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Banks and Regulators in Fintech: results of 2016 and trends for 2017

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(c) Vladislav Solodkiy, Life.SREDA VC
based on Money of the future report www.fintech-research.com

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Banks and Regulators in Fintech: results of 2016 and trends for 2017

  1. 1. Vladislav Solodkiy Managing Partner @ Life.SREDA VC Banks and regulators in 2016
  2. 2. Life.SREDA I Life.SREDA II Asia Banking on Blockchain Fund Moscow Singapore London 2012 2015 2016 2014 13 investments (US, UK, Germany, CIS) A new venture fund dedicated to investing in the blockchain ecosystem 7 successful exits 8investments (South East Asia) Research & Vision Influelce on the whole infustry trough own blogs fintechranking.com and semi-anual Fintech research “Money of the Future” www.www. fintech-research .com .com Bank-as-a-srevice and open API playAccelerator in Singapore Taiw a n SM E-len d in g & Facto rin g P O S-m an ag m en t system & tab let b ased cash -reg is ters O n lin e-trad in gO n lin e- len d in g P 2 B -len d in g C ro w n d fu n d in g & C ro w n d in vestin g O n lin e- rem it tan ces P FM & P FP In su rtech re m P O S-acq u ir in g O n lin e-le n d in g fo r stu d en ts First BaaS-platform for Asia is very necessary for the future fintech development Life.SREDA is supporting a strategic fintech project: open API Pan-Asian platform BAASIS Life.SREDA VC Executive summary
  3. 3. and become the most active strategic partners and potential buyers for FinTech startups WHY BANKS INVEST IN FINTECH: They buy (for up-sellcross-sell) «Outsource» R&D and new products development To buy talents and drive internal changes To buy knowledge and access to new complimentary industries To buy a for their brands Jay Reinemann The head of BBVA ventures “Invest in insights Banks are interested For now it looks more like play and PR, not the real business Experience of large banks like Goldman Sachs and BBVA shows huge potential 43% 20% 7% 10% Startup programs to incubate FinTech companies Partnering with FinTech companies Setup venture funds to fund FinTech companies Launched own FinTech subsidiaries Acquired FinTech companies 20% Banks & FinTech
  4. 4. ~30% banks invested via their own venture instruments – VCs, accelerators, incubators Banks are getting more and more active in FinTech Barclays, Goldman, CITI, Santander and BBVA are leading the show Major Bank Investments to VC-backed Fintech Companies -2015 -2016 more companies funded by banks in 2016 +61% Top South-Asian banks are starting to follow Chinese/HK/Japanese/Korean megabanks with playing active role in FinTech: DBS, OCBC, UOB, Siam Commer- cial Bank, Mandiri, RHB, MayBank, CIMB, KasikornBank and others laucnehd a bunch of initiatives related to fintech Leaders are mainly from developed fintech regions US, UK, Europe. Note/source:Source:Mattermark, Life.SREDAVCanalysis,Crunchb 23 15 13 8 3 3 3 3 3 2 2 1 1 1 1 1 1 1 17 9 7 6 4 6 6 5 5 5 4 4 4 4 4 3 3 3 2 1 1 2 1 1 1 1 2 Barclays GoldmanSachs CitiGroup Santander BBVA WellsFargo Commerzbank MorganStanley HSBC CreditSuisse BNPParibas MitsubishiUFJ Mizuho JPMorgan CapitalOne China DevelopmentBank UBS Sberbank China ConstructionBank CreditAgricole SocieteGenerale ICICI SiamCommercialBank OCBC MandiriBank
  5. 5. however partnerships in 2016 seemed to be safer and more convenient for banks Banks’ partnerships with financial technology start-ups are developing, Enable Citi card members to use their Citi Cards with PayPal online, in-app and in stores P2P payments, provides making payments via the social networks Offering investing advice and data-driven recommendations P2P-lending. Enables local SMEs to borrow short-term business loans Study and test blockchain technology to enable payment transactions  Provides direct financing to SMEs To contribute to the acceleration of the rollout of its digital strategy Online wealth management platform Automotive pricing and information website for car buyers and dealers Offering its clients access to equity crowdfunding opportunities Use Fincast to advise customers on the types of financial products they need to meet their investment goals To offer a TD and Westpac branded spending app An extensive interest was shown by banks and financial institutions partnering with robo-advisors, digital wealth managers; In addition, there is a growing tendency by banks to partner with crowdfunding companies (Santander, UOB, Belfius Bank, Alfa Bank, etc); Asian banks are widely partnering with Fintech accelerators in order to pilot new products with fintechs residents; Many pilots were initiated in 2016 between blockchain companies and banks worldwide (SG, SCB, Barclays, etc)
  6. 6. Venture/debt investments and acquisitions from banks Q4 D N/A Q4 A $8,3M Q3 A $8,3M Q3 undisclosed Q2 A $14M Q3 $19.67M Q2 $33MD Q2 $56M Q2 D $75M As mentioned earlier, partnerships and investments are closely linked, however, investments primarily focused on realizing returns; Investments generally go from venture instruments of banks: VCs, accelerators, debts financing; Asian banks are getting involved and investing through the partnerships with accelerators (StartupBootCamp Fintech, Nest, etc.) Q4 $100M
  7. 7. Overall trend In order to achieve leading positions on the market banks should shift a strategy from «competitive with Fintech» to «collaborate with Fintech» Increasing customer requirements for banking services along with growing pressure from the Fintech startups will shift bank’s strategy to «if you can’t beat them, join them» approach. Collaborative Fintech investments vs Competitive Fintech investments ($ Bln) The expectations of clients are higher than ever, and are broadly consistent across various sectors and contexts Efficient. Users want processes to be streamlined and cohesive, with key functions ‘bundled’ for user convenience. Real-time. The trajectory of digitalization has led to near-instant transactions and up-to-the-second visibility over cash-flows. Integrated and flexible. Users expect a one-stop portal with seamless reconciliation across their user profiles. Accessible. Users expect channel convergence and access to services on multiple devices through a user-friendly and instinctive interface. Individualized and contextually relevant. Users expect advisory services, information and suggestions reflecting their transaction and activity history and other user-specific data. 1 2 71% 56% 29% 2014 Collaborative Competetive 0.0 4.0 8.0 12.0 16.0 20.0 2015 44% +15%
  8. 8. Banks and Fintech. For what reason? Clearly, not all of today’s banks will survive. The survivors will be those that reimagine relationships with their customers and partners. Fintech offers banks access to technologies, brings new ideas to market at speed, enables to add value from bank’s data and changes bank’s culture Successful Partnership Why banks need FinTech? Acces to ideas Acces to new technology Acces to agility: speed to market Acces to expertise around data Exposure to different culture Acces to customers - trust, inertia Acces to clearing and Central Bank settlement Acces to in-depth payments expertise Acces to data Avoidance of regulation Why FinTech need banks?
  9. 9. Key areas of development in a traditional retail bank Mobile and digital Digital customers are already there Technology is accessible to all Focus is to attract new young generation Services based on customer behavior: Prior to payment transaction (predictive) At the moment of transaction (instant) After payment transaction Partnering with Big-tech? Partnering with Schemes? Partnering with Fintech? Joint venture with GP Operational excellence and digitalization Cost reduction and optimization Areas of synergy Data-rich solution: Dynamic business steering Behavior-driven marketing Data-rich consumer and applications Data monetization and analytics P&L - Internal Processes Value Added Services (New revenues) New Business Models Key Areas for Retail BANKS Development areas
  10. 10. Operation Who will control and develop? How to integrate? How to invite foreign projects? E-wallets Neobanks mPOS Onlineacquiring Cashregister/POSsolutions Crowdfunding Crowdinvesting Onlinelendingforindividuals P2Ploans SMELending Onlinescoring Trading Wealthmanagement Remittances Pricecomparison PFM/PFP InsurTech RegTech Acounting Blockchain Business Who will possess clients / startups? Value How to help partners to expand to other markets? Fintechs forretailforSME it is expensive it takes time it is not main business / KPI Banks’ pain
  11. 11. Price comparison Remittances Wealth management Trading Online scoring SMELending P2Ploans Onlinelending forindividuals Crowdinvesting Crowdfunding E-wallets Cashregister POSsolutions Online acquiring mPOS Neobanks RegTech Acounting InsurTech PFM/PFP Blockchain Bitcoin There are more than 20 verticals in Fintech and more than 20 leaders in each vertical (about 5K Fintechs total) How to connect? Banks’ pain: With whom to work?
  12. 12. Strategies for Banks to survive the coming change How can traditional banks move from traditional banking to the digital distribution of data in a globalized network? Do large incumbents have to partner with FinTech or will FinTech companies eat the banks’ lunch? Change the technical architecture and the organisation to become a customer centric digital platform or launch a new bank with digital as core. While the majority of banking executives may feel comfort today, this may represent the calm before the storm as some very tough structural decision will be required around investment in systems, distribution and new innovative products. Being big and strong may not be enough to win the battle for the customer in the future. Speed and agility count just as much…if not more. Independent commentator on the financial markets and fintech, author of the bestselling book Digital Bank & ValueWeb, contributor to BBC News, Sky News, CNBC and Bloomberg and was voted one of the most influential people in banking. David is a FinTech Strategist, Speaker, Scholar & Writer, who is continually voted as one of the most popular business and FinTech influencers. He spends his time these days helping banks, regulators & governments be better. David is CEO of 11:FS and was most recently the Global Director of Digital Banking in Gartner. The most significant trend of 2016 onwards will be the ‘platformification’ of banking, where both existing banks and startups begin a strategic shift towards becoming banking platforms, much like how Amazon is a platform in retail. A plug-and-play business model that allows multiple participants (producers and consumers) to connect to it, interact with each other and create and exchange value. Banks will use IT companies to build a FinTech marketplace and take care of the partnership model, because banks have not been successful in the past managing partnerships. Chris Ckinner David Brear
  13. 13. In d ia S ri Lan ka B an g lad e shM yan m ar M alaysia P h ilip p in e s In d o n e sia A u stralia S o u th K o re a N o rth K o re a T h ailan d H o n g K o n g Lao s C am b o d ia S in g ap o re Taiw an Jap an B h u ta n SM E-len d & Facto P O S-m an ag em en t system s & tab let b ased cash -reg isters O n la O n lin e-trad in gO n lin e- len d in g P 2 B -len d in g C ro w d len d in g & C ro w d in vestin g O n lin e- rem ittan ces P FM & P FP m P O S-acq u irin g O n lin e-len d in g fo r stu d en ts It enables banks to evolve and vital for fintechs as a helper in overcoming regulatory barriers as well as optimizes time and money consumption before going to market. is very necessary for the future fintech development First BaaS-platform for Asia
  14. 14. APAC South Korea permits for banks to invest in Fintechs Currently financial laws, financial institutions are allowed to buy stakes only from companies in the same business sector. The FSC have included fintech companies in the scope of the financial industry. #banks #2016 SouthKorea MAS establishes a dedicated Fintech Office MAS and the National Research Foundation opened a dedicated FinTech Office to serve as a one-stop virtual entity for all FinTech matters and to promote Singapore as a FinTech hub.  #opportunity Singapore MAS established a regulatory sandbox. To allow more flexible application of the regula- tions, while maintaining safeguards to protect consumers and the wider financial system. Singapore Financial Sector Technology & Innovation scheme MAS committed $225M ($166.48M USD) under the “FSTI” scheme to provide support for the creation of a vibrant ecosystem for innovation. Singapore 6 P2P Lending Licenses Granted in Malaysia Six P2P lending licenses were granted in Malaysia recently, making them the first authorized platforms in the ASEAN region. #p2p lending #license #2016 SouthKoreaMalaysia Korea has launched a platform for banks The platform allows financial institutions to build services that automatically populate financial information for new customers. #banking #2016 HongKong Hong Kong to launch banking fintech 'sandbox' HongKong Hong Kong establishes a Facilitation Office HK Monetary Authority established the FinTech Facilitation Office to facilitate the healthy develop- ment of the FinTech ecosystem in Hong Kong and to promote Hong Kong as a FinTech hub in Asia. #opportunity #2016 P2P Firms Regulation in Indonesia The draft regulation proposed that a Fintech company is required to have Rp. 2 billion in working capital and is required to show Rp. 2.5 billion applying for a business license. To help maintain Hong Kong's competitiveness as a financial hub by supporting the development of fintech in the banking sector Indonesia Malaysia issues the Fintech Regulatory Sandbox To experiment with FinTech solutions in a live controlled environment which is accompanied by the appropriate safeguards #opportunity Malaysia Establishing an infrastructure Regulation activities in the APAC and Asia Most of activities are focused on establishing an early stage infrastructure and development Source:Fintechranking.com Key message
  15. 15. EMEA Regulation activities in Europe Most of activities are focused on controlling and regulation of existing regimes UK sets out open banking API framework Aimed for the creation of an open banking standard that makes it easy to share and use financial data, arguing that the move would improve choice for customers, promote competition; #regulation #bank #UK OpenBankingThe cohort of the regulatory sandbox closed 69 firms from a diverse range of sectors, geogra- phies and sizes have been accepted. 24 applications met the sandbox eligibility criteria and were accepted to develop towards testing #regulation #opportunities #UK Sandbox A specially created “Fintech” licence  Plans to encourage crowdfunding and the market testing of new technologies. FinTech firms, with a minimum of $300k in capital, are allowed to accept funds from clients, up to $99m, which remain outside the depositor protection scheme and are not subject to the same regulations, auditing and the capital requirements applied to banks.  #Implementation #Switzerland #EU #2016 Banking Standardized mobile and internet payments (PSD2) in EU PSD2 enables bank customers, both consumers and businesses, to use third-party providers to manage their finances. In the near future, customers may be using Facebook or Google to pay bills, making P2P transfers and analyse spending, while still having money their safely placed in current bank account. #Announcement #Payments #Global #2017 Payments Solvency II is a programme for insurance regime It introduced a new, harmonised EU-wide insurance regulatory regime. The Solvency II programme is divided into three areas, known as pillars: Financial Requirements (Capital Requirement and etc), Governance & Supervision (Own Risk & Solvency Assessment) and Reporting & Disclosure (Insurers required to publish details of the risks facing them). #Implementation #Insurance #EU #2016 Insurance Controlling & Regulation Source:Fintechranking.com Introducing a European Standard for e-Invoicing The European Commission announced the e-invoicing directive require all 28 EU member states to use specific e-invoicing standards for all B2G e-invoices by November 27, 2018. Europe’s current e-invoicing adoption rate of 24 percent is expected to rise to 95 percent by 2024 and accrue savings of approximately 64.5 billion euros ($72 billion) per year for businesses. #Announcement #e-invoicing #EU #2018 e-Invoicing Key message
  16. 16. USA In May, the third and final part of the 2012 JOBS Act, Regulation Crowdfunding, went into effect Regulation Crowdfunding allows any American startup or small business to raise up to $1 million from friends, family, and followers on debt and equity crowdfunding platforms registered with the Securities & Exchange Commission (SEC). During the course of the year: 21 debt and equity crowdfunding platforms were launched and one, Ufunding Portal, shut down by the SEC because it seemed to be missing some of the statutory requirements required of a funding portal. Investors committed $19 million to the 186 campaigns and transfered $17.9 million to the 79 funded campaigns. Over 21,000 individual investments were recorded for 2016. The average investment was $833, and the average number of investors in a funded campaign was 331 The average valuation for a funded campaign was $5.3 million. #crowdinvesting #results #USA #2016 Crowdfunding Financial technology start-ups to get a license to bank The Office of the Comptroller of the Currency are planning to create a new type of banking license (for example, trust banks and credit card banks) that will allow upstart financial technology companies to expand more quickly across the country. A special purpose national bank must conduct at least one of the following functions: fiduciary activities, receiving deposits or lending money. The licenses from the Office of the Comptroller of the Currency, which oversees many national banks, will be available to companies like Square and Lending Club that accept deposits, facilitate electronic payments or lend money. Many technology firms have been pushing for some sort of new regulatory system that would allow them to cut through the patchwork of state and federal laws that govern financial activities and make it hard to expand nationally. The OCC acknowledged that Fintech companies’ business models vary widely and that therefore each application should be reviewed individually. #p2p #license #USA #2016 Banking Shaping certain sectors Regulation activities in the US Most of activities are focused on shaping certain sectors within an industry Source: Fintechranking.com Key message
  17. 17. Key initiatives in bank-as-a-service and open banking areas BAASIS, launched in 2016 in Singapore,  is an open-API Bank-as-a-Service platform, aimed to connect banks and FinTech startups across Asia Pacific region. Currently is in integration phase with several banks on different markets. In 1H 2016 was launched solarisBank, banking-as-a-platform startup with a full banking license in Germany. It provides account and transaction services, compli- ance and trust solutions, working capital financing, and online loans for fintech startups. Bancorp – industry leading US-based largest bank-as-a-service platform, hosting 100+ non-banks with processing volume of $200+ billion USD annually. Different clients of different size, including google wallet, PayPal, T-Mobile, yodlee and others In 4Q 2016 Citi launched global API Developer Portal aimed to open architec- ture to facilitate collaboration with FinTech companies. APIs includes account management, p2p payments, money transfer, rewards, investment purchases and account authorization. Otkritie, the biggest privately-owned bank in Russia, through the process of integrat- ing with leading digital bank for SMEs Tochka, developed its own modern API-platform, that was later used to integrate with fintech startups, including mobile bank for retail clients Rocketbank. In 2H 2016 BBVA launched its API market- place, aimed to offer other companies a way to leverage BBVA’s capabilities to build their services. Fintech startups has an access to such APIs as PayStats, Connect, Accounts and Cards The UK government in 2016 has set up the Open Banking Working Group (OBWG) in order to create an open banking standard that makes it easy to share and use financial data. It includes development of open API to enable services to be built using bank and customer data In Q4 2016 the Korean Government launched an open banking platform for financial institutions (16 banks) that will allow them to build services that automatically populate financial information for new customers. The platform will essentially serve as database of consumer financial informa- tion that is accessible via API. In 4Q 2016 The Monetary Authority of Singapore (MAS) published 12 sets of data from MAS’ Monthly Statistical Bulletin as APIs. MAS is encouraging financial industry players to publish open APIs on their datasets, to allow users to connect information and offer innovative solutions Startups and tech companies Banks Government initiatives
  18. 18. APIs and Open Banking will start to shift the banking landscape with more traction in Europe and Asia, but we’re likely to start seeing the gap between leaders and laggards widen William Sullivan, Head of Global Financial Services Intelligence for CapGemini Open banking and API are all the rage The hype around banking APIs will increase, even overtaking cryptocurrencies. Major banks will launch public API platforms APIs are arguably one of the biggest topics in the industry. The business model for profiting as a platform is key here, and many are still struggling with it Global regulators will embrace fintech competition and regulatory concessions … Africa will embrace APIs … financial inclusion will become a mainstream and actionable topic … and the US will embrace change in the regulatory and political system 2015 was all about blockchain. 2016 saw an explosion of interest in machine learning and artifi- cial intelligence. 2017 will be the year of open marketplaces and platforms. Platforms support the rapid cycle deployment of microservices into a financial marketplace... any bank with old legacy technology will start to look like a dinosaur Shamir Karkal, Head of Open APIs at BBVA David Brear, CEO and Founder of 11:FS Chris Skinner, Author and CEO of The Finanser Ltd Simon Taylor, Co-Founder of 11:FS
  19. 19. www. fintech-research .com
  20. 20. Thank you Vladislav Solodkiy Managing Partner @ Life.SREDA VC vsolodkiy@lifesreda.com www.slavasolodkiy.me

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