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Banks in Fintech

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We dissect how major banks have approached fintech investments and areas they are doubling down on to fight back insurgents in 2018.

Last year, fintech funding hit a record of $16.6B, however, financial incumbents also began shifting their strategies. Instead of making early-stage bets in new fintech, they shifted their focus to beefing up their acquisitions. This signaled that banks may be ready to forego partnerships in favor of launching their own products.

Publié dans : Économie & finance
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Banks in Fintech

  1. 1. 2 @cbinsights @LCDavis1225 #futurefintech J O I N T H E C O N V E R S A T I O N O N T W I T T E R
  2. 2. 3 W H O W E A R E The technology market intelligence platform. CB Insights software lets you predict, discuss, and communicate emerging technology trends using data in ways that are beyond human cognition. We are a leader in the Expert Automation & Augmentation Software (EAAS) space.
  3. 3. 4 T R U S T E D B Y T H E W O R L D ’ S L E A D I N G C O M P A N I E S “We use CB Insights to find emerging trends and interesting companies that might signal a shift in technology or require us to reallocate resources.” Beti Cung, Corporate Strategy, Microsoft
  4. 4. 5 Lindsay Davis Lindsay Davis is an intelligence analyst at CB Insights where she researches emerging technology trends in fintech, capital markets tech, wealth tech, and regtech. Bloomberg, The New York Times, The Financial Times, and Thomson Reuters. She presented her analysis at Nikkei's Reg Summit and Money 20/20. Prior to joining CB Insights, she worked at the Depository Trust and Clearing Corporation (DTCC) as an internal auditor where she most recently lead coverage of the enterprise risk management group including operations, vendor, credit, market, & liquidity risk. Lindsay is a graduate of the University of Florida and holds a Bachelor's in Economics, a minor in Chinese, and a Master’s in International Business from the Warrington School of Business. Most popular analyses by Lindsay: Wealth Managers Beware: Emerging Fintechs Are Coming For Retirement Planning Next The Rise of Robo-Advisors: Betterment, Wealthfront, Stash, and Acorns Fintech Trends to Watch in 2018 @Lcdavis1225 | ldavis@cbinsights.com Tech Industry Analyst A B O U T T H E A N A L Y S T
  5. 5. 6 Contents 7 2 3 2 4 5 2 Why banks should care about investing in fintech Bank’s fintech investing playbook Bank investment themes What’s coming for banks next?
  6. 6. 7 Legacy tech is breaking & can’t scale to meet new customer demand requiring re-platforming New products/delivery mechanisms are posing fresh challenges for financial services firms Next gen-platforms are acquiring the next generations of customers B E Q U I C K . O R B E R E P L A C E D . You’re fighting a multi-front digital war
  7. 7. 8 Next gen-platforms are acquiring the next generations of customers B E Q U I C K . O R B E R E P L A C E D . You’re fighting a multi-front digital war 1 . D I G I T A L F I R S T 2 . L O W E R B A R R I E R S T O E N T R Y 3 . Q U I C K T O I T E R A T E
  8. 8. 9 Fintech has changed the competitive landscape Since the 2008 Financial Crisis, fintech startups have targeted single underserved financial products with better UI, digital marketing, and services that cater to shifting customer demands
  9. 9. 10 1.5 1.7 2 2 3 4 9 13.3 2012 2015 2013 2011 2013 2013 2006 2012 Fintech is no longer a niche market Fintech companies have attracted millions (M) of customers (since respective launch date) Source: Company press releases
  10. 10. 11 10 years later, regulators still find ‘widespread consumer abuse’ Credit Suisse paid $30M and Barclays $35M to settle allegations over 2017 dark pools and Deutsche Bank paid $18.5M February 12, 2018 |
  11. 11. 12 Bad press impacts investors confidence Source: CB Insights Financial Performance Data Bank of America fined $42M
  12. 12. 13 450 666 841 2,313 2,910 4,892 9,547 13,297 74,099 100,173 110,235 143,253 PNC TD COF MS GS C WFC JPM BAC FB MSFT AAPL Millennials invest in tech over banks Reported number of stock holders on Robinhood (as of 3/26/18) Source: Robinhood
  13. 13. 14 B E Q U I C K . O R B E R E P L A C E D . You’re fighting a multi-front digital war 1 . O N P R E M S E R V E R S > C L O U D 2 . S C A R C E C O B O L C O D E R S 3 . M O U N T I N G C O M P L I A N C E & R E G U L A T O R Y P R E S S U R E S Legacy tech is breaking & can’t scale to meet new customer demand requiring re-platforming
  14. 14. 15 Legacy capital markets technology Years since respective launch Legacy technology systems stifle market innovation Legacy technologies are pivotal in the functioning of the capital markets ecosystem, yet on average are ~38 years old and have remained static. Further, incumbent players have been slow to replace legacy infrastructure that is now coming on end of life.
  15. 15. 16 FICC revenues at major US banks are slipping Q2’17, YOY change in dollars Firms are struggling to keep up with shifts in demand and are losing revenues While broader macroeconomic factors (like interest rates & regulation) have played a role, the decline in revenue is also being driven by external shifts in demand for products. Legacy infrastructure slows firms' ability to keep up.
  16. 16. 17 New products/delivery mechanisms are posing fresh challenges for financial services B E Q U I C K . O R B E R E P L A C E D . You’re fighting a multi-front digital war 1 . P R I M E M O B I L E A D O P T I O N 2 . O R I G I N A T I N G N E W A S S E T C L A S S E S 3 . U P E N D I N G M O N E T I Z A T I O N M O D E L S
  17. 17. 18 Fintechs built mobile-first platforms ahead of consumer demand, while banks stayed physical Source: CACI analysis on Consumer Demands For Retail Banking 46% 13% 35% 6% 28% 56% 13% 3% 2011 Telephone Mobile Branch Internet Telephone Mobile Branch Internet Adoption 43% YOY 2016
  18. 18. 19 Revolut is a digital-only “challenger bank” used to buy, hold, and exchange currencies digitally at a reduced fee. Revolut added crypto currencies which, sparked a period of viral growth, and now has 1.5M reported users. Up next, the company is expanding globally F I N T E C H S E X P A N D I N T O N E W A S S E T C L A S S E S A H E A D O F B A N K S Total Funding $85.98M Select Investors Balderton Capital, Index Ventures, Ribbit Capital Competitors Total Funding $138.2M $514M$212M
  19. 19. 20 Crypto exchanges have shown there’s a growing interest in crypto investing Coinbase has served as a massive on ramp for retail investors to get into the crypto markets. Other fintechs expanding in crypto have been experiencing cypto’s viral growth. Sources: Coinbase, Alistair Milne Coinbase attracts speculators in meteoric year Number of users, January 2013 – November 2017
  20. 20. 21 Robinhood surpasses E*Trade after adding crypto R O B I N H O O D ’ S $ 0 T R A D I N G A P P G R O W S T O 4 M + B R O K E R A G E A C C O U N T S 4M CUSTOMERS IN 4 YEARS $5.6B Pending Valuation 3.6M CUSTOMERS IN 35 YEARS $15B MARKET CAP WAITLIST 5 DAYS AFTER LAUNCH VS.
  21. 21. 22 “Our biggest competitors are not necessarily other banks. They are Amazon and Google. Those are the companies setting the expectations of our customers.” Francisco Gonzalez Rodriguez Chairman and CEO
  22. 22. 23 W H E R E W E A R E T O D A Y Bank’s fintech playbook
  23. 23. 24 Investors prioritize tech that meets immediate goals over ‘disruptive technologies’ Banks are shifting from investing & partnering with external fintech startups to building fintech in-house Investments & partnerships are being driven by regulatory tailwinds B A N K I N G O N F I N T E C H A few broader investment themes we’re seeing
  24. 24. 25 Banks talk up digitization in 2017 Mentions of ‘digitization’ in earnings calls from Q1’12 - Q4’17 Search: CB Insights Earnings Call Data
  25. 25. 28 US banks slowed down fintech investing in 2017 Over the last five quarters, top US banks including Goldman Sachs, Citigroup, and JPMorgan slowed down their fintech investments relative to 2016’s highs. However, when they did participate in fintech deals, they continued to spread their bets across data analytics, infrastructure, alternative lending, payments, and more.
  26. 26. 29 Investing in infrastructure takes priority for US banks over blockchain Banks are ramping up their focus on updating infrastructure by invested in capital markets software startups across sales & trading to communications. US financial services investors have invested in more capital markets software companies than blockchain startups. VS. 7 B L O C K C H A I N S T A R T U P S 1 2 S O F T W A R E S T A R T U P S
  27. 27. 30 European banks slowed fintech investing in 2017 Relative to 2016, European banks including Santander, Barclays, and UBS also slowed down participating in fintech deals. In Q1’18 however, they picked up the pace participating in 11 deals. Santander in particular, participating in 3 deals Rootsify, Autofi, & Payever, all new to the portfolio. BBVA also participated in 3 deals, but only Solaris bank was new to the portfolio.
  28. 28. 31 European Banks are also actively investing in infrastructure Over the last few years, European banks including Barclays and UBS have been investing in capital markets infrastructure over blockchain. A focus on building up a compliant infrastructure makes sense given Europe's pending regulations. This includes the UK’s open banking system and the EU’s PSD2, which requires banks to open up their APIs to third parties. VS. 5 B L O C K C H A I N S T A R T U P S 8 S O F T W A R E S T A R T U P S
  29. 29. 30 US & European banks invest more in infrastructure 9 B L O C K C H A I N I N V E S T M E N T S 1 4 C A P I T A L M A R K E T S T E C H S O F T W A R E S T A R T U P S
  30. 30. 31 US & European banks invest more in infrastructure 9 B L O C K C H A I N I N V E S T M E N T S
  31. 31. 32 Blockchain is not a focus for most major US banks In the last 5 quarters, Citi was the only US bank participating in new blockchain deals and invested in Axoni & SETL. Meanwhile the remaining banks have been less focused on pushing harder into blockchain, with many announcing the move to cool down their investments in blockchain. Of note, Goldman, JP Morgan, and Morgan Stanley left the R3 consortium, each preferring to build out their own projects. JP Morgan is rumored to be spinning out Quorum, its enterprise blockchain & smart contracts platform.
  32. 32. 33 US & European banks invest more in infrastructure 1 4 C A P I T A L M A R K E T S T E C H S O F T W A R E S T A R T U P S
  33. 33. 34 Plaid's suite of API tools allows developers to integrate with bank infrastructure and access and authorize user bank accounts at a reported 9,600 financial institutions D R I V I N G T H E B A N K I N G A S A P L A T F O R M M O V E M E N T Last Funding $44M Series B // Q2’16 S E L E C T C U S T O M E R S Select Bank Investors Citi Ventures & Goldman Sachs User logs in to their favorite financial tracking application Plaid connects with underlying bank and pulls truncation history Plaid Stays connected to the bank 1 2 3
  34. 34. 35 Openfin is an HTML5 container that powers B2B desktop applications for financial services applications. O V E R H A U L I N G 1 2 5 , 0 0 0 D E S K T O P S C O V E R I N G 3 5 G L O B A L B A N K S A N D F I R M S Last Funding $15M Series B // Q1’17 S E L E C T C U S T O M E R S Select Bank Investors J.P. Morgan Chase & Co. VS.
  35. 35. 36 Symphony's communication platform is a cloud-based messaging and collaboration platform led by Goldman Sachs. The technology originated out of an internal messaging system at Goldman called LiveCurrent, and as of May, Symphony counted 200,000 paying customers. B A N K I N V E S T O R S M A K E B E A U T I F U L M U S I C C O - I N V E S T I N G I N C O M M U N I C A T I O N S Last Funding $63M Series C // Q2’17 S E L E C T B A N K I N V E S T O R S
  36. 36. 37 Banks are shifting from investing & partnering with external fintech startups to building fintech in-house B A N K I N G O N F I N T E C H A few broader investment themes we’re seeing
  37. 37. 38 Only 20% of top banks acquire fintech startups Fintech acquisition of the top 50 banks operating in the US 2013 – 2018 YTD (02/07/2018)
  38. 38. 39 • Only 18 fintechs have been acquired by banks • 30% of acquisitions occurred in the last 7 months • JPMorgan made one of the largest, acquiring WePay for a reported $400M Top banks picked up acquisitions that align to strategy 2013 – 2018 YTD (02/07/2018)
  39. 39. 40 Goldman is digging into alternative lending Reported participation in fintech investments & M&A from 2012 – Q1’2018 B U I L D I N G Acquired Talent Acquired Talent Rumored AcquisitionCorporate Majority Mortgage LendingSMB Credit B2B2C SMB Lending 47 3 GS Equity Investments M&A B U Y I N G I N V E S T I N G Mortgage Lending
  40. 40. 41 Marcus reached $1B faster than earlier fintechs Source: CB Insights Goldman Sachs Strategy Teardown Goldman’s Marcus is the fastest lender to reach $1B issued Marcus stands out from other alternative lending platforms by offering no-fee loans with flexible payback and installment terms set by the consumer. The online lender hit $2.5B in originations for 350K borrowers in just 1.5 years after its launch. Marcus also acquired GE Capital Bank and now holds $17B in deposits. Number of months to $1B in loans originated
  41. 41. 42 JPM is doubling down on payments Reported participation in fintech investments & M&A from 2012 – Q1’2018 B U I L D I N G SMB PaymentsMobile Payments Platform B U Y I N G I N V E S T I N G 21 2 JPM Equity Investments M&A + Payments Infrastructure Mobile Payments Network Partnership
  42. 42. 43 JPM acquired WePay to build out Merchant Services & to make in roads in POS for SMBs H E L P W A N T E D P A Y M E N T S F A C I L I T A T O R F O R P L A T F O R M S 4 M S M B C L I E N T S O N L I N E I N S T O R E H A R D W A R E
  43. 43. 44 $17.6 $35 $55 $75 2016 2017 2016 2017 99% YOY 36% YOY Zelle, fka clearXchange, is a P2P digital payments platform owned & operated by U.S. banks. Zelle is available within the mobile banking apps of 60+ banks and credit unions and as a stand alone app. Acquired Q1’16 S E L E C T B A N K I N V E S T O R S Is Zelle really a ‘Venmo-killer’ ¯_(ツ)_/¯ ? Year-over-year transaction volume disclosed by companies in ($M) Zelle users are finding out the hard way there’s no fraud protection February 6, 2018
  44. 44. 45 Venmo & Square’s viral network effects are stronger than Zelle’s bank-backing Average app rating from App Annie with 5 being the best 5 4.4 3.3 Venmo Cash App Paypal 2M Reviews #2 Finance App 9.6K Reviews #9 Finance App 118.9K Reviews #1 Finance App 6 0 + B A N K S A P P S = D I S J O I N T E D U X
  45. 45. 46 Banks sharpen focus on wealth management Banks are getting aggressive in expanding their own personal finance initiatives B U Y I N G / I N V E S T I N G B U I L D I N G P A R T N E R I N G Access Investing X X X < & + Smart Beta ETFs & & & X In-house robo-advisor
  46. 46. 47 J.P Morgan & Morgan Stanley are seeking fintech talent to build out new products & .25% - .50% annual fee or $2.50 - $5.00 per $1,000
  47. 47. 48 Investments & partnerships are being driven by regulatory tailwinds B A N K I N G O N F I N T E C H A few broader investment themes we’re seeing
  48. 48. 49 Regulations are top of mind on earnings calls ahead of implementation deadlines Mentions of financial services regulation terms in earnings call from Q1’12 - Q4’17 MIFID Dodd-Frank Open Banking PSD2 GDPR Search: CB Insights Earnings Call Data
  49. 49. 50 Banks co-invest in solutions they need Banks co-invested to be compliant with research unbundling requirements of MiFID II & MIFIR INVESTORS ACQUIRED $38M Series B // Q1’18 $68M Total
  50. 50. 51 …and banks & exchanges are their primary customers Financial services firms co-invest to launch new compliant derivatives products USERSINVESTORS $27.7M Series B // Q1’18
  51. 51. 52 L O O K I N G A H E A D What’s coming for you next?
  52. 52. 53 Chatter about Amazon in financial services spiked on the heels of potential bank partnership T H E B A N K O F A M A Z O N
  53. 53. 54 Will challengers banks replace physical branches? Challenger banks are attacking banks across vectors T H E F U T U R E O F R E T A I L B A N K I N G Transparent competitive pricing Centralized personal finance Digital-only platforms Entering new markets & products
  54. 54. 55 “When things are going badly you can't leave. When things are going well, you don't want to leave. I'm going to have to have the discipline to leave when I want to stay” Lloyd Blankfein CEO S U C C E S S I O N P L A N N I N G
  55. 55. 56 RBS hatches plan to create digital challenger bank to face off the threats from startups like Monzo and Starling Bank March 19, 2018 | Banks aren’t sitting idly
  56. 56. 57 CB Insights for Banking The CB Insights machine intelligence platform synthesizes, analyzes, and visualizes millions of documents to deliver fact-based insights. 81 25,693 Financial service firms use CB Insights Financial service pros have signed up for a CB Insights trial For a demo of CB Insights platform, please email: demo@cbinsights.com
  57. 57. 58 Questions? Twitter: @lcdavis1225 ldavis@cbinsights.com

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