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Fin tech industry report summer 2016

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the Fintech industry in Canada is disrupting the traditional baking industry and creating challenges for those banks that don't adopt technology as part of their business strategy. The following is an industry white paper that outlines some of the trends in the industry currently, and questions fintech companies and banks alike should ask themselves while they undertake their strategic planning process.

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Fin tech industry report summer 2016

  1. 1. | Jeremie Mariton 1 FinTech market | Industry report and recommenda2ons
  2. 2. | Jeremie Mariton Executive Summary Industry Overview………………………………………………………………… 3 Industry defini2on……………………………………………………………………………... Main ac2vi2es.......................................................................................... Main compe2tors………………………………………………………………………………. Key figures…………………………………………………………………………… 4 Industry trends…………………………………………………………………….. 5 A growing industry…………………………………………………………………………….. A closer link between banks and FinTech start-ups…………………………….. New disrup2ons…………………………………………………………………………………. More compe22on……………………………………………………………………………… Key success factors………………………………………………………………. 7 Porter’s 5 forces analysis……………………………………………………… 8 Compe22ve forces…………………………………………………………………………….. What does that mean for your business?............................................... SWOT analysis……………………………………………………………………… 10 Ques2ons to ask yourself…………………………………………………….. 11 Resources…………………………………………………………………………….. 12 2
  3. 3. | Jeremie Mariton Industry overview The FinTech Industry uses technology to make financial services more efficient and user- friendly. FinTech companies are generally small startups disrup2ng the tradi2onal financial sector in such fields as mobile payments, loans, money transfers, fundraising and asset management. 3 •  Financial Crime detec2on •  Cybersecurity •  Financial data & Analy2cs •  Personal Lending •  Business Lending •  Payment techonologies •  Crypto currency •  Banking and insurance •  Capital Markets •  PFM Tech •  Financial consolidators Industry definition Main activities In Bri/sh Columbia •  Payso •  Payfirma •  Control •  WealthBar •  Zafin •  Trulioo •  Mogo.ca In Canada •  Payfirma •  Aimia •  Points Interna2onal •  Wealth Simple •  Zafin •  Berkeley •  Shopify •  Carta Worldwide •  Ethoca •  Grouplend •  Verafin Main Competitors
  4. 4. | Jeremie Mariton 4 Key figures Industry at a glance $ 20 billion global FinTech Investment in 2015 Other interes2ng figures: •  43% of consumers adopt fintech solu2ons because they are easy to use. •  With 16.5%, the US market has the second highest fintech adop2on rate ader Hong-Kong. 8.2% FinTech Adop2on Rate in Canada 92% Year-on-year rise in FinTech investment (2015) 44% of millennials would rather use their mobile phone to pay small items Money transfers, payments, savings and investments are most used fintech services Main barriers preven2ng consumer adop2on of fintech
  5. 5. | Jeremie Mariton Industry trends 5 Since 2014 the number of players within the FinTech industry has grown exponen2ally: Start-ups, investor teams, Venture Capitals, and accelerators; They are all brand new players changing quickly industry features. One of the main reasons the FinTech industry is evolving at such a fast pace is the tremendous growth in investment over the past two years. Global FinTech investment doubled in 2015 reaching $20 bn. This investment trend is fostered by the public market’s appe2te for FinTech: Technology spending by Canadian financial sector will rise by more than $1.5 bn by 2018. The number of consumers adop2ng is also expected to rise drama2cally. Today, only 8.2% of digitally ac2ve consumers use FinTech products in Canada. This year (2016), this percentage should almost triple, which is for every industry player a prime opportunity to grow. Another trend going on is the new rapprochement between Fintech start-ups and financial ins2tu2ons. As a mamer of fact, banks need Fintech as much as Fintech need banks. Financial ins2tu2ons are challenged on their products by start-ups who are more effec2vely matching consumer’s needs for easy-to-use products/services with lower management and interest fees. Conversely, FinTech companies need bank’s clients as their business models require a large base of customers to make money. One of the greatest challenges for FinTech start-ups will be to earn the trust of customers and make their brand known. FinTech companies are expected to grow fast as venture capital model generally provide funds for only 3 or 4 years. Weaknesses of banks match the strengths of Fintech firms and conversely, the weaknesses of FinTech firms match the strengths of banks. Financial Ins2tu2ons and Fintech companies have more interest in working hand in hand than waging war upon each other. Vancouver is one of the best places in Canada for FinTech investment. A dense network of start-ups, a great ability to amract talent, a global lens and a deep sense of entrepreneurship are all reasons to think that Vancouver is uniquely posi2oned for FinTech success. A growing industry A closer link between financial institutions and Fintech start- ups “Fintech is changing the face of global payments. Global investment in fintech ventures tripled in 2014 “ For many FinTech companies, the key to success will be partnering well.
  6. 6. | Jeremie Mariton 6 In 2015, 2 main segments represented most financial innova2ons: payments and lending. In 2016,new categories of disrup2on such as insurance and mortgages should be on the way. Insurance represents a huge opportunity for FinTech companies: a big market, a lack of sa2sfac2on and trust with major players, high barriers to entry into means the insurance industry is begging for disrup2on! Best innova2on examples in this Industry are: using crowdsourcing to reduce costs and claims, and using technology and data to gather data and … calculate premiums. (Using speed and mileage trackers in your car for example) The mortgage Industry is also primed for disrup2on. Consumers can now find all they need and calculate their mortgage online with the help of robots instead of humans. Soon, they will also call on P2P lending plasorms to get their loan instead of tradi2onal channels. New disruptions Insurance and Mortgage Industry are expected to be the next fron2ers for FinTech. FinTech market is amrac2ve and compe22on is hea2ng up quickly. There are between 100 and 200 companies compe2ng in the Canadian marketplace currently with the number of new entrants expected to increase significantly FinTech companies will have to cope with a more compe22ve environment which creates a few possibili2es for all players: 1) Increased compe22on will put greater downward pressure on prices, further erroding margins for tradi2onal ins2tu2ons. 2)It will create greater innova2on within exis2ng and new firms putng more pressure on tradi2onal ins2tu2ons to innovate and adapt technology in order to stay compe22ve. More competition Industry trends
  7. 7. | Jeremie Mariton Key success factors 4) Ability to raise significant amounts of money FinTech start ups require huge amounts of capital to reach millions of customers and gain a significant market share as quickly as they can. For a new venture to be successful in a compe22ve market it needs large amounts of cash. 7 3) Partnerships with Financial Ins/tu/ons A closer link between banks and Start-ups is certainly the key success factor in this industry . Banks have everything to make a start-up grow: an exis2ng customer base, a reputa2on for trust, experience with regulators, effec2ve risk management programmes not to men2on a big investment capital. For example: Banks like BBVA already understood the opportunity of FinTech and started to invest massively in compe22ve start ups like Dwolla. -Forbes: hmp://buff.ly/1WGGc3t 1)  Large customer base As men2oned earlier, one of the biggest challenges for FinTech companies is to get a large customer base to make profits. They can achieve this goal by either increasing their value proposi2on on their own or partnering with banks. 2) Knowledge of the target customers Key consumers for FinTech Industry are millennials. According to a recent study from EY, millennials represent more than 25% of FinTech adopters and this percentage could reach 50% this year. They are also considered the most valuable because of their propor2onal contribu2on of income into investments For these reasons, FinTech companies should target millennials and create products that meet their needs. 5) Abitlity to aHract talent Innova2on is also a strategic key to stay compe22ve in FinTech industry.; to foster innova2on you need talent. Canada - and more specifically Vancouver - is a hotbed of talent when it comes to financial technologies, privacy and security technologies. The most successful players will be those with the best people and culture around them.
  8. 8. | Jeremie Mariton Porter’s 5 forces analysis 8 Competitive forces Porter’s 5 forces allows you to determine how profitable your market is now and how profitable it will be in the future. By evalua2ng the power and impact of customers, compe2tors and the landscape of the market it helps you plan where you can be successful and avoid more challenging markets Threat of new entrants High - The number of compe2tors is expected to rise significantly and banks are also getng into the game partnering with major FinTech companies. Bargaining power of suppliers Low – Few or no suppliers. Threat of subs2tute products or services Medium/High – Innova2on in the FinTech industry are spreading quickly and subs2tutes are being launched daily. Bargaining power of clients Low – and Increasing. As more op2ons arise, margins will decrease for all organiza2ons. Rivalry among exis2ng compe2tors Medium – FinTech is a brand new market gaining momentum and compe22on is increasing
  9. 9. | Jeremie Mariton 9 We can draw several conclusions from Porter’s 5 forces analysis: •  There are new opportuni2es of disrup2on in FinTech which means the market might turn out to be highly profitable. •  FinTech market is growing quickly and there are many new opportuni2es to innovate and gain market share. •  None the less FinTech’s profitability is threatened because of an increasingly compe22ve marketplace •  The threat of new compe2tors, and the likelihood that they develop similar products or services are high.. as such a highly defensible compe22ve posi2on needs to be adopted as quickly as possible. •  Those who will succeed are those able to develop in-imitable solu2ons or those that grow much faster than their compe2tors. •  To be successful you need to provide a higher value than your compe2tors, have a large customer base, and con2nue to innovate to maintain your margins and profitability. The ques2on is: Do you offer enough value to win a greater market share? What does that mean for your business? The market will grow quickly driven by innova2on and consumer demand, and then contract as compe22on increases. Is FinTech a profitable market? Yes, for the moment, innova2ve start ups have been able to carve market share from established ins2tu2ons slow to adapt, innovate and change. Porter’s 5 forces analysis
  10. 10. | Jeremie Mariton SWOT analysis 10 Opportuni2es •  Market growth. •  The millennials: early FinTech adopters, higher-income customers. •  Partnerships with banks or other players. •  Big investment in FinTech: Venture capital, banks… Threats •  New compe2tors. •  New partnerships between your compe2tors and banks. •  New regula2ons on FinTech market (law?). •  Consumers lack of trust in FinTech. •  A FinTech bubble (unicorns)? Strengths ____________________________ ____________________________ ____________________________ Weaknesses ___________________________ ___________________________ ___________________________ What are you organiza2on’s strengths and weaknesses? What Specific Opportuni2es and threats exist for your organiza2on in the near future?
  11. 11. | Jeremie Mariton Questions to ask yourself 11 •  What is your strategy and ac2on plan for the future given these industry trends? •  Do you think your teams and ac2vity are aligned with this strategy? •  Do you have a plan in place to implement your strategy? •  What challenges do you see given this trends? •  Does your whole team see the future in the same way? •  How does your company vision fit within this future? •  What needs to change for you to achieve your desired future? •  How are you going to react to your compe22on? •  Want help answering these ques2ons? Contact us : SME Strategy Consul2ng 778-895-5447 | Info@smestrategy.net 128 Has2ngs Street Vancouver, Canada. V6B 1G8
  12. 12. | Jeremie Mariton 12 Resources 1.  hmp://techcrunch.com/2015/08/05/insurance-is-the-next-fron2er-for-fintech/ 2.  hmp://www.techvibes.com/blog/the-amazing-poten2al-of-financial-technology-in- vancouver-2015-09-02 3.  hmps://info.bbva.com/en/news/general/five-fintech-trends-for-2016/ 4.  hmp://business.financialpost.com/news/fp-street/canadian-adop2on-of-fintech-products-set-to- triple-in-a-year-report 5.  hmp://www.theglobeandmail.com/report-on-business/small-business/sb-money/next-big- sector-to-face-disrup2on-financial-services/ar2cle23025801/ 6.  hmp://business.financialpost.com/news/fp-street/credit-unions-beginning-to-embrace-fintech- the-way-canadians-use-financial-services-is-rapidly-changing 7.  hmp://www.bcic.ca/blog/2015/industry-spotlight-fintech 8.  hmp://www.finyear.com/Les-FinTech-en-2015-Infographie_a34928.html 9.  hmp://www.adweek.com/news/adver2sing-branding/why-mobile-payments-are-millennial- must-161163 10.  hmp://thefinancialbrand.com/56561/fintech-adop2on-banking-disrup2on-index/ 11.  hmp://www.pwc.com/ca/en/media/release/2016-03-10-investment-fintech-canadian- banking.html 12.  hmp://www.ey.com/GL/en/Industries/Financial-Services/ey-fintech-adop2on-index 13.  PwC report on Investment Fintech Canadian banking 2015 14.  McKinsey report on Fintech Industry 2015

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