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The Future of FinTech
The Future of FinTech
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  1. 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. 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. 3. AGENDA  The Rise Of Fintech  The Hype Vs. The Reality  Five Unstoppable Transformations In Financial Services  What’s Ultimately At Stake?
  4. 4. 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.
  5. 5. 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
  6. 6. WHAT IS FINTECH? Fintech: n. A blanket term for disruptive technologies affecting the financial services industry.
  7. 7. 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.
  8. 8. 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)
  9. 9. AND THEN THERE’S THE IMPLOSION OF POWA TECHNOLOGIES, ONCE A UNICORN Sources: Business Insider, Sky News
  10. 10. 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
  11. 11. ENTRENCHED INFRASTRUCTURE MAKES UPGRADES DIFFICULT Sources: istock, REUTERS/Stringer The New York City subway and a centuries-old bank aren’t so different…
  12. 12. THE REALITY IS… The current customer experience is outdated — consumers now expect their financial experiences to be: Mobile Personalized Customizable Accessible
  13. 13. FINTECH CAN DISRUPT ANY AREA OF BUSINESS Back-Office Middle- Office Front-Office
  14. 14. MORE COST-EFFECTIVE OPERATIONAL STRUCTURE Source: Lending Club
  15. 15. MORE EFFICIENT INFORMATION SHARING AND CONTRACT MANAGEMENT Source: Santander
  16. 16. IMPROVED CUSTOMER EXPERIENCE Source: Prosper
  17. 17. 1. Fintech startups are stepping in between banks and their customers. FINTECH IS LEADING FIVE UNSTOPPABLE TRANSFORMATIONS
  18. 18. 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
  19. 19. ONLINE-ONLY BANKS PROVE BRANCHES AREN’T ESSENTIAL Source: BI Intelligence Fintech Ecosystem Report
  20. 20. THIRD PARTY PLATFORMS ARE GIVING CUSTOMERS ALL THEIR BANKING DATA IN ONE PLACE Source: Mint
  21. 21. BANKS ARE GETTING SIDELINED IN OTHER AREAS
  22. 22. PEER-TO-PEER LENDERS PROVIDE A MARKETPLACE THAT CONNECTS BORROWERS WITH INVESTORS Lending PlatformBorrower Lender/InvestorApplies for a loan (1) Commits to a borrower (2)
  23. 23. THE BANK IS ON 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. 24. 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 Billions
  25. 25. SO BANKS ARE GETTING SIDELINED IN MULTIPLE WAYS. HOW ARE THEY RESPONDING?
  26. 26. BANKS ARE INNOVATING OR PARTNERING Source: Business Insider Goldman’s launching an online lending division. JPMorgan partnered with OnDeck to reach more small businesses.
  27. 27. 1. Fintech startups are stepping in between banks and their customers. 2. Robo-advisors are replacing human wealth advisors. FINTECH IS LEADING FIVE UNSTOPPABLE TRANSFORMATIONS
  28. 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. 29. 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
  30. 30. 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
  31. 31. BUT INCUMBENTS ENJOY SOME MAJOR ADVANTAGES THAT WILL GIVE THEM A BUFFER
  32. 32. 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
  33. 33. 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
  34. 34. 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 financial advisor exist entirely online
  35. 35. 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
  36. 36. 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
  37. 37. 1. Fintech startups are 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. 38. 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
  39. 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. 40. 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
  41. 41. FINTECH COMPANIES ARE STREAMLINING THE DISTRIBUTION PROCESS
  42. 42. FINTECH START-UPS ARE OFFERING INSURANCE VIA MOBILE, WITHOUT AN AGENT Source: BI Intelligence Fintech Ecosystem Report
  43. 43. 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*
  44. 44. 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.
  45. 45. 1. Fintech startups are 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. 46. Source: Shutterstock/Aleph Studio
  47. 47. SQUARE READERS CAN BE ACQUIRED ONLINE OR IN A RETAIL STORE Source: Square, YouTube
  48. 48. AND THEY OFFER AN APP MARKETPLACE TO HELP MERCHANTS IMPROVE OPERATIONS Source: Square
  49. 49. 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
  50. 50. WHO’S BEING DISRUPTED? Source: BI Intelligence Payments Ecosystem Report 2016
  51. 51. 1. Fintech startups are 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. 52. 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
  53. 53. 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 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. 54. IT COULD REDUCE BANK PAYMENTS, SECURITIES TRADING, AND COMPLIANCE COSTS Source: Santander $15 billion-$20 billion in potential annual savings by 2022
  55. 55. OVER 40 BANKS ARE ALREADY TESTING BLOCKCHAIN APPLICATIONS WITH R3 CEV
  56. 56. 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.
  57. 57. 1. Fintech startups are 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. 58. WHAT’S AT STAKE FOR INCUMBENTS AND NEW ENTRANTS?
  59. 59. 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 Information security/privacy threat Increase of customer churn
  60. 60. 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
  61. 61. 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
  62. 62. 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
  63. 63. DISRUPTION WILL INITIALLY COME IN TWO WAVES Banking, payments, lending Wealth management, insurance
  64. 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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