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Fintech and Transformation of the Financial Services Industry

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Fintech and Transformation of the Financial Services Industry

  1. January 2016
  2. Today’s schedule  Morning: Financing Innovation − 9:00 to 10:30 Lecture  Michal Gromek, PhD SSE, FundedByMe, Lendico, Rocket Internet − 10:30 to 11:30 Groupwork: Funding your Startup − 11:30 to 12:00 Group presentations  Afternoon: FinTech and Industry Transformation? − 13:00 to 15:00 Lecture − 15:00 to 17:00 Discussion: Disruptor vs Industry Incumbent  Anna Felländer, Digital and Futuring Economist, Swedbank  Henrik Rosvall, CEO and Founder, Dreams
  3. Groupwork: Funding your startup  Prepare a max 5 minute presentation − How much funding do you need to get your idea off the ground? − Which form(s) of financing will you go after? And When? − What will you give in return for financing? E.g., equity, reward, nothing − How long will it take for you to provide the return for your “investors”? − What do you need to do to prepare for raising financing?
  4. If the rate of change on the outside exceeds the rate of change on the inside, the end is near.... -Jack Welch
  5. What triggers industry transformation? Johnson & Scholes 1997 Politics and government Environment Technology Legal structure Social and demographic structure International/ national economy Industry structure
  6. Two dimensions of transformation  Core activities – Recurring actions a company performs that attract and retain suppliers and buyers (profit-making activities)  Core assets – Durable resources, including intangibles, that make a company more efficient at performing core activities McGahan, HBR, 2004
  7. Trajectories of industry transformation McGahan, HBR, 2004
  8. 1980-1999 US Industries’ Share of Transformation McGahan, HBR, 2004
  9. Industry transformation Picture:
  10. Number of firms in industry over transformation Economies of scale
  11. What trajectory is the financial services industry on? McGahan, HBR, 2004
  12. Digitization of the banking industry
  13. Further changes…
  14. Screenshot from
  15. Banking is essential, but banks are not. Bill Gates
  16. What is FinTech? Accenture/CB Insights Technologies for banking and corporate finance, capital markets, financial data analytics, payments, and personal financial management Finance TechnologyFinTech
  17. What is Fintech?
  18. FinTech World Personal Finance Payments Bitcoin & Blockchain Currency Currency Remittance & FX Lending Crowdfunding Robo-investing & Asset Management Tech Consumer Banking & Saving The Wharton FinTech Club What is FinTech?
  19. FinTech Overview
  21. 1950 1960 1970 1980 1990 2000 2010 1959, Bankgirot founded 1985, Swedish financial and credit markets deregulated 1968, World’s first online ATM in Sweden First wave of electronic trading software companies emerges 2003, First BankID issued in Sweden 1990s, Sweden invests in Internet infrastructure, today country with 3rd highest Internet penetration 2010, iZettle founded 2010, Neonet $160M exit 2014, iZettle raises $55M 2014, Klarna raises $125M in PE 1967, First ATM installed in Sweden 1984, Optionsmäklarna (OM) opens in Stockholm, Sweden’s first stock option market, electronic trading introduced 2012, TriOptima, $160M exit 2005, Klarna founded 1998, Merger between Stockholm’s Stock Exchange and OM Stockholm 2007, NASDAQ acquires OMX Group Unicorns such as Skype, King, Spotify and Mojang founded 2014, FinTech Funding in Stockholm Explodes Long history of “FinTech” in Stockholm
  22. In just the past few years in Stockholm… Company Founded Business Klarna 2005 E-commerce payment services MyLoan 2006 Loan broker Trustly 2008 Online payments iZettle 2010 Mobile payments FundedByMe 2011 Crowdfunding, crowd equity Kivra 2011 Digital mailbox Tink 2012 Personal finance Safello 2013 Cryptocurrency exchange KnCMiner 2013 Cryptocurrency mining equipment Toborrow 2013 P2P lending for companies Cryex 2014 Cryptocurrency clearing house
  23. Stockholm #2 FinTech city in EU 2010-2014 investment ● $532 Mln 2014 investment ● $266 Mln Top 2014 Investments in Stockholm FinTech Companies (USD Mln) Klarna $125 iZettle $55 Trustly 29 Bima Mobile $22 KNC Miner $14
  24. ”Innovative Lending & Investing” emerging 2013 Stockholm FinTech revenue Cryptocurrency 0% Transfers 2% Innovative Lending 5% Wealth Management 9% Other FinTech 12% Payments 33% Trading & Banking Tech 39% & Investing Our report:
  25. Crowdfunding rapidly growing in Europe
  26. Crowdfunding growth 2012-2015 USD 34 bln E
  27. But in China alone in 2015…
  28. Four forms of crowdfunding Form Benefits for funders Donation- based Donation Intangible benefits. Reward- based Donation or pre- purchase Rewards in addition to intangible benefits. Equity-based Investment Return on investment if company does well. Rewards sometimes also offered and intangible benefits may motivate too. Loan-based Loan Repayment of loan with interest. Alternatively intangible benefits if loan given interest-
  29. Democratizing innovation and investment?  Women in USA  <30% of business owners  <15% of angel investors  <10% of venture capitalists Marom, Robb and Sade 2014  Women on Kickstarter  35% of project leaders  44% of investors  Women invested in women project leaders (>40% of projects) VS
  30. Competing for investment?
  31. Crowd equity
  32. New forms of ownership…crowd equity
  33. One step in the financing chain
  34. Using the crowd to identify investment opportunities Nesta
  35. zopa
  36. P2B lending in Sweden
  37. Enabling local community?
  39. Emerging forms of collaborative investing Crowdsourced hedge fund Activist hedge fund +
  40. Developing investment skills online
  41. Enabling financial inclusion
  42. Cryptocurrency mining equipment
  43. Transforming insurance
  44. What is a cryptocurrency?  Digital  Decentralized, peer-to-peer (P2P), i.e., no central, third party  Uses cryptography to validate/secure transactions  Also uses cryptography to generate currency itself  Non-technical explanation of Bitcoin −
  45. Within 6 years: Challenging the fiat money system? Bitcoin – An emergent phenomenon • Open source project on SourceForge in Jan 2009 • Original source code by “Satoshi Nakamoto” – pseudonym? • Developed by self-organizing community of thousands of strangers across globe • Approx USD 6.5 bln market cap and approx 180,000 daily transaction volume of USD 101 mln • 1 BTC = USD 431 (Jan 14, 2016) Teigland, Yetis, Larsson 2013
  46. How does Bitcoin work? Screenclip from: How Bitcoin Works under the hood, by “Curious Inventor” Blockchain • Shared public ledger • All transactions ever made logged • Chronology and integrity enforced by cryptography
  47. Enabling records, oversight Image from the FT
  48. Screenshot from the Economist
  49. But also Vendor Transparency AML and KYC Features…
  50. IoT and smart contracts  Ownership attached to asset/property (e.g., real estate, shares) and can be verified  Run on Bitcoin ledger, execute legal rules between two entities: people, organizations, machines  Trustless because no center, no one in middle – the network is the middleman  Example: I run a private weather station using neighbors’ sensors. Smart contracts enable payment to neighbors for data sent from their sensors to my weather station.  But time will tell… uses we cannot imagine today.
  51. IBM + Samsung
  52. From “trusted”, centralized human authorities to trustless, decentralized networks IBM Institute for Business Value (PDF)
  53. La’Zooz – Decentralized transportsharing
  54. FinTech World Personal Finance Payments Bitcoin & Blockchain Currency Currency Remittance & FX Lending Crowdfunding Robo-investing & Asset Management Tech Consumer Banking & Saving The Wharton FinTech Club What is FinTech?
  55. FinTech – An increasingly crowded space • Growing number of entrepreneurs with experience from established finance industry • Increasing number of FinTech incubators • Collaboration among established banks • Open innovation through open APIs • Other big non-banking entrants
  56. Industry transformation Picture:
  57. Trajectories of industry change McGahan, HBR, 2004
  58. Responses to disruptive strategic innovation Charitou, C. D., & Markides, C. C. (2012). Responses to disruptive strategic innovation. MIT Sloan Management Review
  59. Why not embrace disruption? Charitou & Markides, 2003
  60. Incumbents running incubators Actor Incubator Location Citi Mobile Challenge Americas, EMEA, Asia Pacific DBS & Nest Investment Accelerator Hong Kong Wells Fargo Startup Accelerator USA Accenture and Bank of America, Merrill Lynch, Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, UBS Innovation Lab NY, London, Hong Kong “Innovation labs are a sign that banks are taking the FinTech threat seriously as they recognize that we’re coming to eat their lunch.” -FinTech Entrepreneur
  61. Opening up innovation… Citigroup Capital One BBVA Compass Silicon Valley Bank Bank of America
  62. P2p industyry incumbents
  63. Betting on the Blockchain - Together Goldman Sachs, JPMorgan, Credit Suisse, Barclays, Commonwealth Bank of Australia, State Street, RBS, BBVA, UBS, Nordea, SEB, + …… +
  64. FinTech challenges  Regulation  Privacy  Security  Untested in periods of high interest rates, increased risk, and reduced investment
  65. Previously…  In the eight-year period between the Netscape IPO and the acquisition of PayPal (one of the winners of this era) by eBay, more than 450 attackers – new digital currencies, wallets, networks, etc. – attempted to challenge incumbents.  Fewer than five of these survive as stand-alone entities today. McKinsey, 2015
  66. Underperformers vs outperformers
  67. Two models of industry transformation McGahan, HBR, 2004
  68. Thomas Jefferson (1816) “Laws and institutions must go hand in hand with the progress of the human mind.” The problem is that the human mind itself can’t keep pace with the advances that computers are enabling.
  69. The future is already here, it’s just not very evenly distributed. - William Gibson
  70. Robin Teigland @robin.teigland If you love knowledge, set it free… If you like this presentation and would like to contribute to our research, we accept bitcoins: 14hs4JbnQLXE87GGzu84uXGaspmxmnLpwC. Thank you!!!!!