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Fintech o2o digital hybrid finance presentation by Grow VC Group

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Digital hybrid finance presentation for fintech online-to-offline conference in Hong Kong - how the traditional finance can cooperate with and utilize fintech and digital finance.

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Fintech o2o digital hybrid finance presentation by Grow VC Group

  1. 1. Grow VC Group ++ www.growvc.com ++ @growvc ++ Enabling Digital Finance ++ Copyrights © Grow VC Group 20161 Digital Hybrid Finance: Bringing Traditional Finance and Fintech Together Jouko Ahvenainen, Hong Kong, September 27, 2016 Download this presentation from Grow VC Group Slideshare: http://www.slideshare.net/growvc
  2. 2. Digital Finance Companies Digital Finance Startups New Concepts in Acceleration Grow VC Group Worldwide pioneer and leader in the digital finance, fintech and crowd & p2p finance solutions Hong Kong - London - New York - San Francisco - Milan
  3. 3. Global leader of digital finance groups ■  Started its operations in 2009 being the pioneer to start digital finance service ■  Grow VC Group was the first in the world to launch an online startup equity investing service in the world ■  The group includes 10 businesses ■  Grow VC Group companies have more than 100 active customers with millions of end users globally having launched new digital finance services ■  The main hubs are in London, New York, San Francisco and Hong Kong ■  Several its companies are leaders in their own areas, e.g. Crowd Valley, DealIndex and TradeUp Capital Fund People ■  Grow VC Group’s management and founders have been listed as top influencers in the world in digital finance, Fintech, crowdfunding and digital business ■  Our key people are serial entrepreneurs who have experience to launch several new companies and products around the world to consumer and business market ■  Our people have been in executive roles to launch international corporates’ products to new markets and build data analytical approach for go-to-market and sale Grow VC Group FinTech Firm of the Year Award Winner 2015 3
  4. 4. Grow VC Group Works with Industry Leaders 4
  5. 5. Demand from capital requirements, customers and efficiency needs The Great Disruption 5
  6. 6. Finance Sector Challenges 6 1.  The finance crisis in 2008 started a chain reaction that impacted regulation, credibility and business models of banks 2.  More regulation and requirements on capital have limited banks’ capability to lend to business customers 3.  Digital currencies and especially underlining technology, like blockchain, enables new ways to make transactions without payment processors and banks 4.  People and companies are more critical towards finance institutions and service costs, e.g. in fund raising, wealth management and asset management ›  Leads to try alternative providers ›  Crowdfunding and p2p lending have emerged 5.  Goldman Sachs has estimated that the alternative finance addressable market is $3.3 Trillion 6.  Average growth rate of the UK alternative Finance market is 159% 47% 68% 23% 49% UK US Level of confidence in banks 2008 2013 Source: Edelman Trust Barometer 350m 873m 2337m 0 500 1000 1500 2000 2500 2012 2013 2014 The UK alternative finance market growth Source: University of Cambridge and EY: The European Alternative Finance Benchmarking Report
  7. 7. EARLY ADOPTERS ARE SKEWED TOWARDS MILLENNIALS Boomers Gen X Millennials Gen Z 6.2m We can build a vibrant digital community that increases connections ►  Born 1946–1964 ►  4.2% use FinTech products 5.7m Established in the business world, mostly married with homes and children ►  Born 1965–1980 ►  17.9% use FinTech products 6.2m Largest customer group in history, target group for most major corporations ►  Born 1981–1998 ►  28.4% use FinTech products 5.5m (7m in 2020) The first truly mobile generation ►  Born 1998–present ►  Attention span of ~8s ►  Make up ~25% of workforce in 2020 = 1m customers Source: http://www.forbes.com/sites/danschawbel/2013/09/04/why-you-cant-ignore-millennials/ http://urbantimes.co/2013/07/the-difference-between-baby-boomers-gen-x-and-gen-y-infographic/, http://www.huffingtonpost.com/rhonda-l-randall-do/baby-boomers-redefining- aging_b_1448949.html EY FinTech Adoption Index http://www.ey.com/GL/en/Industries/Financial-Services/ey-fintech-adoption-index Grow Advisors material
  8. 8. HIGH-INCOME MILLENNIALS ARE PARTICULARLY HEAVY FINTECH USERS 44% 58% 24% 43% 15% 33% Current use Future use 6% 18% Over US $150,000 US $70,001-150 ,000 US $30,001-70, 000 Less than US$30,000 Consumers who have used at least 2 FinTechs in the past 6 months Current and expected use of FinTech by income segment US$150,001 over Source: EY FinTech Adoption Index US$70,001 - 150,000 Grow Advisors material
  9. 9. DRIVERS AND BARRIERS TO THEIR FINTECH ADOPTION Source:http://www.ey.com/GL/en/Industries/Financial-Services/ey-fintech-adoption-index 9.0% for better quality of service Why use fintech? 13.0% do not trust it Why not use fintech? 52.5% think it is easy to set up an account 13.4% use for access to different products and services 8.1% use for the better online experience and functionality 7.8% think there are more attractive fees 51.7% were not aware it existed 29.1% prefer to use a traditional Financial services provider 35.3% did not have a need to use it 19.0% don’t understand how it works Grow Advisors material
  10. 10. ALIGNING FINTECH TO THEIR THINKING Consumers have new expectations of how they interact with providers of products and services – these are set outside of financial services Companies need to engage emotionally with their customers A robust social media strategy is quickly becoming table stakes for reaching target consumers 82% trust a brand more when an executive is active on social media2 73% used their smart- phone to research a product3 90% trust peer recommendations1 Trust Know me Human Guided Collaboration Grow Advisors material
  11. 11. Two categories of fintech and digital finance Approach based on products 1. Digital transaction processing •  Payments •  Money transfer •  Process transactions to 3rd parties •  Success based on # of transactions 2. Digital finance services and instruments •  Investing & lending •  Instruments for alternative finace •  Success based on long-term healty profitability The success of transactions and instruments are measured in very different way
  12. 12. How incumbents can operate in digital finance? Form a “white label” partnership Launch own digital finance platform Collaborate as an investor or offer finance instruments Collaboration models Compete directly
  13. 13. Some collaboration examples Blackrock purchased $320mio consumer debt Santander Consumer agrees to buy 25% of all loans issued Estimated 80% of all loans purchased by institutions 2/3rd of all loans purchased by HNWI, institutions, private banks €230 mio. agreement with Victory Park capital to lend through platform + agreements with many institutions Santander direct borrowers who don’t meet traditional requirements Source: Grow Advisors
  14. 14. Translating data into actionable insights to drive business outcomes TRACK PRIVATE COMPANIES RAISING CAPITAL IN REAL-TIME USE INTELLIGENT FILTERS TO SCREEN DEALS HOW DOES DEALFLOW FLUCTUATE OVER TIME? WHERE’S INVESTOR MONEY GOING? INTERNATIONAL / AGGREGATE EQUITY CROWDFUNDING GLOBAL INDEX Equity Crowdfunding Marketplace Lending RE Crowdfunding Online M&A Private Deals
  15. 15. Combine, Optimize, and Distribute Digital Hybrid Finance 15
  16. 16. Emerging New API Ecosystems 16 Digital Back Office Services: •  Authentications, transaction processing, user accounts, transaction history, reporting •  Assets and their securities, ownership ‘tables’, finance instrument models •  Interfaces to 3rd party components, databases, ‘blockchain ledger’processing Payment processing Credit RatingID verification3rd party services Blockchain ‘type’ services Investing Service A Investing Service B P2P Lending Service A Users: Private & Institutionals MarketData Services Wealth Management A Secondary Market Service A Asset Management A Syndicate Service A Digital Fund Service A RiskManagement and insuranceservices
  17. 17. Many possible positions in the ecosystem Wholesale offering Consumer offering Transaction focus Refined instruments Independent offering API economy
  18. 18. Ecosystem example: Crowd Valley – the fast lane to implement a digital finance service ●  100+ enterprise clients served, including banks ●  Digital Infrastructure enables online finance models and facilitates billions in deals globally ●  Open API, Certified Developer Ecosystem ●  Use cases from real estate, private company financing, solar bonds, investment banking, multi asset strategies ●  Clients from California to Japan Digital Finance Infrastructure: a Back Office platform to create, operate and manage your online investing or lending marketplace Origination Compliance Deal Origination, Investor Onboarding KYC, AML, ID Verification, Accreditation services Diligence Execution Screening, Deal Rooms, Document Access Control Payments, Escrow, E- Signature Settlement Closing & Settlement, Digital Ledgering
  19. 19. Four Forces Drive Disruption 19 New finance models and instruments 2. Distribution: Need for new scalable cost-effective distribution channels 3. Instruments: New Alternative Finance instruments 1. Capital: Increased requirements to have capital for loans 4. Customers: Look for competitive prices and better ROI
  20. 20. 1. Better Capital Efficiency 20 Investors •  Combining equity and lending enables, for example, to 1.  Leverage equity investments 2.  Get collateral for loans •  Investors can use platforms to attract more co-investors and syndicate investments •  Participate in the securitization of p2p loans as an additional option to invest Banks •  Banks have regulatory requirements (e.g. Basel II / III) to have a certain capital ratio for their risk-weighted assets •  Even well profitable loans can tie so much capital that capital requirements make them to have sub par ROI •  Equity investors, other lenders, different lender seniority levels and use of equity or loan from p2p as a collateral helps manage the capital ratio •  Possible to develop instruments (funded through platforms) that can offset loan liability or in cases work as a guarantee for loans Ins,tu,onal Investors or Lenders P2P Lenders or Investors Required Capital Less capital required, if other investors or lenders decrease risk of loans
  21. 21. 2. More Effective Distribution 21 Platform as a Customer Interface •  Investors and lenders can operate in equity and lending platforms •  Platforms take care of many needed processes like customer acquisition, origination, KYC, Due Diligence, collection •  Typically possible to choose a risk level •  Open API also enables to automate a part or all of this work •  Requires trust in platforms, and agreements and T&C that are in line by all parties Automated Allocation to Smaller Ticket Size •  Pension funds and other large LP’s cannot handle small investments (e.g. less than $500M) in a cost effective way •  Funds to make smaller investments have significant management fees •  Technology enables the automation of smaller investments based on given criteria •  Hybrid models combine automated processes and professional work Large Fund (e.g. $100B) Small Fund Small Fund Small Fund Small Fund Investment Opportuni,es Automated Inves,ng Alloca,on PlaMorm Management fees
  22. 22. 3. New Instruments for Investors 22 New Finance Instruments •  Alternative Finance offers new attractive investment opportunities and its securitizations make the market more liquid •  Instruments to invest and lend money in platforms •  E.g. ‘p2p trust’ type instruments •  Securitization of online and p2p loans •  Risk management and guarantee instruments •  Work needed to find optimal regulatory and instrument models for these instruments (e.g. Open-Ended, Closed-Ended, ETF, or Evergreen fund) •  Crucial to have enough data from platforms and assets Fund Simulators •  Technically implemented investment services that work like funds •  Investors can define their investment criteria, e.g. •  Geographical, industry sector, and risk level •  No costs from traditional management work Investment / Lending PlaMorm Investment / Lending PlaMorm P2P Fund Crowd Fund Securi,za- ,on Fund Simulator Investors
  23. 23. 4. Customers Expect Better ROI and Prices 23 Enable Smaller Fees •  Competition in fund and wealth management business is more and more about lower fees and more scalable models •  More effective and automated customer acquisition, investment processes and more scalable investment models make it possible to cut fees •  Data, Analytics and Artificial Intelligence offer new solutions to manage and optimize investments and instruments •  APIs to cooperate with 3rd parties Better ROI with Alternative Finance •  Alternative Finance, e.g. p2p loans, real estate and growth capital, offers new high return opportunities to funds and portfolios •  More uncorrelated assets and better diversification •  Need a scalable and cost effective solutions to invest in different assets •  APIs to invest in Alternative Finance platforms Investment / Fund Management Open API Robo- advisor Bank Investmen t advisor Investment plaMorm Open API Investors Stock Exchange P2P Lending Equity Crowdfund Deal Aggregator
  24. 24. What Enables All This? 24 1. Knowledge and Competence to Develop New Models ■  Combination of finance, banking, technology, and data science competences ■  Important to understand the API Ecosystem and innovate new business models ■  More global knowledge and mindset are needed 2. Data ■  Data enables institutional investors and banks to participate in the market ■  Data is the key component to develop new instruments and service ■  Advanced analytics and Artificial Intelligence (AI) enables new services and instruments 3. Technology ■  Open API ■  Ubiquitous back offices and middle ware for fundamental finance functions ■  Agile models to develop new applications on an open API back office 4. New innovation models ■  Building a new ecosystem, no one can do it alone ■  Accelerate innovation and ecosystem with partnering and open interfaces
  25. 25. Where is your organization? 25 Business Unit 1 Business Unit 2 Business Unit 3 Digital Digital Digital Digital centre of excellence Business Unit 1 Business Unit 2 Business Unit 3 Digital Digital Digital Business Unit 1 Business Unit 2 Business Unit 3 Digital centre of excellence Digital DNA Digital Opportunism Digital Centralism Source: Grow Advisors analysis adapted from an original idea by BCG Pros •  Builds digital tools, digital processes, and digital talent at scale •  Provides clear ownership and specialised expertise •  Delivers integrated and standardised end-to-end customer experience Cons •  Requires a strong mandate to create change •  Requires strong digital leaders •  Requires tight integration between the centre and business units for execution Pros •  Manages digital policy from the centre to maintain quality and create scale •  Entrusts digital execution fully to business units •  Ensures a cohesive digital strategy at the enterprise level Cons •  Resistance from business units around strategic priorities •  Requires significant resources in each business unit that deeply understand digital Pros •  Champions digital adoption within the business, building groundswell of support •  Allows for quick wins Cons •  Limits innovation outside the core business •  Creates business-unit-centric thinking and fragmented customer experience
  26. 26. Summary – 4 points to remember 26 1. Digital and Alternative Finance are changing finance value chain and products ■  More de-centralized models, e.g. based on API ecosystem and blockchain ■  From service silos to more more seamless collected services 2. Four key areas: 1) Capital, 2) Distribution, 3) Instruments, and 4) Customers ■  This is not only about technical, but it is one key driver to enable new services, business models, better efficiency, and new finance instrument ■  Data is a key components for many new services ■  Develop fast – test – improve 3. Accelerating innovation and competence development ■  Open interfaces are needed to be fast enough and utilize ‘external resources’ ■  New comers need to build competence and work with right partners, incumbent must especially focus on culture and attitude change ■  Digital economy is not just add technology or services, but adapt to a new business 4. Grow VC Group works in the core of these changes ■  Competence, technology, data, global presence, and constant innovating
  27. 27. Jouko Ahvenainen – jouko@growvc.com +44 7889 833 165 (UK), +1 646 363 6664 (US) Twitter: @jahven, LinkedIn: joukoahvenainen Grow VC Group - growvc.com ENABLING DIGITAL FINANCE 27 Download this presentation from Grow VC Group Slideshare: http://www.slideshare.net/growvc

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