Mobile Payments presentation AWS
Fintech Certificate
Fintech – Disruptors And Enablers, Both Winners January 2018
ATONRÂ PARTNERS SA 12, Rue Pierre Fatio – 1204 GENEVA – SWITZERLAND - Tel: + 41 22 310 15 01 http://www.atonra.ch
Fintech Certificate Investment Case ➢ Record investments in Fintech over the last three years (above $100bn according to KPMG) are about to spark a massive wave of innovative financial and banking services ➢ One of the most obvious outcomes of the Fintech revolution is the disintermediation of financial services as nimble companies take advantage of technologies such as AI and blockchain to develop new services or to take business away from legacy players ➢ While the emergence of mobile payment platforms has drawn much attention, other Fintech applications ranging from robo-advisers to peer-to-peer lending are also taking off ➢ Blockchain represents the final disintermediation step: the technology has wide-ranging applications (smart contracts, decentralized apps…) in the financial world and in many industries ➢ Against this backdrop, banks and insurers have to reinvent themselves and invest heavily in new technologies in order to enhance customer experience and extract operating efficiencies ➢ This suggests that tech enablers (both hardware and software) should also be in the spotlight as they are in the early stages of a secular growth cycle
Fintech Certificate details ✓
Issuing bank: Natixis, Calculation agent: Natixis SA
✓
ISIN: XS1365787230
✓
Currency: USD
✓
Fees: 1.65% management fee + 15% performance fee, high water mark
✓
Bloomberg ticker: NXSRFINT
2
3
Fintech Certificate
Financial Software
AI & Bots Payment Processing
P2P Lending
Mobile Payments Loyalty & Rewards B2B Payments
Biometrics & Security
Blockchain
4
Fintech Certificate Mobile Payments: The Tip Of The Iceberg (I)
➢ Now that the mobile payment infrastructure is in place, widespread adoption of mobile payments by consumers is just a question of when, not if
➢ Upcoming catalysts: Loyalty programs and P2P features
In-car payments
Seamless, mobile-based checkout experience
Payments in virtual stores
Government incentives
5
Fintech Certificate Mobile Payments: The Tip Of The Iceberg (II) ➢
The annual transaction volume via mobile payments in 2015 was $450bn and is expected to exceed $1tn in 2019
Annual transaction volume in US$ bn Mobile Payments
Mobile Payments users by region (in mn) 1080
CAGR ~ 20%
180
163.6
2012
160
930
2016
140
780
120
620
100
450
101.3
90.7
85
80
57.8
64
60
32.8
40
26.7 8.5
20
22.3 1.5 6
0
2015
2016
2017
2018
2019
Source: AtonRâ Partners, TrendForce, NFC World+
➢
Asia/ Pacific
Africa
North America
Europe
Latin America
Middle East
Source: AtonRâ Partners, Gartner Inc.
Asia Pacific and Africa are early and faster adopters of mobile payments with more than 100 million mobile payments users
Fintech Certificate Mobile Payments: The Tip Of The Iceberg (III) ➢
Payment processors are the best way to capture the volume growth of digital transactions
➢
Highly scalable business models hint at significant earnings leverage
➢
Strong balance sheets and cash-flow generation give ammo for M&A in a highly fragmented industry
6
7
Fintech Certificate The Fintech Universe Is Much Larger ✓ ✓ ✓ ✓ ✓ ✓
✓ ✓
Artificial Intelligence Robo-advisors Advanced analytics Process Automation Crowdfunding Social investing
✓
Asset and Wealth Management
Infrastructure
IoT and connected devices Analytics
Insurance
✓ ✓ ✓ ✓ ✓ ✓
Blockchain Artificial Intelligence, bots Cybersecurity Risk assessment Anti-money laundering Client profiling
Lending
✓ ✓ ✓
Online / P2P lending Mortgage Auto finance Credit scoring
Payments
✓ ✓ ✓ ✓ ✓ ✓
Mobile payments Digital wallets Payment processing B2B payments International remittances Point-of-sale devices
8
Fintech Certificate Online Lending Has Been A Major Area Of Development ➢ According to KPMG, non-bank startups arranged more than $36bn of loans in 2015, mainly for consumers, up from $11bn in 2014 ➢ The boom of peer-to-peer lending platforms is mainly due to: ✓ Reduced lending by incumbents to small merchants and consumers following the 2008 financial crisis ✓ The low rate environment, a positive for the funding of P2P platforms ✓ Increased use of online banking services by consumers
How peer-to-peer lending works Applies for a loan (1)
Borrower
Lending Platform (e.g., Lending Club)
Loan repayment (10) Informs a thirdparty bank that borrower is verified, investors have committed (3)
Loan note (8)
Commits to a borrower (2) Gives cash to the platform (6) Investor receives loan note (9) Loan repayment (11)
Lender/ Investor
Purchases the loan note using investor’s cash (7) Initial application and funding Loan repayment
Partner Bank (e.g., Web Bank)
Loan note transfer
Loan note purchasing
Fintech Certificate
9
Online Lending At The Core Of Many Fintech Offerings ➢ Lending has become a natural extension of the services offered by many fintech and tech companies
✓ They can leverage their existing relations with consumers and merchants to develop a potentially large and profitable lending business ✓ They can increase the stickiness of customers to their main platform / business ➢ A few examples: ✓ Amazon has offered more than $1bn in small loans to third-party sellers on its site in the past 12 months, compared with $1.5bn in the 2011-2015 period. Loans range from $1,000 to $750,000 and interest rates from 6% to 14%
✓ Square and PayPal have launched lending businesses targeting small businesses
✓ Qiwi, the Russian digital wallet and remittances company, is just launching a consumer lending business ✓ Robinhood, which lets customers trade stocks for free, makes money thanks to margin trading
10
Fintech Certificate Online Lending And Banking: Tech Companies To Play A Major Role? ➢ Lending, and more generally financial services, fit well with tech companies’ know-how ✓ They are data-rich businesses
✓ Access to detailed data on the customers’ business allows to mitigate risks
✓ The large amount of data that is easily labeled makes this an interesting place for Deep Learning (DL) methods
✓ Securitization suggests balance sheets will not balloon
➢ A couple of tech companies already act de facto as banks ✓ By storing clients’ cash and allowing them to use their cash balance through debit cards
Fintech Certificate The Bank Status Offered By The US Government Is A Major Positive ➢ Until now, Fintech companies have grown wild, without many restrictions ➢ The US government (through the OCC) just set up of a specific bank charter for fintech companies that may seem at first sight as a regulatory headwind… ➢ It has actually more pros than cons:
11
12
Fintech Certificate Tech Giants Likely Eager To Tap A Huge Market ➢ Mobile payments offerings from Tech giants (Apple/Android Pay…) could be a Trojan horse to develop a full financial services offering in the future ✓ Bypassing credit card companies would allow them to fully monetize mobile transactions ✓ Leveraging huge numbers of users, unique data sets and AI skills, would then allow them to expand into lending and banking and to find a new growth avenue Market Capitalization (in $bn) – banks & credit cards companies In $bn
1'800
1'697.5
1'600 1'400 1'200
1'055.8
1'000 800 600
470.5
400
200 0 The 20 largest banks in US
The 20 largest banks in Europe
Credit cards companies (V, MA, AXP, DFS)
Source: Bloomberg, Banksdaily.com, Relbanks.com
13
Fintech Certificate Traditional Banks Have No Choice But To Make Large Fintech Investments (I)
There always will be new emerging competitors that we need to keep an eye on… JP Morgan CEO, Jamie Dimon in April 2015
N
ew competitors always will be emerging and that is even truer today because of new technologies and large changes in regulations. The combination of these factors will have a lot of people looking to compete with banks because they have fewer capital and regulatory constraints and fewer legacy systems. We also have a healthy fear of the potential effects of an uneven playing field which may be developing. Below are some areas that we are keeping an eye on
S
ilicon 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 business very quickly and - these entities believe – effectively by using Big Data to enhance credit underwriting.
T
hey 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.
14
Fintech Certificate Traditional Banks Have No Choice But To Make Large Fintech Investments (II) What JPMorgan is doing with that
$9.5bn tech spend JPMorgan Chase pumped $600mn into fintech in 2016
French Bank BNP Paribas is spending €3bn to “build the bank of tomorrow”
RBC wants 40% of total technology budget devoted to innovation Credit Suisse further enhances digital banking with Fintech Partnership; launches regional industry’s first digital client onboarding application
Fintech Certificate Robo-Advisory And Bots: A Major Cost Saving Opportunity For Banks ➢ Robo-advisory start-ups (Betterment, Wealthfront…) have been making the buzz lately ✓ Taking over traditional financial advisors, they offer asset allocation services to users based on their personal and employment situation, assets and liabilities, savings and retirement targets…
➢ Their success so far is limited (roughly $100bn in AUM) as brand is key and client acquisition costly
➢ While it’s highly unlikely to see a high number of start-ups thriving in this low-margin business, traditional banks are expected to capitalize on bots to reduce costs ✓ From portfolio allocation in wealth management ✓ To customer service (chatbots) and process automation
15
16
Fintech Certificate Software Solutions: The Picks And Shovels of Banks’ Fintech Revolution Digital banking • Online and mobile platforms • Online account opening • Financial document automation • Electronic payments • Compliance and fraud prevention • Financial messaging
. • • • •
Credit scoring Consumer lending Mortgage Auto Credit cards
Asset & wealth management • Front - trading, asset allocation, portfolio construction, investment Electronic products… payments • Middle - performance reporting, due diligence, tax optimization… • Back office reconciliation, account administration, processing, clearing… • Functions
Marketing • Customer loyalty programs • Direct marketing services • Analytics
Electronics payments • Bill presentment • Automatic invoice processing • Payment forms on web or mobile apps • Integration with mobile payment platforms and digital wallets • Currency conversions • Dispute management • Fraud detection
Analytics & regulatory compliance • Customer analytics • Portfolio analytics • Automated compliance checks
17
Fintech Certificate Software Solutions: Outsourcing A secular Trend ➢ Keeping up with the latest fintech developments proves difficult ➢ Rising interest rate environment a positive for banks’ revenue and capex/IT spending outlook ➢ Regulatory burden on financial institutions is a driver of continued outsourcing ✓ According to IDC, 79% of bank IT spending is still in-house!
Fast-changing Technologies Convenience multi channel (mobile, internet)
New Competitors Telcos
Personalized banking
Fintech
Technology giants
Reliability
Ease of use
Basel II and III
PSD II
Banks
Weak revenue momentum
Poor ROEs
MIFID II
Increasing Regulations
Financial Metrics Under Pressure
18
Fintech Certificate Blockchain: The Most Disruptive Technology Of The Past 10 Years
Blockchain 1.0 CryptoCurrencies
Blockchain 2.0+ Smart Contracts Decentralized Apps…
The building block of Web 3.0 and Industry 4.0
19
Fintech Certificate Blockchain: It’s Just Getting Started (I) Blockchain looks like the Internet back in 1994…
1994/1995
Today
➢ In 1995, the entire internet sector (public & private) was ~$70B
➢ The decentralized software market value is $100B+
➢ In 1994, the entire global internet population was ~20M or 0.4%
➢ ~20M crypto accounts in the world today or 0.3%
2014
50% 46.1% 43.4% 45% 40.7% 2012 38.0% 40% 35.1% 35% 31.8%
4'000 3'500
3'000
1995
29.2% 2'500
1996 1997
2'000
2004
1992
1'500
We are here 6.8%
500
1.3% 2.0% 0.3% 0.4% 0.8%
3.1%
25%
17.6% 15.8% 14.2% 12.3% 10.6%
1998
1'000
30%
25.8% 23.3% 20.6%
20%
15%
8.1%
10%
4.6% 5%
0
0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Internet Users (Millions)
World Population Penetration
Source: scribblrs.com
World Population Penetration
2013
20
Fintech Certificate Blockchain Disrupting Old And New Business Models
OLD (centralized)
Data Storage
E-commerce
Social Media
Sharing Economy
NEW (decentralized)
21
Fintech Certificate Blockchain: It’s Just Getting Started (II) In 2017 alone, $4bn has been raised through ICOs (Initial Coin Offerings)
Conventional VC Funding To Blockchain Firms Vs. ICO Funding Global, Millions ($), Q1 2016-Q3 2017
VC funding
ICO Funding
$1400
$1327
$1200
Q3 2017:
ICO: $1,327 VS.
$1000
VC: $259
$800
$757
ratio of 5 to 1 $600 $400 $248 $200
$179
$161
$122
$12
$21
$21
Q1 2016
Q2 2016
Q3 2016
$83
$259
$130 $39
$38
Q4 2016
Q1 2017
$0 Q2 2017
Q3 2017
Source: CB Insights, BI Intelligence
22
Fintech Certificate Blockchain: The Ultimate Disintermediation ➢ A Blockchain (2.0+) is a distributed database of transactions (and computer code) recorded and verified across a network of participants
The network of nodes validates the transaction and the user’s status using known algorithms
How blockchain works:
Validation
Someone requests a transaction
The first block is created online and represents the transaction The requested transaction is broadcast to a P2P network consisting of computers, known as nodes
The transaction is now complete
The new block is then added to the existing blockchain, in a way that is permanent and unalterable
A verified transaction can involve cryptocurrency, contracts, records or other information
Once verified, the transaction is combined with other transactions to create a new block of data for the ledger
23
Fintech Certificate Blockchain: Wide-Ranging Applications Use cases Improving and speeding the post-trade clearing and settlement processes
Streamlining compliance procedures (AML, client onboarding…), hence reducing manual intervention Smart contracts allow the performance of trackable and irreversible transactions without third parties. This level of automation and security has the power to revolutionize the management of traditional contractual engagements across all industries.
B B
lockchain technology isn't just a more efficient way to settle securities. It will fundamentally change market structures, and maybe even the architecture of the Internet itself.” Abigail Johnson, CEO Fidelity Investments
itcoin is a remarkable cryptographic achievement…The ability to create something which is not duplicable in the digital world has enormous value… Lots of people will build businesses on top of that Eric Schmidt, Executive Chairman of Google
24
Fintech Certificate
Ant Financial
$70 bn
Adyen $7.5 $2.3bnbn
Stripe $10 bn
est. valuation Transfer wise $1.6 bn
PAYMENTS
$2.3 bn
A rich newsflow ahead in Fintech: expected IPOs and M&A targets
Lufax
$60 bn Credit Karma
WEALTH Robinhood MANAGEMENT $1.3 bn
LENDING
$3.5 bn SoFi $4 bn Commonbond
$4 bn
$1 bn
$700 mn
Kabbage
WealthFront
$800 mn Betterment
25
Fintech Certificate Conclusion
A major positive impact on GDP system)
growth
(greater efficiency of the banking
A huge revenue opportunity in lending
Many cost
and payments
savings opportunities at stake for traditional financial institutions
Financial software a sweet spot
Blockchain
to have a massive impact as it represents the ultimate disintermediation
M&A frenzy in sight: many Fintech businesses are highly fragmented and scalable
DISCLAIMER
26
This report has been produced by the organizational unit responsible for investment research (Research unit) of AtonRâ Partners and sent to you by the company sales representatives. As an internationally active company, AtonRâ Partners SA may be subject to a number of provisions in drawing up and distributing its investment research documents. These regulations include the Directives on the Independence of Financial Research issued by the Swiss Bankers Association. Although AtonRâ Partners SA believes that the information provided in this document is based on reliable sources, it cannot assume responsibility for the quality, correctness, timeliness or completeness of the information contained in this report. The information contained in these publications is exclusively intended for a client base consisting of professionals or qualified investors. It is sent to you by way of information and cannot be divulged to a third party without the prior consent of AtonRâ Partners. While all reasonable effort has been made to ensure that the information contained is not untrue or misleading at the time of publication, no representation is made as to its accuracy or completeness and it should not be relied upon as such. Past performance is not indicative or a guarantee of future results. Investment losses may occur, and investors could lose some or all of their investment. Any indices cited herein are provided only as examples of general market performance and no index is directly comparable to the past or future performance of the Certificate. It should not be assumed that the Certificate will invest in any specific securities that comprise any index, nor should it be understood to mean that there is a correlation between the Certificate’s returns and any index returns. Any material provided to you is intended only for discussion purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any security and should not be relied upon by you in evaluating the merits of investing in any securities.
Fintech – Disruptors And Enablers, Both Winners January 2018
ATONRÂ PARTNERS SA 12, Rue Pierre Fatio – 1204 GENEVA – SWITZERLAND - Tel: + 41 22 310 15 01 http://www.atonra.ch
Fintech Certificate Investment Case ➢ Record investments in Fintech over the last three years (above $100bn according to KPMG) are about to spark a massive wave of innovative financial and banking services ➢ One of the most obvious outcomes of the Fintech revolution is the disintermediation of financial services as nimble companies take advantage of technologies such as AI and blockchain to develop new services or to take business away from legacy players ➢ While the emergence of mobile payment platforms has drawn much attention, other Fintech applications ranging from robo-advisers to peer-to-peer lending are also taking off ➢ Blockchain represents the final disintermediation step: the technology has wide-ranging applications (smart contracts, decentralized apps…) in the financial world and in many industries ➢ Against this backdrop, banks and insurers have to reinvent themselves and invest heavily in new technologies in order to enhance customer experience and extract operating efficiencies ➢ This suggests that tech enablers (both hardware and software) should also be in the spotlight as they are in the early stages of a secular growth cycle
Fintech Certificate details ✓
Issuing bank: Natixis, Calculation agent: Natixis SA
✓
ISIN: XS1365787230
✓
Currency: USD
✓
Fees: 1.65% management fee + 15% performance fee, high water mark
✓
Bloomberg ticker: NXSRFINT
2
3
Fintech Certificate
Financial Software
AI & Bots Payment Processing
P2P Lending
Mobile Payments Loyalty & Rewards B2B Payments
Biometrics & Security
Blockchain
4
Fintech Certificate Mobile Payments: The Tip Of The Iceberg (I)
➢ Now that the mobile payment infrastructure is in place, widespread adoption of mobile payments by consumers is just a question of when, not if
➢ Upcoming catalysts: Loyalty programs and P2P features
In-car payments
Seamless, mobile-based checkout experience
Payments in virtual stores
Government incentives
5
Fintech Certificate Mobile Payments: The Tip Of The Iceberg (II) ➢
The annual transaction volume via mobile payments in 2015 was $450bn and is expected to exceed $1tn in 2019
Annual transaction volume in US$ bn Mobile Payments
Mobile Payments users by region (in mn) 1080
CAGR ~ 20%
180
163.6
2012
160
930
2016
140
780
120
620
100
450
101.3
90.7
85
80
57.8
64
60
32.8
40
26.7 8.5
20
22.3 1.5 6
0
2015
2016
2017
2018
2019
Source: AtonRâ Partners, TrendForce, NFC World+
➢
Asia/ Pacific
Africa
North America
Europe
Latin America
Middle East
Source: AtonRâ Partners, Gartner Inc.
Asia Pacific and Africa are early and faster adopters of mobile payments with more than 100 million mobile payments users
Fintech Certificate Mobile Payments: The Tip Of The Iceberg (III) ➢
Payment processors are the best way to capture the volume growth of digital transactions
➢
Highly scalable business models hint at significant earnings leverage
➢
Strong balance sheets and cash-flow generation give ammo for M&A in a highly fragmented industry
6
7
Fintech Certificate The Fintech Universe Is Much Larger ✓ ✓ ✓ ✓ ✓ ✓
✓ ✓
Artificial Intelligence Robo-advisors Advanced analytics Process Automation Crowdfunding Social investing
✓
Asset and Wealth Management
Infrastructure
IoT and connected devices Analytics
Insurance
✓ ✓ ✓ ✓ ✓ ✓
Blockchain Artificial Intelligence, bots Cybersecurity Risk assessment Anti-money laundering Client profiling
Lending
✓ ✓ ✓
Online / P2P lending Mortgage Auto finance Credit scoring
Payments
✓ ✓ ✓ ✓ ✓ ✓
Mobile payments Digital wallets Payment processing B2B payments International remittances Point-of-sale devices
8
Fintech Certificate Online Lending Has Been A Major Area Of Development ➢ According to KPMG, non-bank startups arranged more than $36bn of loans in 2015, mainly for consumers, up from $11bn in 2014 ➢ The boom of peer-to-peer lending platforms is mainly due to: ✓ Reduced lending by incumbents to small merchants and consumers following the 2008 financial crisis ✓ The low rate environment, a positive for the funding of P2P platforms ✓ Increased use of online banking services by consumers
How peer-to-peer lending works Applies for a loan (1)
Borrower
Lending Platform (e.g., Lending Club)
Loan repayment (10) Informs a thirdparty bank that borrower is verified, investors have committed (3)
Loan note (8)
Commits to a borrower (2) Gives cash to the platform (6) Investor receives loan note (9) Loan repayment (11)
Lender/ Investor
Purchases the loan note using investor’s cash (7) Initial application and funding Loan repayment
Partner Bank (e.g., Web Bank)
Loan note transfer
Loan note purchasing
Fintech Certificate
9
Online Lending At The Core Of Many Fintech Offerings ➢ Lending has become a natural extension of the services offered by many fintech and tech companies
✓ They can leverage their existing relations with consumers and merchants to develop a potentially large and profitable lending business ✓ They can increase the stickiness of customers to their main platform / business ➢ A few examples: ✓ Amazon has offered more than $1bn in small loans to third-party sellers on its site in the past 12 months, compared with $1.5bn in the 2011-2015 period. Loans range from $1,000 to $750,000 and interest rates from 6% to 14%
✓ Square and PayPal have launched lending businesses targeting small businesses
✓ Qiwi, the Russian digital wallet and remittances company, is just launching a consumer lending business ✓ Robinhood, which lets customers trade stocks for free, makes money thanks to margin trading
10
Fintech Certificate Online Lending And Banking: Tech Companies To Play A Major Role? ➢ Lending, and more generally financial services, fit well with tech companies’ know-how ✓ They are data-rich businesses
✓ Access to detailed data on the customers’ business allows to mitigate risks
✓ The large amount of data that is easily labeled makes this an interesting place for Deep Learning (DL) methods
✓ Securitization suggests balance sheets will not balloon
➢ A couple of tech companies already act de facto as banks ✓ By storing clients’ cash and allowing them to use their cash balance through debit cards
Fintech Certificate The Bank Status Offered By The US Government Is A Major Positive ➢ Until now, Fintech companies have grown wild, without many restrictions ➢ The US government (through the OCC) just set up of a specific bank charter for fintech companies that may seem at first sight as a regulatory headwind… ➢ It has actually more pros than cons:
11
12
Fintech Certificate Tech Giants Likely Eager To Tap A Huge Market ➢ Mobile payments offerings from Tech giants (Apple/Android Pay…) could be a Trojan horse to develop a full financial services offering in the future ✓ Bypassing credit card companies would allow them to fully monetize mobile transactions ✓ Leveraging huge numbers of users, unique data sets and AI skills, would then allow them to expand into lending and banking and to find a new growth avenue Market Capitalization (in $bn) – banks & credit cards companies In $bn
1'800
1'697.5
1'600 1'400 1'200
1'055.8
1'000 800 600
470.5
400
200 0 The 20 largest banks in US
The 20 largest banks in Europe
Credit cards companies (V, MA, AXP, DFS)
Source: Bloomberg, Banksdaily.com, Relbanks.com
13
Fintech Certificate Traditional Banks Have No Choice But To Make Large Fintech Investments (I)
There always will be new emerging competitors that we need to keep an eye on… JP Morgan CEO, Jamie Dimon in April 2015
N
ew competitors always will be emerging and that is even truer today because of new technologies and large changes in regulations. The combination of these factors will have a lot of people looking to compete with banks because they have fewer capital and regulatory constraints and fewer legacy systems. We also have a healthy fear of the potential effects of an uneven playing field which may be developing. Below are some areas that we are keeping an eye on
S
ilicon 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 business very quickly and - these entities believe – effectively by using Big Data to enhance credit underwriting.
T
hey 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.
14
Fintech Certificate Traditional Banks Have No Choice But To Make Large Fintech Investments (II) What JPMorgan is doing with that
$9.5bn tech spend JPMorgan Chase pumped $600mn into fintech in 2016
French Bank BNP Paribas is spending €3bn to “build the bank of tomorrow”
RBC wants 40% of total technology budget devoted to innovation Credit Suisse further enhances digital banking with Fintech Partnership; launches regional industry’s first digital client onboarding application
Fintech Certificate Robo-Advisory And Bots: A Major Cost Saving Opportunity For Banks ➢ Robo-advisory start-ups (Betterment, Wealthfront…) have been making the buzz lately ✓ Taking over traditional financial advisors, they offer asset allocation services to users based on their personal and employment situation, assets and liabilities, savings and retirement targets…
➢ Their success so far is limited (roughly $100bn in AUM) as brand is key and client acquisition costly
➢ While it’s highly unlikely to see a high number of start-ups thriving in this low-margin business, traditional banks are expected to capitalize on bots to reduce costs ✓ From portfolio allocation in wealth management ✓ To customer service (chatbots) and process automation
15
16
Fintech Certificate Software Solutions: The Picks And Shovels of Banks’ Fintech Revolution Digital banking • Online and mobile platforms • Online account opening • Financial document automation • Electronic payments • Compliance and fraud prevention • Financial messaging
. • • • •
Credit scoring Consumer lending Mortgage Auto Credit cards
Asset & wealth management • Front - trading, asset allocation, portfolio construction, investment Electronic products… payments • Middle - performance reporting, due diligence, tax optimization… • Back office reconciliation, account administration, processing, clearing… • Functions
Marketing • Customer loyalty programs • Direct marketing services • Analytics
Electronics payments • Bill presentment • Automatic invoice processing • Payment forms on web or mobile apps • Integration with mobile payment platforms and digital wallets • Currency conversions • Dispute management • Fraud detection
Analytics & regulatory compliance • Customer analytics • Portfolio analytics • Automated compliance checks
17
Fintech Certificate Software Solutions: Outsourcing A secular Trend ➢ Keeping up with the latest fintech developments proves difficult ➢ Rising interest rate environment a positive for banks’ revenue and capex/IT spending outlook ➢ Regulatory burden on financial institutions is a driver of continued outsourcing ✓ According to IDC, 79% of bank IT spending is still in-house!
Fast-changing Technologies Convenience multi channel (mobile, internet)
New Competitors Telcos
Personalized banking
Fintech
Technology giants
Reliability
Ease of use
Basel II and III
PSD II
Banks
Weak revenue momentum
Poor ROEs
MIFID II
Increasing Regulations
Financial Metrics Under Pressure
18
Fintech Certificate Blockchain: The Most Disruptive Technology Of The Past 10 Years
Blockchain 1.0 CryptoCurrencies
Blockchain 2.0+ Smart Contracts Decentralized Apps…
The building block of Web 3.0 and Industry 4.0
19
Fintech Certificate Blockchain: It’s Just Getting Started (I) Blockchain looks like the Internet back in 1994…
1994/1995
Today
➢ In 1995, the entire internet sector (public & private) was ~$70B
➢ The decentralized software market value is $100B+
➢ In 1994, the entire global internet population was ~20M or 0.4%
➢ ~20M crypto accounts in the world today or 0.3%
2014
50% 46.1% 43.4% 45% 40.7% 2012 38.0% 40% 35.1% 35% 31.8%
4'000 3'500
3'000
1995
29.2% 2'500
1996 1997
2'000
2004
1992
1'500
We are here 6.8%
500
1.3% 2.0% 0.3% 0.4% 0.8%
3.1%
25%
17.6% 15.8% 14.2% 12.3% 10.6%
1998
1'000
30%
25.8% 23.3% 20.6%
20%
15%
8.1%
10%
4.6% 5%
0
0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Internet Users (Millions)
World Population Penetration
Source: scribblrs.com
World Population Penetration
2013
20
Fintech Certificate Blockchain Disrupting Old And New Business Models
OLD (centralized)
Data Storage
E-commerce
Social Media
Sharing Economy
NEW (decentralized)
21
Fintech Certificate Blockchain: It’s Just Getting Started (II) In 2017 alone, $4bn has been raised through ICOs (Initial Coin Offerings)
Conventional VC Funding To Blockchain Firms Vs. ICO Funding Global, Millions ($), Q1 2016-Q3 2017
VC funding
ICO Funding
$1400
$1327
$1200
Q3 2017:
ICO: $1,327 VS.
$1000
VC: $259
$800
$757
ratio of 5 to 1 $600 $400 $248 $200
$179
$161
$122
$12
$21
$21
Q1 2016
Q2 2016
Q3 2016
$83
$259
$130 $39
$38
Q4 2016
Q1 2017
$0 Q2 2017
Q3 2017
Source: CB Insights, BI Intelligence
22
Fintech Certificate Blockchain: The Ultimate Disintermediation ➢ A Blockchain (2.0+) is a distributed database of transactions (and computer code) recorded and verified across a network of participants
The network of nodes validates the transaction and the user’s status using known algorithms
How blockchain works:
Validation
Someone requests a transaction
The first block is created online and represents the transaction The requested transaction is broadcast to a P2P network consisting of computers, known as nodes
The transaction is now complete
The new block is then added to the existing blockchain, in a way that is permanent and unalterable
A verified transaction can involve cryptocurrency, contracts, records or other information
Once verified, the transaction is combined with other transactions to create a new block of data for the ledger
23
Fintech Certificate Blockchain: Wide-Ranging Applications Use cases Improving and speeding the post-trade clearing and settlement processes
Streamlining compliance procedures (AML, client onboarding…), hence reducing manual intervention Smart contracts allow the performance of trackable and irreversible transactions without third parties. This level of automation and security has the power to revolutionize the management of traditional contractual engagements across all industries.
B B
lockchain technology isn't just a more efficient way to settle securities. It will fundamentally change market structures, and maybe even the architecture of the Internet itself.” Abigail Johnson, CEO Fidelity Investments
itcoin is a remarkable cryptographic achievement…The ability to create something which is not duplicable in the digital world has enormous value… Lots of people will build businesses on top of that Eric Schmidt, Executive Chairman of Google
24
Fintech Certificate
Ant Financial
$70 bn
Adyen $7.5 $2.3bnbn
Stripe $10 bn
est. valuation Transfer wise $1.6 bn
PAYMENTS
$2.3 bn
A rich newsflow ahead in Fintech: expected IPOs and M&A targets
Lufax
$60 bn Credit Karma
WEALTH Robinhood MANAGEMENT $1.3 bn
LENDING
$3.5 bn SoFi $4 bn Commonbond
$4 bn
$1 bn
$700 mn
Kabbage
WealthFront
$800 mn Betterment
25
Fintech Certificate Conclusion
A major positive impact on GDP system)
growth
(greater efficiency of the banking
A huge revenue opportunity in lending
Many cost
and payments
savings opportunities at stake for traditional financial institutions
Financial software a sweet spot
Blockchain
to have a massive impact as it represents the ultimate disintermediation
M&A frenzy in sight: many Fintech businesses are highly fragmented and scalable
DISCLAIMER
26
This report has been produced by the organizational unit responsible for investment research (Research unit) of AtonRâ Partners and sent to you by the company sales representatives. As an internationally active company, AtonRâ Partners SA may be subject to a number of provisions in drawing up and distributing its investment research documents. These regulations include the Directives on the Independence of Financial Research issued by the Swiss Bankers Association. Although AtonRâ Partners SA believes that the information provided in this document is based on reliable sources, it cannot assume responsibility for the quality, correctness, timeliness or completeness of the information contained in this report. The information contained in these publications is exclusively intended for a client base consisting of professionals or qualified investors. It is sent to you by way of information and cannot be divulged to a third party without the prior consent of AtonRâ Partners. While all reasonable effort has been made to ensure that the information contained is not untrue or misleading at the time of publication, no representation is made as to its accuracy or completeness and it should not be relied upon as such. Past performance is not indicative or a guarantee of future results. Investment losses may occur, and investors could lose some or all of their investment. Any indices cited herein are provided only as examples of general market performance and no index is directly comparable to the past or future performance of the Certificate. It should not be assumed that the Certificate will invest in any specific securities that comprise any index, nor should it be understood to mean that there is a correlation between the Certificate’s returns and any index returns. Any material provided to you is intended only for discussion purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any security and should not be relied upon by you in evaluating the merits of investing in any securities.
