- Morgan Stanley wants more partnerships with tech vendors focused on cloud, data, and AI.
- The bank has cut down the time it takes to test and onboard new partners as its pipeline grows.
- Sean Manahan, global head of technology business development, outlines what he wants in a partner.
Two years before OpenAI ballooned into the artificial intelligence juggernaut it is today, Sean Manahan’s team at Morgan Stanley met with what was then an up-and-coming research nonprofit.
Manahan, a managing director responsible for finding tech vendors for Morgan Stanley, heard the startup out about its tech and how it could be applied within financial services and potentially at the investment bank and wealth management giant.
Now, OpenAI’s ChatGPT and other forms of AI are taking Wall Street by storm. For its part, Morgan Stanley is capitalizing on its ties with OpenAI to supercharge the bank’s lucrative wealth-management business. The bank expects to roll out an AI tool to its army of wealth advisors in the coming months to help them parse the bank’s massive trove of research and data.
It’s Manahan’s job to sniff out interesting tech companies to drive transformational change at the bank, from startups in stealth mode walking off the Stanford campus to legacy powerhouses like Microsoft.
And now, Manahan wants to find more partnerships that can drive similar change.
“We have a much stronger focus on buying versus building now,” Manahan, global head of technology business development, told Insider. He added he’s met with more than 200 companies in the AI space in the past year. For every five companies his team meets, one is in AI.
Morgan Stanley’s tech strategy is about 80% buy to 20% building tech inhouse and the pipeline of tech vendors has exploded. Manahan’s team has doubled to 30 in the past five years to accommodate the internal demand of businesses wanting external innovation, and it’s gotten more efficient, too.
Getting new tech partners to the testing phase has shrunk from weeks to less than a day, he said. The overall process of matchmaking vendors to business problems, performing due diligence, and piloting the tech has been shaved down from months to days, he added.
Morgan Stanley uses a three-part framework to evaluate every vendor
Manahan’s team has been around for 20 years, and the group has refined its process of evaluating its vendors over that timeframe.
Sharpening the bank’s approach has come at a good time. The fintech and tech market has mushroomed in recent years, providing a pool of new tech for the bank to snap up.
Investors pumped about $50 billion into the fintech sector globally in both 2019 and 2020, according to CB Insights. During the frothy days of 2021, that skyrocketed to more than $140 billion in fintech funding. Despite the downturn in 2022, fintechs still raked in $77 billion in investments, according to CB Insights.
“There has been an explosion of tech startups over the last five years,” Manahan said. “They’re built on the cloud, they have access to all this data. It’s just so much easier to build a new product than before.”
Manahan’s team works more closely with business units rather than just technology teams. Doing so allows Manahan’s team to better understand business problems and opportunities, allowing them to be more deliberate in the search process.
The approach to working with external vendors has also been polished. A three-part framework is applied to every potential partner that comes through the door, regardless of size.
First, there’s an enormous amount of pre-work that Morgan Stanley does that goes into every contract, from working with VCs to find suitable targets to learning about the business’ problems. VCs play an important role in matchmaking Morgan Stanley with the swath of up-and-coming companies, from both an industry (like security, data, payments) and geographic lens.
Once potential companies are identified, Manahan’s team sets the tone with the realities of working with a highly regulated company like a bank, which can be very culturally different than working with tech companies.
Then comes the proof of concept, where the company works with the bank’s lab to workshop the product and solidify the specific business use case.
The public cloud accelerates Morgan Stanley’s partnership testing
A larger movement to the cloud has provided tailwinds to an already accelerated process. Many of these companies, whether early-stage startups or matured software providers, are built on the public cloud.
Morgan Stanley, like every other finance firm on the Street, has also moved to the cloud. Doing so allows companies to innovate quickly by accessing more data and advanced software tools.
The cloud makes it easier for big banks to run proofs of concepts with external companies also built on public cloud providers, such as Amazon Web Services, Microsoft Azure, and Google Cloud. Both parties are working on the same blueprint, similar to how it’s easier to collaborate between an iPhone and Mac than for an Android phone and Apple computer.
Startups are also taking advantage of the advanced software and tools cloud providers offer. “They’re able to get to a much more mature product in a faster way than ever before,” Manahan added.
But it’s one thing to have a great product, and it’s another to work inside a big bank. Working with Manahan’s team can be like a crash course, in which companies learn what it’s like to work with and navigate a massive organization like Morgan Stanley. Not all make the cut.
“Just because you have a fantastically great product doesn’t necessarily mean that you are ready or are wanting to sell to Wall Street,” he added.
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