What does gassing your car at night have to do with getting a loan? Everything we do is now trackable, creating new data sources for underwriting. Meanwhile a cashless and shared economy are disaggregating major asset purchase (cars, houses) for millennials. The old bait and hook of credit cards as an entry to car and mortgage debt is no longer a winning combo for banks to tap the young generation. In short, the consumer fintech value chain is a deck of cards thrown and now cascading to the ground. What are startups doing to slip into this reshuffle, and where are banks still advantaged?

1. The millennial and data-driven
(r)evolution of fintech
AKA, what does gassing your car at night
have to do with getting a loan?

2. New paradigm of financial management, not mismanagement
2
Source: Washington Post & Moody’s 2014 (link)
Tax changes!
US Savings rate now out of the basement
Millennials

3. Millennials’ have different banking needs than
prior generations
3
“Good” debt shifting“Bad” debt declining
Credit cards Cars Home Education
Credit cards, cars and homes aren’t the banking opportunity they used to be

4. Many millennials eschew credit cards
(debit on the rise)
4
63%
23%
6% 2%0%
10%
20%
30%
40%
50%
60%
70%
None 1 card 2 cards 3 cards
Millennial card ownership is low
…vs only 35%
over 30
$3,044
$5,347 $5,343
$2,682
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
"Greatest" Boomers Gen X Millennials
Credit card balances like your
grandma
Bankrate Experian
Source: Bankrate (link), Experian (link)

5. Cars a utility not a pride
5
Source: US PIRG/Pew (link), New York Times (link)
=+
Pew Research Center New York Times
% of young people with
driver’s license way downYoung people preferring to live in cities (%)

6. Changing social norms delay lust…
for marriage and home ownership
6
Source: The White House, 2014 (link)
The White House
% of 25 to 34 year olds who are
married is way down…
… and so is probability of owning
a home for 25 to 34 year olds
The White House

7. …but student debt up 3x in 20 years
7
Source: Mark Kantrowitz, WSJ 2015 (link), Forbes 2015 (link)
Average debt per borrower in each year’s graduating class
“Student loan debt is the home
loan of my generation. It’s
nearly a universal problem for
my age demographic. I am still
repaying nearly $100,000 of
student loan debt myself”
~Louis Beryl, 34
Cofounder and CEO, Earnest
Forbes, 2015
WSJ

8. A “disloyal” crew with social brand preferences
8
6
10
33
0
5
10
15
20
25
30
35
Millenials 35-54 55 and older
Impliedcustomerlifetime(years)
…woo millennials away
Implied customer lifetime based on 12
month switching rates
Source: Accenture (link), Makovsky (link), Forbes (link) *vs. 37% for age 35 to 54 and 16% for age 55 and over
49% likely to consider banking
and financial services from
digital alternative providers like
Google, Apple or Amazon.*
62% say that if a brand engages
with them on social networks,
they are more likely to become a
loyal customer.
Accenture
Forbes
Makovsky
Tech brands and social channels…

9. Here’s how 10 large banks responded on twitter
9
Source: Author’s unscientific test
Fast Response
“@bank, what rates can you offer me on a 15 yr fixed refi?”
More Personal (gave # to call and were nice)
More Generic (gave landing page and were stern)
Slow Response
<10min60 min120 min>180 min
Didn’t respond
(or took days)
Most big banks still behind on immediacy and tone of social

10. Shared and cashless economy disaggregating financed
asset purchases into many small transactions
10
Rent
Small balances but
frequent transactions
(often debit)
No longer a need
for a car
Why buy when you
can rent anywhere?
Early signs of educa-
tion disaggregation

11. In short, the consumer financial value chain in disruption
11
Advertise Market Underwrite
/Finance
Transact Manage Upsell
FactorsEntrantexamples
• Social
• Mobile
• SEO/SEM
• Decline in
branch use
• Decline in
loyalty
• Decline in
branch use
• Social
conversation
• New public
and private
data sources
• Peer-to-peer
lending
• Proliferating
transaction
channels and
currency
• Mobile
• Decline in
loyalty and
personal
relationship
Staying on top of the hill is an uphill battle for banks

12. Spoils go to those who experiment and take
chances, or have the data… hard for banks
12
“Woolworths in Australia has used retail-shopping
patterns to predict financial risk… customers who
drink lots of milk and eat lots of red meat are
significantly better auto-insurance risks than
customers who drink spirits, eat lots of pasta and
rice, and fill their gas tanks at night.”
~Boston Consulting Group
Source: BCG: Navigating a World of Digital Disruption, 2015

13. Where can banks still win? Short answer…
13
• Education is the big investment of the millennial generation
• ~$1T in student debt growing >10% per year. Wow.
• Need too large for upstarts and P2P to fully address… yet
• Arbitrage opportunity between current underwriting framework
and empirical loan performance by school type, major, GPA
• Unsophisticated, needy and easy-to-find buyer in need of
higher-touch product education and hand-holding
• Combined online/offline service opportunity for which banks
are well suited
Note: Payments/transactions exciting too, but not for the faint hearted.
Source: NY Fed