FinTech or Banking

[AlexLielacher1]

Getting a graduate job in banking became increasingly difficult since the 2008 financial crisis. And now, with Brexit, it has become even more difficult to secure a seat as a graduate trainee at an investment bank. However, while headcount at banks is being reduced, the booming financial technology sector is hiring (especially at junior levels). It begs the question: where should you start your career – in banking or FinTech?

Fintech​

Fintech is currently one of the hottest topics in the global financial industry. Fintech, which is short for financial technology, refers to an emerging industry of tech start-ups disrupting the traditional financial services industry by offering new, innovative financial services, aiming to be customer-friendlier, easier to use and more cost-efficient.

Areas within fintech that have seen strong growth and a lot of attention from media and industry professionals are alternative finance (peer-to-peer lending and crowdfunding), mobile payments, online wealth management, mobile banking, bitcoin and the blockchain and remittance services. Well-known UK-based fintech players are TransferWise, WorldRemit, Atom Bank, Mondo, Monese, Nutmeg, MoneyFarm, RateSetter, Seedrs, LendInvest, GoCardless, MarketInvoice, CrowdCube, Funding Circle, Blockchain and Coinbase.

London has become the fintech capital of the world, which also means that there are plenty of jobs to go around for smart and driven graduates that want to enter this sector.

Pros & Cons Of Working In Banking​

Investment banking, in its current state, is a declining industry. It actually has been since the 2008 financial crisis, with banking workforce having shrunk substantially in the eight years since Lehman’s collapse. Having said that, banking is not dead and will never die, and there is still money to be made in this industry. So, let’s have a look at the pros and cons of starting your career in banking.

Pros:
- A comparatively high base salary
- Good bonus potential (albeit much less than it used to be)
- Good for your resume, regardless of what you do after your career in banking
- You learn a lot about corporate politics
- You learn how a large corporation functions
- You get to learn from a range of different people (many of which are twice your age)
- Corporate events and client entertaining (football games, concerts, etc although they have been massively decreased in the last few years)
- Seniors paying for your drinks on nights out

Cons:
- Industry is in decline
- Stressful
- Your opinion doesn’t really matter
- Massive job insecurity (even grads get fired left and right these days)
- ‘everyone’s trying to hold on to the seat’ mentality from senior staff
- Often lack of proper mentorship
- Less business due to increased regulation and computerization
- No work/life balance

Pros & Cons Of Working At A Fintech Start-up​

Working at a tech or fintech start-up has become the cool thing to do for many graduates and millennials in general. Being on the forefront of new technologies and ideas, while not being stuck in a corporate environment is very appealing to the younger generation. Exchanging the suit for jeans, t-shirt and converse has become the new norm for many young professionals in London. However, as with banking, there are both pros and cons when working in this kind of job.

Pros:
- Industry is booming – lots of hiring!
- You learn about disruptive technologies first hand
- You learn how a start-up is run (which is very valuable once you start your own business)
- Start-up office culture (no one will tell you off for being unshaven or not having shined shoes)
- Equity stake (making you rich if the company does well)
- Finally, you are not just an ant in an ant farm (you have more input beyond the scope of your role)

Cons:
- Lower starting salary
- Usually no bonus
- Start-ups can go bust very quickly (in fact, majority of startups fail)
- Less senior staff to learn from

Conclusion​

Despite having mentioned a long list of negative points about working in banking, I would say that it is still good to start your career in banking as you learn a lot about the financial markets, economics, different businesses and how a big corporation functions, while getting paid an excellent base salary (compared to graduate jobs in other fields).

However, after the excitement of working on a trading floor or getting the first few investment banking deals fades, you soon realize that it is not all that cracked up to be and that the atmosphere in banks has become rather depressing, as it is a declining industry and everyone knows it.

Once you have ‘done your time’ in banking it is probably wise to move on, unless you really enjoy it of course and have been fortunate enough to end up in a great team, with a great boss and a bank that’s doing well. Whether you move on to work in tech, fintech, another field or you start your own company, you will most likely have a much better life (and work/life balance) elsewhere.

If you are not able to secure a job in banking, however, then fintech is your next best option, if you want to work in the financial industry. And not a bad one at all! The starting salaries are definitely lower, but you are able to gain much broader experience and are able to play a more pivotal role in the business, should you desire to do so. It is much easier to stand out and be heard in a small start-up, than in a corporation with 100,000 staff globally. Furthermore, should you get equity in the company, you could end up making serious money much sooner than you ever would in banking (if the start-up is sold/goes public).

 

[Pound1]

Interesting perspective. Thanks for the write-up.

I always thought of start-ups as glamorous places to work but not where you can make the big money, as in kind of like working a 9-5, unless you are obviously higher up in the ranks. I also assume it's kind of hard to get equity at any promising start-up as you had to start with them at the bottom which is quite a big risk to take out of school.

 

[AlexLielacher1]

Interesting perspective. Thanks for the write-up.

I always thought of start-ups as glamorous places to work but not where you can make the big money, as in kind of like working a 9-5, unless you are obviously higher up in the ranks. I also assume it's kind of hard to get equity at any promising start-up as you had to start with them at the bottom which is quite a big risk to take out of school.

I agree on the last part. If you don't get don't any equity and you start at a small new start-up it is a huge risk with little pay off. Although that's exactly why the smaller start-ups do offer equity. Personally, I wouldn't recommend starting at a fresh new start-up without getting equity. Unless you want to start a similar project further down the road and just work there to learn.

Having said that, many UK start-ups do give equity - according to several tech job board. Graduate salaries are definitely much lower than in banking, but mid level fintech jobs pay similar to back/middle office in banking, if not better.

 

[magellan1]

Brilliant post! I started in banking 5+ years ago but later I moved to fintech/startups so I have experience in both worlds.

Pros of Working In Banking

1. Very high level of compensation for the productivity level of an average fresh graduate. The salary one receives is strongly correlated with the output that he/she generates. Youngsters that have just finished their studies tend to have low levels of practical skills and experience. Many banks offer 2-year graduate programs because they invest resources in training juniors and they lose money during the first part of the program (Investment in training + Salary > Results generated by juniors in the first period, then the two sides of the equation become equal and finally the output generated by juniors becomes greater than the cost for the bank).
2. Banking jobs are "prestigious". Your family and friends will respect you if you tell them that you work for a bank. If you say that you work for an early-stage startup or you are a founder of one they will think that you do not want to have a serious job and are just wasting your time.

Pros of Working At A Fintech Start-up

1. You will get hands-on experience in the financial services business. When you work for an investment bank as a junior, most of the time you are just preparing spreadsheets, presentations, documents and cannot see the real impact of your work. Working for a small startup is very different. Often you can see the outcome of your work immediately. For example, you create a financial plan and VC firms tell you that it is totally unreasonable or you launch a new marketing campaign and attract 0 customers after spending $200. At first, you feel terrible but after that, you accept the facts and improve.
2. Big upside potential and a limited possible loss. If you get equity in a startup that becomes very successful you could become wealthy. It is very unlikely that you will become wealthy as an employee unless you work for 30 years and reach a very senior position. The payoff structure of having equity in a startup vs being an employee is similar to the structure of investing in or shorting stocks. If you purchase a stock, theoretically it could go to infinity and you could make a lot of money. On the other side, if you short a stock, the minimum that it could reach is 0 and your potential profit is limited to the price of the stock. When you choose to work for a bank, you are essentially selling short yourself.

 

[LondonFinance1]

Nowadays, there is also an intersection between the two if you look at the likes of Monzo, Revolut and Wise which are rivaling established banks. I would also add that working for a Fintech is more innovative and thus more rewarding, even if it does not come with the job security of a large, established bank