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Fintech may be one of the few industries looking back fondly at what happened to Wall Street after 2008.
The chaos and disruption of the credit crisis instilled lack of trust in existing banks and brought on new regulations and the rise of technologies that would allow scrappy Silicon Valley start-ups to reshape consumer finance.
These new financial technology companies have made serious competitive inroads in areas banks have backed away from, and billions of dollars in venture capital money has followed.
A key reason fintech companies have flourished, analysts say, is a lingering distrust in banks.
Ten years ago the first wave of the millennial generation was settling into early adulthood just as the economy dipped into the Great Recession. Memories of foreclosed homes and savings lost in a Wall Street-fueled crisis continue to influence where they put their money.
"What that underscored for people is that banks can't be trusted, and your money is only as safe as the government allows you to believe," said Fundstrat founder and managing partner Tom Lee, who worked at J.P. Morgan in 2008. "That's why millennials today have so little trust in banks, because of what their parents went through."
More than half the world's population is under 30 right now, according to the World Economic Forum, and 10 years after the crisis, they're still wary of banks. Last year, 45.3 percent of respondents to WEF's Global Shapers Survey said they "disagree" with the statement that they trust banks to be fair and honest. Only 28 percent of the more than 30,000 millennials surveyed said they agree.
The skepticism isn't reserved for young people. Shareholders and regulators still want to see that the banks are in check, and questions of solvency and compliance come up consistently on bank earnings conference calls.
"Every quarter, every year for a decade banks have to earn back the trust that was lost from the financial crisis," said Mike Mayo, Wells Fargo's head of U.S. large-cap bank research, who worked at Deutsche Bank when Lehman Brothers went under. "The financial crisis was terrible for the industry's reputation of trust."
The choices for where consumers can put their money look drastically different after 2008. One increasingly popular option is with a tech company.
"Neo banks," or digital banks that operate without any branches, aren't saddled by traditional banking technology infrastructure and are often leaner as a result.
Chris Britt, the CEO of what he described as a "challenger bank" called Chime, said the new sector is being boosted by fundamental distrust and young peoples' openness to tech.
"In the old days you would trust your bank because it had a great-looking edifice in front, with pillars that made you feel like your money is safe and secure," said Britt, a former senior product leader at Visa and SVP at the prepaid-card giant Green Dot. "Companies like us are a direct result of what happened in 2008, which exposed and resulted in distrust among so many consumers for traditional institutions."
Chime offers spending and savings accounts, with a debit card, and a mobile app and doesn't charge fees. It says it's adding 150,000 new bank accounts per month. It doesn't actually hold the money on behalf of clients — its consumer deposits are held at FDIC-insured banking partner Bancorp. PayPal similarly keeps its customers' funds at a bank, a common practice for fintech companies that exempts them from most Dodd-Frank regulations.
Chime and others are betting on social media as a new, cheaper way of selling these new pseudo-bank products.
"The way we build our brand and our trust is building awesome experiences for our members, then those members go talk about their experiences online and on social media on Instagram and Twitter," Britt said.
Fintech companies have made some of the biggest inroads in an area that plagued banks during and after the financial crisis: Mortgages. Regulation has banned certain high-risk practices, such as lending without verifying the borrower's ability to repay, and it has multiplied the compliance and paperwork banks need to make loans. But that has left room for non-bank companies to enter the business.
"Non-bank financial institutions that are not as tightly regulated have increased their presence over the post-crisis decade," said Nick Roussanov, a finance professor at University of Pennsylvania's Wharton School. "In terms of origination, it's not clear that banks have been as successful as some fintech lenders."
The 2010 Dodd-Frank Act banned risky products. Borrowers now need to document employment and debt levels while lenders need to disclose all the costs involved in each loan and verify someone's ability to repay.
Data is one way to ease that added Dodd-Frank paperwork. Fintech companies like Lenda, SoFi, Lending Tree, Quicken Loans, and RocketMortgage have all entered the "one-click" loan game, which would be impossible without the use of machine-learning technology.
Blend, a software start-up, works with Fannie Mae, Freddie Mac, U.S. Bank and Wells Fargo to handle the data side of mortgage applications by making the process as automated as possible. The company announced Thursday that former Treasury Secretary Jack Lew was joining its board.
"The biggest transformation has been increased regulation and scrutiny — but the way people have responded is really by investing in tech," Blend CEO Nima Ghamsari told CNBC. "There's really been an increased emphasis on use of data."
Fintech companies and banks are scrambling to adapt to finicky, impatient and tech-savvy consumers. Ghamsari said it started with the ride-hailing company Uber, which set off the "Uber-fication" of everything.
"People are expecting things quickly, on one app," he said.
Tech companies may have an advantage when it comes to assessing credit worthiness and keeping costs low, at least in the case of Square.
The digital payment company, whose stock is up a whopping 229 percent in the past year, launched Square Capital in 2014 to issue small business loans that average around $6,000. Americans typically rely on friends or family to borrow that amount instead of going to a bank.
Square lends to the retailers that are already using its credit card processing or payroll services, giving it an advantage when it comes to data. The company has a machine-learning model that factors in credit card transactions, among other things, to decide whether or not to issue a loan.
If a coffee shop borrows $1,000 for a cappuccino maker, for example, a fraction of every purchase at that location is automatically taken to pay back the loan. Square also gives its users projections, "in plain English," for when they might be able to pay it all back.
"Our product is almost entirely automated," said Jacqueline Reses, the head of Square Capital, who was a partner at private equity firm Apax during the height of the financial crisis. "Our payment data is a core part of our modeling. Most lenders don't have that data available, and that creates incredible differentiation."
"If you can translate fees into something that's easy and understandable, people trust it," Reses said.
It's not just Square moving into the small business space. PayPal, which was once a part of eBay, has a program called Working Capital that makes loans to merchants based on sales history. Amazon also does this for sellers, and began extending credit to small business owners in 2011. It uses sales data to trigger invitations for loans that could boost growth.
Despite more competition, credit availability continues to be an issue for smaller merchants. Heading into this year, small businesses reported stronger revenue growth and profitability but still struggled to get loans to pay operating expenses and wages, according to the Federal Reserve's 2017 Small Business Credit Survey. As many as 70 percent of merchants didn't receive the funding they wanted last year, the report said.
New robo-advisors and online brokers also are putting pressure on established financial institutions. Start-ups are competing for new accounts with lower fees. They're operating with far fewer employees, which positions them for profitability even with lower revenue.
Newcomers Robinhood, Acorns, MoneyLion, Stash, Betterment and Wealthfront saw massive growth last year, with much smaller operating costs than incumbents, according to a recent JMP report. While the average balances for accounts with the start-ups are much smaller than those of Fidelity and Charles Schwab, account growth was much higher.
Online brokerage Robinhood, for example, added 3 million accounts, a 150 percent increase from last year, with fewer than 200 employees. The largest incumbent, Fidelity, added 2.5 million accounts and has more than 45,000 employees. Together, the seven start-ups that JMP examined had an average 95 percent year-over-year growth.
"The younger generation will gravitate toward brands that provide the best user experience, the best value, and ultimately, can help them reach their financial goals," said Devin Ryan, managing director and equity research analyst at JMP Securities.
But the establishment is enjoying healthy account growth, too. Average account growth was 5 percent, with "sizable asset levels," according to Ryan.
Lower, and in some cases zero, trading commissions have driven new account growth, and the traditional firms have been forced to keep up. J.P. Morgan announced a no-fee trading app in August, while Fidelity has rolled out no-fee index funds and Vanguard has launched a commission-free ETF trading platform.
"This is an important trend, where the big players have been forced to lower costs to stay relevant," Wharton's Roussanov said.
One major boost to fintech came a decade ago, thanks to Steve Jobs.
Since Apple's iPhone launched in 2007, the devices have become an extension of our social lives and bank accounts. Their ubiquity also gave way to these rival banking options.
"Ten years ago we didn't have these devices in our hands," said Sima Gandhi, head of business development and strategy at Plaid, the developer of technology that backs well-known mobile apps such as Venmo and Robinhood and cryptocurrency exchange Coinbase. "Think about how familiar and comfortable we are with downloading apps and linking to our bank account — the amount of change within 10 years in terms of what customers expect is insane."
Plaid, which has attracted an early-stage investment from Goldman Sachs, runs behind-the-scenes software that allows apps to connect to consumers' bank accounts. Gandhi, who worked at American Express for three years before Plaid, recalls debating with executives as recently as five years ago about needing a mobile app.
"Right now that wouldn't even be a question," said Gandhi, who is also a former policy advisor at the Treasury Department.
Banks have leaned in to the mobile-first trend. Mobile banking users are forecast to double between 2015 and 2019 to 1.8 billion, more than one-quarter of the world's population, according a recent HSBC survey.
"To the extent banks want to compete for market share, they're going for online banking and shrinking brick-and-mortar, " Wharton's Roussanov said. "People are just not going to the bank."
A lack of trust in banks has brought rise to one of the riskiest investment products of the past decade: Cryptocurrency.
Bitcoin was invented 10 years ago by an anonymous cryptographer going by the pseudonym Satoshi Nakamoto. He or she (or they) was fed up with the modern financial system and set out to make an electronic version of cash that would be free from government or central bank control.
"Until 2008, everybody assumed the financial system was solid. All of a sudden that trust was lost, and that's where bitcoin came in," said Brian Kelly, the CEO of digital currency investment firm BKCM. Kelly was running his own global macro strategy fund when Bear Stearns faltered and was forced into an acquisition by J.P. Morgan in 2008. "Bitcoin was a direct response to the need for a new financial system."
The world's first and largest cryptocurrency, which was trading around 6 cents in 2010, took off in the following years and became a household name after climbing to almost $20,000 in December.
Perhaps the most important part of Satoshi's vision was its underlying technology, blockchain. It's essentially a database that is distributed among many, many users. The original idea was to make sure the same digital coin wasn't used twice. A bank would normally do that in the case of dollars. But in the case of cryptocurrency, the transactions are on a public ledger and "verified" by a group of people called "miners" who are competing to solve a math equation.
Advocates have gone as far as calling it the new internet. It's being applied to everything from supply chain logistics to medical records tracking to the legal marijuana industry. In a PwC survey published in August, 84 percent of executives said their companies are "actively involved" with blockchain.
Tech companies such as Amazon, Facebook and Microsoft are jumping on the bandwagon. Even Wall Street is slowly embracing crypto. J.P. Morgan, Morgan Stanley and Citigroup have announced blockchain projects, while Goldman Sachs is offering certain bitcoin derivative options for its trading clients.
Others are still cautious. Berkshire Hathaway CEO Warren Buffett, who invested $15 billion during the financial crisis to rescue companies including Goldman Sachs and General Electric, famously called bitcoin "rat poison squared." His longtime business partner Charlie Munger likened it to "trading turds."
A steady stream of money has been fueling the fintech and crypto booms.
In the case of cryptocurrency, an entirely new and legally uncertain way to raise money has popped up, called initial coin offerings. That method has brought in $12 billion this year alone, according to research from Autonomous Next, eclipsing the amount of venture capital money poured into fintech.
The total deal value of venture capital money going to fintech companies in 2018 has reached $7.5 billion, according to data from Pitchbook, up from $6.9 billion last year. It's important to keep in mind that many of these companies and technologies didn't exist in 2008 — total amount of investment in the sector is about $42 billion in the past decade, according to Pitchbook.
The top 10 VC-backed fintech companies all came on the scene after 2015. Personal lender Social Finance, for example, was valued at around $4.4 billion in 2017, and payments processor Stripe was valued at $9.2 billion after closing its last funding round.
While fintech is certainly challenging traditional banks, there's no evidence it's going to win. Banks themselves are investing in technologies and acutely aware of the rising shift to mobile.
Goldman Sachs launched its own online banking business in 2016 that targets middle-class consumers, a somewhat surprising shift from its traditional focus on big-time corporate mergers and super-wealthy individuals.
Wells Fargo's Mike Mayo is optimistic that banks can survive the disruption. He suggested it might be technology people should think twice about trusting.
"The banking industry has been around for a couple hundred years and in that regard is quite trustworthy compared to a new start-up," Mayo said.