Fintech Certificate Fintech Certificate
Fintech Certificate 2 Investment Case ➢ The AtonRâ Fintech Index is a long-only, USD-based, actively managed total return index. ➢ The pace of innovation in financial technology (Fintech) has been accelerating lately with notably the emergence of mobile payments. ➢ This is just the beginning of a secular trend as technology and digitization are likely to reshape the financial industry with applications ranging from robo-advisers, P2P lending and money remittances to blockchain. ➢ Banks and insurers will have no choice but to invest heavily as Fintech is expected to spark major operating efficiencies through increased automation and is also likely to lift the financial industry's revenue outlook through enhanced customer experience and engagement. ➢ The investment universe is naturally composed of Internet and mobile financial platforms, payment networks and processors and hardware and software vendors. It can also include more traditional companies whose business model shifts thanks to Fintech innovations. Fintech Certificate details ✓ Issuing bank: Natixis, Calculation agent: Natixis SA ✓ ISIN: XS1365787230 ✓ Currency: USD ✓ Fees: 1.65% management fee + 15% performance fee, high water mark ✓ Bloomberg ticker: NXSRFINT
Fintech Certificate 3 AI & Bots Financial Software Payment P2P Lending Processing Mobile Biometrics & Payments Security Loyalty & Rewards Blockchain B2B Payments
Fintech Certificate Fintech Certificate 4 Mobile Payments: The Tip Of The Iceberg (I) ➢ Now that the mobile payment infrastructure is in place, widespread adoption of mobile payments by consumers is just a question of when, not if ➢ Upcoming catalysts: Loyalty programs and P2P features Payments in virtual stores In-car payments Seamless, mobile-based checkout experience Government incentives
Fintech Certificate 5 Mobile Payments: The Tip Of The Iceberg (II) ➢ The annual transaction volume via mobile payments in 2017 was $780bn and is expected to exceed $1.1 tn in 2019. The forecast is expecting a CAGR growth pace of 32% for the next 4 years to reach more than $ 3 tn volume in 2022! Annual transaction volume in US$ bn - Mobile Payments Mobile Payments users by region (in mn) 180 3500 163.6 2012 2016 160 3000 CAGR growth of around 32% 140 between 2017 and 2022 +92% 2500 120 101.3 90.7 2000 100 85 +75% 80 1500 64 57.8 +177% +140% 60 1000 32.8 26.7 40 22.3 500 8.5 20 6 1.5 0 0 2015 2016 2017 2018 2019 2022 Asia/ Africa North Europe Latin Middle (est.) Pacific America America East Source: AtonRâ Partners, Statista 2018 Source: AtonRâ Partners, Gartner Inc. ➢ Asia Pacific and Africa are early and faster adopters of mobile payments with more than 260 million mobile payments users in 2016
Fintech Certificate Fintech Certificate 6 Mobile Payments: The Tip Of The Iceberg (III) ➢ Payment processors are the best way to capture the volume growth of digital transactions ➢ Highly scalable business models hint at significant earnings leverage ➢ Strong balance sheets and cash-flow generation give ammo for M&A in a highly fragmented industry
Fintech Certificate 7 The Fintech Universe Is Much Larger ✓ Online / P2P ✓ Artificial lending Intelligence ✓ Mortgage ✓ Robo-advisors ✓ Auto finance ✓ Advanced analytics Asset and Wealth ✓ Credit scoring ✓ Process Automation Lending ✓ Management Crowdfunding ✓ Social investing Infrastructure ✓ IoT and connected devices ✓ Analytics Payments Insurance ✓ Mobile payments ✓ Digital wallets ✓ Payment processing ✓ ✓ B2B payments Blockchain ✓ ✓ International Artificial Intelligence, bots ✓ remittances Cybersecurity ✓ ✓ Point-of-sale devices Risk assessment ✓ Anti-money laundering ✓ Client profiling
Fintech Certificate 8 Online Lending Has Been A Major Area Of Development ➢ According to KPMG, non-bank startups arranged more than $36bn of loans in 2015, mainly for consumers, up from $11bn in 2014 ➢ The boom of peer-to-peer lending platforms is mainly due to: ✓ Reduced lending by incumbents to small merchants and consumers following the 2008 financial crisis ✓ The low rate environment, a positive for the funding of P2P platforms ✓ Increased use of online banking services by consumers How peer-to-peer lending works Commits to a borrower (2) Applies for a loan (1) Lending Platform Gives cash to the platform (6) Lender/ Borrower (e.g., Lending Investor receives loan note (9) Investor Club) Loan repayment Loan repayment (10) (11) Informs a third- party bank that Purchases the loan Loan note (8) borrower is note using investor’s verified, cash (7) investors have committed (3) Initial application and funding Loan repayment Partner Bank Loan note transfer (e.g., Web Bank) Loan note purchasing
Fintech Certificate 9 Online Lending At The Core Of Many Fintech Offerings ➢ Lending has become a natural extension of the services offered by many fintech and tech companies ✓ They can leverage their existing relations with consumers and merchants to develop a potentially large and profitable lending business ✓ They can increase the stickiness of customers to their main platform / business ➢ A few examples: ✓ Amazon has offered more than $1bn in small loans to third-party sellers on its site in the past 12 months, compared with $1.5bn in the 2011-2015 period. Loans range from $1,000 to $750,000 and interest rates from 6% to 14% ✓ Square and PayPal have launched lending businesses targeting small businesses ✓ Qiwi , the Russian digital wallet and remittances company, is just launching a consumer lending business ✓ Robinhood , which lets customers trade stocks for free, makes money thanks to margin trading
Fintech Certificate 10 Online Lending And Banking: Tech Companies To Play A Major Role? ➢ Lending, and more generally financial services, fit well with tech companies’ know-how ✓ Access to detailed data on the customers’ ✓ They are data-rich businesses business allows to mitigate risks ✓ The large amount of data that is easily ✓ Securitization suggests balance sheets labeled makes this an interesting place will not balloon for Deep Learning (DL) methods ➢ A couple of tech companies already act de facto as banks ✓ By storing clients’ cash and allowing them to use their cash balance through debit cards
Fintech Certificate 11 The Bank Status Offered By The US Government Is A Major Positive ➢ Until now, Fintech companies have grown wild , without many restrictions ➢ The US government (through the OCC) just set up of a specific bank charter for fintech companies that may seem at first sight as a regulatory headwind … ➢ It has actually more pros than cons:
Fintech Certificate 12 Tech Giants Likely Eager To Tap A Huge Market ➢ Mobile payments offerings from Tech giants (Apple/Android Pay … ) could be a Trojan horse to develop a full financial services offering in the future ✓ Bypassing credit card companies would allow them to fully monetize mobile transactions ✓ Leveraging huge numbers of users , unique data sets and AI skills, would then allow them to expand into lending and banking and to find a new growth avenue Market Capitalization (in $bn) – banks & credit cards companies In $bn 1'697.5 1'800 1'600 1'400 1'200 1'055.8 1'000 800 600 470.5 400 200 0 The 20 largest banks The 20 largest banks Credit cards in US in Europe companies (V, MA, AXP, DFS) Source: Bloomberg, Banksdaily.com, Relbanks.com
Fintech Certificate 13 Traditional Banks Have No Choice But To Make Large Fintech Investments (I) There always will be new emerging competitors that we need to keep an eye on… JP Morgan CEO , Jamie Dimon in April 2015 N S ew co ew competi etitors ors alw always ays will ill be be emerging emerging and ilicon Valley ilicon Valley is is co comin ing. There are that is even truer today because of new hundreds of startups with a lot of technologies and large changes in regulations. brains and money working on various alternatives to traditional banking. The ones The combination of these factors will have a lot of people you read about most are in the lending looking to compete with banks because they have fewer business, whereby the firms can lend to capital and regulatory constraints and fewer legacy individuals and small business very quickly and systems. We also have a healthy fear of the potential - these entities believe – effectively by using effects of an uneven playing field which may be Big Data to enhance credit underwriting. developing. Below are some areas that we are keeping an eye on T hey ey are are very ery good good at reducing the “pain points” in that they can make loans in minutes, which might take banks weeks. We are going to work hard to make our services as seamless and competitive as theirs. And we also are completely comfortable with partnering where it makes sense.
Fintech Certificate 14 Traditional Banks Have No Choice But To Make Large Fintech Investments (II) What JPMorgan is doing with that $9.5bn tech spend JPMorgan Chase pumped $600mn into fintech in 2016 French Bank BNP Pariba s is spending €3bn to “build the bank of tomorrow” RBC wants 40% of total technology budget devoted to innovation Credit Suisse further enhances digital banking with Fintech Partnership ; launches regional industry’s first digital client onboarding application
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