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Consumer FinTech deck from Charles Moldow at FinTEx

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Deck from Charles Moldow's presentation at FinTEx in Chicago

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Consumer FinTech deck from Charles Moldow at FinTEx

  1. 1. Consumer FinTech Charles Moldow General Partner
  2. 2. Financial Engines and Envestnet Share price through funding rounds ($US) 5.52 11.65 7.65 10.23 45.00 50 45 40 35 30 25 20 15 10 5 0 S-A S-C Sec. IPO Curr. +1,280% 1.25 3.79 0.54 10.68 4.75 6.28 17.25 34.45 40 35 30 25 20 15 10 5 0 +100% S-B S-C S-D S-E S-F Sec. IPO Curr. +85% +340%
  3. 3. Financial Services Portfolio Lending Wealth Management Personal Investing Payments
  4. 4. In 1994 the S&P 500 had an Aggregate Value of $5.2T Market Capitalization of S&P 500 (Year End, $T) $5.2 1994* *Adjusted to 1994 dollars Source: ThomsonOne
  5. 5. By Year-End 2013, It had Reached $17T Market Capitalization of S&P 500 (Year End, $T) 2013 $5.2 *Adjusted to 1994 dollars Source: ThomsonOne $17.0 2013 6.4% CAGR 1994*
  6. 6. By Year-End 2013, It had Reached $17T Market Capitalization of S&P 500 (Year End, $T) $5.2 *Adjusted to 1994 dollars Note: Sectors defined by Industry Classification Benchmark; Financial Administration included within Financials Source: ThomsonOne $2.1 Technology 17% of Growth 9% CAGR 2013 1995-2013 Growth $12T 1994*
  7. 7. Which makes sense
  8. 8. Healthcare Accounted for 12% of that Growth Market Capitalization of S&P 500 (Year End, $T) 1995-2013 Growth $12T $1.5 Healthcare 12% of Growth $2.1 Technology 17% of Growth 9% CAGR 2013 $5.2 *Adjusted to 1994 dollars Note: Sectors defined by Industry Classification Benchmark; Financial Administration included within Financials Source: ThomsonOne 7% CAGR 1994*
  9. 9. Which makes sense
  10. 10. The Financial Sector Grew Even Faster Market Capitalization of S&P 500 (Year End, $T) 1995-2013 Growth $12T $1.5 Healthcare 12% of Growth 2013 $5.2 *Adjusted to 1994 dollars Note: Sectors defined by Industry Classification Benchmark; Financial Administration included within Financials Source: ThomsonOne 7% CAGR $2.1 Technology 17% of Growth 9% CAGR $2.3 Financials 20% of Growth 9% CAGR 1994*
  11. 11. Which makes no sense…
  12. 12. Financials saw essentially no employment growth between 1997 and 2013 Total Sector Employment 14 12 10 8 6 4 2 0 Financials IT Healthcare Source: Occupational Employment Statistics, Bureau of Labor Statistics 1997 2013 0.3% CAGR 4.2% CAGR 2.0% CAGR
  13. 13. Market cap value per employee has sky-rocketed Market Cap Per Employee** $700 $600 $500 $400 $300 $200 $100 $0 Financials IT Healthcare *Note: Adjusted to 2013 dollars **Note: Market cap data from 1994, employment data from 1997 (inflates IT and Healthcare 1997 result) Source: Occupational Employment Statistics, Bureau of Labor Statistics; Thomson One S&P 500 Data 1997 2013 0.3% CAGR 4.2% CAGR 2.0% CAGR Thousands
  14. 14. Yet, few major banks are becoming more efficient 70% stayed the same or became less efficient 30% of the top 500 global banks improved cost efficiency between 2009-2012 Source: McKinsey
  15. 15. Financials Growing Despite an Adverse Environment
  16. 16. Financials Growing Despite an Adverse Environment Consumer Dissatisfaction Regulatory Overhang Macro Trends 2008 Correction
  17. 17. Banks Walked Away From Financing Small Businesses Source: FDIC, data for C&I loans <$250K
  18. 18. Financials Growing Despite an Adverse Environment Macro Trends 2008 Correction CCoonnssuummeerr DDiissssaattiissffaaccttiioonn Regulatory Overhang
  19. 19. Friends Don’t Let Friends Use Banks Source: Bain & Company, 2012 NPS Survey
  20. 20. Millennials REALLY dislike banks Source: Viacom Media Networks
  21. 21. Financials Growing Despite an Adverse Environment Macro Trends 2008 Correction Consumer Dissatisfaction RReegguullaattoorryy OOvveerrhhaanngg
  22. 22. A thicket of regulation A (non-exhaustive) list of federal marketplace lender laws Equal Credit Opportunity Act (ECOA) Fair Housing Act (FHAct) Bank Secrecy Act/OFAC Truth in Lending Act (TILA) E-Sign Act (FDIC) Dodd-Frank - Wall Street Reform and Consumer Protection Act Know Your Customer (KYC) Fair Debt Collection Practices Act (FDCPA) Fair Credit Reporting Act (FCRA) Fair and Accurate Credit Transactions Act (FACTA) CARD Act (CARD) A (non-exhaustive) list of federal regulatory bodies Securities and Exchanges Commission (SEC) Federal Reserve (FED) Financial Industry Regulation Authority (FINRA) Office of the Comptroller of the Currency (OCC) Federal Deposit Insurance Corporation (FDIC) National Credit Union Administration (NCUA) Consumer Financial Protection Bureau (CFPB) Federal Trade Commission (FTC) Financial Stability Oversight Council (FSOC) Commodity Futures Trading Commission (CFTC) Federal Housing Finance Agency (FHFA) And there are state-by-state licensing requirements specific to each asset class and business model. Source: https://www.fas.org/sgp/crs/misc/R43087.pdf
  23. 23. What’s fueling banking’s 9% CAGR?
  24. 24. Banks are capturing ever more value
  25. 25. Where is growth going to come from now?
  26. 26. The fundamental driver of growth in tech Transistor count 1971 1980 1990 2000 2008 2,000,000,000 1,000,000,000 10,000,000 1,000,000 100,000 10,000 2,300 $ per 1M transistors 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 $1000.00 $100.00 $10.00 $1.00 $0.10 $0.01 $527 $.05 Moore's Law Computing Costs Note: Y-axis on graph is logarithmic scale Source: John Hagel, Deloitte , 5/14.
  27. 27. Enables a financial services revolution Moore's Law Computing Costs $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 400 350 300 250 200 150 100 50 0 Smartphones Internet-Enabled Computers Bloomberg Terminals Online Debit Terminals CC/Debit Terminals ATMs 1990 1995 2000 2005 2010 Source: Comscore, Internet World Stats, 2003 Kansas City Fed Guide to ATM + Debit Card Industry, Nilson Report, ATM & Debit News
  28. 28. A Financial Services Revolution
  29. 29. A financial services revolution Consumer Trends 1. Simplification 2. Transparency 3. Analytics 4. Reduced Friction
  30. 30. Sunrun distills the complexity of solar panel installation and financing into a few simple clicks Let’s see if your home and solar are the perfect match Our innovative software Lightmile™ gives you multiple design options for you to choose from. You’ll save and lock in low monthly rates for 20 years Lower your utility bill with solar • Find out how much you can save • Zero to little down means virtually nothing to worry about • Low monthly payments leave more money for just about anything • Free quote to get started – who doesn’t like FREE?
  31. 31. A financial services revolution Consumer Trends 1. Simplification 2. Transparency 3. Analytics 4. Reduced Friction
  32. 32. Investors know what they’re getting with Lending Club
  33. 33. A financial services revolution Consumer Trends 1. Simplification 2. Transparency 3. Analytics 4. Reduced Friction
  34. 34. Motif Investing brings complex portfolio optimization to the masses Make any motif your own Want to modify a motif to better suit your interests or your existing portfolio? No problem. We give you the tools to easily customize any motif. Add and remove stocks, change weightings – all at no additional cost.
  35. 35. A financial services revolution Consumer Trends 1. Simplification 2. Transparency 3. Analytics 4. Reduced Friction
  36. 36. Friction is being taken out of the system Consumer Payments Remittance
  37. 37. Consumer Finance is massive Estimated annual US revenues generated by sector 90 2,147 300 Lending 189 697 Personal Payments Insurance Total Finance 872 Wealth Management Source: Federal Reserve, SBA,; Goldman Sachs, Bloomberg, FRBNY, McKinsey, SwissRE
  38. 38. Opportunities abound 1 Lending 2 Wealth Management 3 Personal Investing 4 Payments 5 Insurance
  39. 39. A Trillion Dollar Market by the People, For the People How Marketplace Lending will remake banking as we know It
  40. 40. Big opportunity in front of us Annual Lending Revenues IN 2013 (US$B) Traditional New Players Source: Federal Reserve, SBA,; Goldman Sachs, Bloomberg, FRBNY, McKinsey, SwissRE
  41. 41. Big opportunity in front of us Consumer Consumer Pay Day Purchase Finance Student Loans Real Estate Merchant Cash Advance SMB Credit SMB
  42. 42. Loan originations by marketplace lenders have exploded We expect close to $9B in marketplace loans to be originated in 2014
  43. 43. And Lending Club is the Leader Total loan Issuance 5.5 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2007 2008 2009 2010 2011 2012 2013 2014 Total Loans Issued ($) Billions
  44. 44. Marketplace lending could generate > 400 BP cost advantage vs banks Source: Lending Club based on St. Louis Fed, Federal Reserve
  45. 45. A financial services revolution 1. Simplification 2. Transparency 3. Analytics 4. Reduced Friction
  46. 46. Applying for a loan can be easier than buying an iPhone 1. Simplification
  47. 47. Cost to the borrower is fully disclosed 2. Transparency
  48. 48. Underwriting leverages a vast array of data Consumer Lending Underwriting Ownership Relationship FICO Performance Data FICO . . . Education Ownership Income Heuristics Social Graph Performance Data FICO 1970 1980 1990 2000 2010 2013 3. Analytics
  49. 49. Investors can ‘set it and forget it’ 4. Reduced Friction
  50. 50. Customers actually like marketplace lending Average NPS Scores Insurance 80 60 40 20 0 79NPS Lending Club Credit Unions Community *Note: Adjusted to 2013 dollars **Note: Market cap data from 1994, employment data from 1997 (inflates IT and Healthcare 1997 result) Source: Occupational Employment Statistics, Bureau of Labor Statistics; Thomson One S&P 500 Data Banks Regional Banks Credit Cards National Banks Industry Averages Technology Travel/Hospitality Banking Borrower
  51. 51. The free markets have spoken Marketplace vs. Fintech in the market Trading Multiples Marketplace Traditional Fintech Lenders Trulia, Inc. Shutterst… HomeAw… Zillow, Inc. Mercadol… Yelp, Inc. LinkedIn… Source: Yahoo Fiannce 3.84 13.72 17.41 9.42 8.94 9.7 19.59 7.78 0 5 10 15 20 eBay Inc. 1.33 3.22 3.83 3.54 2.05 2.84 7.1 3.16 Farmers… Marlin… NewStar… Wintrust… GATX… Jack… CIT… ORIX… 0 2 4 6 8 11.3 3.4
  52. 52. “People have long thought that the Internet is overhyped. But when you realize that it now has the power to reinvent the multi-trillion banking industry – I argue that it still hasn’t been hyped enough.”
  53. 53. The next generation of crazy ideas • Origination costs approach zero = auto-refi’s to optimize leverage • Real-time + continuous underwriting • Fractionalized labor connected directly to consumption • Distributed ownership • Conventional transactions become free + micropayments enabled = machine-to-machine payments • Micro insurance policies
  54. 54. Thank You! Charles Moldow General Partner | Foundation Capital @cmoldow

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