FinTech and the Future of Finance---

Central Bank of Sweden

March 2016

March 2016

Professor Robin Teigland robin.teigland@hhs.se

Claire IngramClaire.Ingram@hhs.se

Michal GromekMichal.Gromek@phdstudent.hhs

.se

Nicholas Wesley Jamesnick.wesleyjames@gmail.c

om

www.slideshare.net/eteigland

http://www.slideshare.net/eteigland

If the rate of change on the outside exceeds the rate of

change on the inside, the end is near....

-Jack Welch

Thx to R. Wieselfors, Ericsson for photos

Thx to R. Wieselfors, Ericsson for photos

2015

Valuecreation

People• Millenials• Digitally removing

friction• Sharing not owning• Sustainability• Global yet local• 24x7 “mobile”

workforce

Technology • Broadband• Smart phones• The cloud• Internet of Things • Big Data• 3D printing• Robotics/AI• VR/AR• Holography

Open Source IP

• Software • Hardware• Physibles

Convergence of…..

Finance•

Microlending/microfinance

• Crowdfunding/equity/P2P

• Cryptocurrencies• Blockchain• Mobile

money/payments • M2M payments

Uber• Launched June 2010

• >330 cities in 60 countries • Limited physical assets• > USD 60 bln valuation (Ericsson – USD 30 bln)

“Doing more with less” through a global platform

The Sharing Economy is enabled through peer-to-peer (P2P) transactions on

multi-sided platforms (MSPs)

http://sloanreview.mit.edu/article/strategic-decisions-for-multisided-platforms/

Cost to launch a tech start-up

Local Stockholm success story: Flippin’ Burgers

Money raised: SEK 36,502 / €4,000

Number of investors: 186

Date funded: September 2011

Sector: Food

Enabling local, small-scale solutions

Top 5 Best American

Restaurants in Europe

http://travel.cnn.com/best-americana-restaurants-europe-023346

Crowdfunding

Accumulation of small investments in individual projects by large number of

individuals (the “crowd”) via or with help of Internet and social networks (De Buysere et

al., 2012)

Picture: FundedByMe

What is FinTech?

Technologies for banking and corporate finance, capital markets, financial data

analytics, payments, and personal financial management

- Accenture/CB Insights

Finance TechnologyFinTech

What is Fintech?

Banking is essential,

but banks are not.

Bill Gates

Recent surveys of millennials

Commoditization of banking

Negative trust in banks

Heavily increasing regulatory activity

FinTech customer segments & products 2015

>USD142015E

12 top VC FinTech investments since 2007

And other big corporates investing too

Crowdfunding growth 2012-2015

USD 34 bln E

But in China alone in 2015…

http://www.crowdfundinsider.com/2016/01/79612-report-china-p2p-lending-topped-150-billion-in-2015/

Rethinking risk analysis

Automated investing based on algorithms

Profits from non-mortgage retail lending, e.g., credit cards, car loans, could be reduced by 60% and revenues by 40% over next decade.

In just the past few years in Stockholm…

Company Founded BusinessKlarna 2005 E-commerce payment servicesMyLoan 2006 Loan brokerTrustly 2008 Online paymentsiZettle 2010 Mobile paymentsFundedByMe 2011 Crowdfunding, crowd equityKivra 2011 Digital mailboxTink 2012 Personal financeSafello 2013 Cryptocurrency exchangeKnCMiner 2013 Cryptocurrency mining equipmentToborrow 2013 P2P lending for companiesDreams 2013 Savings bank

Company Founding Year

Newly Found Source Description Segment

Inkassogram 2015 x 2016 Crowdsourcing Simplifies debtor and creditor relationship LendingLenovium 2015 x 2016 Crowdsourcing Mortgage maturity optimization service Lending

Primepilot 2015 x Tobjörn AI based investing advice Wealth Management

XBT Provider 2015 x 2016 Crowdsourcing

XBT Provider manages Bitcoin Tracker One and Bitcoin Tracker Euro. With these instruments anyone

can invest in Bitcoin as ETN:s, exchange-traded notes, from anywhere in the world

Crypto Currency

ZignSec 2015 x 2016 Crowdsourcing

ZignSec is Scandinavia´s most modern verification platform. ZignSec help bank customers (Merchants) to verify users through a series of look-ups in real-time; Nordic eID, IP-checks, device geolocation,

device usage, blacklists, credit checks, AML checks and much more.

Other FinTech

Zimpler 2015 x Tobjörn Mobile gaming focused payment service provider Payments

Barnpengar 2014 x Industrifonden Personal finance tool for children Wealth ManagementBillecta 2014 x Industrifonden Billing software Other FinTechBitrefill 2014 x Tobjörn Recharge your mobile phone with bitcoin Crypto Currency

Capcito 2014 x Industrifonden Short term loans against receivables Lending

Chromaway 2014 x Tobjörn Enterprise platform for coloured bitcoins Crypto CurrencyCo-Owning 2014 x 2016 Crowdsourcing Crowdfunding for real-estate investments CrowdfundingConsector 2014   Previous Study Personal loan comparison services Lending

Cryex 2014   Previous Study Institutional financial trading platform Crypto CurrencyLeaseonline 2014 x NFT Ventures Online car leasing service Lending

Leasify 2014 x NFT Ventures Business lease managagement system Other FinTechlendify 2014   Previous Study Loans between private individuals Lending

Monetise 2014 x Industrifonden Short term loans against receivables Lending

NOWO 2014 x NFT Ventures Credit card with automatic retirement savings Other FinTechPensionera (Pensionera förmedling

i Sverige AB) 2014 x Industrifonden Pension comparison and monitoring Wealth Management

Pensionskraft 2014 x NFT Ventures Pension comparison and monitoring Wealth ManagementPepins (Pepins Nordic AB) 2014 x Tobjörn Equity crowdfunding platform Crowdfunding

Prello 2014   Previous Study mobile POS Payments

Qliro AB 2014   Previous Study Online payment solution provider Payments

Slipp 2014 x 2016 Crowdsourcing Accounting solutions provider Other FinTech

Strawpay 2014 x Tobjörn Developing a highly scalable open trasaction protocol Crypto Currency

Tessin Nordic AB 2014 x NFT Ventures Property Crowdfunding Crowdfunding

TradeVenue 2014 x Industrifonden Social meeting place for savers Wealth Management

Stockholm #2 FinTech city after London in EU

2010-2014 investment

● $532 Mln

2014 investment● $266 Mln ($141 Mln VC)

2015 investment● $96.4 Mln VC

Top 2014 Investments in

Stockholm FinTech Companies (USD Mln)

Klarna $125

iZettle $55

Trustly 29

Bima Mobile $22

KNC Miner $14

http://www.slideshare.net/eteigland/stockholm-49722748

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

http://www.slideshare.net/eteigland/stockholm-49722748

Forming partnerships…

+…to rethink and encourage saving among

millenials

+

Disassembling the value chain

Transforming insurance

Toborrow.se

FinTech Companies in Stockholm by Segment

Segment 2009 2010 2011 2012 2013 2014 2015Transfers 1 1 1 2 2 2 2

Crowdfunding 0 1 2 3 3 6 6Crypto Currency 0 0 0 3 5 9 10

Wealth Management 2 2 2 4 5 9 10

Other FinTech 3 6 8 9 10 14 15Trading and

Banking Tech 14 15 15 15 15 15 15

Lending 5 6 6 8 9 14 16Payments 10 12 16 18 20 22 23

Total 35 43 50 62 69 91 97

No. of FinTech companies in Stockholm per Year

20152014201320122011201020090

10

20

30

40

50

60

70

80

90

100

PaymentsLendingTrading and Banking TechOther FinTechWealth ManagementCrypto CurrencyCrowdfundingTransfers

# of

Com

pani

es

Stockholm FinTech Revenue and Employee #s

2010 2011 2012 2013 2014 2015 (est)0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

RevenueEmployees

Reve

nue

(bn

SEK)

Empl

oyee

s

2010 2011 2012 2013 2014 2015 (est)Revenue (bn SEK) 7.5 7.8 9.0 12.0 13.2 14.3

Employees 2,889 3,210 4,255 4,710 5,261 5,812

In 2015 VCs invested USD 96 mln in Stockholm FinTech Companies

Company Segment 2015 Investment (m USD)iZettle Payments 66.6

KNC Miner Crypto Currency 15.0Cryex Crypto Currency 10.0Tessin Crowdfunding 1.8

Mr Shoe Box Other FinTech 0.7Capcito Lending 0.6

Pensionskraft Wealth Management 0.6Fidesmo Crypto Currency 0.5

TradeVenue Wealth Management 0.5Safello Crypto Currency 0.1

2015201420132012201120100

50

100

150

200

96.4

141.0

14.0

41.4

181.4

11.1

m U

SD

https://safello.com/

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 6.3 bln market cap and approx 180,000

daily transactions volume 1 BTC = USD 413 (March 2016)

Teigland, Yetis, Larsson 2013 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2263707

What is a cryptocurrency?

DigitalDecentralized, 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−https://www.youtube.com/watch?v=t5JGQXCTe3c

InstitutionsEmergent Collective v

s

E.g., Central Bank~ Long-standing financial

institutions and regulations

E.g., Bitcoin Community ~ Emergent collective of users across globe connected through internet

Teigland, Yetis, Larsson 2013

Screenclip from: How Bitcoin Works under the hood, by “Curious Inventor”

Bitcoin: one application of the block chain

Block chain

• Shared digital ledger anyone can access

• Run by all participants

• All transactions logged and transparent

• Chronology and integrity enforced by cryptography

Betting on the Blockchain - together

42 banks and counting…Goldman Sachs, JPMorgan,

Credit Suisse, Barclays, Commonwealth Bank of

Australia, State Street, RBS, BBVA,

UBS, Nordea, SEB, + ……

+

IBM + Samsung on blockchain

The (Ethereum) Blockchain

Benefits of blockchain technology

Core concept is very powerful for financial services −Lower costs through shared infrastructure−Faster settlement that leads to lower capital and

liquidity needs−Increased transparency, especially with cross

border payments−Perfect record-keeping−Greater security through cryptography,

transparency

Citi Research, Jan 2016

Issuing private equity and public shares

Enablers of a “true” Sharing Economy?

Blockchains

Sharing/ Collaborative Economy

IoT/sensors

P2P/M2M micropayments

Big data

Enabling smart contracts

Imagine a blockchain-based script that is activated when two parties send bitcoins to an escrow Bitcoin account controlled by the script, and which will release the bitcoins in the future to whoever wins a bet on the average level of rainfall over a certain period. This smart-contract is programmed to read data from weather agencies, and after a set amount of time releases the bitcoins from the escrow, sending it to a farmer who requires protection against low rainfall. This is a blockchain-based weather derivatives contract.-Brett Scott

robots

Some FinTech challengesRegulation

−How to avoid stifling innovation?

Privacy −Ensuring integrity of data?

Security−Preventing security breaches/hacking

Untested −In periods of high interest rates, increased

risk, and reduced investment

A reversal of early “onerous” regulations

Italy’s recent changesExpand definition of ”professional investor”Allows a limited amount of public

advertisingMaking transactions completely online

State of regulations in Sweden

Tax considerations VAT due on reward-

based crowdfunding money raised

Tax deductions on private investments under 50,000 kr per year

Jurisdictional problems Much of FinTech is

consumer-facing Problem: who

oversees? Finansinspektionen or Konsumentverket?

In Europe, PSD2 actually mandates “opening up”

Opening up innovation…

Citigroup Capital OneBBVA Compass Silicon Valley BankBank of America

Democratizing innovation through access to capital?

“Made in Africa” 3D printer (Togo)

Winner of International Space

Apps Challenge

http://www.engineering.com/3DPrinting/3DPrintingArticles/ArticleID/5712/E-Waste-3D-Printer-to-Mars.aspx

Enabling financial inclusion

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

https://www.cbinsights.com/research-venture-capital-2015

State of the VC industry?

Previously…..

From Netscape IPO in 1995 to PayPal

acquisition by eBay in 2002, more than 450

attackers – new digital currencies, wallets,

networks, etc. challenged incumbents

McKinsey, 2015

Fewer than five survive as stand-

alone entities today.

The future is already here, it’s just not very

evenly distributed.

- William Gibson

Robin TeiglandRobin.Teigland@hhs.s

e@robinteigland

Claire IngramClaire.Ingram@hhs.se

Michal GromekMichal.Gromek@phdstudent.hhs

.se

Nicholas Wesley Jamesnick.wesleyjames@gmail.c

om

Robin Teiglandrobin.teigland@hhs.se

www.slideshare.net/eteiglandwww.funnovation.se

@robin.teigland

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