global trends in fintech, focus on us and china
TRANSCRIPT
FinTech Trends.
SVIEF 2015Sean M. Walsh
Our Objective
30 minutes to cover the most interesting trends in Internet Finance.
3 Stops for audience questions
Speaker Biographies
Chen Yu - President & Co-Founder of YeePay
Vitor Prado - CEO & Co-Founder of Prado Gittelson Group
Scott Robinson - Director & Founder of Plug and Play FinTech
Sean Walsh - Founder of Redwood City Ventures
Speaker Contact Information
Chen Yu,
Vitor Prado, [email protected]
Scott Robinson, [email protected]
Sean Walsh, [email protected], WeChat - BigWaveW
What Is FinTech?Consumers:1. Online payment systems (ecommerce, peer-peer)2. Virtual Currencies / Means of Exchange3. P2P Loans4. Investment (incl. Virtual Stores of Value)
Businesses:5. Payment processing6. Transaction settlement services7. Investments (making + taking)
8. Crowdfunding
Why Is Finance Under Siege By The Internet?1. Financial Intermediation is effectively a non-productive tax on the economy;
2. Less Spending on tax means more spending on productive enterprise;
3. Banking has grown more centralized over the past 50-years, and Financial Services profits have grown commensurately;
4. To wit, that tax has reached 7.2% of US GDP, from 3% in 1950 (over $1.2 Trillion per year), and over ⅓ of US corporate profits;
5. Incentives have favored the banking status quo;
6. However, the WWW has granted much greater power to consumers;
7. Metcalf’s Law is relevant to, and beneficial for the lender/borrower network through more desirable matches (think Craigslist and Newspapers);
Transaction Cost of Traditional FinanceOne US example: Credit Card purchases…
1. Merchant pays 3% to accept credit card.
2. Merchant pays 100% of credit card chargebacks, which currently averages
2% of revenue.
3. Additional fraud expenses: card theft, identity theft, etc.
4. Annual US credit card purchases = over $1 Trillion
5. Total Cost of fraud to the system is almost 10%, per Lexis Nexis =
over $100 Billion/yr
Who ultimately pays this? Is there a more efficient way?
Over 1 Billion People - Internet but No Bank1. Today there are 6 Billion Cellphones in use (5 Billion are prepaid).
2. 2.6 Billion smartphone subscriptions
3. About 3.3 Billion people use the Internet.
4. Mobile industry predicts over 6 Billion smartphones by 2020.
5. There are about 2.3 Billion people with bank accounts.
6. Bank accounts are not expected to grow as fast as Internet connectivity and smartphone penetration.
CONCLUSION - Over 1 Billion people could become their own bank (via virtual currencies like Bitcoin)
Notable Moments in “Internet Finance”1994 - HTTP status code “402 - payment required” is added to standard by W3C .
1999 - X.com becomes PayPal and abandons virtual currency aspirations .
2003 - Bernard Lietaer, chief architect of the Euro, proposes the virtual currency “Terra”.
2006 - Anshe Chung becomes first millionaire from virtual property on Second Life.
2009 - Mysterious figure “Satoshi Nakamoto” launches Bitcoin network, first transaction to Hal Finney.
TTM - Wall Street embraces Bitcoin/Blockchain
Wall Street A-Team Embraces BitcoinLawrence Summers - former US Secretary of the Treasury, Xapo Advisor, 21 Inc. board memberBlythe Masters - former Managing Director at JP Morgan, invented CDSs, ran $4B physical commodity business, now CEO of Digital Asset HoldingsDee Hock - founder of Visa, Xapo AdvisorJohn Reed - former Chairman of NYSE, former CEO of Citigroup, Xapo AdvisorVikram Pandit - former CEO of Citigroup, investor in CoinbaseJames Robinson III - former CEO of American Express, Chain.com Board MemberDuncan Niederauer - former CEO of NYSE, President of ICE, Tera Exchange Advisory DirectorJeffrey Sprecher - Founder, Chairman, and CEO of ICE, Chairman of NYSE, Coinbase.com investorTom Jessop - Managing Director at Goldman Sachs, Circle.com investorArthur Levitt - former Chairman of the SEC, Bitpay.com AdvisorSheila Bair - former Chairwoman of the FDIC, itBit Board MemberBill Bradley - former New Jersey Senator, itBit Board MemberRobert Herz - former Chairman of FASB, itBit Board Member
Use Cases, 1 of 7 Person-Person Transactions (1 foot, Same Country, International)1. Projected from $15B in 2015 to $86B by 20182. Distance = 1 foot
a. Lots of mobile QR code scanning, NFC is lurking b. Venmoc. Google Walletd. Square Cashe. Dwollaf. BAT (for China) g. Bitcoin Wallets
Use Cases, 2 of 7 Person-Person Transactions, continued3. Distance = same country
a. money sent to email addressesb. money sent to Bitcoin wallet addresses (typically 33-34 characters)c. all of the same services as 1-foot, plus PayPal and Facebook Messenger
4. Distance = internationala. Over $582 Billion sent in 2015.b. Fees are down from 10% in 2010, but still average nearly 8% ($45B per
year)c. This is considered by many to be the leading use case for Bitcoin which
costs 0%-3%, though regulatory obstacles remain.d. Capital flight is an interesting consideration here.
Use Cases, 3 of 7 E-commerce - Product Purchases
1. Gift card exchangesa. $124 Billion in cards sold in 2014 (US).b. Up to 10% go unused.c. Another 10% get sold into secondary market for 60% of face val.d. Many of these are digitized through mobile apps like Gyft, and
Raise Marketplace.e. Purse.io is a Bitcoin-based variation of this, where consumers can
purchase anything on Amazon for 15-25% off listed prices.2. Purchases with Bitcoin
a. Largest merchant processor is Bitpay with ~25k merchant customers.b. Large Merchants: Dell, Expedia, Overstock, Microsoft, NewEgg, Dishc. Transaction growth is slow, due to Bitcoin’s Store-of-Value use case.
Use Cases, 4 of 7 E-commerce - Service Purchases
1. In-game Currencies seem stuck in niche subculture and in declinea. World of Warcraft (Economy valued at $3B in 2011, but userbase
down 50% from 2010 peak)b. Eve Online (Economy of $36 million per year)c. Second Life, Entropia
2. Mobile In-game / In-app Purchases aka - Freemium has won the marketa. This is responsible for about 80% of total app revenue which will be $77B by 2017.b. Dominated by a few playersc. Clash of Clans, Game of War, Candy Crush - users advance standing through purchases
3. Peer-Peer Servicesa. Streaming Video (Adult, Distance Learning, Breaking News, Pirated TV):
i. $Cashtags on Meerkat/Periscope to receive tips.ii. Streamium - Bitcoin micropayment processing for video streamers
b. Fiverr - thousands of personal/business services for $5+ (and then accept Bitcoin)c. Twitch - accounts for more than 43% of all live video-streaming traffic by volume.
i. Some successful streamers can make over $100,000 with just video games.
Use Cases, 5 of 7 Real-money gaming: Fantasy Sports, Poker, Online Arcade GamesInvestments (Equity Crowdfunding)
1. Title IV of US JOBS Act has opened much of this market to non-accredited investors.
2. Second Market, Onevest, Angel List
3. RealtyShares, Fundrise.com, Crowdfunder
4. Acorns, Wealthfront (now managing over $2B in client funds), Betterment (approx same size)
5. So-called Robo-Advisers is projected to remain very small (<%5) of market, and incumbents like Schwab and Vanguard are moving in the space.
Interest Bearing Accounts
6. China is leading the way
7. Margin lending on BTC exchanges
8. Jua.com / BitbankProduct Crowdfunding
9. Kickstarter / Indiegogo / GoFundMe (over $1B raised)
Use Cases, Crowdfunding Crowdfunding:
1. Average successful crowdfunding campaign $7000
2. In 2014, crowdfunding added 270,000 jobs and injected $65B into the global economy
3. For 2015, crowdfunding is expected to raise $34.4B
4. $529M pledged to KickStarter in 2014
Use Case, 6 of 7 Peer-Peer Lending
a. Low loan ratesb. $9B in 2014, $64B
forecasted for 2015c. LendingClub - $3.5B in 2014
i. investors make between 5-9% ROI
d. Prosper 2.0 - $1.6B in 2014i. Average loans at
$13,000 with 13.9% interest rates
Use Cases, 7 of 7 Store of Value - BTC price in $
Cyber SecurityCyber security issues:
1. Bank/Processor security breachesa. Heartland Payment Sys (130M)
2. Merchant security breachesa. Target (110M)b. Sony Online (102M)
3. Health Insurance security breachesa. Anthem (80M)
4. Government security breachesa. US Social Security (76M)
What is the solution?
What Countries Lead The Pack?1. Kenya: Mpesa (~20 Million users, and expanding to new countries)2. China: Mobile Wallets, P2P Lending, Crowdfunding, Bitcoin Mining &
Exchanges, Interest Bearing Accts, etc, etc3. India: largest microlending market in the world (Over 70M borrowers)
a. Despite 2010 meltdown, high-water mark has been surpassed, and market is growing rapidly.
4. USA: Bitcoin, Fin-Tech Startups5. UK: crowdfunded mortgages
a. Small, but growing.b. Attractive due to ZIRP.
Notable Regulation - USA1. US JOBS Act
a. Title 4 threw open the doors to equity crowdfunding for non-accredited investors in Q2 2015.
2. New York Bitlicense (late 2014)a. Seen by many as redundant, misguided, and an egotistical PR stunt
by the NY Superintendent of Financial Services.b. Has caused many Bitcoin companies to cease NY operations.c. First license issued 9/21/2015 to Circle.com.
3. California Bitlicensea. Was also widely criticized as a destructive burden and political grab for
fame.b. Was shelved by CA Senator Mitchell on 9/9/2015
Notable Regulation - China1. In early 2014, Chinese government forbade Bitcoin exchanges from
transacting directly with banks.
2. This was effectively solved through the use of 3rd party money agents.
3. Chinese exchanges now claim that the banking restrictions have been lifted.
4. What effect does/will the GFW (Great Firewall) have?
Speaker Contact Information
Chen Yu
Vitor Prado, [email protected]
Scott Robinson, [email protected]
Sean Walsh, [email protected], @SeanWalshBTC,
WeChat - BigWaveW