Consumer FinTech

Charles Moldow

General Partner

Financial Engines and EnvestnetShare price through funding rounds ($US)

S-A S-C Sec. IPO Curr.0

5

10

15

20

25

30

35

40

45

50

5.52

11.657.65 10.23

45.00

S-B S-C S-D S-E S-F Sec. IPO Curr.0

510

1520

2530

3540

1.253.79

0.54

10.68

4.75 6.28

17.25

34.45

+1,280%

+100%

+85%

+340%

Financial Services Portfolio

Lending Wealth Management Personal Investing Payments

In 1994 the S&P 500 had an Aggregate Value of $5.2TMarket Capitalization of S&P 500 (Year End, $T)

1994*

*Adjusted to 1994 dollarsSource: ThomsonOne

$5.2

By Year-End 2013, It had Reached $17TMarket Capitalization of S&P 500 (Year End, $T)

2013*Adjusted to 1994 dollarsSource: ThomsonOne

$17.0

2013

6.4% CAGR

1994*

$5.2

By Year-End 2013, It had Reached $17TMarket Capitalization of S&P 500 (Year End, $T)

*Adjusted to 1994 dollarsNote: Sectors defined by Industry Classification Benchmark; Financial Administration included within FinancialsSource: ThomsonOne

$2.1 Technology 17% of Growth9% CAGR

2013

1995-2013 Growth

$12T

1994*

$5.2

Which makes sense

$2.1 Technology 17% of Growth9% CAGR

Healthcare Accounted for 12% of that GrowthMarket Capitalization of S&P 500 (Year End, $T)

*Adjusted to 1994 dollarsNote: Sectors defined by Industry Classification Benchmark; Financial Administration included within FinancialsSource: ThomsonOne

2013

1995-2013 Growth

$12T $1.5 Healthcare 12% of Growth7% CAGR

1994*

$5.2

Which makes sense

The Financial Sector Grew Even FasterMarket Capitalization of S&P 500 (Year End, $T)

*Adjusted to 1994 dollarsNote: Sectors defined by Industry Classification Benchmark; Financial Administration included within FinancialsSource: ThomsonOne

2013

$2.1 Technology 17% of Growth9% CAGR

1995-2013 Growth

$12T $1.5 Healthcare 12% of Growth7% CAGR

$2.3 Financials 20% of Growth9% CAGR

1994*

$5.2

Which makes no sense…

Source: Occupational Employment Statistics, Bureau of Labor Statistics

Total Sector Employment

Financials IT Healthcare0

2

4

6

8

10

12

14

1997 2013

Financials saw essentially no employment growth between 1997 and 2013

0.3% CAGR 4.2% CAGR 2.0% CAGR

Market Cap Per Employee**

*Note: Adjusted to 2013 dollars**Note: Market cap data from 1994, employment data from 1997 (inflates IT and Healthcare 1997 result)Source: Occupational Employment Statistics, Bureau of Labor Statistics; Thomson One S&P 500 Data

Financials IT Healthcare$0

$100

$200

$300

$400

$500

$600

$700

1997 2013

Market cap value per employee has sky-rocketed

0.3% CAGR 4.2% CAGR 2.0% CAGR

Thousands

Yet, few major banks are becoming more efficient

70% stayed the same

or became less efficient

30%of the top 500 global banks

improved cost efficiency between

2009-2012

Source: McKinsey

Financials Growing Despite an Adverse Environment

Financials Growing Despite an Adverse Environment

Regulatory OverhangConsumer Dissatisfaction

Macro Trends

2008 Correction2008 Correction

Banks Walked Away From Financing Small Businesses

Source: FDIC, data for C&I loans <$250K

Financials Growing Despite an Adverse EnvironmentMacro Trends

Regulatory Overhang2008 Correction Consumer DissatisfactionConsumer Dissatisfaction

Source: Bain & Company, 2012 NPS Survey

Friends Don’t Let Friends Use Banks

Millennials REALLY dislike banks

Source: Viacom Media Networks

Financials Growing Despite an Adverse EnvironmentMacro Trends

Regulatory Overhang2008 Correction Consumer Dissatisfaction Regulatory Overhang

A (non-exhaustive) list of federal marketplace lender laws

Equal Credit Opportunity Act (ECOA)

Fair Housing Act (FHAct)

Bank Secrecy Act/OFAC

Truth in Lending Act (TILA)

E-Sign Act (FDIC)

Dodd-Frank - Wall Street Reform and Consumer Protection Act

Know Your Customer (KYC)

Fair Debt Collection Practices Act (FDCPA)

Fair Credit Reporting Act (FCRA)

Fair and Accurate Credit Transactions Act (FACTA)

CARD Act (CARD)

A thicket of regulation

A (non-exhaustive) list of federal regulatory bodies

Securities and Exchanges Commission (SEC)

Federal Reserve (FED)

Financial Industry Regulation Authority (FINRA)

Office of the Comptroller of the Currency (OCC)

Federal Deposit Insurance Corporation (FDIC)

National Credit Union Administration (NCUA)

Consumer Financial Protection Bureau (CFPB)

Federal Trade Commission (FTC)

Financial Stability Oversight Council (FSOC)

Commodity Futures Trading Commission (CFTC)

Federal Housing Finance Agency (FHFA)

And there are state-by-state licensing requirements specific to each asset class and business model.

Source: https://www.fas.org/sgp/crs/misc/R43087.pdf

What’s fueling banking’s 9% CAGR?

Banks are capturing ever more value

Where is growth going to come from now?

The fundamental driver of growth in techTr

ansi

stor

count

1971 1980 1990 2000 2008

2,000,000,000

1,000,000,000

10,000,000

1,000,000

100,000

10,000

2,300

$ p

er

1M

tra

nsi

stors

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

$1000.00

$100.00

$10.00

$1.00

$0.10

$0.01

$527

$.05

Moore's Law Computing Costs

Note: Y-axis on graph is logarithmic scaleSource: John Hagel, Deloitte , 5/14.

Enables a financial services revolution

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

Source: Comscore, Internet World Stats, 2003 Kansas City Fed Guide to ATM + Debit Card Industry, Nilson Report, ATM & Debit News

Moore's Law Computing Costs

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

350,000,000

400,000,000Smartphones

CC/Debit Terminals

Online Debit Terminals

Bloomberg Terminals

Internet-Enabled Computers

ATMs

A Financial Services Revolution

A financial services revolutionConsumer Trends

1. Simplification 2. Transparency 4. Reduced Friction3.

Analytics

Sunrun distills the complexity of solar panel installation and financing into a few simple clicks

Let’s see if your home and solar are the

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• Free quote to get started – who doesn’t like FREE?

A financial services revolutionConsumer Trends

1. Simplification 2. Transparency 4. Reduced Friction3.

Analytics

Investors know what they’re getting with Lending Club

A financial services revolutionConsumer Trends

1. Simplification 2. Transparency 4. Reduced Friction3.

Analytics

Motif Investing brings complex portfolio optimization to the masses

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A financial services revolutionConsumer Trends

1. Simplification 2. Transparency 4. Reduced Friction3.

Analytics

Friction is being taken out of the system

Consumer Payments

Remittance

Consumer Finance is massiveEstimated annual US revenues generated by sector

90

2,147

300

Lending

189

TotalPersonal Finance

Insurance

697

 Payments

872

Wealth Management

Source: Federal Reserve, SBA,; Goldman Sachs, Bloomberg, FRBNY, McKinsey, SwissRE

Opportunities abound

1 Lending

2 Wealth Management

3 Personal Investing

4 Payments

5 Insurance

A Trillion Dollar Market by the People, For the PeopleHow Marketplace Lending will remake banking as we know It

Big opportunity in front of us Annual Lending Revenues IN 2013 (US$B)

Source: Federal Reserve, SBA,; Goldman Sachs, Bloomberg, FRBNY, McKinsey, SwissRE

Traditional

New Players

Big opportunity in front of us

Con

sum

er Consumer

Pay Day

Purchase Finance

Student Loans

Real Estate

Merchant Cash Advance

SMB CreditSM

B

Loan originations by marketplace lenders have exploded

We expect close to

$9B in marketplace loans to be originated in 2014

Total loan Issuance

And Lending Club is the Leader

2007 2008 2009 2010 2011 2012 2013 2014

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

Tota

l Lo

ans

Issu

ed

($

)

Billions

Marketplace lending could generate >400 BP cost advantage vs banks

Source: Lending Club based on St. Louis Fed, Federal Reserve

A financial services revolution

1. Simplification 2. Transparency 4. Reduced Friction3.

Analytics

Applying for a loan can be easier than buying an iPhone

1. Simplification

Cost to the borrower is fully disclosed

2. Transparency

Underwriting leverages a vast array of data

1970 1980 1990 2000 2010 2013

Ownership

FICORelationship

Performance Data

FICO

Consumer Lending Underwriting

Education

Ownership

Income

Heuristics

Social Graph

Performance Data

FICO

.

..

3. Analytics

Investors can ‘set it and forget it’

4. Reduced Friction

Average NPS Scores

*Note: Adjusted to 2013 dollars**Note: Market cap data from 1994, employment data from 1997 (inflates IT and Healthcare 1997 result)Source: Occupational Employment Statistics, Bureau of Labor Statistics; Thomson One S&P 500 Data

Customers actually like marketplace lending

Insurance

Lending Club Credit Unions Community Banks

Regional Banks

Credit Cards National Banks

0

20

40

60

80

Industry Averages

Technology

Travel/HospitalityBanking

Borrower NPS79

The free markets have spoken Marketplace vs. Fintech in the market

Trading Multiples

Marketplace Traditional Fintech Lenders

Source: Yahoo Fiannce

eBay Inc.

LinkedIn Corporation

Yelp, Inc.

Mercadolibre, Inc.

Zillow, Inc.

HomeAway, Inc.

Shutterstock, Inc.

Trulia, Inc.

0 2 4 6 8 10 12 14 16 18 20

3.84

13.72

17.41

9.7

19.59

7.78

8.94

9.42

ORIX Corporation

Jack Henry & Associates Inc.

Wintrust Financial Corporation

Marlin Business Services Corp.

0 1 2 3 4 5 6 7 8

1.33

3.54

3.83

2.05

2.84

7.1

3.16

3.22

11.3 3.4

“People have long thought that the Internet is overhyped. But when you realize that it now has the power to

reinvent the multi-trillion banking industry – I argue that it still hasn’t been hyped enough.”

The next generation of crazy ideas

• Origination costs approach zero = auto-refi’s to optimize leverage

• Real-time + continuous underwriting

• Fractionalized labor connected directly

to consumption

• Distributed ownership

• Conventional transactions become free + micropayments enabled = machine-to-machine payments

• Micro insurance policies

Thank You!

Charles MoldowGeneral Partner | Foundation Capital

@cmoldow