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  • Fintech CertificateFintech Certificate

    Fintech Disruptors And Enablers, Both Winners

    January 2018

    ATONR PARTNERS SA 12, Rue Pierre Fatio 1204 GENEVA SWITZERLAND - Tel: + 41 22 310 15 01 http://www.atonra.ch

  • Fintech Certificate

    Record investments in Fintech over the last three years (above $100bn according to KPMG) are

    about to spark a massive wave of innovative financial and banking services

    One of the most obvious outcomes of the Fintech revolution is the disintermediation of financial

    services as nimble companies take advantage of technologies such as AI and blockchain to

    develop new services or to take business away from legacy players

    While the emergence of mobile payment platforms has drawn much attention, other Fintech

    applications ranging from robo-advisers to peer-to-peer lending are also taking off

    Blockchain represents the final disintermediation step: the technology has wide-ranging

    applications (smart contracts, decentralized apps) in the financial world and in many industries

    Against this backdrop, banks and insurers have to reinvent themselves and invest heavily in

    new technologies in order to enhance customer experience and extract operating efficiencies

    This suggests that tech enablers (both hardware and software) should also be in the

    spotlight as they are in the early stages of a secular growth cycle

    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

    Investment Case

    2

  • Fintech Certificate 3

    Payment Processing

    Biometrics & Security

    FinancialSoftware

    Mobile Payments

    B2B Payments

    Loyalty &Rewards

    P2P Lending

    AI & Bots

    Blockchain

  • Fintech CertificateFintech Certificate

    Now that the mobile payment infrastructure is in place, widespread adoption of mobile payments by

    consumers is just a question of when, not if

    Mobile Payments: The Tip Of The Iceberg (I)

    4

    Upcoming catalysts:

    Loyalty programs and P2P features In-car payments Payments in virtual stores

    Seamless, mobile-based checkout experience Government incentives

  • Fintech Certificate

    Asia Pacific and Africa are early and faster adopters of mobile payments with more than 100

    million mobile payments users

    5

    8557.8

    32.8 26.7

    8.5 1.5

    163.6

    101.390.7

    64

    22.36

    0

    20

    40

    60

    80

    100

    120

    140

    160

    180

    Asia/Pacific

    Africa NorthAmerica

    Europe LatinAmerica

    MiddleEast

    2012 2016

    450

    620

    780

    930

    1080

    2015 2016 2017 2018 2019

    Annual transaction volume in US$ bn -Mobile Payments

    Mobile Payments users by region (in mn)

    Source: AtonR Partners, TrendForce, NFC World+ Source: AtonR Partners, Gartner Inc.

    CAGR ~ 20%

    Mobile Payments: The Tip Of The Iceberg (II)

    The annual transaction volume via mobile payments in 2015 was $450bn and is expected to exceed

    $1tn in 2019

  • Fintech CertificateFintech Certificate

    Mobile Payments: The Tip Of The Iceberg (III)

    6

    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

    Payment processors are the best way to capture the volume growth of

    digital transactions

  • Fintech Certificate 7

    Infrastructure

    Online / P2P

    lending

    Mortgage

    Auto finance

    Credit scoring

    Blockchain

    Artificial Intelligence, bots

    Cybersecurity

    Risk assessment

    Anti-money laundering

    Client profiling

    IoT and

    connected

    devices

    Analytics

    Mobile payments

    Digital wallets

    Payment

    processing

    B2B payments

    International

    remittances

    Point-of-sale devices

    Artificial

    Intelligence

    Robo-advisors

    Advanced analytics

    Process Automation

    Crowdfunding

    Social investing

    Asset and Wealth Management

    Insurance

    Lending

    Payments

    The Fintech Universe Is Much Larger

  • Fintech Certificate 8

    BorrowerLending Platform

    (e.g., Lending Club)

    Partner Bank (e.g., Web Bank)

    Lender/ Investor

    Applies for a loan (1)

    Loan repayment (10)

    Loan note (8)

    Commits to a borrower (2)

    Gives cash to the platform (6)

    Investor receives loan note (9)

    Loan repayment (11)

    Informs a third-party bank that borrower is verified, investors have committed (3)

    Purchases the loan note using investors cash (7)

    Loan note purchasing

    Loan repayment

    Loan note transfer

    Initial application and funding

    How peer-to-peer lending works

    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

  • Fintech Certificate

    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

    Lending has become a natural extension of the services offered by many fintech and tech companies

    Online Lending At The Core Of Many Fintech Offerings

    9

    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

  • Fintech Certificate

    Lending, and more generally financial services, fit well with tech companies know-how

    They are data-rich businesses

    The large amount of data that is easily

    labeled makes this an interesting place

    for Deep Learning (DL) methods

    Online Lending And Banking: Tech Companies To Play A Major Role?

    10

    Access to detailed data on the customers

    business allows to mitigate risks

    Securitization suggests balance sheets

    will not balloon

    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

    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:

    The Bank Status Offered By The US Government Is A Major Positive

    11

  • Fintech Certificate

    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

    Tech Giants Likely Eager To Tap A Huge Market

    12

    1'697.5

    1'055.8

    470.5

    0

    200

    400

    600

    800

    1'000

    1'200

    1'400

    1'600

    1'800

    The 20 largest banksin US

    The 20 largest banksin Europe

    Credit cardscompanies (V, MA,

    AXP, DFS)

    In $bn

    Market Capitalization (in $bn) banks & credit cards companies

    Source: Bloomberg, Banksdaily.com, Relbanks.com

  • Fintech Certificate

    Traditional Banks Have No Choice But To Make Large Fintech Investments (I)

    13

    ew competitors always will be emerging and

    that is even truer today because of new

    technologies and large changes in regulations.

    The combination of these factors will have a lot of people

    looking to compete with banks because they have fewer

    capital and regulatory constraints and fewer legacy

    systems. We also have a healthy fear of the potential

    effects of an uneven playing field which may be

    developing. Below are some areas that we are keeping an

    eye on

    NThere always will be new emerging competitors that we need to keep an eye on

    ilicon Valley is coming. There are

    hundreds of startups with a lot of

    brains and money working on variousSalternatives to traditional banking. The ones

    you read about most are in the lending

    business, whereby the firms can lend to

    individuals and small business very quickly and

    - these entities believe effectively by using

    Big Data to enhance credit underwriting.

    JP Morgan CEO, Jami