Lessons From Ancient Rome: How Banks Can Learn to Love Startups

The defense and legacy of the Roman Empire can impart some valuable lessons to today's banking industry.

7 min read April 18, 2023
Business Building Fintech

At first, the barbarians seemed almost suspiciously friendly and cordial. They appeared just happy to be there, in the hallowed city of Rome. But then a Roman legislator poked one of them with his cane and all hell broke loose. As Plutarch writes: “After that, they fell upon the rest and slew them, made away with everyone else they met, sacked and plundered the houses of the city for many days together, and finally burned them down and leveled them with the ground. …  Therefore the Gauls inflicted every outrage upon the city, and put to the sword all whom they captured.”

When we think of the sack of Rome, we generally think of the fifth century CE pillaging by the Visigoths, or maybe the later invasion by the Vandals. But the first sack of Rome, as captured by Plutarch above, was in 387 BCE, by yet another group of so-called barbarians [1]. Rome was in a tough neighborhood! So how is it that they managed to last 800 years between the first sack and their final indignity without any further barbarian depredations? 

It turns out the Romans had one simple trick: They harnessed the power of the barbarian tribes to power their own armies. At the time of the first invasion, the Roman army was entirely Italian; by the turn of the millennium, it was 65% Italian; by the mid-second century CE, the “Roman” army was, as one historian writes, over 99% composed of non-Italian soldiers. 

Silicon Valley at the gates

In 2014, JPMorgan Chase CEO Jamie Dimon famously wrote “Silicon Valley is coming.” In fact, by then, fintech companies had been coming for his bank and its ilk for nearly a decade. Square had been attacking their merchant payments businesses while Lending Club, SoFi and OnDeck ate away at their lending businesses. Wealthfront and Betterment tried to sack their wealth management and Simple et al besieged their retail banking.

But it’s hard to meaningfully dent the behemoth banks, and the banks were comprehensively distracted by the global financial crisis for most of this period. But by 2014, the more forward-thinking financial services executives realized that they had some new and frisky enemies coming for them, and they started to react. 

The largest banks, like JPM and Goldman Sachs in particular, initially concluded they could fight their way out of this problem on their own with a well-stocked war chest at their disposal. JPM announced a massive increase to its tech spending, a $12 billion investment that eventually ballooned to $14 billion in 2022. When all is said and done, Goldman will likely spend $10 billion building its Marcus and platform businesses, on top of its $2 billion annually in other tech spending. Citibank will spend $14 billion in 2023, Bank of America will spend $12 billion, and Wells Fargo will spend well over $10 billion. All told, the top four banks will spend in excess of $50 billion in 2023, well in excess of the $40 billion fintech VC run rate at the end of 2022

But not every bank can be JPM. If the entire banking industry is analogous to the Roman Empire, the fact that a small handful of banks can have their own “armies” doesn’t make the industry well defended. Further, even when you have the money, building is hard. Like it or not, nimble, focused organizations with highly incentivized and aligned teams build better tech than large incumbents, and they build it much more efficiently. I’m pretty sure if Goldman Sachs could have that $10 billion they spent on Marcus back, they would snatch it in a New York minute

Outside of the big banks, most financial institutions primarily rely on their core banking vendor to supply them with technology, which is by and large how the banks got into trouble in the first place. Far from augmenting banks’ internal tech teams with elite shock troops, these core vendors have historically been a legacy-based burden to overcome. 

Becoming an acquirer, partner or customer

All of which brings us to the startups. The jiu jitsu trick that the banking industry is engaging in now is turning its erstwhile insurgent competitors into acquisitions, partners and vendors – pressing the barbarians into military service.

While M&A can be an effective method, it’s best used sparingly. For every successful deal – like American Express buying Kabbage, for instance – there are messy situations where founders trample your proverbial vineyards, perhaps by inventing five million customers that don’t exist. That’s not entirely a bad coincidence or random outlier. Entrepreneurship is a transgressive act, and banks would do well to exclusively buy companies that have a proven fiduciary culture. 

Partnering with startups is the next stop on the engagement continuum; it’s not an outright acquisition, but often does involve exposing your customers to the products and teams of a young company. The odds of success are higher here than in M&A, as the startup team is more likely to remain engaged for longer. That said, it is a specific and often novel motion for banks to engage in, and works best when you have a dedicated team and established process for making it work. KeyBank has invested heavily in this and benefited dramatically from partnerships with Billtrust, AvidXchange and Laurel Road (which it eventually bought).

By far the most straightforward mode of engagement is to simply become a customer of the startup. Procurement and vendor management at banks has been the unacknowledged villain of the banking industry – the phrase “no one ever got fired for buying IBM” was clearly invented and perpetuated by the banks’ procurement departments. While third-party vendor due diligence is important, it should be leveraged as a way to discover and safely onboard the best and most dynamic vendors, whether startup or legacy, not to keep innovation out with irrational red tape. Increasingly we have seen progressive financial institutions find ways to systematically work with startups to pursue real transformation, including now industry-leading players like Thought Machine, Array, Sigfig, Blend and Persado.    

Bridging the gap between the Romans and barbarians

At BCV, our role is to bridge the gap between the traditional financial services industry and the startups we invest in (as well as those we simply hold in high regard). Together with our esteemed partners at Nyca and QED, we launched Fintech Demo Day in 2017 to create a forum where banks and other financial services incumbents could get to know a highly curated set of potential partners in a single day. In 2022, we returned to our in-person format and grew the event to 30 presenters and over 500 attendees, which you can get a sense of in this short overview:

If you are a forward-thinking executive at a financial institution and you want to attend this year’s Fintech Demo Day for an efficient way to get an up-to-the-minute look at what’s happening in financial services technology, send us an email to be considered for attendance.

If you are a founder looking to access hundreds of potential customers and/or partners, it’s even simpler – you just have to let Nyca, QED or BCV into your next round! Or better yet, take all three. After all, it’s hard to be a barbarian warlord without the right horde. 

[1] As an aside, the first instinct to drive on Rome was because of its wine! Again, from Plutarch, describing what happened when the Gauls discovered Brunello: “But at last they got a taste of wine, which was then for the first time brought to them from Italy. They admired the drink so much, and were all so beside themselves with the novel pleasure which it gave, that they seized their arms, took along their families and made off to the Alps, in quest of the land which produced such fruit, considering the rest of the world barren and wild.”

Related Insights

How Fintech Can Jump on the Generative AI Bandwagon

Generative AI can be a critical ingredient in the way financial services are delivered and make humans 10X more productive. In fact, there are many applications perfect for it.

Sarah Hinkfuss 21 min read
Domain Insights Fintech