A Morgan Stanley exec breaks down how the bank courts tech partners like OpenAI

  • 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.

Sean Manahan’s team at Morgan Stanley met with what was then an up-and-coming research nonprofit two years before OpenAI became the artificial intelligence juggernaut it is today.

Manahan, a managing director in charge of finding tech vendors for Morgan Stanley, spoke with the startup about its technology and how it could be used in financial services, potentially at the investment bank and wealth management behemoth.

Now, OpenAI’s ChatGPT and other forms of AI are wreaking havoc on Wall Street. Morgan Stanley, for its part, is leveraging its ties with OpenAI to boost the bank’s lucrative wealth-management business. In the coming months, the bank plans to roll out an AI tool to its army of wealth advisors to help them parse the bank’s massive trove of research and data.

Manahan’s job is to find interesting tech companies to drive transformational change at the bank, from stealth startups walking off the Stanford campus to legacy powerhouses like Microsoft.

Manahan now wants to find more partnerships that can effect similar change.

“We have a much stronger focus on buying versus building right now,” said Manahan, global head of technology business development. He also stated that he has met with over 200 AI companies in the last year. One out of every five companies his team meets is in the field of artificial intelligence.

Morgan Stanley’s tech strategy is roughly 80% buy and 20% build, and the pipeline of tech vendors has exploded. Manahan’s team has more than doubled to 30 in the last five years to meet the internal demand of businesses seeking external innovation, and it has also become more efficient.

He claims that the time it takes to get new tech partners into the testing phase has shrunk from weeks to less than a day. He added that the overall process of matching vendors to business problems, performing due diligence, and piloting the technology has been reduced from months to days.

Morgan Stanley uses a three-part framework to evaluate every vendor

Manahan’s team has been around for 20 years, and during that time, the group has refined its vendor evaluation process.

The timing is ideal for sharpening the bank’s approach. The fintech and tech markets have exploded in recent years, providing a plethora of new technology for the bank to acquire.

According to CB Insights, investors poured $50 billion into the fintech sector globally in both 2019 and 2020. By 2021, that figure had risen to more than $140 billion in fintech funding. According to CB Insights, despite the downturn in 2022, fintechs received $77 billion in investments.

“There has been an explosion of tech startups over the last five years,” said Manahan. “Because they’re cloud-based, they have access to all of this data.” It’s just so much easier to create a new product now than it was before.”

Manahan’s team collaborates more closely with business units than with technology teams. This enables Manahan’s team to gain a better understanding of business problems and opportunities, allowing them to be more deliberate in their search.

The approach to working with third-party vendors has also been refined. Every potential partner who walks through the door, regardless of size, is subjected to a three-part framework.

First, Morgan Stanley puts in a lot of work before every contract, from working with VCs to find suitable targets to learning about the company’s problems. VCs play an important role in connecting Morgan Stanley with a diverse range of emerging companies, from both an industry (such as security, data, and payments) and geographic perspective.

Once a potential company is identified, Manahan’s team sets the tone by discussing the realities of working with a highly regulated company such as a bank, which can be very culturally different than working with a tech company.

The company then collaborates 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 cloud migration has provided tailwinds to an already accelerated process. Many of these businesses, whether they are early-stage startups or mature software providers, are built on public cloud infrastructure.

Morgan Stanley, like every other Wall Street firm, has migrated to the cloud. This enables businesses to innovate more quickly by gaining access to more data and advanced software tools.

The cloud enables large banks to conduct proof-of-concept tests with external companies that are 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 collaborating between an iPhone and a Mac is easier than between an Android phone and an Apple computer.

Startups are also benefiting from the advanced software and tools provided by cloud providers. “They’re able to get to a much more mature product in a much faster way than ever before,” Manahan added.

But having a great product is one thing; working inside a large bank is quite another. Working with Manahan’s team can be like taking a crash course in how to work with and navigate a large organization like Morgan Stanley. Not all are chosen.

“Just because you have a fantastically great product doesn’t mean you’re ready or want to sell to Wall Street,” he adds.

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