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02 the-fin tech-revolution
- 1. 1H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY INNOV-ACTS, Limited H2020 FINSEC Project The FINSEC project is co-funded from the European Union’s Horizon 2020 programme under grant Agreement No 786727 The Financial Technology Revolution (FinTech) 05/11/2019
- 2. 2H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY What is FinTech? §FinTech stands for Financial Technology §Delivery of Financial Services based on software and technology §Scope: § Technical innovation applied in a traditional financial services § Disruptive Innovation Empowered by Digital Technology § Otherwise IT and digital technologies are already used by financial institutions - FinTech is about disruption FinTech Digital Technologies (“Enablers”) Disruptive Financial Services
- 3. 3H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY FinTech Growth
- 4. 4H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY FinTech Value per Region (source: EY FinTech Adoption Index 2017) New York • Close to markets • Many incubators & accelerators California • Mature FinTech community • Established connections and large VC funds UK • Global financial hub • Progressive government & regulation • Effective network of hubs Germany • Mostly credit & lending • Increasing focus on b2b • Complex startup environment Hong Kong • Relatively nascent market • Focused on capital markets Singapore • Linked to Asia • Friendly Business Environment • Dedicated team at regulator
- 5. 5H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY FinTech Barriers per Age Group (source: EY FinTech Adoption Index 2017)
- 6. 6H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY FinTech Value by Segment in USA
- 7. 7H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY Examples of FinTech & Financial Inclusion Mobile money payments, high demand for international transfer of funds Philippines Banks have a reputation for poor customer service and of inefficiency i.e. 150+ Fintech companies operating in Mexico and acquiring market share in payments and lending through smartphones Mexico BKash Limited, a subsidiary of BRAC Bank Limited was launched in 2011 to provide mobile financial services, including payments and money transfers, to both the unbanked and banked populations. Upon registration, each user receives a mobile wallet that serves as a bank account Bangladesh
- 8. 8H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY FinTech: The Five Transformations FinTech Startups intermediate between banks and their customers. Intermediation Human wealth advisors and asset managers are complemented and/or replaced by Robo-advisors Robo-advisors InsurTech startups obviate the need for insurance agents Insurance without agents Point of Sales devices are becoming mobile Mobile POS Blockchain streamlines processes throughout financial institutions and facilitates data sharing between them Blockchain driven data sharing & collaboration
- 9. 9H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY FinTech Examples: Stripe.com § A complete payments platform engineered for growth § PayPal – like service charging flat fee per transaction § Billing customers on a recurring basis § Set up a marketplace § Accept payments, § Fully integrated global platform that can support online and in-person payments § The payments platform for platforms § Marketplaces and platforms use Stripe Connect to accept money and pay out to third parties: § Complete set of building blocks to support virtually any business model (e.g., on-demand businesses, e-commerce, crowdfunding, and travel and events)
- 10. 10H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY FinTech Examples: LendingClub §Personal loans up to $40,000 §Brings borrowers and investors together §Competitive Returns e.g., Fixed-income alternative, with historical returns of 3– 8% per year §Diversified portfolio
- 11. 11H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY FinTech Examples: Kabbage.com §Facilitates accessing to funding for small businesses §Kabbage developed a simple way to get up to $250,000 §Kabbage extends $1 billion each year in working capital funded to small businesses
- 12. 12H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY FinTech Examples: Wealthfront § “Pocket assistant” for investments and finances § Builds free financial plan that is personalized to the customer’s needs § Automates investments at a low cost. § Investments concern retirement, travels, collage, homeownership etc.
- 13. 13H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY FinTech Examples: Personetics.com § Real time banking and finance insights for traditional banks (i.e. in collaboration with them). § Provides PFM (Personal Finance Management) solutions. § Emphasis on forward-looking insights and timely bite-sized advice. § Helps customers make smarter day-to-day decisions about their investments and money.
- 14. 14H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY Classification of FinTech Applications FinTech Applications Peer-to-Peer Lending Lending Marketplaces Crowdfunding Roboadvice - PFM Virtual Currencies Payment Accounts Payment Initiation Credit Risk Assessment Customer- Centric Analytics
- 15. 15H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY FinTech: Pros and Cons Pros / Benefits: Privacy, Transparency, Lower Transaction Costs, Financial inclusion (e.g., Poorer Countries) Cons / Risks: Anonymity, No Government Intervention, Lower Consumer Protection, Volatility, Cyber Crime Enabler
- 16. 16H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY Skills Needed for the FinTech Revolution Maths, engineering, software development, programming, AI, analytical skills in context Hard skills Design and development of the customer experience Soft skills Digital channels and social media & ensuring financial inclusion despite the complexity of future products and services Communication Expertise in understanding threats and vulnerabilities, but also in assessing, averting, managing and confronting them in efficient ways Cyber security Imagining new business models that require new ways of working, different ways of taking decisions Business Models Expertise In the globalization and technology acceleration context Managing Change
- 17. 17H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY Typical SWOT Analysis for FinTech Enterprises Strengths •Innovation of the Product/Service •Competency of the technical teams •Strong Branding •Agility and Flexible Cost Structured •Secured Partnerships •Lack of Strong competition Weaknesses •Entry Barriers in a Regulated Market •Lack of adequate capitalization •Declining profitability of the target product •Need to seek for track record and reputation Opportunities •Growth in FinTech investments •Inefficiencies of traditional products and services •Opportunities in emerging markets and millennials •Replacement of existing ecosystems towards higher automation and better customer experience Threats •Changing Regulatory Environment & Uncertainty •Cybersecurity Threats •Threats associated with economic cycles and possible financial crises
- 18. 18H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY Banks Strengths over FinTech Firms There is strong bonding and trust relationships between banks and their customers History & Track Record Banks have higher market capitalization than FinTechs- They are less susceptible to turbulence and market volatility Wealth and Liquidity Including Marketing Agents and Sales Force Sales force and Customer Service infrastructure Competitive advantage for novel digital data-driven applications including BigData analytics and AI applications Own more data
- 19. 19H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY Banks: Suggested Stance Against FinTech firmsMonitoring Follow closely FinTech developments Including regulation, new products and activities Their innovation structures should be closely linked with FinTech ecosystems Positioning Position their activities against FinTech developments Complete or partner with FinTechs to provide more efficient and desirable services to customers Collaborating Collaborate with Fintech in selected areas Regulatory compliance and risk reduction are primary candidates Leverage opportunities to increase their innovation capital
- 20. 20H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY Banks & FinTechs Symbiotic Relationship Up to Date Innovation Investments •Banks invest in FinTech •Banks operate incubators and start-up programs for FinTech enterprises Partners and Collaborations •Banks partner with FinTech enterprises companies •Areas of collaboration: Loans, Cobranding arrangements, White label/private label arrangements, Referral arrangements Acquisitions •Banks acquire FinTech companies
- 21. 21H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY Example of FinTech – Bank Relationships: Alternative Lending Alternative Lenders (ALs) • Nonbank lenders • Leverage Internet and digital technologies such as data-analytics. • Offer improved customer experience, better lending decisions, customer sourcing, and funding. ALs vs. Banks • Originally viewed as competitors to banks despite relying on incumbent banks for loan origination. • Recently banks establish business relationships with ALs.
- 22. 22H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY Bank & ALs Relationships Models Banks originate loans (funding from individuals/institutional investors) Traditional AL business model Banks provide referrals, whole loan purchases, white labeling/cobranding of AL lending platform, and securitization services Partnerships Banks fund ALs through credit extensions, whole loan purchases, and equity investments Funding Banks acquire an AL that becomes a primary business line unit, such as an online consumer lending unit Acquisitions Banks provide workspace, seed funding, mentoring, training, and other related support for startup entrepreneurs Incubators Source: “Fintech Innovation: An Overview”, Clement Ancri, Board of Governors of the Federal Reserve System