Pietro  LeoExecutive  ArchitectIBM  Italy CTO  for  Big  Data  Analytics  &  WatsonIBM  Academy  of  Technology  Leadership   Team

@pieroleo www.linkedin.com/in/pieroleo

Fintech and  other thingsare  coming to  TownA  reading  of  “DIGITAL  DISRUPTION:  How  FinTech  is  Forcing  Banking  to  a  Tipping  Point”  report  from  Citigroup  and  other  sources

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Credits:  http://www.arkive.org/whale-­shark/rhincodon-­typus/

What  is  Fintech?

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FintechFinancial  technology,  also  known  as  FinTech,  is  an  economic  industry  composed  of  companies  that  use  technology  to  make  financial  servicesmore  efficient.  

Financial  technology  companies  are  generally  startups founded  with  the  purpose  of  disruptingincumbent  financial  systems  and  corporations  that  rely  less  on  software.

Source:  https://en.wikipedia.org/wiki/Financial_technology3

Source:  https://www.cbinsights.com/blog/disrupting-­banking-­fintech-­startups/

Fintech  are  « UNBUNDLING »  tranditional  banks

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Download  full  report  here:https://ir.citi.com/SEBhgbdvxes95HWZMmFbjGiU%2FydQ9kbvEbHIruHR%2Fle%2F2Wza4cRvOQUNX8GBWVsV

“DIGITAL  DISRUPTION:  How  FinTech  is  Forcing  Banking  to  a  Tipping  Point”

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Which  is  the  level  of  private  investments  in  global  Fintech?

Finding:  It  is  increasing  exponentially  in  last  5  years!  Major  banks  are  increasing  commitments:  last  weeks:  BBVA  250M,  Unicredit  200M,  ISP  30M  -­ It  has  now  a  relevant  critical  mass:  fresh  mind  and  money  

Growing  factor:  10xSource:  Ciigroup

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99%

1%Market  Capitalization

Top  10  Largest  Banks  vs  Fintech  Capitalization

Data  From:  https://en.wikipedia.org/wiki/List_of_largest_banks

Top  10  Largest  Banks

Fintech

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Which  is  the  target  of  the  new  Fintech  entrants?

Finding:  B2C  is  the  major  target  for  FintechWhy  B2C  dominates?  Fintech  provides  better  customer  experiences  and  agility....  better  and  simplified  interfaces....  

Source:  Ciigroup

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Revenue  ALREADY  migrated  from  NA  consumer  banking  from  OLD  to  NEW

Finding:  Only  1%  of  Revenue  already  migratedDuring  next  4  years  it  is  estimated  that  the  17%  of  revenue  in  this  segment  will  migrateto  Fintech  from  tranditional  banks

Source:  Ciigroup

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China  Fintech  companies  have  ALREADY  similar  number  of  clients  of  major  banks

Finding:  High  unbanked  population,  weak  consumer  banks  and  high  mobile  phone  penetration  make  emerging  markets  ripe  for  FinTech  disruptions.  

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Less  capital-­intensive  activities  are  more  likely  to  be  disrupted  by  FinTech

Finding:  The  shift  to  mobile  means  a  disintermediation  of  bank  branches  rather  than  banks  themselves:  Specifically,   it  will  mean  the  shift  to  mobile  distribution  being  the  main  channel  of  interaction  between  customers  and  the  bank.

Payment  is  the  major  challenged  area  of  FinTech  to  the  transitional  banks

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• Credit  Karma  is  a  credit-­monitoring  site  that  provides  free  credit  scores,  reports  and  monitoring  as  well  as  insights  into  the  meaning  of  that.  

• Based  on  the  user’s  credit  profile,  the  website  shows  product  recommendations,  like  credit  cards  and  loans.  

• The  company  recently  raised$360  million  in  funding  rounds,  bringing  its  valuation  to  $3.5  billion.

• The  website  has  more  than  40  million  members  and  taps  into  $2.3  trillion  of  America’s  household  debt  information.  

• Credit  Karma  provides  its  members  with  free  financial  information  monitoring,  data-­driven  resources  and  personalized  recommendationsSource:  https://www.creditkarma.com/faq/howitworks &  

https://letstalkpayments.com/22-­hottest-­fintech-­startups-­from-­silicon-­valley/ 12

Credit  Scoring  Advisor  Example

• Nutmeg,  founded  in  2012,  is  UK  robo-­adviser  comany,  an  online  investment  service  that’s  intelligent,  straightforward  &  fair.  

• Specialising  in  investments,  ISAs  &  pensions.  Capital  at  risk.

• The  company  recently  raised$50  million  in  funding  rounds  and  70  staff

• Nutmeg  has  50.000+• Nutmeg  is  loss-­making  but  should  be  profitable  in  two  to  three  years,  said  the  CEO

Source:  https://www.nutmeg.com/ &  http://www.reuters.com/article/us-­banking-­wealth-­nutmeg-­idUSKBN0OS0W420150612 &  http://uk.businessinsider.com/wealthfront-­launches-­30-­update-­2016-­3?r=US&IR=T 13

• U.S.  robo-­adviser  Wealthfront,  founded  in  2008

• The  company  recently  raised$129  million  in  funding  rounds  and  is  reportedly  valued  $700M

• It  has  $2.4  billion  in  assets  under  management,  thousands  of  customers

• Aim  to  become  an  all-­in-­one  financial  hub,  powered  by  artificial  intelligence.

Robo  Advisors  examples

New  York,  FifthAvenue

Moscow,  Avia  Park

Clients  over  time  will  move  almost  entirely  to  mobile  channels.  Banks  will  look  like  Uber

The  future  of  the  branches   is  about  advisory  and  consultation  rather  than  transactions.  

A  bank  branch  is  only  one  of  bank  distribution  channels.  

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Bank  branch  levels  are  forecast  to  fall  significantly  given  their  high  cost

Commercial  Bank  Branches  per  100k  Adults

Italy  Bank  Branches:  59.6

Finding:  Additional  motivations:  the  increased  ubiquity  of  mobile  Internet,  increasing  FinTech  competition  and  a  sluggish  revenue  and  profitability   environment

France  =  38

UK  =  25

Sweden  =  21

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A  reduction  in  banks'  physical  networks  could  lead  to  a  40-­50%  decline  in  staffing  levels  from  pre-­crisis  levels

Finding:  If  the  banking  system  in  Europe,  Japan,  and  the  US  operated  with  the  same  cost/income  ration  as  the  best-­in-­class  Nordic  region,  it  would  remove  $175  billion  from  their  cost  base  (or  23%)  and  add  39%  to  the  pre-­tax  profit  of  the  banks  in  2016. 16

There  is  a  strong  positive  correlation    between  employee  productivity  and  the  banks'  profitability  

The  Higher  Number  of  Customers  Per  FTE,  the  More  Profitable  A  Retail  Bank

• Measured  By  Revenue/FTE

• Measured  By  Risk  Adjusted  Income/FTE

• Measured  By  Pre-­tax  Profit/FTE)

• Measured  By  Gross  Operation  Profit/FTE

Finding:  The  higher  unit  labor  cost  in  the  Nordic  and  Benelux  countries  forced  the  banks  to  adopt  a  higher  level  of  automation  and  digitalization 17

Next  Big  Big  Thing?  >  Blockchain  could  be  a  catalyst  for  transforming  existing  legacy  systems

Finding:  The  existing  payment  infrastructure  remains  the  backbone.  But  Blockchain  technology  could  be  different.   It  could  replace  the  current  payment  rail  of  centralised  clearing  with  a  distributed  ledger  for  many  aspects  of  financial  services,  especially  in  the  B2B  world.   18

Blockchain  could  be  a  catalyst  for  transforming  existing  legacy  systems

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ABRA  is  an  example  of  Fintech  company  leveraging  Blockchain  for  P2P  money  transfer

Finding:  American  Express  is  a  key  investor  in  Abra:  Blockchain  could  play  an  important  role  in  the  evolution  of  money  transfer  and  commerce,  especially  in    emerging  markets.

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Top  22  Fintech  in  Italy  (according  to  StartupItalia!)

Source:  http://smartmoney.startupitalia.eu/open-­summit/50790-­20151214-­migliori-­startup-­fintech-­2015 &  http://www.osservatori.net/dati-­e-­pubblicazioni/dettaglio/journal_content/56_INSTANCE_VP56/10402/1859041

Data•ClickMeter•FacilityLive•Innaas•Quokky•SpazioDati

Ecommerce•Brandon•Depop•Eboox

Virtual  Currencies•Sardex

Payments•Growish•Jusp

Rating•S-­Peek

Servcies/App•BeMyEye•DoveConviene•Fatture  in  Cloud•MoneyFarm

Lending•Prestiamoci

According  to  Italian  GovernmentWe  have  in  Italy  4.500+  start-­ups  (Fintech and  not) officially  registered  (overall  investments in  2015  was  133M  Euro)

Pietro  LeoInnovation  Agitator

@pieroleoGrazie!

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