Presentation first given to a roundtable talk at the Sim Kee Boon Institute at Singapore Management University (http://http://skbi.smu.edu.sg/) on March 5, 2015. Additional notes, references and citations are in the comments of each slide. I would like to thank Arthur Breitman, Andrew Geyl (Organ of Corti), Yakov Kofner, Raja Ramachandran and John Whelan for their feedback and comments on several slides.

1. The Future of Fintech
Crystal balls and tasseography

2. What is Fintech?

3. • Fintech is the innovative application of technology and ideas to banking, trading,
and financial services
• Many people think Fintech is just payments
• But what about capital markets and the Fintech around it?
• Three overall components include:
1) Payments, payment tech, retail tech (ATMs) are all one segment of the consumer
bank
• Very large component because it is physical
2) Traditional banking, such as consumer lending has moved to heavy iron (cloud
computing and corporate intranet)
• What they do internally is increasingly important relative to outside customer
base
• Insurance / reinsurance - services that relate to consumer funds (for risk
management)
3) Capital markets, investment markets, trading (all of which is a legion of tech)

4. Fintech Structure – Innovation Components
Consumer Bank Commercial Bank Investment Banking Wealth and Investment Mgt General
Payments Credit Analytics
(ZestFinance)
Algorithms Robo advisors (Wealthfront,
Nutmeg, Betterment)
Security (IDGate)
P2P Lending Education lending (Common
Bond)
Visualization, analytics Thematic investing (Motif) Mass storage
Crowdfunding Working Capital solutions
(Marketinvoice)
New Exchanges (Second
market)
CRM tools HTML 5 and Web 2.0
Mobile Banking Market surveillance tools –
monitor client flow (Nasdaq)
Quantum Computing
(QxBranch)
Robo-investing Prediction - AI Secure ID’s , remote device
security
Alt Currency Conversion to e-Platforms
(Electronifie, Bondcube,
TruMid)
Data driven marketing

5. Investment banking changes
• In terms of where things currently are:
• Regulatory overhang globally on trading businesses
• Most institutions have spent a lot of money on compliance (Basel, MiFID, Dodd-
Frank, EMIR)
• Thus a lot of non-revenue generating investment has gone to “Fintech”
• Into systems to update for reporting, business conduct
• This has been an opportunity cost: has displaced a lot of investment in other revenue generating
technologies
• Number of 3rd parties, such as ClearPar, one of many entities that sits in the middle
because the space has inefficiencies

6. Investment banking changes cont’d
• Front office:
• Investment in “speed” (speed of light) no longer driver of investment – marginal cost
of investment far too expensive for upside
• There have been two phases of algorithms for sophisticated price management and
execution
• First was price makers and their ability to serve high frequency clients to help gain volume
• Second was algo’s for trade excecution to lower cost of trade
• The last couple of years algos have really incorporated intelligence venue selection per trade,
asset allocation, geographic market advantage, and predictive capabilities.
• Next wave could capitalize on that along with ability to attract retail flow.
• Aggregation, real big struggle between banks and end user execution now that customer has
multiple choices (FX space: Tradeweb, 360T, Citi; who's customer is it?)
• All of that has occurred over the past several years; banks are now playing the game of Orbitz
(“it is just channels”)

7. Raja’s Tea Leaves: Several other drivers at banks
• Regulatory impact has put a hold on some of these trends and as a result innovation has moved into these banks
(e.g., algos for market makers)
Peering into the future:
• These venues will have to be commercial bank friendly, align with credit issuance, take on and issue debt (interest rates are
globally low, constant churning of bond syndication because it is cheap)
• Many originators of debt are going to push that, banks will get more of it
• FX has had consolidation with increasingly more activity around the exchanges
• Consolidation around multiparties around bonds (fixed income), commodities, options platforms are independent and the
“last bastion” (haven't changed the flow because of regulations)
• Analytic platforms and heavy move towards Web 2.0, HTML 5
• Ongoing need for algorithmic as speed is less of an issue due to costs; tech that will enable multiplatform trading
management
• Banks that trade on venues that have "last look" -- have last look before they price, creates a greater equality if this goes
away (this will favor market makers like Virtu as they don’t have cost overhead associated with banks – lower spreads)
• Banks will have to create better adapters because as spreads widen a bit, costs will be absorbed by customers (could lead
to cost efficiency, rebating)
• This also cover the front office (portfolio management, big databases, regulatory implementation)
• Next 2-3 years “last mile of regulatory implementation,” systems are fairly compliant, now is just more of an increment
• The next 5-7 years: improving their web infrastructure, cost containment (potentially where some type of blockchain(s)
could be used to reduce costs?)

8. Consumer banking
• Where all the buzz and buzzwords are around:
• Crowdlending, microtransactions, cross border payments, peer to peer tech
• Open question as to whether P2P lending sustainable due to lack of robust credit ratings (e.g., subprime
borrowers incentivized to take out loans they cannot repay in China and UK)
• Big banks will buy the innovation (acquisition of startups) and whatever “network effect”
these startups had
• Consumer base is willing and ready to work with this (ApplePay, Square Cash)
• Banks will want to build inroads on traditional processors for consumers
• Will be based on growth markets such as Eastern Europe, India, Latin America
• “Intelligent bots” (like Wealthfront) will work with price sensitive investors who do not want to pay
heavy management fees
• Get bots that pick the stocks based on risk profiles
• E.g., if you're geared towards stocks that grow at 4-6%, multiple venues to track this based on risk profile
• This type of institutional logic coming down to retail level; firms like Schwab, eTrade and Fidelity are
already fairly sophisticated (and increasingly automated)
• (Note: it may ultimately be deemed unorthodox and unrealistic to include investment firms under “consumer
banking” and not under “investment management.”)

9. So you are an entrepreneur or run an in-
house incubator?

10. “Assume a can opener”
• Who are the first adopters: banks, funds, insurance?
• What do they specifically want to do, what is the use-case? (e.g., instant
clearing and settlement of OTC derivatives and FX trading)
• How is it currently done?
• What is the problem with how it is currently done? (Very important)
• What are the available solutions such as technologies?
• How to pilot and build proof of concept?
• How to implement?
• How to scale?
• Is there a revenue model, or do these just reduce costs?

11. Is disaggregation the new normal?

16. Changes in lending landscape?
“Silicon Valley is coming. There are hundreds of startups with a lot of
brains and money working on various alternatives to traditional
banking. The ones you read about most are in the lending business,
whereby the firms can lend to individuals and small businesses very
quickly and – these entities believe – effectively by using Big Data to
enhance credit underwriting. They are very good at reducing the
“pain points” in that they can make loans in minutes, which might
take banks weeks. We are going to work hard to make our services as
seamless and competitive as theirs. And we also are completely
comfortable with partnering where it makes sense.”
- Jamie Dimon, CEO of JPMorgan

17. The Fintech landscape a year ago in March 2014

18. … as of December 2014 …

19. As of May 5, 2015
According to AngelList:
• 1,784 payments startups
• 1,062 mobile payment startups
• 121 P2P money transfer startups

20. But… but blockchains! Right?

21. Minimal to maximal future scenarios
• There’s the minimalistic consumer Bitcoin company. They do something
minimal like provide a way to convert your airlines miles into bitcoin, or
provide a toolbox to access bitcoin markets with some API. They use
Ruby on Rails and node.js.
• There’s the less minimalistic but still single focused financial Bitcoin
company. They have former bankers as founders. They give you an
expensive way to buy bitcoin that makes institutional clients
comfortable.
• There’s the maximalists that want to airlift capital and labor away from
New York and London with 3D printed drones paid for and powered
with bitcoin. Sandhill VC’s watch through their Oculus-powered goggles
as Washington DC slips off into the Atlantic all while drinking Soylent in
their robotically chauffeured Uber vehicles, all of which is paid for with
bitcoin.

22. Min to max con’td
• There’s the Fintech company that wants to target the unbanked. They offer
services based on bitcoin but they're thinking about using Stellar. The
founders have trust funds and they love to talk on conference panels and
attend Burning Man.
• There’s the Fintech company that wants to bring blockchain technology to
the mainstream. They are forking a cornucopia of projects. God forbid they
be mistaken as a currency, they are a software company. Or middle-ware.
They use the words “stack“ and “disrupt” a lot.
• Cryptosingularity: protocol research and development continues by the
Young Turks (Zerocash, Ethereum, Tezos, Hyperledger, Tendermint, Augur)
until Metalic Boterin -- the mothership -- recalls its fully formed AGI
progeny, Vitalik Buterin. Everyone speaks Esperanto.

23. Consequently some of the funded projects seem
like they came from: Butwithbitcoins.com

24. What might really happen?

25. The fate of blockchains?
• Bitcoin survives as a regulated asset class for a few years, but doesn’t quite take
off. No other cryptocurrency retains any substantial market share. No one buys a
Wi-Fi mining “toaster.” Washington DC stays above sea level.
• No one on Wall Street bothers with the swap startup or graph/API. As soon as
(and if) there is regulatory clarity, they replicate those services because they
already know how to do this.
• One or two “Universal” buckets survive by replicating and offering every virtual
currency service available but fiat-related services remain their dominant revenue
source. They are like a cross between Venmo and Beenz.
• Developing world scenario: the unbanked somehow acquire smartphones and use
a Stellar-like service operated by the local phone company that curates a variety
of apps around it.
• Developed world scenario: after a few years of playing with the tech, a bank
decides to use some kind of blockchain, but internally. They end up not really
seeing the point, the project is scrapped. Silicon Valley is auctioned off by
monocle-wearing New York and London yacht owners navigated by humans eating
caviar and smoking cigars.

26. What is actually happening on-chain?

31. Are many cryptocurrency-focused companies
simply just window and tire companies?
“I would say that your general characterization of some in the space is
correct. But if you had a really good idea about how to build a better
tire for an automobile, you would probably be really interested in
talking to the auto companies because they are the people that
ultimately are going to make use of your technology. You could think
that maybe, because of the power of your tire, there might emerge a
whole new brand of auto companies that supplant the General Motors
of the world because the incumbents never really got the whole
concept of what a good tire should be all about. But I’m not sure that
would be a good move.”
• Blythe Masters (formerly JPMorgan now at DAH)

32. Mixing dry code with wet code
According to Deutsche Bank: measured as a percentage of revenues,
financial services firms spend more on IT than any other industry. Banks’ IT
costs equal 7.3% of their revenues, compared to an average of 3.7% across
all other industries surveyed.
[Note: to understand and use this tech you do not necessarily need to set up
an office in SOMA/Mission District, additional innovation can and will
continue exist outside hipster corridors]

33. Are shared, replicated ledgers part of the
future? Can they help reduce costs?

35. What are some replicated ledger projects in
the Fintech space?

37. Is it only a binary choice between permissioned
and permissionless ledgers? How much co-
existence and cooperation will occur between the
two ecosystems?

38. Or is the future something else entirely?

39. Contact
• email: tswanson@gmail.com
• follow: @ofnumbers
• visit: OfNumbers.com