate up rate down
mac2jr

The Comment "But I don't blame silicone valley firms for hiring visa workers. They need top notch scientists and technologists who work 10 to 11 hours a day and compete with other companies nationally or internationally." is totally off the wall as the hiring was not to get qualified help, but to get qualified help at 50% off the American Labor Price.

Japan and other countries needed the Silicon Valley's 'secrets' and therefore, paid for new homes, cars, utilities, etc., for their 'American' workers (their people sent to America to learn the trade secrets). The U.S.A. law stated that an American company had to advertise a job for two weeks, and if it could not hire an American, then it could hire a foreigner. So, the Bosses came up with a plan, offer the jobs at 50% salary reductions, thus NO American would or could afford to apply, and thus the law allowed for the hiring of the 'foreign Worker' at half the going rate. This was fought by the IEEE for over a decade, and just when we were wining the fight, G.W. Bush decided to push for allowing not just the Silicon Valley workers to be foreign nationals, but also the bankers, bakers, and candlestick makers.

March 29 2014 at 7:16 PM Report abuse +4 rate up rate down Reply
Socho Ekon

Shanghai will be the financial center that takes over Wall Street. Tech enjoys a lot of profits, but the top 20 exports are all natural resources, agriculture, automotive, and commercial airplanes... I can live without a cell phone, but I cannot live with food.

March 29 2014 at 7:07 PM Report abuse +1 rate up rate down Reply