Are Wealthfront and Betterment Scalable Companies

Triumphant advance of software

Have you heard music today, seen a film or ordered a taxi? Then you were probably part of one of the most exciting developments of our time: digital disruption. Today music hardly comes from CD anymore, it runs on the smartphone, accessed from distant servers, with a provider such as Spotify, Deezer or Apple. When it comes to choosing a film, there is usually no video rental company to help, the blockbusters stream Amazon or Netflix directly to the television. And the taxi? Nowadays, many people order a car with a “private driver”, brokered by the Californian start-up called Uber.

Digitization has already struck in these industries. And now it has also reached the financial sector. Antony Jenkins, ex-head of the British bank Barclays, recently stated in an interview: "I predict that we will see significant upheavals in financial service providers in the next few years - let's call them Uber moments."

Fintechs are unstoppable

Some of these upheavals are already visible. They're painful for the established players. They often try to defend themselves legally against the new competitors. They cannot stop the development with it. Even the classic finance industry will not be able to stop fintechs. Because in the end, customers demand change. You are the beneficiary. Because the fintech companies lower the entry barriers to professional financial services. And they offer products that were previously only available to a privileged clientele, often at a fraction of the price. You can also put it another way: The money business is democratized.

The pattern of the digital revolution looks similar in all industries: Founders recognize opportunities where the managers of established companies have become sluggish. From this, the newcomers develop new business models that they implement with technology. The phenomenon existed long before digitization. It's a basic principle of business. The Austrian economist Joseph Schumpeter described the thesis of “creative destruction” in his 1911 theory of economic development. It is not just economic self-interest that drives the innovators, he explained, but also enjoyment of design.

The example of Napster shows such joy. In 1999, when music was sold almost exclusively on CD, even though the computer at home was already connected to the network, the brothers Shawn and John Fanning and their friend Sean Parker - all three in their twenties - founded Napster. Their goal: The start-up should be able to load MP3 music files easily. Dozens of similar offers followed. The users were thrilled. And the traditional music industry responded by going to the courts to protect their business model rather than getting creative themselves. But that couldn't stop the triumph of online music. The breakthrough came from the late Apple founder Steve Jobs, who introduced the iPod in 2001, the first simple player for digital songs, together with iTunes, the digital music store.

Deceptive calm

The list of companies that have revolutionized our lives since then is long, while the intervals between digital bursts have grown shorter and shorter. Facebook has changed our communication, Airbnb has changed our vacation, Skype has changed our phone calls, Dropbox has changed the exchange of data. All of these companies have only been founded in recent years.