Kleiner Perkins - FinTech Trends 2017

1. FINTECH TRENDS 2017 NOAH KNAUF DAN AXELSEN MONEY 20/20 OCTOBER 23, 2017

2. Cambrian Explosion

3. What’s Happening?

4. 5,000 new fintech companies over 10 years… Cumulative Number of Fintech Companies Founded1 207 479 840 1,340 2,008 2,868 3,763 4,560 5,016 2008 2009 2010 2011 2012 2013 2014 2015 2016 (1) Source: Pitchbook, KP estimates. Includes privately-held fintech companies.

5. ~$60B 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017YTD Cumulative Fintech Venture Funding ($ Billion)1 …and $60B of global fintech venture funding over 10 years… (1) Source: Mattermark, KP estimates.

6. 5% 4% 4% 5% 6% 5% 7% 17% 17% 7% 10% 11% 9% 16% 12% 14% 18% 8% 1% 2% 9% 7% 7% 19% 23% 31% 26% 74% 80% 85% 80% 78% 79% 61% 58% 51% 49% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017YTD Asia U.S. Europe Other Fintech Venture Funding (by Geography)1 …with an evolving geographic mix (1) Source: Mattermark, KP estimates.

7. 36 of these new Fintech companies are now “unicorns” Note: Includes IPOs of ZhongAn, LendingClub, and Square.

8. $0 $25 $50 $75 $100 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 PayPal (the original fintech “unicorn”) is valued higher than American Express Market Capitalization ($ Billions)1 PayPal $83 Billion Market Cap AmEx $82 Billion Market Cap (1) Source: Capital IQ. Market capitalization as of October 13, 2017.

9. Some particular hot spots in funding trends (1) Source: KP estimates, Mattermark (venture investments >$10MM). Selected Venture Investment Activity in Fintech (2015-2017)1 Total = $13.6B High Growth or High % of Series A Investments $4.6B $4.2B $4.8B Consumer Lending Wealth Management Deposits Personal Financial Management Mortgage SME Lending Infrastructure Financial Management Payments Insurance Real Estate Tech Consumer Enterprise Other ICOsCrypto Personal Financial Management Deposits Infrastructure Mortgage SME Lending Insurance

10. Why Now?

11. › Massive incumbents are vulnerable Why Now?

12. And new scandals emerge every year Wounds from the financial crisis are still fresh

13. Consumers don’t trust incumbents “How much do you trust companies in each industry?”1 Net Promotor Scores (NPS) across industries2 75% 66% 65% 63% 63% 62% 54% Technology Food & Beverage Auto Consumer Goods Telecom Energy Financial Services 37% 34% 33% 26% 26% 23% Computers Software Insurance Carriers Airlines Banks Credit Cards (1) Source: 2017 Edelman Trust Survey. (2) 2017 Q3 Temkin Group NPS Score Benchmark Study of 10,000 U.S. consumers.

14. Mistrustful consumers are looking for transparency

15. Confused customers are responding to clear messaging

16. Frustrated customers are craving better user experiences

17. We’ve seen vulnerable incumbents before Incumbents Challengers Commerce Consumer devices Entertainment Transportation Financials 5,000+

18. Startups are motivated by a massive opportunity ahead Aggregate Equity Value1 252 U.S. Public Financial Institutions $3.8 Trillion $83B 18 U.S. Unicorns$58B PayPal (1) Source: Capital IQ. Includes U.S. public and private companies worth >$1 billion. “Unicorns” include public LendingClub and Square.

19. › New digital acquisition channels Why Now?

20. Customer acquisition has changed profoundly

21. Acquisition channels have become specialized and highly effective To acquire… Mass Consumers Borrowers SMBs

22. Digital acquisition spend has grown quickly… 6.2 7.3 8.4 9.4 2014 2015 2016E 2017E U.S. Financial Services Digital Ad Spend ($ Billions)1 U.S. Digital Ad Spend by Industry (2016)1 Retail, 22% Automotive, 13% Financial Services, 12% Telecom, 11% CPG, 9% Travel, 8% Electronics, 8% Media, 6% Entertainment, 5% Healthcare, 3% Other, 4% (1) Source: 2016 eMarketer Ad Spend Study.

23. …and the impact on bank branches is beginning to be felt 99.2 99.6 98.5 98.2 97.3 96.3 94.7 93.3 91.9 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Aggregate Number of U.S. Bank Branches (Thousands)1 Net Change in Number of U.S. Bank Branches (Thousands)1 1.9 0.4 -1.0 -0.3 -0.9 -1.0 -1.6 -1.5 -1.4 2008 2009 2010 2011 2012 2013 2014 2015 2016 (1) Source: SNL Financial 2016.

24. Developers are now a key acquisition battleground too

25. › Capital markets are open to innovators Why Now?

26. Large balance sheets are no longer necessary to compete in financial services Marketplace Lenders Have Sourced Capital Through Securitization ($ Billions, Cumulative Volume)2 FDIC Approvals for De Novo Banks Have Largely Disappeared1 161 116111112 148 237 184 161 28 1 1 1 (1) Source: FDIC de novo applications approved for deposit insurance by year, through June 2016. (2) Source: PeerIQ Marketplace Lending Securitization Tracker Q3 2017, KP estimates. $24B

27. An ecosystem of capital markets partners has emerged Hedge FundsBanking Platforms Securitization

28. › Startup friction is decreasing Why Now?

29. New tech has changed how startups are built Banking DevOps Payments Customer Interface Infrastructure Old Modern Fintech Stack Data Exchange

30. Fintech APIs explode in number Number of New APIs Since 20111 Cumulative Financial APIs Tracked By Programmable Web1 3 13 24 67 116 200 327 752 1,104 1,402 1,618 2,042 2,375 563 563 563 613 713 769 797 1,041 2,048 (1) Source: Programmable Web. “Financial” APIs include Financial, Monetization, Payments, & Banking APIs. 2017 figures annualized based on January through October 13th.

31. An expanding ecosystem of APIs is empowering developers Accept cryptocurrencies in any app Make cross-border payments in any app KYC / AML in any app Access an open deposits marketplace Offer insurance in any app or website Issue cards from your app

32. Example: N26 can add cross-border payments through TransferWise

33. Government support for APIs will further accelerate startup creation Source: CapGemini Payments 2017. CFPB & US Advocating data sharing among banks & financial institutions Payments UK, CMA, & OBWG Promoting adoption of open API standards & frameworks Australian House of Reps Committee Recommended banks open their architecture National Payments Corporation of India Launched set of APIs to create robust payments ecosystem EU – PSD2 Supporting open API initiatives to spur competition & innovation in payments

34. What’s Next?

35. › Unbundling will lead to Rebundling What’s Next?

36. Western startups have been busy unbundling… Source: CB Insights.

37. …while Chinese leaders have been busy rebundling Beachhead Product Services Today Zhong An= Insurance (backed by Alibaba and Tencent) Remittances Banking Lending Wealth Management Credit Scoring Ecommerce payments Messaging payments Ecommerce payments Banking Credit Scoring Lending Wealth Management Wealth Management Lending Credit Scoring Insurance

38. Startups are pursuing different beachheads to start, but all aspire to offer a broad suite of financial products Payments Lending Personal Finance Deposits Wealth Management High consumer engagement and high-frequency use make payments brands top-of-mind for consumers Lending companies earn trusted relationship by supporting consumers through major life events, e.g. college, large purchases, and remodeling Starting with spend, the common financial denominator across all consumers Wealth Management companies earn trust & goodwill by handling a consumer’s most prized (and complex) financial assets Advisory sites earn trusted relationship by helping consumers improve their financial situation and credit worthiness Converging to compete with full suite Why Start Here?

39. › No more low-hanging fruit What’s Next?

40. Fintech is diving deeper into some very demanding markets Personal finance Home/ Mortgages Insurance Legacy Fintech Pioneer Next Generation & Full Stack

41. Personal finance is expanding from budgeting towards full-stack banking Pioneers Next Generation Account Aggregation Budgeting Account Aggregation Budgeting Money Transfer Insurance Loans Deposits & Checking Wealth Management

42. Mortgage-related startups are moving from lead gen to lending Pioneers Next Generation Lead Gen Comparison Customer Acquisition Comparison Origination Secondary Markets Servicing Underwriting Compliance

43. Insurance startups are moving from lead-gen to underwriting and risk-taking Pioneers Next Generation Lead Gen Comparison Customer Acquisition Marketing Customer Service Fraud Claims Management Underwriting Risk

44. › Fintech eventually disappears What’s Next?

45. “We need banking but we don’t need banks.” - Bill Gates (1997)

46. 2000 2009 2014 2017+ Amazon set the standard for e-commerce with 1-click purchases Apple made it just as easy to buy digital goods and micro-payments on mobile Google and Apple are extending the ease of e-Commerce and mobile commerce into the physical world Long-term, all fintech will need to be ambient and frictionless A clear long-term trend is disappearing payment friction for customers

47. The app economy has been driven by seamless in-app fintech transactions $5 $8 $14 $24 $37 2013 2014 2015 2016 2017E Global In-App Purchase Volume ($ Billions)1 0% 25% 50% 75% 100% 2011 2012 2013 2014 2015 2016 2017E ShareofRevenue Advertising In-App Paid For Share of Global Mobile App Revenue by Type1 (1) Source: Gartner via TechCrunch and Statistica.

48. Fintech is being absorbed into the major tech platforms Tech Leader Transfers Payments Lending Search, Mobile OS Mobile Platform Ecommerce Social Network

49. Eventually fintech is completely absorbed and just… “disappears”

50. › The Crypto Wildcard What’s Next?

51. Who could have predicted Fidelity + Bitcoin?

52. Crypto has been the most explosive fintech phenomenon of the last 10 years (1) Source: Blockchain.info as of October 13, 2017. (2) Source: CoinMarketCap and various sources including KP estimates as of October 13, 2017. $94 $174 $1,580 $12,000 Bitcoin All Crypto U.S. Currency Gold Bitcoin Market Cap ($USD Billions)1 Total Value ($ Billions)2 $0 $25 $50 $75 $100 2012 2013 2014 2015 2016 2017

53. ICOs have taken off in the cryptoeconomy (1) Source: Coinschedule. Cumulative Capital Raised Via ICOs During 2017 ($ Millions)1 $15 $41 $59 $141 $422 $1,011 $1,662 $2,059 $2,898 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17

54. Amidst all the noise, a familiar (financial services) ecosystem is emerging Fiat Leaders Crypto Equivalents Media Investors Exchanges Consumer Services