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The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
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The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance

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Digital technology is disrupting industry after industry. The price of computing, data storage, communication, and coordination continues to plummet. Artificial Intelligence, sharing networks, ...

Digital technology is disrupting industry after industry. The price of computing, data storage, communication, and coordination continues to plummet. Artificial Intelligence, sharing networks, crowdsourcing, crowdfunding, and digitization of old analogue processes are revolutionizing huge swaths of the economy. It's these trends that are radically changing the needs and behaviors of banking customers AND it's these trends that are now forcing the banking industry to revolutionize.

Banks must disrupt themselves or be disrupted.

Published in: Économie & finance, Affaires

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  • Photo: Michael O’Donnel

    We’ve done it with computers.

    At the efficiency of the 1940s, an iPhone would have to be larger than the city of Chicago, and draw more power than the entire state of California.

    ----
    We’ve even done it with oil and water. The average american now uses a third less of each than in 1970, even as the size of our economy has doubled.

    That’s not enough, not yet. But it’s a start.


    Images: Wikimedia
  • AIRBNB HAS NEVER BUILT A HOTEL… BUT HAS A HIGHER MARKET CAP THAN HYATT AND LIKELY TO PASS HILTON < 3 YEARS

    AIRBNB: $10b
    HYATT: $9.5b
    STARWOOD: $15B (WILL LIKELY PASS IN 2015)
    MARRIOTT: 18B (WILL LIKELY PASS BY 2016)
    HILTON: $23b (WILL LIKELY PASS BY 2017)
  • DO YOU WANT TO BE A WINNER? OR A LOSER?
  • DISRUPTION STARTS AT THE EDGES THEN HITS THE CORE
  • BANKS EARN UP TO 20% OF REVENUE FROM NON-INTEREST SOURCES: ATM FEES, CREDIT CARD FEES, ACCOUNT FEES, ETC..
  • CREDIT CARDS TAKE 2-3% OF EACH TRANSACTION
  • SQUARE WOULD LOVE TO REPLACE VISA AND MASTERCARD
  • BUT DOES THE WORLD EVEN NEED SQUARE?
  • Cellulari: http://www.celularis.com/noticias/obama-day-1400-millones-de-mensajes-de-texto/
  • UBIQUITOUS SMART PHONES CAN ENABLE TRANSACTIONS WITH NO EXTRA HARDWARE
  • $1.6 TRILLION IN MOBILE TRANSACTIONS IN 2013
    317% GROWTH FROM 2012

  • VISA AND MASTERCARD WANT TO OWN THIS SPACE TOO
  • BUT AT 3% OVERHEAD, NO GUARANTEE THEY’LL WIN!
  • MOBILE PAYMENTS WILL MAKE IT EASIER FOR NEW PAYMENT NETWORKS TO GROW ANALOGY: WHATSAPP, VIBR, SNAPCHAT, SECRET

    MAKE ANALOGY TO CHAT NETWORKS
    ONCE YOU HAVE THE HARDWARE, SOFTWARE CAN SPREAD
    MENTION BITCOIN
  • Remittances totalled $534 billion in 2012, grows annually by ~8%, and accounts for more than 10% of the GDP in over 20 countries.
    Remittance is one of the most expensive forms of payment. The average cost for remittance in the first quarter of 2013 was 9.05%. At this rate, remittance operators will collect over $50 billion in fees this year. Remittance operators profit from transactions fees, margins added to currency exchange rates, recipient fees, cash payout fees, plus a variety of additional fees. In 2012, Western Union, the largest remittance operator, generated $5.66 billion in revenue with a net profit of $1.02 billion.
    These fees and margins would be excessive to anyone, but are especially burdensome to the people who use remittance most: low-income migrant workers and their even-lower-income families.
    “If the cost of sending remittances could be reduced by 5 percentage points…developing countries would receive over $16 billion dollars more each year than they do now. This added income could then provide remittance recipients more opportunity for consumption, savings, and investment in local economies.”—The World Bank
  • Remittances totalled $534 billion in 2012, grows annually by ~8%, and accounts for more than 10% of the GDP in over 20 countries.
    Remittance is one of the most expensive forms of payment. The average cost for remittance in the first quarter of 2013 was 9.05%. At this rate, remittance operators will collect over $50 billion in fees this year. Remittance operators profit from transactions fees, margins added to currency exchange rates, recipient fees, cash payout fees, plus a variety of additional fees. In 2012, Western Union, the largest remittance operator, generated $5.66 billion in revenue with a net profit of $1.02 billion.
    These fees and margins would be excessive to anyone, but are especially burdensome to the people who use remittance most: low-income migrant workers and their even-lower-income families.
    “If the cost of sending remittances could be reduced by 5 percentage points…developing countries would receive over $16 billion dollars more each year than they do now. This added income could then provide remittance recipients more opportunity for consumption, savings, and investment in local economies.”—The World Bank
  • US INDUSTRY IS LESS AND LESS CAPITAL INTENSIVE. A LONG TERM NEGATIVE TREND FOR LENDING.
  • BETTER RATES FOR LENDERS THAN BONDS BETTER RATES FOR BORROWERS THAN CREDIT CARD DEBT
  • 2/3 OF MONEY IS NOW INSTITUTIONAL INVESTING
    LEAD INVESTOR IN LAST ROUND WAS GOOGLE
  • WHAT CAN BANKS DO?
    MOVE FAST IN A FAST CHANGING WORLD
    KEEP YOUR CUSTOMERS HAPPY
    UNDERSTAND YOU’RE NOT THE ONLY GAME IN TOWN
    KNOW YOUR ADVANTAGES – FDIC, STABILITY, CONVENIENCES
    DISRUPT YOURSELF BEFORE SOMEONE ELSE DOES

  • Transcript

    • 1. THE DISRUPTED FUTURE OF BANKING RAMEZ NAAM @ramez
    • 2. [TEXT HAS BEEN ADDED TO SLIDES TO MAKE THEM USEFUL WITHOUT A SPEAKER] DON’T USE TEXT IN PRESENTATIONS
    • 3. WHO AM I?
    • 4. SCIENCE FICTION AUTHOR
    • 5. 14 YEARS IN TECH
    • 6. HELPED LEAD INTERNAL STARTUP DOING HIGH SCALE, DISTRIBUTED SYSTEMS, MACHINE LEARNING, INFORMATION RETRIEVAL
    • 7. LEARNING FROM A DISRUPTIVE ADVERSARY
    • 8. NOW TEACHING IMPACTS OF EXPONENTIAL TECHNOLOGIES
    • 9. SCIENCE FICTION IS HERE
    • 10. 1 MILLION MILES DRIVEN ZERO ACCIDENTS
    • 11. SEES THINGS YOU CAN’T SEE REACTS FASTER THAN YOU CAN DRIVES BETTER THAN YOU EVER WILL
    • 12. 30,000 US ROAD FATALITIES / YEAR 1 MILLION /YEAR GLOBALLY 50 BILLION DRIVING HOURS / YR IN US ~8% OF GDP LOST TO DRIVING TIME
    • 13. “DRIVING” WILL GO AWAY HUGE INDUSTRIES DISRUPTED YOUR LIFE CHANGED
    • 14. IBM’S WATSON
    • 15. TROUNCED TWO BEST HUMANS TASK RECENTLY CONSIDERED IMPOSSIBLE
    • 16. IBM’S TARGET MARKET: MEDICINE 16% OF US GDP A BETTER DOCTOR, BETTER DIAGNOSIS
    • 17. MEDICINE A LARGE TARGET X-PRIZE TRICORDER PRIZE MOBISANTE ULTRASOUND
    • 18. $35K DEDICATED ULTRASOUND -> $500 ANDROID + TELEMEDICINE AND ALGORITHMIC MEDICINE Mobisante mobile ultrasound
    • 19. SENSORS EVERYWHERE EVERY APPLIANCE, VEHICLE, DEVICE, CONNECTED
    • 20. SENSORS FOR THE BODY THE INTERNET OF US
    • 21. iPhone vs. ENIAC Michael O’Donnell $10 TRILLION TO BUILD IPHONE 5 WITH 1940s TECH
    • 22. COST OF COMPUTING GOES TO ZERO {AND OF STORAGE, BANDWIDTH, COORDINATION, DISINTERMEDIATION, ETC..}
    • 23. WINNERS AND LOSERS
    • 24. PHOTOGRAPHY AT AN ALL TIME HIGH KODAK CRUSHED
    • 25. $18 Billion
    • 26. $10 Billion
    • 27. $9.5 Billion
    • 28. $18 Billion
    • 29. $23 Billion
    • 30. AIRBNB HAS NEVER BUILT A HOTEL… BUT HAS A HIGHER MARKET CAP THAN HYATT AND LIKELY TO PASS HILTON < 3 YEARS
    • 31. AIRBNB vs. HOTEL CHAINS (MARKET CAPS) • AIRBNB: $10b • HYATT: $9.5b • STARWOOD: $15B (LIKELY PASSED IN 2015) • MARRIOTT: 18B (LIKELY PASSED BY 2016) • HILTON: $23b (LIKELY PASSED BY 2017)
    • 32. WANT TO BE A WINNER? OR A LOSER?
    • 33. DISRUPTION STARTS AT THE EDGES THEN HITS THE CORE PAYMENTS ARE THE EDGE
    • 34. 20% BANKS EARN UP TO 20% OF REVENUE FROM NON-INTEREST SOURCES: ATM FEES, CREDIT CARD FEES, ACCOUNT FEES, ETC..
    • 35. 3% CREDIT CARDS TAKE 2-3% OF EACH TRANSACTION
    • 36. SQUARE WOULD LOVE TO REPLACE VISA AND MASTERCARD
    • 37. BUT DOES THE WORLD EVEN NEED SQUARE?
    • 38. MOBILE PHONES PER 100 PEOPLE Cellulari
    • 39. UBIQUITOUS SMART PHONES WILL ENABLE PAYMENTS WITHOUT ADDED HARDWARE
    • 40. $1.6 TRILLION
    • 41. CHINA $1.6 TRILLION IN MOBILE PAYMENTS IN 2013 317% GROWTH FROM 2012
    • 42. VISA AND MASTERCARD WANT TO OWN THIS SPACE TOO
    • 43. BUT 3% SKIM CREATES AMPLE INCENTIVES FOR MERCHANTS & RIVALS
    • 44. ANALOGY: MOBILE SOCIAL & MOBILE MESSAGING UBIQUITOUS HARDWARE LOWERED BARRIERS TO ENTRY ALLOWED MULTIPLE NETWORKS TO SOAR RAPIDLY TO HIGH SCALE
    • 45. MONEY WIRING ESPECIALLY VULNERABLE
    • 46. DEVELOPING WORLD MAJOR GROWTH AREA DRIVEN BY ‘REMITTANCES’ FROM EMIGREES
    • 47. $500 B Transfers
    • 48. $528 BILLION IN REMITTANCES IN 2013 8% YOY GROWTH >10% OF GDP IN 20 COUNTRIES $50B IN MONEY TRANSFER FEES
    • 49. 10% FEES AVERAGE 10%. CAN BE 12% OR HIGHER. $200  KENYA = $24 IN FEES. OUTRAGEOUS.
    • 50. 0%? BITCOIN AS A TRANSFER PROTCOL INHERENTLY GLOBAL AND INSTANT
    • 51. 80% THE REAL MONEY FOR BANKS IS LOAN INTEREST 80% OF REVENUE: LOANS & SECURITIES
    • 52. BANKS DEPEND UPON DEMAND FOR THEIR LOANS
    • 53. US INDUSTRY IS LESS AND LESS CAPITAL INTENSIVE. A LONG TERM NEGATIVE TREND FOR LENDING.
    • 54. RECENT EXAMPLES
    • 55. $280 million funding $22 BILLION exit
    • 56. $800 million funding $10 BILLION value
    • 57. AIRBNB NEVER BUILT ONE OF THESE
    • 58. BUT AGAIN: NOT JUST RECENT. A LONG TERM TREND TOWARDS INCREASED CAPITAL EFFICIENCY OF PROFITS
    • 59. PROBLEM 2: COMPETITION IN LENDING
    • 60. PEER TO PEER LENDING
    • 61. “AIRBNB FOR LOANS” CONNECTS BORROWERS TO LENDERS DISINTERMEDIATES BANKS
    • 62. LENDERS GET HIGHER RATES THAN BONDS BORROWERS GET LOWER RATES THAN CREDIT CARDS LOANS OFTEN PAY DOWN CC DEBT
    • 63. LENDERS BUILD PORTFOLIOS TYPICALLY COVER ONLY FRACTION OF A BORROWER SPREAD & SHARE RISK
    • 64. 188% YOY GROWTH
    • 65. P2P LENDING STILL TINY VS $1.8T US LOAN MKT BUT DOUBLING EVERY 9 MONTHS 2/3 NEW LOANS FROM INST. INVESTORS DEFAULT INSURANCE NOW AN OPTION
    • 66. GOOGLE LEAD $125M LendingClub ROUND
    • 67. OTHER COMPETITORS BEYOND P2P PRIVATE EQUITY FIRMS 
    • 68. $70+ BILLION IN LENDING IN 2013 UP FROM $50B IN 2012 SHIPYARDS, HEAVY INDUSTRY, ETC..
    • 69. NIGHTMARE SCENARIO: LARGE ASSET HOLDERS MOVE INTO LENDING ASSISTED BY ALGORITHMS THAT VET LENDERS & NETWORKS THAT DISINTERMEDIATE BANKS
    • 70. TRILLIONS IN AVAILABLE ASSETS
    • 71. ?
    • 72. WHAT SHOULD BANKS DO? 1. MOVE FAST IN A FAST CHANGING WORLD 2. KEEP YOUR CUSTOMERS HAPPY! 3. UNDERSTAND YOU’RE NOT THE ONLY GAME IN TOWN 4. KNOW YOUR ADVANTAGES: – FDIC, PERCEIVED STABILITY, CONVENIENCE, RELATIONSHIPS 5. DISRUPT YOURSELF BEFORE SOMEONE ELSE DOES
    • 73. THE DISRUPTED FUTURE OF BANKING RAMEZ NAAM @ramez

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