THE FUTURE

OF FINTECH
HOW FINTECH IS
TA K I N G O V E R T H E
W O R L D A N D W H AT
COMES NEXT

SARAH KOCIANSKI, LEAD

R E S E A R C H A N A LY S T

P R O V I D I N G I N - D E P T H I N S I G H T, D A T A , A N D A N A LY S I S
O F E V E R Y T H I N G D I G I TA L
Fintech is an umbrella term for technologies powering
innovation in financial services
Most fintech startups fall into one of these 8 categories:
 It started in a few global tech and financial centers

Founded 2005

Founded 2006
 Customers were unhappy with their banks
Percentage of US consumers with a great deal of trust in banks

25%

20%

15%

10%

5%

0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Gallup
Startups developed technologies to serve unmet needs
Mint created a personal finance management dashboard
in 2006
Square launched a mobile point-of-sale terminal in 2009

Typical credit card Early Square

terminal c. 2006 terminal
 Funding poured in
Global VC-backed fintech funding

1200
Volume of funding (Billions $) Number of deals $16.0

986 $14.0

1000

933
$12.0

800
769
818 $10.0

600
589 $8.0

464 $14.1 $13.9

400
$12.2 $6.0

$8.0 $4.0

200

$3.8 $2.0

$2.6
0 $-

2012 2013 2014 2015 2016 2017 (to Q3)

Source: CB Insights
 And fintech spread across the globe

Founded 2005
Founded 2008

Founded 2013 Founded 2014

Founded 2006
Founded 2009
Founded 2010
 Some companies have achieved huge success
Global fintechs with the highest valuations (Billions $)

Lu.com $18.5
Stripe $9.2
One97 $7.0
SoFi $4.5
Greensky $3.6
Credit Karma $3.5
Oscar Health $2.7
Klarna $2.5
Mozido $2.4
Adyen $2.3

Source: CB Insights, 2017

That made incumbents nervous
Some tried to innovate on their own
 But it was harder than they thought
Innovation measures that are proving “Highly Effective” for global FIs

Investing in building our own in-house

32%
expertise

Setting up our own new business units to

28%
deliver a specific fintech product/innovation

Source: Simmons & Simmons, n=200

 At the same time, startups struggled to make their
businesses profitable
Funding Circle’s P&L (Millions £)

2010 2011 2012 2013 2014 2015

-£0.5 -£1.1
-£4.3 -£5.3

-£17.3

-£36.9
 Incumbents and startups decided to try to work together
Percentage of FIs planning to increase fintech partnerships in the next 3-5 years

95%
89% 88%
82% 81% 81% 78%
72%
68%

India Singapore US Global United Mexico Germany Brazil China

Kingdom
Source: PwC, n=1,308, 2017
 Partnerships have had limited success
Innovation measures that are proving “Highly Effective” for global FIs

16%

14%

Setting up accelerator or incubator programs for Collaborating or partnering with fintech/innovative

fintech/innovative firms firms

Source: Simmons & Simmons, n=200

 They face significant hurdles
Challenges faced by fintechs and incumbents when working together

Fintechs Incumbents

Differences in management and culture 55%

40%
Regulatory uncertainty 48%
54%
Differences in business models 40%
35%
Differences in operational processes 36%
24%
Differences in knowledge/skills 33%
24%
IT security 28%
58%

Source: PwC, n=1,151, 2017

Innovation is more than just a good idea
 True innovation is:

1. Legal
2. Solving a problem
3. Effectively implemented
So what does the future of fintech innovation look like?
True innovation is: Legal

Governments will
continue to make it
easier to innovate
by reducing
regulatory
hurdles
 Financial services is an important sector to many governments
Financial services’ contribution to GDP in 2016

US, 7.3% Singapore, 13% UK, 11% Eurozone, 5%

Sources: ITA, Singstat, TheCityUK, ECB

 Fintech makes financial services more efficient
Most important fintech trends, according to banks

Increase in digital solutions that firms can integrate to

87%
improve operations

Emergence of new services and solutions for

83%
un(der)served customers

Increased customer empowerment/control of financial

80%
matters

Enhanced credit underwriting using non-traditional

79%
metrics to determine applicant creditworthiness

Rise of marketplace lending 76%

Source: PwC, n=502, 2017

 It can also boost revenue
Major opportunities related to fintech, according to FIs

Expand products and services 60%

Leverage existing data and analytics 46%

Increase customer base 44%

Respond to competition faster 38%

Reduce cost headcount 30%

Differentiate 29%

Improve retention of customers 28%

Decrease IT infrastructure costs 19%

Source: PwC, n=974, 2017

Many governments are creating “fintech sandboxes”
Sandboxes enable firms to test new financial products with real
customers before applying for a license
 207 firms have applied to test in the UK regulator’s sandbox
Applied Accepted

77
69
61

24
18 18

Cohort 1 - July 2016 Cohort 2 - January 2017 Cohort 3 - December 2017

Source: FCA website

 Governments are also forming “fintech bridges”
Hong Kong
Singapore
UK Australia
Hong Kong South Korea
Singapore China
Australia Dubai
Dubai Denmark
Switzerland Switzerland
Japan
Belgium
Israel
Philippines
Malaysia

Source: Regulators’ websites

 When countries form a fintech bridge they:

• Agree to share research findings

• Break down barriers to startups scaling

internationally

• Share regulatory insights

These government efforts make it easier for financial
services firms to focus on solving problems
True innovation is: Solving a problem

Fintech will solve

a few big problems
 Financial institutions still have a trust problem
Percentage of global consumers who trust different industries

76%
66% 63% 61%
54%

Technology Food and beverage Consumer Energy Financial services

packaged goods

Source: Edelman, 2017

Startups are doing a number of things to combat trust
issues and gain a competitive edge
 Neobank Monzo is transparent when things go wrong

Explicit apologies
build positive brand
sentiment

Full explanation of
outage provided in
plain English

Customers can see

issues and status
updates in real time,
reducing frustration
 TransferWise is transparent about fees upfront
Customers can get
a line by line
Products are breakdown of what
explained using they are paying
multiple formats and why
making them as
accessible as
possible

Customers can see

how TransferWise’s
fees compare to
competitors
 Incumbents are following suit

Lloyds Bank
shows
customers’
availability of
digital
services in real
time
 Customers have a problem with “one-size-fits-all”
Global consumers that believe sharing data should result in personalized products

Investment advice 73%

Insurance 64%

Banking 63%

Source: Accenture, n=32,715, 2016

Fintechs are creating personalized products
 ING launched a personal finance management app: Yolt
Customers can see all
their subscriptions in one
place

Customers can see

how much money
they can spend
without going
overdrawn
Yolt suggests
alternative providers
that maybe cheaper
 Trov lets consumers insure belongings on demand
Trov is powered by Swiss RE

They can then

choose what they
want to insure
and for how long

And make claims

in-app

Customers choose which products they

want to add to the app
New rules in Europe are accelerating this trend — PSD2
and Open Banking will require banks to give registered
third parties access to customer data (with customer
permission)
 Agility and tech + troves of consumer data = highly
personalized products
Bud, currently in
Beta, will take Users can mix and
advantage of the match services
new rules from multiple
providers

Users aggregate
accounts and get
a holistic view of Users can find,
their finances and access,
products in-app
 Customers have a problem with high fees
Reasons customers consider switching accounts

Lower fees on my checking account 45%

Not happy with the service 36%

My bank doesn't help me improve my finances 32%

Better returns on my money 27%

Advertisement from competitors 15%

Source: MarketForce, 2016

 Fintech enables cheaper products and services
TransferWise’s fees vs. average bank fees for a business to send £1,000 from the UK

Bank fees TransferWise fees

£65.91 £65.98 £63.04

£9.95 £9.95 £13.91

US Germany India

Source: TransferWise website

 FIs are using fintech to make products and services cheaper
Annual fees for incumbents’ robo-advisor products vs. typical managed products

Managed product Robo-advisor product

1.48%

0.85%
0.7%
0.35% 0.45%
0.3%

Vanguard Fidelity BAML

Source: Company websites

True innovation is: Effectively Implemented

Startups and legacy

players will figure
out a way to
partner
effectively
Startups and FIs will work together in three main ways
 More startups will act as service providers to help increase
incumbents’ efficiency
Methods EMEA banks are using to engage with fintechs

2016 2017

78% 73%
57% 54%
44% 39%
32% 33% 27% 22%

Engaging in Expanding existing Leveraging cloud Buying white labelled Acquiring fintech
partnerships partnerships technology and SaaS fintech products and companies
services
Source: MagnaCarta
Others will jointly create new solutions
 Incumbents and startups will continue leveraging each others’
strengths

June 2017 invests in

offers investment products

October
to its staff provided by
2017

Strengths: Strengths:
• Brand • Agility
• Capital • Proven technology
• Customer base • Flexibility
These activities are creating clear value propositions for fintech,
driving investment
Global VC-backed fintech funding
1200 Volume of funding (Billions $) Number of deals $16.0

986 $14.0

1000

933
$12.0

769
818
800

$10.0

600
589 $8.0

464 $14.1 $13.9

400
$12.2 $6.0

$8.0 $4.0

200

$3.8 $2.0

$2.6
0 $-

2012 2013 2014 2015 2016 2017 (to Q3)

Source: CB Insights
 Incumbents’ growing share accounts for nearly a quarter of
investment
The percentage of global fintech funding coming from CVCs continues to rise
25%

20%

15%

10%

5%

0%
2010 2011 2012 2013 2014 2015 2016 2017 YTD
(Q2)

Source: KPMG
Let’s review
 Governments will continue to remove regulatory
hurdles to create fertile ground for fintech to grow
Fintech will create attractive products that boost transparency,
personalization, and lower costs
 While partnerships have been trying so far, startups and
incumbents will figure out how to work together effectively
“Fintech” will become synonymous with
“financial services” around the world