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FinTech 2020 - Taking Advantage of Technology and Global Events - George Vukotich, Ph.D.

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FinTech 2020 - Taking Advantage of Technology and Global Events - George Vukotich, Ph.D.

  1. 1. George Vukotich, Ph.D. - Startups - 1871, FinTank - Parents from Serbia and Germany to the U.S. after WWII - Grew up in Chicago - Community, Schools, Jobs, College - Fortune 500 - IBM, Accenture - University - Professor, Department Chair, Dean, Administrator, Board Member - Military
  2. 2. DEFINING FINTECH Financial technology, often shortened to fintech, is the technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. It is an emerging industry that uses technology to improve activities in finance. BETTER FASTER CHEAPER FUTURE – CREATE SOMETHING NEW THAT DOES NOT EXIST TODAY
  3. 3. WHAT IS FINTECH?
  4. 4. DEFINING FINTECH - EXAMPLES Payment Infrastructure (processing and issuance) – Square, Ant Financial, Revolut, Stripe Stock Trading Apps – Robinhood, TD Ameritrade, Schwab Alternative Lending – Prosper, LendingClub, OnDeck Cryptocurrency – Bitcoin, etc. Blockchain – Ethereum (smart contracts) InsurTech – Lemonade, Oscar, Fabric Money Transfer – TransferWise, PayPal, Venmo Mortgage Lending – LendingHome, Better Mortgage
  5. 5. DEFINING FINTECH - EXAMPLES Robo Investing – Betterment, Wealthfront Neo-Banks – Chime, N26, Monzo Credit Reporting – Credit Karma, Credit Sesame, Credit.com Online Business Loans – Ledio, Kabbage Small Business Credit Cards – Brex, Fundbox Financial Cybersecurity – Forter, EverCompliant, Crowdstrike Infrastructure Apps – Plaid, Xignite, Finicity, Yodlee
  6. 6. FINTECH TOPS THE LIST OF DISRUPTION OPPORTUNITIES
  7. 7. THE 10 BIGGEST FINTECH COMPANIES IN THE U.S. 2019 1. Stripe, $22.5 billion 2. Coinbase, $8 billion 3. Robinhood, $5.6 billion 4. Ripple, $5 billion 5. SoFi, $4.4 billion 6. Credit Karma, $4 billion 7. Circle, $3 billion 8. Plaid, $2.65 billion 9. Avant, $2 billion 10. Zenefits, $2 billion 8. Plaid, $2.65 billion
  8. 8. FIN vs TECH - Banking - Trading - Real Estate - Insurance - Wealth Management / Investing - Payments - Lending - Blockchain - Artificial Intelligence - Cybersecurity - Data Analytics - IoT - Mobile Other Industries
  9. 9. FINTECHS IN FIGURES AND TECHNOLOGY - Overall investment in fintech leapt ahead in 2018, reaching US$55 billion worldwide -- Double the year before. - Big Technology companies such as Amazon, Apple, Alibaba, and Google will continue to grow into the FinTech sector. - Major areas of focus - payment services hold the key—helping consumers simplify and streamline their lives while offering companies data about where and when consumers spend their money. - Financial services business need to build relationships with their
  10. 10. FINTECH GROWTH - WORLDWIDE
  11. 11. DEFINING FINTECH
  12. 12. THE GLOBAL FINANCIAL CRISIS OF 2008 DRIVER OF CHANG President George W. Bush signed the $700 billion bank bailout bill on October 3, 2008.
  13. 13. THE GLOBAL FINANCIAL CRISIS OF 2008 DRIVER OF CHANG
  14. 14. THE GLOBAL FINANCIAL CRISIS OF 2008 DRIVER OF CHANG President George W. Bush signed the $700 billion bank bailout bill on October 3, 2008. Nearly 10 million homeowners lost their homes to foreclosure sales in the U.S.
  15. 15. TO BIG TO FAIL – WHO WALKED AWAY WITH THE MONEY
  16. 16. Joseph Cassano, AIG Financial Products - $280M TO BIG TO FAIL – WHO WALKED AWAY WITH THE MONEY Vikram Pandit, Citigroup – $10.8M Robert Rubin, Citigroup Board - $124M Ken Lewis, Bank of America CEO - $145M Jamie Dimon, JPMorgan Chase CEO - $95.7M Lloyd Blankfein, Goldman Sachs CEO - $1 John G. Stumpf, Wells Fargo CEO – 13.8M John J. Mack, Morgan Stanley CEO - $77.7 John Thain, Merrill Lynch CEO - $83.1M
  17. 17. LOOKING FOR OPPORTUNITIES – REMEMBER PESTEL Change Brings Opportunity
  18. 18. FINTECH: A NEW ERA FOR FINANCE, PAYMENTS, AND BANKING Investing - Today, human brokers conduct just 25% of US stock-market. – Technical Change Payment Systems - New digital payment systems stand poised to eliminate the use of credit and debit cards and change the nature of online banking. And, there is a whole generation of young people who are quite comfortable with the idea of never having to carry cash or even a credit card for their daily needs. – Social Change Lending - Low interest rates and steady US economic growth have encouraged more small businesses to seek affordable credit and more consumers to borrow or refinance high-interest debt. LendingClub, SoFi and other online-lending upstarts have a competitive advantage over banks saddled with legacy technology. However, these companies lack access to the stable, low-cost funding sources that regulated banks enjoy. – Economic Change Insurance - Funding to insurtech companies—those applying new technologies, behavioral finance and data analytics—reached record levels in 2018, totaling US$4.15 billion in 2018, up 87% from the previous year. The new companies are focusing on keeping costs and premium rates low by processing most everything via mobile applications. – Technical and Legal Change. Real Estate - The real estate sector has lagged other areas of financial services in its adoption of technology. More data are being produced to make better decisions on how to underwrite and invest. Technology-tools are created to streamline workflow for brokers, agents and loan officers. More innovation is happening around these business models, with several well-funded fintech companies buying and selling houses from their own balance sheets. – Social, Technical, Economic
  19. 19. WeChat users can text, shop, move money and invest from the same phone app. IT’S ABOUT OWNING THE MARKETPLACE and PROVIDING CONVENIENCE Alipay, the Chinese payments service (a unit of e-commerce giant Alibaba), makes online finance simpler and more intuitive by turning savings strategies into a game and comparing users’ returns with those of others. It also makes peer-to-peer transfers fun by adding voice messages and emoticons. - If you don’t mind the Chinese government tracking you. These innovative mobile applications allow your customers to make simple and secure one-touch payments, both in-store and online.
  20. 20. Moneysupermarket.com started with a single product springboard—consumer mortgages—and now not only offers a range of financial products but serves as a platform for purchases of telecom and travel services, and even energy. Amazon books to Amazon everything – They had the customer – GV cannabis accessories company Facebook – Digital Currency (Libra) – Has a customer base 2.4 billion people – There are 7.5 billion people in the world. China’s Online Alibaba only 600 million users. Tesla Inc. (TSLA) offers its own car insurance, Greensky Inc. (GSKY) helps home improvement contractors offer financing to borrowers in their homes and Affirm puts credit into an e-commerce check-out experience. You don’t need to shop for finance, because it will now come to the point of sale directly. IT’S ABOUT OWNING THE MARKETPLACE and PROVIDING CONVENIENCE
  21. 21. - Better / Easier - Faster / Convenience - Cheaper APPS DRIVING CHANGE/USAGE
  22. 22. INNOVATION
  23. 23. People want this People don’t want this INNOVATION – KNOW YOUR CUSTOMER
  24. 24. THE EXPERIENCE ECONOMY
  25. 25. THE CUSTOMER EXPERIENCE
  26. 26. THE CUSTOMER EXPERIENCE User Interface / User Experience
  27. 27. Desktop, Mobile, In-store
  28. 28. Buyer User Implementer Seller Confusion CONFUSION ON THE SALES IMPLEMENTATION PROCESS Buyer vs User / Seller vs Implementer
  29. 29. FINTECH STARTUPS FACE A NUMBER OF CHALLENGES 1. Raising Venture Capital or Strategic Financing 2. Having a Great Investor Pitch Deck 4. Competing With Huge Financial Brands 3. Regulatory Issues for Fintech Companies 5. Cost-Effective Marketing to Acquire Customers 6. Getting Early Adopters and Avoiding Slow Sales Cycles 7. Cybersecurity and Data Privacy Issues 8. Intellectual Property and Technology Issues for Fintech Companies 9. Business, Revenue, and Expense Model Issues 10. Legal Issues for Fintech Startups
  30. 30. BANKING
  31. 31. Small & Medium Size Enterprises
  32. 32. TWO-SIDED MARKETPLACES
  33. 33. OPEN BANKING Open banking is a financialservicesterm as part of financialtechnology that refers to: The use of open APIs that enable third-party developers to build applications andservices around the financialinstitution.
  34. 34. OPEN BANKING
  35. 35. OPEN BANKING
  36. 36. OPEN BANKING As “open banking” expands globally, along with PSD2 (the European Payment Services Directive applicable to the payments industry) and GDPR, new opportunities are emerging for Fintech companies. The introduction of new regulations is leveling the playing field and creating new opportunities for products and services in both the B2C and B2B spaces. Although large incumbents have been working to address these changes, they are generally slower than the average Fintech company; speed to market is an important competitive advantage but might not be sustainable over the long term.
  37. 37. OPEN BANKING – PSD2
  38. 38. OPEN BANKING – AREAS OF OPPORTUNITY - Allows banks to bring in third parties partners that can provide value-added services. - FinTech’s can leverage a bank’s license to create better products and services - Banking as a Service (BaaS). - FinTech’s can create customer focused interfaces to increase customer satisfaction – Banking as a Platform (BaaP). - Model company to look at iZettle by PayPal.
  39. 39. BANK/FINTECH – AREAS OF OPPORTUNITY
  40. 40. PAYMENTS
  41. 41. PEER-TO-PEER LENDING/CREDIT
  42. 42. 1. Borrower Defaults – Loans are usually unsecured loans, meaning there are no assets backing the loans (such as a house in a mortgage loan). So, if a borrower defaults on the loan there is little an investor can do. You just take the loss of whatever amount of principal is left unpaid. With p2p lending default rates averaging 3% a year, most investors will encounter defaults at some point. 2. Poor Loan Diversification - Let’s say you have $5,000 to invest. It would be a huge mistake to invest in five different loans of $1,000 each – if one loan defaults you will lose 20% of your money. It would be better to invest in 200 different notes at $25 each, so one default will not impact your bottom line very much. 3. Bankruptcy of Lending Club or Prosper - Both were losing money but are now profitable. In the case of a bankruptcy, both companies have a backup loan servicer that is expected to continue processing borrower payments. but there is no legal precedent for a bankruptcy of a peer to peer lender so no one knows exactly what would happen. Risk/Return Tradeoff 4. Interest rates may rise - We are currently in the midst of the lowest interest rate environment in many decades. Eventually interest rates will rise and the impact this will have on p2p lending is unknown. Right now, it is relatively easy to attract investors with expectations of returns of 8-10% or more. But a few short years ago investors could get FDIC insured returns of 6%. If we return to an environment like that investors may leave for safer returns elsewhere. In a couple of years you may well get an FDIC insured account at a higher rate. 5. Regulatory changes - Peer to peer lending is still a new industry and the government doesn’t quite know what to do with it. Lending Club and Prosper are regulated by the SEC in a similar fashion to stock brokers and investment banks (institutions that have little in common with p2p lending). While there has been talk of regulatory changes nothing has happened yet. There is, of course, a slight possibility that the entire p2p lending concept could be legislated out of existence, but unlikely at this point. PEER-TO-PEER LENDING/CREDIT RISKS
  43. 43. TRADING / WEALTH MANAGEMENT High Frequency Trading Robo Advising/Trading Mobile / Commission Free
  44. 44. KNOW YOUR CUSTOMER
  45. 45. STARTUP / BUSINESS DEVELOPMENT POINT OF VIEW Fintech Potential: Top 10 Opportunities to Transform Financial Industry with the Use of Technology 1. Mobile Banking and Financial Inclusion for Underserved 2. Smart Personal Finance Management 3. Affordable and Easy Accounting for Small Businesses 4. Innovative Payment and Money Transfer Processing 5. Peer to Peer Lending and Microfinancing 6. Accessible Investing and Online Trading 7. Simplified Crowdfunding 8. Big Data and Predictive Analytics for Fintech 9. Digitized Insurance Experience 10. Blockchain and Digital Currency
  46. 46. FINTECH - AREAS OF OPPORTUNITY – A 7-STEP PROCESS STEP 1: Identify your Niche STEP 2: Know the Regulations STEP 3: Discover your Edge STEP 4: Hire the Right Talent along with the Right Tech Stack Step 5: Start by creating an MVP (Minimum Viable Product Step 6: Get Funded Step 7: Build Partnerships
  47. 47. Fund Movement, or transactions by giving or receiving payments. - Currency / Payment Solution / Remittances Fund Placement, or the financing of planned or unplanned financial regulations. - Saving / Investing / Borrowing / Alternative Financing Data Management, to get insights for improving decision making - Financial Management Tools / Research and Data Analysis For starting a fintech company, one must be crystal clear of the target market and the problem they are looking to address. Besides choosing a domain, your product should cater to a specific audience, e.g., a country, a state, a city or a particular demographic. However, it is always better to launch your startup locally first and expand to the STEP 1: IDENTIFY YOUR NICHE – WHICH DOMAIN CAN YOU B
  48. 48. STEP 2: KNOW THE REGULATIONS Jay Clayton - SEC “My number one concern is protecting the public and investors.” Jerome Powell U.S. Federal Reserve “The Federal Reserve is committed to fulfilling our statutory mandate of stable prices and maximum employment.”
  49. 49. Every unique product or innovation that has been able to disrupt a sector successfully has always been the one that has done something differently. There couldn’t be a better example for this scenario than Robinhood. With their unique business strategy and viral marketing campaigns, they were able to successfully disrupt the trading and investments domain. Their distinctive business offering, like charging zero commission proved to be an instant hit amongst millennials with limited pocket. The danger for startups is to become a “me too.” STEP 3: DISCOVER YOUR EDGE
  50. 50. A successful enterprise is made from its people. It’s not just the technical skills, but also the business skills that make a difference. Talent can be acquired globally and often at a better value – The key is communication. STEP 4: HIRE THE RIGHT TALENT
  51. 51. An MVP is a development technique in which a new product or website is developed with just enough features to suffice for the early users of the product. The final product, with all the elements, is only designed and developed once the feedback is received from the initial users. STEP 5: START BY CREATING AN MVP (Minimum Viable Pro
  52. 52. BUILDING AN MVP IS OFTEN RELATED TO AGILE DEVELOP Advantages of this approach: 1. Cheaper: An MVP saves you a considerable amount building incrementally saves on the cost of development and allows the customer to provide input on the direction of the product as it is being built. 2. Effective: Using the MVP approach means you end up with only those features that you require the most, so, there is comparatively less façade, and your product turns out cleaner and simpler. 3. Faster: You’re not trying to create a perfect product right away; it serves as a platform to implement the idea, study its use, make modifications and then proceed further.
  53. 53. Having a well-defined product / service increases the chances of getting funding. Being able to show relevance (better, faster, cheaper) and target market segments increases the odds of success. Having a well-defined value proposition makes understanding easier. Differentiation from competition brings value to the marketplace. STEP 6: GET FUNDED
  54. 54. STEP 7: BUILDING PARTNERSHIPS
  55. 55. USING FINTECH TO DEMOCRATIZE FINANCIAL SERVICES GOAL: To bring individuals into the banking system that previously did not have access. MARKET SIZE: Two billion people in the world that live outside of the U.S. financial system. - United States = Over 70 million people who live outside the financial system. TECHOLOGY: Is the enabler. Smart Phones are a practical and effective solution. COST/REVENUE: The cost of basic transactions can be lowered by as much as 80 to 90%. - In addition to making transactions fast, simple, easy to understand, and less expensive. - Costly physical bank buildings are no longer necessary. REASON: To give individuals an easier way to; save, spend, and transfer money. SERVICES: Paying a bill, cashing a check, sending money to loved ones, getting credit—all these are incredibly time consuming and very expensive (cost estimated at 10% in fees and interest rates).
  56. 56. DEMOCRATIZING FINTECH
  57. 57. BARRIERS TO DEMOCRATIZING FINTECH
  58. 58. ENABLERS TO DEMOCRATIZING FINTECH
  59. 59. FINTECH INNOVATION FOCUSES ON STARTUPS
  60. 60. A STARTUP EXAMPLE
  61. 61. COMPLIANCE
  62. 62. LARGE COMPANY FOCUS
  63. 63. FINTECH INNOVATION AREAS BUILDING CAPABILITY
  64. 64. INTEGRATION / BUNDLING / UNBUNDELING
  65. 65. INTEGRATION / BUNDLING / UNBUNDELING Bundle insurance so only one company to deal with; - One payment - Possible lower cost - Investment/wealth management options Bundle banking; - Savings - Mortgages - Branded Visa Card - Retirement accounts
  66. 66. TRADITIONAL FINANCIAL INSTITUTIONS: - Commercial Banks - Private Banks - Credit Card Companies - Brokerage Firms - Insurance Companies - Credit Rating Agencies INTEGRATION / BUNDLING / UNBUNDELING
  67. 67. MOBILE
  68. 68. SOFTWARE DRIVES BUSINESS
  69. 69. APPLICATIONS OF BLOCKCHAIN IN FINANCE
  70. 70. CRYPTOCURRENCY Countries – China – Venezuela – Safety – Inflation – Athena ATM Global Governance GV Chinese Yuan -- Coronavirus
  71. 71. DIGITAL CURRENCY Digital currency is a type of currency available in digital form. It exhibits propertiessimilar tophysical currencies but can allow for instantaneous transactions and borderless transfer-of-ownership. Examples include virtual currencies, cryptocurrencies, and central bank digital currency.
  72. 72. TRANSFORMATION OF FINANCIAL SERVICES - TOKENIZATION Tokenization (Digitization of Assets) describes the conversion of assets with economic value such as property, art or wine into digital tokens that can be stored and managed on a Distributed Ledger Technology such as blockchain. Each token represents participation rights in the underlying asset–for example, a painting–and those tokens can then be traded on a platform such as blockchain.
  73. 73. TOKENIZATION OF ASSESTS
  74. 74. TOKENIZATION OF ASSESTS
  75. 75. • Access to alternative investments such as venture capital, commercial real estate and hedge funds has historically been restricted to institutional investors and high-net-worth individuals. ACCREDITED INVESTORS • We are seeing a confluence of factors breaking down the demographic barriers to retail investors and expect access to become much easier. On the regulatory side, in the United States, the Securities and Exchange Commission (SEC) indicated that it is open to exploring ways to increase access for retail investors to private markets and other alternatives. SHIFT TO KNOWLEDGABLE INVESTORS RATHER THAN FINANCIALLY WELL-OFF INDIVIDUALS • Technology is allowing fintech platforms that facilitate investing in alternative assets such as property, private companies, collectible cars and fine art. While the portfolios of retail investors today tend to be a mix of equities and bonds, retail portfolios of the future will be much more diverse and include more DEMOCRATIZATION OF ALTERNATIVE INVESTING
  76. 76. Ways Security Tokens Can Change The Market: 1. Provides Liquidity 2. Low Cost – Removal of Middlemen 3. Fractional Ownership – Expanded Markets – Increases the potential investor base 4. Tradability – Can use secondary markets, Blockchain Smart Contracts 5. Asset Interoperability 6. Global Access 7. 24/7 Trading & Reduced settlement times 8. Automated Compliance 9. Programmable Contracts – Automated Dividends, Voting Rights, Privileges HOW SECURITIZATION DISRUPTS TRADITIONAL FINANCE
  77. 77. THE IMPORTANCE OF CYBERSECURITY
  78. 78. THE BIGGEST CYBERSECURITY THREATS 1. SOCIAL HACKING – Employees falling victim to phishing attacks. 2. RANSOMWARE – Hackers encrypting an organizations data. 3. LACK OF CYBERSECURITY MONITORING – Organizations not monitoring vulnerabilities. 4. POOR UPDATING / UNPATCHED SOFTWARE ISSUES – Organizations not doing maintenance and upgrades of software. 5. DENIAL OF SERVICE (DDOS) ATTACKS – Flooding an organization network with traffic.
  79. 79. CHANGE BRINGS OPPORTUNITY
  80. 80. HOW CAN YOU IMPROVE THINGS better – faster – cheaper
  81. 81. ADOPTION = AWARENESS / EDUCATION / IMPLEMENTATION
  82. 82. AWARENESS
  83. 83. AWARENESS
  84. 84. BEYOND AWARENESS
  85. 85. EDUCATION – FROM AWARENESS TO UNDERSTANDING
  86. 86. ACTION
  87. 87. KNOW WHERE THINGS ARE GOING AND HOW TO RESPOND Time to adoption of new technologies is shrinking. Change is happening at a more rapid pace than ever before. Populations continue to move to the city. The role of women has changed. Leading roles in the workforce. Fewer children. Populations are aging. More people are living alone. Widening income gap between the haves and have nots. Environmental issues / concerns are growing. ???
  88. 88. A method to drive user engagement or behavior to achieve a particular goal by using game-like concepts. The idea is people have natural human interests (including competition and games) and firms can utilize those interests to engage clients and would-be clients. Gamification can also help firms gather crucial data on end customers. And it can help financial services firms sell their products, but it also connects them directly to end consumers to offer deeper value, and influence customers in make decisions. Incorporating gaming dynamics into financial services has the potential to change how, what and when consumers spend, save, invest, repay and insure. Gamified finance will become an important new category that helps motivate people to change financial behaviors and should result in a more engaged, sticky customer base. This could be disruptive to existing banks as users link their existing bank account with gamified finance apps and are incentivized to switch their direct deposit from their existing provider. These apps are adding social games that are helping them go viral. Having customer financial information is a game changer. GAMIFICATION
  89. 89. GLOBAL INTEREST RATES SAVING BORROWING
  90. 90. AGING POPULATIONS
  91. 91. IMPLICATIONS FOR FINTECH – THE WHAT IF’S - What if there was a World Currency? -- Who controls / Who manages? - What if there was just one banking system? -- How would governments control currency valuations? - What impact would it have on global issues (COVID-19)?
  92. 92. THINK – FEEL – DO

Editor's Notes

  • 1. Raising Venture Capital or Strategic Financing
    Raising venture capital financing is never easy for Fintech companies. Venture investors will raise a number of key questions in their due diligence process, including:
    What problem in the financial process is the company’s solution looking to solve?
    Is there a qualified management team?
    Is the market opportunity big?
    What positive early traction has the company achieved? Are there early or pilot customers?
    Are the founders passionate and determined?
    Do the founders understand the key financials and metrics of their business?
    Have the founders been referred to the investor by a trusted colleague? (It’s extremely difficult to get a venture investor interested through cold calling or cold emails.)
    Is the investor pitch deck professional and interesting? (See item #2 below as to what your investor pitch deck should contain.)
    What are the potential risks to the business, especially regulatory risk?
    Why is the company’s product or service great?
    How will the investment capital be used and what progress will be made? Will it be enough to obtain the next round of financing?
    Is the expected valuation for the company realistic?
    Does the company have differentiated technology?
    What is the company’s intellectual property?
    Are the company’s financial projections realistic and interesting?
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