bi on fintech

Providing in-depth insight, data, and analysis of everything digital.

Five Ways Fintech

Is Shaping The Future

Of Financial Services

Image source: Shutterstock/isak55

AGENDA The Rise Of Fintech

The Hype Vs. The Reality

Five Unstoppable Transformations In Financial Services

What’s Ultimately At Stake?

FINTECH IS REACHING A BOILING POINT

Source: William Garrity Associates, Google

$49.7 billion was invested globally on fintech

in the last 5 years.

As a search term, ”fintech” has risen 1,300%

on Google over the past year.

GLOBAL FINTECH FINANCING ACTIVITY

HAS SKYROCKETED

Global Fintech Financing Activity $Billions

Source: BI Intelligence estimates based on CB Insights data, Accenture, KPMG

$1.9 $2.1 $2.8 $4.3

$12.2

$20.0

2010 2011 2012 2013 2014 2015

WHAT IS FINTECH?

Fintech: n. A blanket term for disruptive

technologies affecting the financial

services industry.

THERE ARE LOTS OF CONCERNS ABOUT THE FINTECH INDUSTRY

Sources: Bloomberg, AdviseOnly, The New York Times

It’s a bubble that’s about to burst.

It’s an over-used buzzword.

Banks are too entrenched to

be disrupted.

THIS TABLE VALIDATES SOME OF THESE CONCERNS

Source: Business Insider

Valued at $1 billion (£680

million)…70x revenue

Revenue of just $13.8

million (£9.7 million)

And a net loss of $16.7

million (£11.4 million)

AND THEN THERE’S THE IMPLOSION OF POWA TECHNOLOGIES, ONCE A UNICORN

Sources: Business Insider, Sky News

BUT THE REALITY IS…

Banks have massive, entrenched, and

inefficient infrastructure

that is difficult to overcome.

Top 20 US banks have nearly $10 trillion in assets*

*Source: US Federal Reserve

ENTRENCHED INFRASTRUCTURE MAKES UPGRADES DIFFICULT

Sources: istock, REUTERS/Stringer

The New York City subway and a centuries-old bank aren’t so different…

THE REALITY IS…

The current customer experience is outdated — consumers now

expect their financial experiences to be:

Mobile Personalized

Customizable

Accessible

FINTECH CAN DISRUPT ANY AREA OF BUSINESS

Back-Office Middle-Office

Front-Office

MORE COST-EFFECTIVE OPERATIONAL STRUCTURE

Source: Lending Club

MORE EFFICIENT INFORMATION SHARING AND CONTRACT MANAGEMENT

Source: Santander

IMPROVED CUSTOMER EXPERIENCE

Source: Prosper

1. Fintech startups are stepping in between banks and their

customers.

FINTECH IS LEADING FIVE

UNSTOPPABLE TRANSFORMATIONS

PEOPLE AREN’T VISITING BRANCHES OFTEN

Frequency Of Bank Visits “Approximately how many times do you visit a physical bank location (for reasons other than using an ATM)?”

Source: BI Intelligence Digital Banking Survey

38%

26%

10%

10%

5%

6%

Don't visit

Less than 1 visit per month

1 visit per month

2 visits per month

3 visits per month

4 or more visits per month

ONLINE-ONLY BANKS PROVE

BRANCHES AREN’T ESSENTIAL

Source: BI Intelligence Fintech Ecosystem Report

THIRD PARTY PLATFORMS ARE GIVING CUSTOMERS ALL THEIR BANKING DATA IN ONE PLACE

Source: Mint

BANKS ARE GETTING SIDELINED

IN OTHER AREAS

PEER-TO-PEER LENDERS PROVIDE A MARKETPLACE THAT CONNECTS BORROWERS

WITH INVESTORS

Lending Platform Borrower Lender/Investor Applies for a loan (1)

Commits to a borrower (2)

THE BANK IS ON THE SIDELINES AND DOESN’T CONTROL THE CUSTOMER RELATIONSHIP

Lending Platform Borrower Lender/Investo

r

Partner Bank

Applies for a loan (1)

Commits to a borrower (2)

Issues the actual loan (4)

Loan note transfer

Loan note purchasing

Initial application and funding

Gives cash to the platform (6)

Purchases the loan note using investor’s cash (7)

Loan note (5)

Loan note (8)

Investor receives loan note (9)

Informs third-party bank that borrower is verified, investors have committed (3)

Loan repayment

(10) (11)

MARKETPLACE LENDING IS A WINNING FORMULA IN

THE US, EUROPE, AND CHINA

Marketplace Lending Volume In China, US, And Europe Combined

Sources: Cambridge University, Ernst & Young, GrowthPraxis, Wangdaizhijia, Online Lending House,

BI Intelligence estimates

$0

$50

$100

$150

$200

2012 2013 2014 2015E

Bill

ion

s

SO BANKS ARE GETTING SIDELINED IN MULTIPLE

WAYS. HOW ARE THEY RESPONDING?

BANKS ARE

INNOVATING OR PARTNERING

Source: Business Insider

Goldman’s launching an online

lending division.

JPMorgan partnered

with OnDeck to reach

more small businesses.


customers.

2. Robo-advisors are replacing human wealth advisors.



Source: YouTube/Betterment

Robo-advising (n.): the automated management of

investments. This doesn’t require a human advisor.

FINTECH STARTUPS HAVE SPURRED

THE ROBO-ADVISING MOVEMENT

WHY IS ROBO-ADVISING BENEFICIAL?

Removes brokers but still generates solid returns,

at a fraction of the cost

Customizable, personalized

No leftover cash

Lower fees

Lower minimums

ROBO-ADVISORS ARE GROWING MORE QUICKLY THAN OLDER PLAYERS

Source: CB Insights

Time To $1B Assets Under Management (AUM)

2

years

1 2 3 4 5 6

$1 billion

years

1

$1 billion

BUT INCUMBENTS ENJOY SOME MAJOR

ADVANTAGES THAT WILL GIVE THEM A BUFFER

THEY’RE STILL VASTLY LARGER

THAN THE LARGEST START-UPS

Assets Under Management $Billions

Source: The Wall Street Journal, Bloomberg, CNBC

$9

$3,000

Wealthfront, Betterment, and Personal Capital Vanguard

THEY’VE ALREADY COPIED THE ROBO-ADVISING

MODEL WITH GREAT SUCCESS

Source: The Wall Street Journal, Bloomberg, InvestmentNews

Assets Under Management $Billions

$9 $7

$10

Wealthfront Vanguard Personal Advisor Services

New assets Assets transitioned from pre-existing service

$17

OLDER GENERATIONS STILL WANT

AN IN-PERSON ADVISOR

Gen X and Baby Boomer Sentiment About Robo-Advising

Source: The Allianz Generations Apart Study, January 2015

69%

35%

10%

Don't really trust online advice

Interested in working with a robo-advisor

Comfortable having relationship with financialadvisor exist entirely online

BUT ROBO-ADVISING WILL TAKE OFF

Estimated US Robo-Advisors Assets Under Management $Trillions

Source: A.T. Kearney

$0.3 $0.5

$0.9

$1.5

$2.2

2016E 2017E 2018E 2019E 2020E

ULTIMATELY, THAT’S GOOD FOR CONSUMERS

Traditional Advisors’ Loss In Revenue From Price War With Robo-Advisors $Billions

Source: A.T. Kearney

-$1 -$3

-$32

-$61

-$85 to -$90

2016E 2017E 2018E 2019E 2020E


customers.


3. Fintech start-ups are distributing insurance plans without

the use of agents.



THE TRADITIONAL INSURANCE PROCESS IS SLOW AND INEFFICIENT

Source: World Economic Forum

The distribution of insurance is especially inefficient because it relies on sales agents

R&D/Product Manufacturing

Distribution Underwriting Claims Risk Capital &

Investment Management

AGENTS ARE COSTLY

Source: Core Innovation Capital

37,500 insurance agencies in the US

Consumers spend $25 billion per year in agent commissions

COSTS COMPRISE A HUGE SHARE

OF INSURANCE PREMIUMS

Source: Core Innovation Capital, BI Intelligence calculations

How The US Insurance Industry’s $1+ Trillion Premiums Are Spent

Claims & Claims adjustment, 65%

Costs, fees, and profit, 35%

~$364 billion cost

to consumers

FINTECH COMPANIES ARE STREAMLINING

THE DISTRIBUTION PROCESS

FINTECH START-UPS ARE OFFERING INSURANCE VIA MOBILE, WITHOUT AN AGENT

Source: BI Intelligence Fintech Ecosystem Report

VENTURE CAPITAL FIRMS RECOGNIZE THIS TREND,

AND THEY’RE INVESTING

Global Seed/Series A Insurance Tech Investments $Millions

Source: CB Insights

$26

$12 $11 $13

$32

$9

$58

$16

$103

$93

$52

$32

$89

$73

$99

$52 $55

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016*

THE INSURANCE INDUSTRY WILL SHIFT FROM SALES-BASED TO INFORMATION-BASED

Insurance will be commoditized and distributed online.

Cutting out sales agents will make the distribution process

more efficient.

This could create cost-savings for insurance companies,

which is then passed on to consumers.


customers.

2. Human wealth advisors are being replaced by robo-advisors.

3. Fintech startups are distributing insurance plans without

the use of agents.

4. POS technology is going mobile.



Source: Shutterstock/Aleph Studio

SQUARE READERS CAN BE ACQUIRED ONLINE OR IN A RETAIL STORE

Source: Square, YouTube

AND THEY OFFER AN APP MARKETPLACE TO HELP MERCHANTS IMPROVE OPERATIONS

Source: Square

MERCHANTS HAVE GRAVITATED TO SQUARE’S

EASY-TO-USE AND SCALABLE TOOLS

Square Gross Payment Volume $Billions

Source: Company filings

$7

$15

$24

$36

2012 2013 2014 2015

WHO’S BEING DISRUPTED?

Source: BI Intelligence Payments Ecosystem Report 2016


customers.


3. Fintech startups are distributing insurance plans without

the use of agents.


5. Blockchain is streamlining processes throughout

financial institutions.



FINANCIAL TRANSACTIONS INVOLVE COMPLEX STEPS WITH MULTIPLE VERIFICATION POINTS

Example: Securities settlement

Matching Clearing Life cycle

management

Collateral management and valuation

Settlement Custody

Source: Santander, Eureka Financial

Clearinghouse sets up

the trade

All parties have to confirm

terms and conditions

THE BLOCKCHAIN USES A GLOBAL NETWORK TO VERIFY TRANSACTIONS

Sources: Business Insider, Barclays

Current blockchain

1) Bundle recent

transactions into a block

Updated chain

Transaction 996

Transaction 995

Transaction 994

Reference to Prior Block

Transaction 999

Transaction 998

Transaction 997


Transaction 999

Transaction 998

Transaction 997


Transaction

1,002

Transaction

1,001

Transaction

1,000 Reference to Prior Block

Transaction

Transaction

Reference to

prior block

Transaction

2) Verify block using

cryptography and

computing power

3) Add to chain and

distribute block over

the network

IT COULD REDUCE BANK PAYMENTS, SECURITIES TRADING, AND COMPLIANCE COSTS

Source: Santander

$15 billion-$20 billion in potential annual savings

by 2022

OVER 40 BANKS ARE ALREADY TESTING BLOCKCHAIN APPLICATIONS WITH R3 CEV

BANKS WILL BENEFIT THE MOST

Banks face the highest operating costs

and are already jumping on the trend.

Companies that function solely as intermediaries

could be in trouble.


customers.


3. Fintech start-ups are distributing insurance plans without

the use of agents.


5. Blockchain is streamlining processes throughout

financial institutions.

ALL OF THESE TRANSFORMATIONS

ARE WELL UNDERWAY

WHAT’S AT STAKE FOR INCUMBENTS AND NEW ENTRANTS?

INCUMBENTS RISK REDUCED PROFITS

AND MARKET SHARE

What Are The Threats Related To The Rise Of Fintech Within Your Industry?

Source: PwC Global FinTech Survey 2016

67% 59% 56% 53%

Pressure on margins Loss of market share Informationsecurity/privacy threat

Increase of customerchurn

THESE THREATS ARE PUSHING INCUBMENTS

TO ACQUIRE AND PARTNER WITH START-UPS

How Are You Currently Dealing With Fintech Companies?

Source: PwC Global Fintech Survey 2016

9%

11%

14%

25%

32%

Acquire fintech companies

Launch own fintech subsidiaries

Set up venture funds to fund fintech services

Do not deal with fintech

Engage in joint partnerships with fintech firms

THIS COULD BE BENEFICIAL BECAUSE START-UPS

ARE ADDRESSING CUSTOMERS’ NEEDS

Net Promoter Score (Index Ranging From -100 to 100 That Measures Customer Loyalty)

Source: OnDeck company filings

76

46

19

9

OnDeck Community Banks Regional Banks National Banks

BUT ON THEIR OWN, START-UPS

ARE CHALLENGED BY REGULATIONS

Top Challenges For The Fintech Industry

Source: Silicon Valley Bank

43%

24%

18%

15%

Regulation

Companies' reluctance to adopt new technologies

Changing consumer behavior

Access to funding

DISRUPTION WILL INITIALLY COME

IN TWO WAVES

Banking, payments, lending

Wealth

management,

insurance

REGARDLESS OF TIMING, THE REALITY

IS THAT FINTECH IS A THREAT

Share Of Business Threatened By Fintechs

Source: PwC Global FinTech Survey 2016

28%

24% 23% 22% 21%

Fund transfer &payments

Banks Average Asset/Wealthmanagement firms

Insurance firms

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