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Five Ways Fintech is Shaping the Future of Financial Services
The document discusses the rapid growth of the fintech industry, highlighting its transformative impact on financial services through five key trends: fintech startups engaging directly with customers, the rise of robo-advisors, the disruption of traditional insurance distribution, the mobile shift in point-of-sale technology, and the implementation of blockchain technology. While fintech offers significant advantages such as enhanced customer experiences and cost efficiencies, it poses threats to established banks and financial institutions, prompting them to innovate and adapt. The document emphasizes that fintech's influence is only expected to grow, challenging incumbents to reassess their strategies in a changing landscape.
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Five Ways Fintech is Shaping the Future of Financial Services
- 1. Providing in-depth insight,data, and analysis of everything digital. Five Ways Fintech Is Shaping The Future Of Financial Services Image source: Shutterstock/isak55
- 2. Providing in-depth insight,data, and analysis of everything digital. Five Ways Fintech Is Shaping The Future Of Financial Services Image source: Shutterstock/isak55
- 3. AGENDA The RiseOf Fintech The Hype Vs. The Reality Five Unstoppable Transformations In Financial Services What’s Ultimately At Stake?
- 4. FINTECH IS REACHINGA 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.
- 5. GLOBAL FINTECH FINANCINGACTIVITY 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
- 6. WHAT IS FINTECH? Fintech:n. A blanket term for disruptive technologies affecting the financial services industry.
- 7. THERE ARE LOTSOF 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.
- 8. THIS TABLE VALIDATESSOME 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)
- 9. AND THEN THERE’STHE IMPLOSION OF POWA TECHNOLOGIES, ONCE A UNICORN Sources: Business Insider, Sky News
- 10. BUT THE REALITYIS… 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
- 11. ENTRENCHED INFRASTRUCTURE MAKES UPGRADESDIFFICULT Sources: istock, REUTERS/Stringer The New York City subway and a centuries-old bank aren’t so different…
- 12. THE REALITY IS… Thecurrent customer experience is outdated — consumers now expect their financial experiences to be: Mobile Personalized Customizable Accessible
- 13. FINTECH CAN DISRUPTANY AREA OF BUSINESS Back-Office Middle- Office Front-Office
- 14. MORE COST-EFFECTIVE OPERATIONALSTRUCTURE Source: Lending Club
- 15. MORE EFFICIENT INFORMATIONSHARING AND CONTRACT MANAGEMENT Source: Santander
- 16.
- 17. 1. Fintech startupsare stepping in between banks and their customers. FINTECH IS LEADING FIVE UNSTOPPABLE TRANSFORMATIONS
- 18. PEOPLE AREN’T VISITINGBRANCHES 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
- 19. ONLINE-ONLY BANKS PROVE BRANCHESAREN’T ESSENTIAL Source: BI Intelligence Fintech Ecosystem Report
- 20. THIRD PARTY PLATFORMSARE GIVING CUSTOMERS ALL THEIR BANKING DATA IN ONE PLACE Source: Mint
- 21. BANKS ARE GETTINGSIDELINED IN OTHER AREAS
- 22. PEER-TO-PEER LENDERS PROVIDEA MARKETPLACE THAT CONNECTS BORROWERS WITH INVESTORS Lending PlatformBorrower Lender/InvestorApplies for a loan (1) Commits to a borrower (2)
- 23. THE BANK ISON THE SIDELINES AND DOESN’T CONTROL THE CUSTOMER RELATIONSHIP Lending PlatformBorrower 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)
- 24. MARKETPLACE LENDING ISA 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 Billions
- 25. SO BANKS AREGETTING SIDELINED IN MULTIPLE WAYS. HOW ARE THEY RESPONDING?
- 26. BANKS ARE INNOVATING ORPARTNERING Source: Business Insider Goldman’s launching an online lending division. JPMorgan partnered with OnDeck to reach more small businesses.
- 27. 1. Fintech startupsare stepping in between banks and their customers. 2. Robo-advisors are replacing human wealth advisors. FINTECH IS LEADING FIVE UNSTOPPABLE TRANSFORMATIONS
- 28. 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
- 29. WHY IS ROBO-ADVISINGBENEFICIAL? Removes brokers but still generates solid returns, at a fraction of the cost Customizable, personalized No leftover cash Lower fees Lower minimums
- 30. ROBO-ADVISORS ARE GROWINGMORE 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
- 31. BUT INCUMBENTS ENJOYSOME MAJOR ADVANTAGES THAT WILL GIVE THEM A BUFFER
- 32. THEY’RE STILL VASTLYLARGER 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
- 33. THEY’VE ALREADY COPIEDTHE 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
- 34. OLDER GENERATIONS STILLWANT 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 financial advisor exist entirely online
- 35. BUT ROBO-ADVISING WILLTAKE 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
- 36. ULTIMATELY, THAT’S GOODFOR 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
- 37. 1. Fintech startupsare stepping in between banks and their customers. 2. Robo-advisors are replacing human wealth advisors. 3. Fintech start-ups are distributing insurance plans without the use of agents. FINTECH IS LEADING FIVE UNSTOPPABLE TRANSFORMATIONS
- 38. THE TRADITIONAL INSURANCEPROCESS 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
- 39. AGENTS ARE COSTLY Source:Core Innovation Capital 37,500 insurance agencies in the US Consumers spend $25 billion per year in agent commissions
- 40. COSTS COMPRISE AHUGE 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
- 41. FINTECH COMPANIES ARESTREAMLINING THE DISTRIBUTION PROCESS
- 42. FINTECH START-UPS AREOFFERING INSURANCE VIA MOBILE, WITHOUT AN AGENT Source: BI Intelligence Fintech Ecosystem Report
- 43. VENTURE CAPITAL FIRMSRECOGNIZE 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*
- 44. THE INSURANCE INDUSTRYWILL 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.
- 45. 1. Fintech startupsare stepping in between banks and their 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. FINTECH IS LEADING FIVE UNSTOPPABLE TRANSFORMATIONS
- 46.
- 47. SQUARE READERS CANBE ACQUIRED ONLINE OR IN A RETAIL STORE Source: Square, YouTube
- 48. AND THEY OFFERAN APP MARKETPLACE TO HELP MERCHANTS IMPROVE OPERATIONS Source: Square
- 49. MERCHANTS HAVE GRAVITATEDTO SQUARE’S EASY-TO-USE AND SCALABLE TOOLS Square Gross Payment Volume $Billions Source: Company filings $7 $15 $24 $36 2012 2013 2014 2015
- 50. WHO’S BEING DISRUPTED? Source:BI Intelligence Payments Ecosystem Report 2016
- 51. 1. Fintech startupsare stepping in between banks and their customers. 2. Robo-advisors are replacing human wealth advisors. 3. Fintech startups are distributing insurance plans without the use of agents. 4. POS technology is going mobile. 5. Blockchain is streamlining processes throughout financial institutions. FINTECH IS LEADING FIVE UNSTOPPABLE TRANSFORMATIONS
- 52. FINANCIAL TRANSACTIONS INVOLVECOMPLEX 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
- 53. THE BLOCKCHAIN USESA 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 Reference to Prior Block Transaction 999 Transaction 998 Transaction 997 Reference to Prior Block Transaction 1,002Transaction 1,001Transaction 1,000Reference 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
- 54. IT COULD REDUCEBANK PAYMENTS, SECURITIES TRADING, AND COMPLIANCE COSTS Source: Santander $15 billion-$20 billion in potential annual savings by 2022
- 55. OVER 40 BANKSARE ALREADY TESTING BLOCKCHAIN APPLICATIONS WITH R3 CEV
- 56. BANKS WILL BENEFITTHE MOST Banks face the highest operating costs and are already jumping on the trend. Companies that function solely as intermediaries could be in trouble.
- 57. 1. Fintech startupsare stepping in between banks and their customers. 2. Robo-advisors are replacing human wealth advisors. 3. Fintech start-ups are distributing insurance plans without the use of agents. 4. POS technology is going mobile. 5. Blockchain is streamlining processes throughout financial institutions. ALL OF THESE TRANSFORMATIONS ARE WELL UNDERWAY
- 58. WHAT’S AT STAKEFOR INCUMBENTS AND NEW ENTRANTS?
- 59. INCUMBENTS RISK REDUCEDPROFITS 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 Information security/privacy threat Increase of customer churn
- 60. THESE THREATS AREPUSHING 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
- 61. THIS COULD BEBENEFICIAL 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
- 62. BUT ON THEIROWN, 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
- 63. DISRUPTION WILL INITIALLYCOME IN TWO WAVES Banking, payments, lending Wealth management, insurance
- 64. 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/Wealth management firms Insurance firms
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