Investing in a Tech Platform to Enable Better Banking

The finance industry is a bit of a paradox. On one side, you have high-frequency trading, where machines talk to machines and trading happens nearly instantaneously. On the other side, you have relationship-driven work: mergers and acquisitions, IPOs, and debt issuance.

Consider debt. Bankers build relationships with CFOs and executives over time. When a company like Apple, Google, or 3M wants to borrow money from the capital markets (a process known as new issuance), they tap those bankers, who work the phones, email, and chat messages to organize investors and get the deal done.

At least that’s how it’s been done for decades. But a company called DirectBooks is changing that, replacing the flurry of chats, calls, and emails with a technology platform that streamlines communication between banks and institutional investors.

Managing a coalition of banks and institutional investors, all of which have different needs, wants, and levels of technological sophistication, is a well-met challenge for the DirectBooks leadership team, who have collective decades of experience in fintech investing.

I spoke recently with DirectBooks CEO Rich Kerschner and chief operating officer Yvonne Wang about the company’s approach to innovation.

MIT Sloan Management Review: The DirectBooks platform launched in 2020. Can you talk a little bit about how things got started?

Rich Kerschner: A group of nine banks got together to build a technology platform that would centralize the process of how underwriters communicate with institutional investors. I came onboard in 2019 to form that centralized company, which launched as DirectBooks.

A common reaction at the time was, “Why now?” This is a very common refrain with innovation — the idea that “this is fantastic, but why didn’t you do it earlier?” There are plenty of reasons why it didn’t get done earlier; some of them have to do with market forces being aligned to drive change. But there also were many technological innovations coming to bear that served as enablers that we didn’t have before, such as cloud computing.

With DirectBooks, we’re taking a process that was working well enough but was often fairly manual, given that every bank had its own technology, and we’re streamlining these connections using a common set of structured data.

How is this use of technology different from what was done in the past?

Yvonne Wang: Previously, new debt issuance was largely a voice business — email, chat, unstructured data, bilateral communications.