Twenty years ago, Fidelity Investments created Fidelity Labs, an in-house innovation center for prototyping and launching new businesses. As corporate innovation centers go, that’s a notably long run. And last month, the company named tech entrepreneur Evan Schnidman as its new leader.
Based in Boston, Fidelity is a privately-held financial services company with roughly 77,000 employees and $15 trillion in assets under management.
“I think that there’s a lot of folks in the fintech world that have gotten pushed into doing things that are smaller than their ambition, because they can’t afford to build the distribution they need,” said Schnidman.
Schnidman is a serial entrepreneur who turned his PhD research into his first startup, a natural language processing company called Prattle that sold to Liquidnet in 2019. He spent time building out a fractional executive consulting business before founding MarketReader, which uses data to explain market volatility, with one of his clients.
At Fidelity Labs, he said, there is a willingness to invest for the long haul: “Our job is to think at scale for the long term, not just build a small business that can get acquired in a year or two.”
We spoke with him earlier this month about how Labs is structured; some of the businesses they’ve built; and how they’re leveraging AI.
• • •
Talk to me about what it’s like carrying the torch for one of the longest-running innovation labs in corporate America.
In order to build a transformational business, something that has long-term staying power, you need a couple of major ingredients. One of the things that I think most of the early-stage startups that I’ve worked with struggle with most is distribution. Everybody struggles with resources. That’s just a given in the startup world, but distribution is particularly tough in financial services.
Having worked in fintech now for well over a decade, I can say that the early-stage companies don’t struggle to innovate on product; they struggle to reach distribution at scale, and that’s something Fidelity has got. Fidelity has the opportunity to continue to be an innovative leader and leverage that distribution. Having the long time horizon of being a privately held company and having the distribution pipes already in place presents a really interesting opportunity to transform fintech, to transform finance. That’s where I get excited, is the opportunity to actually do that at scale, across a bunch of businesses all at once.
What can we expect from Fidelity labs with you at the helm? What’s changing and what are you keeping the same?
The thing that is absolutely paramount, and has been for the last few years, is really focusing on how we build the next generation of fintech businesses. In the past six to seven years, that’s really focused on [software-as-a-service] businesses. As we look to the future, I think it’ll be broader. The software world has changed with AI, so we’ll probably have a broader slate of types of businesses that we’re incubating within Labs.
You don’t have to do weeks or months of coding to get something basic stood up. Now, you can code that in an afternoon. Because we can move faster with AI tools, we can actually test ideas in market quite quickly.
I also think that the process changes because of the use of AI tools, because of the ability to get through rapid prototyping so much more efficiently. You don’t have to do weeks or months of coding to get something basic stood up. Now, you can code that in an afternoon. Because we can move faster with AI tools, we can actually test ideas in market quite quickly. That allows for that user feedback loop to accelerate, but we need the team to do that.
Right now, we’ve got a lot of people sitting in each individual business, but we actually have a very lean central team. We’ll be building up the central team’s technology function to support that rapid iteration cycle. Instead of putting together an idea and fleshing it out in a deck, we actually get to breathe life into it and bring it to the market and say, what’s the interest in this? Is this real?
One of the wonderful things about Fidelity Labs is that we get to be not just at the epicenter of one of the largest financial institutions in the world, but we actually get to think in the long term. What does the industry need to do today to be resilient and to be ready for 10, 20, 30 years from now? Those are things that are a priority here that frankly aren’t a priority in a lot of other places, and being subject to quarterly reporting makes that really hard for public companies. My whole M.O. is move quickly. We can’t break anything. We’re Fidelity. But we get to move quickly with a broader vision in mind, and that’s ultimately where the direction of Labs is going.
I can sense your excitement. You have that innate startup founder juice.
I definitely don’t take a lot of breaks and I get excited about what we’re doing. More often than not, I’ll be sitting there at midnight on my computer with some new idea that I’m trying to crank away on. You can’t turn that off.
Fidelity Labs is known for bringing new fintech ideas to life. What are some of the most impactful innovations that you know about that have come from this space?
There are a couple of great examples in Labs right now that have paved the path here in the last few years. You look at companies like Saifr and CatchLight that have been on the market for several years now.
Saifr is a great example of being able to train on the internal Fidelity [compliance] language and turn that into a very sophisticated AI system designed to catch potential compliance issues. That’s one of the things that jumps out at me as the unique advantage here, is the ability to leverage not just the distribution parts that I mentioned before, but the scale and the history here of the rich data we have.
CatchLight’s in a similar situation, being able to understand how financial advisors interact with their clients. We’re about to have the largest generational transfer of wealth in human history. Being able to capture that next generation of clientele is what every financial advisor is looking to do. Having the data to understand what motivates those people puts us in an advantageous position, and then having the innovative team that is able to build the data science models, the AI models that actually make that data usable, that’s where things get interesting. [It could be] the best data in the world. If you can’t unlock the insights from it, it doesn’t matter.
You’re a serial entrepreneur yourself. What does this experience bring to your current role, and how do you plan to use it to hone Fidelity Labs’ focus moving forward?
A lot of it is about speed. That’s where startups really out-compete larger businesses, is being able to move quickly. As I think about what we can do with Labs, it’s really instilling that startup culture, that pace of work and that rapid iteration cycle. There’s nothing stopping us from doing that here. We have to make that ingrained in everything as part of the culture of Labs. How do we get to rapidly iterating on product development and customer testing?
We’re not subject to quarterly reporting cycles. We get to figure out where the industry is going on a five- or 10-year time horizon.
As I think about how we get to use AI going forward, that’s one of the great use cases now. You can develop products so much more efficiently. As we have new ideas, we have a built-in clientele, we have this opportunity to essentially do a rapid prototype and test, is there customer demand for this? And if not, OK, that’s a feedback loop. We can test again and probe and figure out: What are the things that are really going to resonate with clients today, while also keeping an eye on the long-term future?
We’re not subject to quarterly reporting cycles. We get to figure out where the industry is going on a five- or 10-year time horizon. If there’s something that doesn’t resonate today, but we have a vision as to where that’s going, we have the opportunity to build not just for what people will pay money for today or tomorrow, but in a couple of years.
You mentioned you started your career in natural language processing. Talk to me about how you’re embracing open source tech and AI, including what that looks like and why it’s important.
I mentioned the rapid iteration cycle. That’s one of the key elements to how we’re using AI, is to do rapid prototyping and test ideas. When it comes to the world of NLP, that world completely changed in the last few years. I built an NLP company long before the era of large language models. I vividly remember when the now-famous Google transformers paper came out. That all seems quaint now when I think about the amount of money we’re spending on computing and how the world has changed.
The tools that are at our fingertips right now allow us to move much more efficiently in terms of seeing what’s out there. It also makes it challenging to say what’s differentiated, and that’s why we’re tapping into the open-source community. You can see the trends in what people are actually using. Like a lot of other institutions, Fidelity has gotten very smart about the fact that it’s impossible to keep up with the evolution of software simply by buying yet another software license. You have to keep track of what’s going on in the open-source community. You might have to build on top of that internally. And thankfully, within Labs, we get to be the tip of the spear on that. Between Labs and the Fidelity Center for Applied Technology [where research and development teams evaluate and track important tech trends], we get to play with the fun tools out there and figure out what’s actually institutionally great for us.
One of the first things I did since joining Labs was ask every team in Labs…to make a list. Tell me what AI tools you want access to. We’re categorizing that list and going to procurement and working through which of these tools are secure enough for us…
You mentioned the importance of staying on top of open-source tech and all the other innovations coming out in the space. Have you identified a team that’s really focusing on this, or is it more spread out across the organization and in a way that it’s everybody’s job?
I’d say a little bit of both. One of the first things I did since joining Labs was ask every team in Labs — each one of the individual companies, as well as our central operating team — to make a list. Tell me what AI tools you want access to. We’re categorizing that list and going to procurement and working through which of these tools are secure enough for us to operate within Fidelity systems. Some of them won’t be, and that’s OK.
For me, that’s an opportunity to help everybody here move faster, but also get them the tools that allow them to see where the world is changing and evolving in real time. That’s going to be a constant struggle. Things are moving so fast in the AI world that what people want access to today and what they’ll want access to in six months are probably wildly different.
Can you tell me some other innovations that you’re working on fostering right now that are really exciting?
We just had a new entrepreneur in residence (EIR) start a couple of weeks ago, [and] we’ve got a project that’s getting a little bit more mature in the crypto custody space as well.
A new team member specifically focused on new venture creation started a couple weeks before me. We’ve got some new thinking coming in, new ideas coming in, everything from what’s going on in the financial planning space and the generational transfer of wealth area, all the way to how we use agentic workflows to support portfolio managers and analysts.
Labs has a pretty diverse mandate here. We’ve got the first new transfer agent in almost 40 years that launched with Fidelity Stock Transfer a couple years ago [and] Fidelity Private Shares, which is a cap table management software product that offers a whole lot of new features to essentially the entire private market ecosystem.
It’s only been a few months, but it sounds like it’s been a fast-moving few months. Since being in this role, have you found yourself thinking about angles of fintech that you really hadn’t considered before?
I’m not going to lie. I was so focused on the asset management side of fintech for so many years that I didn’t spend a lot of time on the financial planning or insurance side. And to be really blunt about it, I barely knew what a transfer agent was. I knew the term. I didn’t know the nuts and bolts of how that operated until joining Labs. Really getting to learn about Fidelity stock transfer, these plumbing things, these things that are core infrastructure to how our financial system operates, [which] Fidelity has deep roots in that most people don’t even know exist.
There’s a long history of Fidelity providing industry utilities with next-generation technology. I think that stock transfer is a great example of that, where this is an industry utility on a modern tech stack. That’s the kind of thing that I’m now looking at and saying, we have the opportunity to build that because we have the distribution built in. We have the knowledge internally to know what the size of those opportunities are and what the demand looks like.
Going back to the fact that this is one of the longest-standing corporate innovation centers, not every company has the benefit of sitting on one of those. Can you talk about why having an institution like this is important and, without giving away your secret sauce, what kind of considerations should other companies make to compete with the best of them?
I’m a researcher, so I spent a lot of time researching the differences between standalone venture studios versus corporate innovation and the strengths and weaknesses of each of those models.
Venture studios are one segment of the venture market that really grew in the last four or five years. That’s not a mistake. We know that venture creation is hard, but teams that are really good at and figure out the flywheel on that can have sustained and repeated success.
There are some corporate innovation centers that are just an exercise in virtue signaling and to show people that they’re innovative. Those ones don’t typically stick around for very long…
In the corporate innovation landscape, it’s much more varied. There are some corporate innovation centers that are just an exercise in virtue signaling and to show people that they’re innovative. Those ones don’t typically stick around for very long, because they end up becoming a budget black hole. The reason why Fidelity has been able to sustain Labs for coming up on 20 years is because there are businesses that add an enormous amount of value to Fidelity’s business.
There’s buy-in from the very top that it’s our job in Labs to probe on what’s next. Sometimes those things are uncovered by the large business units that have enormous breadth, and they come to us in Labs and say, “Hey, we need help building this because you can move faster.” That’s what we’re designed to do. And sometimes that comes from us doing our own research, or an EIR coming in and [finding] opportunity. It might take a few years for these businesses to take off, but that’s kind of the point. That’s something we can do here that’s really hard to get done outside of a big financial institution.
Having these resources available to you now seems quite exciting for you.
No question about it. I’ve worked with dozens of great entrepreneurs. Unfortunately, a lot of those things end up sitting on the sidelines and never reaching commercial scale just because they don’t have the resources they need to thrive. We have resources here, and it’s not just financial resources, it’s not just knowledge about the industry. It’s the distribution pipes, and it’s the long-term buy-in.
You must be logged in to post a comment.