1. Fintech is leading five transformations in the financial services industry: (1) startups are stepping between banks and customers, (2) robo-advisors are replacing human advisors, (3) startups are distributing insurance without agents, (4) POS technology is going mobile, and (5) blockchain is streamlining processes. 2. These transformations threaten traditional financial institutions with reduced profits and market share, but also provide opportunities to partner with or acquire startups to address customer needs. 3. Regardless of timing, fintech poses a threat as it is disrupting areas like banking, payments, lending, and wealth management.

1. Providing in-depth insight, data, and analysis of everything digital.
Five Ways Fintech
Is Shaping The Future
Of Financial Services
Image source: Shutterstock/isak55

2. Providing in-depth insight, data, and analysis of everything digital.
Five Ways Fintech
Is Shaping The Future
Of Financial Services
Image source: Shutterstock/isak55

3. AGENDA
 The Rise Of Fintech
 The Hype Vs. The Reality
 Five Unstoppable Transformations In Financial Services
 What’s Ultimately At Stake?

4. FINTECH IS REACHING A BOILING POINT
Source: William Garrity Associates, Google
$49.7 billion was invested globally on fintech
in the last 5 years.
As a search term, ”fintech” has risen 1,300%
on Google over the past year.

5. GLOBAL FINTECH FINANCING ACTIVITY
HAS SKYROCKETED
Global Fintech Financing Activity
$Billions
Source: BI Intelligence estimates based on CB Insights data, Accenture, KPMG
$1.9 $2.1 $2.8
$4.3
$12.2
$20.0
2010 2011 2012 2013 2014 2015

6. WHAT IS FINTECH?
Fintech: n. A blanket term for disruptive
technologies affecting the financial
services industry.

7. THERE ARE LOTS OF CONCERNS ABOUT THE
FINTECH INDUSTRY
Sources: Bloomberg, AdviseOnly, The New York Times
 It’s a bubble that’s about to burst.
 It’s an over-used buzzword.
 Banks are too entrenched to
be disrupted.

8. THIS TABLE VALIDATES SOME OF THESE CONCERNS
Source: Business Insider
Valued at $1 billion (£680
million)…70x revenue
Revenue of just $13.8
million (£9.7 million)
And a net loss of $16.7
million (£11.4 million)

9. AND THEN THERE’S THE IMPLOSION OF POWA
TECHNOLOGIES, ONCE A UNICORN
Sources: Business Insider, Sky News

10. BUT THE REALITY IS…
Banks have massive, entrenched, and
inefficient infrastructure
that is difficult to overcome.
Top 20 US banks
have nearly $10
trillion in assets*
*Source: US Federal Reserve

11. ENTRENCHED INFRASTRUCTURE
MAKES UPGRADES DIFFICULT
Sources: istock, REUTERS/Stringer
The New York City subway and a centuries-old bank aren’t so different…

12. THE REALITY IS…
The current customer experience is outdated — consumers now
expect their financial experiences to be:
Mobile Personalized Customizable Accessible

13. FINTECH CAN DISRUPT ANY AREA OF BUSINESS
Back-Office
Middle-
Office
Front-Office

14. MORE COST-EFFECTIVE OPERATIONAL STRUCTURE
Source: Lending Club

15. MORE EFFICIENT INFORMATION SHARING
AND CONTRACT MANAGEMENT
Source: Santander

16. IMPROVED CUSTOMER EXPERIENCE
Source: Prosper

17. 1. Fintech startups are stepping in between banks and their
customers.
FINTECH IS LEADING FIVE
UNSTOPPABLE TRANSFORMATIONS

18. PEOPLE AREN’T VISITING BRANCHES OFTEN
Frequency Of Bank Visits
“Approximately how many times do you visit a physical bank location (for reasons other than using an ATM)?”
Source: BI Intelligence Digital Banking Survey
38%
26%
10%
10%
5%
6%
Don't visit
Less than 1 visit per month
1 visit per month
2 visits per month
3 visits per month
4 or more visits per month

19. ONLINE-ONLY BANKS PROVE
BRANCHES AREN’T ESSENTIAL
Source: BI Intelligence Fintech Ecosystem Report

20. THIRD PARTY PLATFORMS ARE GIVING CUSTOMERS
ALL THEIR BANKING DATA IN ONE PLACE
Source: Mint

21. BANKS ARE GETTING SIDELINED
IN OTHER AREAS

22. PEER-TO-PEER LENDERS PROVIDE A
MARKETPLACE THAT CONNECTS BORROWERS
WITH INVESTORS
Lending PlatformBorrower Lender/InvestorApplies for a
loan (1)
Commits to a
borrower (2)

23. THE BANK IS ON THE SIDELINES AND DOESN’T
CONTROL THE CUSTOMER RELATIONSHIP
Lending PlatformBorrower
Lender/Investo
r
Partner Bank
Applies for a
loan (1)
Commits to a
borrower (2)
Issues the
actual loan (4)
Loan note transfer
Loan note purchasing
Initial application and funding
Gives cash to
the platform (6)
Purchases the loan note
using investor’s cash (7)
Loan note
(5)
Loan
note (8)
Investor receives
loan note (9)
Informs third-
party bank that
borrower is
verified,
investors have
committed (3)
Loan repayment
(10) (11)

24. MARKETPLACE LENDING IS A WINNING FORMULA IN
THE US, EUROPE, AND CHINA
Marketplace Lending Volume In China, US, And Europe Combined
Sources: Cambridge University, Ernst & Young, GrowthPraxis, Wangdaizhijia, Online Lending House,
BI Intelligence estimates
$0
$50
$100
$150
$200
2012 2013 2014 2015E
Billions

25. SO BANKS ARE GETTING SIDELINED IN MULTIPLE
WAYS. HOW ARE THEY RESPONDING?

26. BANKS ARE
INNOVATING OR PARTNERING
Source: Business Insider
Goldman’s launching an online
lending division.
JPMorgan partnered
with OnDeck to reach
more small businesses.

27. 1. Fintech startups are stepping in between banks and their
customers.
2. Robo-advisors are replacing human wealth advisors.
FINTECH IS LEADING FIVE
UNSTOPPABLE TRANSFORMATIONS

28. Source: YouTube/Betterment
Robo-advising (n.): the automated management of
investments. This doesn’t require a human advisor.
FINTECH STARTUPS HAVE SPURRED
THE ROBO-ADVISING MOVEMENT

29. WHY IS ROBO-ADVISING BENEFICIAL?
 Removes brokers but still generates solid returns,
at a fraction of the cost
 Customizable, personalized
 No leftover cash
 Lower fees
 Lower minimums

30. ROBO-ADVISORS ARE GROWING MORE QUICKLY
THAN OLDER PLAYERS
Source: CB Insights
Time To $1B Assets Under Management (AUM)
2
years
1 2 3 4 5 6
$1 billion
years
1
$1 billion

31. BUT INCUMBENTS ENJOY SOME MAJOR
ADVANTAGES THAT WILL GIVE THEM A BUFFER

32. THEY’RE STILL VASTLY LARGER
THAN THE LARGEST START-UPS
Assets Under Management
$Billions
Source: The Wall Street Journal, Bloomberg, CNBC
$9
$3,000
Wealthfront, Betterment, and Personal Capital Vanguard

33. THEY’VE ALREADY COPIED THE ROBO-ADVISING
MODEL WITH GREAT SUCCESS
Source: The Wall Street Journal, Bloomberg, InvestmentNews
Assets Under Management
$Billions
$9
$7
$10
Wealthfront Vanguard Personal Advisor Services
New assets Assets transitioned from pre-existing service
$17

34. OLDER GENERATIONS STILL WANT
AN IN-PERSON ADVISOR
Gen X and Baby Boomer Sentiment About Robo-Advising
Source: The Allianz Generations Apart Study, January 2015
69%
35%
10%
Don't really trust online advice
Interested in working with a robo-advisor
Comfortable having relationship with financial
advisor exist entirely online

35. BUT ROBO-ADVISING WILL TAKE OFF
Estimated US Robo-Advisors Assets Under Management
$Trillions
Source: A.T. Kearney
$0.3
$0.5
$0.9
$1.5
$2.2
2016E 2017E 2018E 2019E 2020E

36. ULTIMATELY, THAT’S GOOD FOR CONSUMERS
Traditional Advisors’ Loss In Revenue From Price War With Robo-Advisors
$Billions
Source: A.T. Kearney
-$1 -$3
-$32
-$61
-$85 to -$90
2016E 2017E 2018E 2019E 2020E

37. 1. Fintech startups are stepping in between banks and their
customers.
2. Robo-advisors are replacing human wealth advisors.
3. Fintech start-ups are distributing insurance plans without
the use of agents.
FINTECH IS LEADING FIVE
UNSTOPPABLE TRANSFORMATIONS

38. THE TRADITIONAL INSURANCE PROCESS
IS SLOW AND INEFFICIENT
Source: World Economic Forum
The distribution of insurance is especially
inefficient because it relies on sales agents
R&D/Product
Manufacturing
Distribution Underwriting Claims
Risk Capital &
Investment
Management

39. AGENTS ARE COSTLY
Source: Core Innovation Capital
37,500
insurance
agencies in
the US
Consumers
spend $25
billion per year
in agent
commissions

40. COSTS COMPRISE A HUGE SHARE
OF INSURANCE PREMIUMS
Source: Core Innovation Capital, BI Intelligence calculations
How The US Insurance Industry’s $1+ Trillion Premiums Are Spent
Claims & Claims
adjustment, 65%
Costs, fees, and
profit, 35%
~$364 billion cost
to consumers

41. FINTECH COMPANIES ARE STREAMLINING
THE DISTRIBUTION PROCESS

42. FINTECH START-UPS ARE OFFERING INSURANCE
VIA MOBILE, WITHOUT AN AGENT
Source: BI Intelligence Fintech Ecosystem Report

43. VENTURE CAPITAL FIRMS RECOGNIZE THIS TREND,
AND THEY’RE INVESTING
Global Seed/Series A Insurance Tech Investments
$Millions
Source: CB Insights
$26
$12 $11 $13
$32
$9
$58
$16
$103
$93
$52
$32
$89
$73
$99
$52 $55
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016*

44. THE INSURANCE INDUSTRY WILL SHIFT
FROM SALES-BASED TO INFORMATION-BASED
 Insurance will be commoditized and distributed online.
 Cutting out sales agents will make the distribution process
more efficient.
 This could create cost-savings for insurance companies,
which is then passed on to consumers.

45. 1. Fintech startups are stepping in between banks and their
customers.
2. Human wealth advisors are being replaced by robo-advisors.
3. Fintech startups are distributing insurance plans without
the use of agents.
4. POS technology is going mobile.
FINTECH IS LEADING FIVE
UNSTOPPABLE TRANSFORMATIONS

46. Source: Shutterstock/Aleph Studio

47. SQUARE READERS CAN BE ACQUIRED ONLINE
OR IN A RETAIL STORE
Source: Square, YouTube

48. AND THEY OFFER AN APP MARKETPLACE
TO HELP MERCHANTS IMPROVE OPERATIONS
Source: Square

49. MERCHANTS HAVE GRAVITATED TO SQUARE’S
EASY-TO-USE AND SCALABLE TOOLS
Square Gross Payment Volume
$Billions
Source: Company filings
$7
$15
$24
$36
2012 2013 2014 2015

50. WHO’S BEING DISRUPTED?
Source: BI Intelligence Payments Ecosystem Report 2016

51. 1. Fintech startups are stepping in between banks and their
customers.
2. Robo-advisors are replacing human wealth advisors.
3. Fintech startups are distributing insurance plans without
the use of agents.
4. POS technology is going mobile.
5. Blockchain is streamlining processes throughout
financial institutions.
FINTECH IS LEADING FIVE
UNSTOPPABLE TRANSFORMATIONS

52. FINANCIAL TRANSACTIONS INVOLVE COMPLEX
STEPS WITH MULTIPLE VERIFICATION POINTS
Example: Securities settlement
Matching Clearing
Life cycle
management
Collateral
management
and valuation
Settlement Custody
Source: Santander, Eureka Financial
Clearinghouse sets up
the trade
All parties have to confirm
terms and conditions

53. THE BLOCKCHAIN USES A GLOBAL NETWORK
TO VERIFY TRANSACTIONS
Sources: Business Insider, Barclays
Current blockchain 1) Bundle recent
transactions into a block
Updated chain
Transaction 996
Transaction 995
Transaction 994
Reference to Prior Block
Transaction 999
Transaction 998
Transaction 997
Reference to Prior Block
Transaction 999
Transaction 998
Transaction 997
Reference to Prior Block
Transaction
1,002Transaction
1,001Transaction
1,000Reference to Prior Block
Transaction
Transaction Reference to
prior block
Transaction
2) Verify block using
cryptography and
computing power
3) Add to chain and
distribute block over
the network

54. IT COULD REDUCE BANK PAYMENTS, SECURITIES
TRADING, AND COMPLIANCE COSTS
Source: Santander
$15 billion-$20 billion in potential annual savings
by 2022

55. OVER 40 BANKS ARE ALREADY TESTING
BLOCKCHAIN APPLICATIONS WITH R3 CEV

56. BANKS WILL BENEFIT THE MOST
 Banks face the highest operating costs
and are already jumping on the trend.
 Companies that function solely as intermediaries
could be in trouble.

57. 1. Fintech startups are stepping in between banks and their
customers.
2. Robo-advisors are replacing human wealth advisors.
3. Fintech start-ups are distributing insurance plans without
the use of agents.
4. POS technology is going mobile.
5. Blockchain is streamlining processes throughout
financial institutions.
ALL OF THESE TRANSFORMATIONS
ARE WELL UNDERWAY

58. WHAT’S AT STAKE FOR INCUMBENTS
AND NEW ENTRANTS?

59. INCUMBENTS RISK REDUCED PROFITS
AND MARKET SHARE
What Are The Threats Related To The Rise Of Fintech Within Your Industry?
Source: PwC Global FinTech Survey 2016
67%
59% 56% 53%
Pressure on margins Loss of market share Information
security/privacy threat
Increase of customer
churn

60. THESE THREATS ARE PUSHING INCUBMENTS
TO ACQUIRE AND PARTNER WITH START-UPS
How Are You Currently Dealing With Fintech Companies?
Source: PwC Global Fintech Survey 2016
9%
11%
14%
25%
32%
Acquire fintech companies
Launch own fintech subsidiaries
Set up venture funds to fund fintech services
Do not deal with fintech
Engage in joint partnerships with fintech firms

61. THIS COULD BE BENEFICIAL BECAUSE START-UPS
ARE ADDRESSING CUSTOMERS’ NEEDS
Net Promoter Score
(Index Ranging From -100 to 100 That Measures Customer Loyalty)
Source: OnDeck company filings
76
46
19
9
OnDeck Community Banks Regional Banks National Banks

62. BUT ON THEIR OWN, START-UPS
ARE CHALLENGED BY REGULATIONS
Top Challenges For The Fintech Industry
Source: Silicon Valley Bank
43%
24%
18%
15%
Regulation
Companies' reluctance to adopt new technologies
Changing consumer behavior
Access to funding

63. DISRUPTION WILL INITIALLY COME
IN TWO WAVES
Banking, payments, lending
Wealth
management,
insurance

64. REGARDLESS OF TIMING, THE REALITY
IS THAT FINTECH IS A THREAT
Share Of Business Threatened By Fintechs
Source: PwC Global FinTech Survey 2016
28%
24% 23% 22% 21%
Fund transfer &
payments
Banks Average Asset/Wealth
management firms
Insurance firms

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