Igor PesinPartner, Investment Director @ Life.SREDA VC

Lessons from Fintech in Asia and future of open banking

Life.SREDA I Life.SREDA II Asia

Moscow Singapore

2012 20152014

13 investments(US, UK, Germany, CIS) 7 successful exits 8

investments(South East Asia)

Research & Vision

Influelce on the whole infustry trough own blogs fintechranking.com and

semi-anual Fintech research “Money of the Future”

www.www.fintech-research.com .com

Bank-as-a-srevice and open API playAccelerator in Singapore

Taiwan

SME-lending

& FactoringPOS-managment

system &

tablet based

cash-registers

-

Online-tra

ding

Online-

lending

P2B-lending

Crowndfunding

& Crowndinvesting

Online-

remittances

PFM&PFP

Insurtech

ddleware

mPOS-acquiring

Online-lending

for students

First BaaS-platform for Asiais very necessary for the future

fintech development

Life.SREDA is supporting a strategic fintechproject: open API Pan-Asian platform BAASIS

Life.SREDA VC Executive summary

This time has come:

Asia become the largest fintech market in the world

in 2016

Fintech before: disruptors and enablers

Fintech now: Сreators

Investments in fintech annually ($B) Region distribution of funding (%)

47

38USA

Asia

Other

88

2,5 2,94,4

12,3

20,3

23,6

19,1

0,3 0,4

2,2 2,5

1,5

2,9

5,5

6,8

5,8

14,5

6,1

13,0

VC Backed fintech investments

Other fintech investment

+16%

-6%

2011 2012 2013 2014 2015 2016

4,5Ant Financial

Asia is driving the growth of Fintech market worldwideaccounting to almost 50% of global volume

EU

Amount of financing deals (#)+36% +7%

2015Q1

Q2

Q3Q4

Q1Q2

Q3

Q4

2016

308

366

410398

442 428

378

343

Asian market is the main driver for the growthof global Fintech industry in 2016

Note/source: Source: Mattermark, Dow Jones, Life.SREDA VC analysis

The total invested capitalin Asian Fintechcontinued to grow in 2016, despite few mega dealsthat made >60% of the 2016 total;

In Asia, almost 70% of dollar investments in 2016 went to Chinese companies;

257 deals are counted by Life.SREDA

0,51,5

6,3

9,8

2013 2014 2015 2016

Investments in Asian Fintech by year ($B)

257 DEALS

221DEALS

156DEALS

Ant Financial

$4,5B

Zhong An

$0,92B

Fintech unicorns: 4 Chinese giants are in TOP5 in 201625 fintech unicorns globally valued at $150B in aggregate value

Fintech Unicorns Valuation

2015

24 unicorns

$112B Total valuation

2016

$150B Total valuation [+$38B]

25 unicorns

USA AsiaEurope

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123456789101112131415161719212224 2325 20 18

Disclaimer: Public companies are not included; only $1B>;no SaaS, Cloud, enterprise software, hardware etc; only FinTech accordiing to Life.SREDA

$B

Payments and deposits

What is Fintech

Online payments

Processing / acquiring

Recurring

International P2P

Merchant acquiring

B2B

Main Categories:

p2p lending

Loan Marketplace

SMB Lending

Supply Chain finance

Student Lending

Real Estate and industryspecific originators

Marketplaces

Main Categories:

Lending / Deposits

What is Fintech

Number of rounds (#) and amount of capitalinvested in Insurance quarterly ($B)

78 82

125157

Insurtech market decreased by 34%in 2016, while the number of dealsincreased by 25%

Q1

78 37110 56 114

311

1727

198124

189

384

210

390

190280

790

Q2 Q3

2013 2014 2015 2016

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Today, the market consists of <1400 insurance tech companies, the launching tendency is decreasing, almost 300 companies founded in 2015, 40% less in 2016

In 2015, the pike was mainly because of a largeChinese deal – Zhong An, that made almost 40% of the whole year’s funding amount

There is an increase in investment rounds: in 2014 – 54 rounds;in 2015 – 125 rounds;in 2016 – 157 rounds.

-31% +165%

-34%+236%

747

281

1650

2510

Zhong An$981M

Credit scoring

Big Data

Risk management

Regtech

Machine learning and AI

Security

Main Categories:

Big Data & Scoring

What is Fintech

Asian (Chinese) mega deals dominatethe global fintech market

Payments

Lending

Insurance

Fintechfor SME

Banking

Big Data

Financialmanagement

North America14 companies

$2.25B

Europe3 companies

$648M

South America2 companies

$262M

Asia11 companies

$8.7B

Top 30 companies made

>50%of all fintech funding

Lendingprevailed in 2016

with 12 deals out of 30gone to this field

While North America sawthe biggest number of deals,

Asia leadsa total funding volume

Blockchainhas not entered the TOP-30

largest deals list yet– looking for 2017

Ant Financial $4,5B B

Lu.com $1,2B B

JD Finance $1B n/a

Qufenqi $449M Late

Oscar Insurance $400M C

Ion Investment $400M PE

U51 $310M C

China UnionPay $296M n/a

CommonBond $275M Late

Fenqile $235M D

Mosaic $220M Seed

HeTai Insurance $218M Seed

Payoneer $180M n/a

WeLab $160M B

Clover Health $160M C

Weidai $153M C

Lendup $150M B

Stripe $150M n/a

Hero FinCorp $150M n/a

EDM Group $145M n/a

Nubank $132M C-D

XP Investimos $130M PE

PaySimple $115M n/a

MetroMile $103M D

Kreditech $103M C

Betterment $100M E

Fractal Analyst $100M n/a

Affirm $100M D

Avalara $96M n/a

Ygrene Fund $95M n/a

Wealthmanagement

Investments into FinTech in Afrika are twice bigger than in South East Asia

in 2016

M-DAQSingapore

$82,5M

MatchMoveSingapore

$30M

GroupLeaseThailand

$30M

ItBitSingapore

$25M

FastacashSingapore

$15M

Investments in SEA Fintech dropped by 36%

Total investments and deals number

TOP 5 DEALS

2015 2016

$245M$157M

deals57 58

20162015

Despite the decline in funding amount, the amount of deals remained on the same level;

Singapore leads in invest-ment and deals amounts, remains to be a region’s leader;

Philippines and Indonesia are following the trend, together hold 1/5 of all companies funded;

Cheques are down in 2016 – growth barriers; investorsare being careful with targets.

By geography, number of companies funded

Indonesia

Thailand

Vietnam

Others

60

9

9

4

9

62%

12%

8%

6%

4%

8%

11

Philippines

Singapore

2015

2016

MomoVietnam $28M

QuoineSingapore $20M

OmiseThailand $17.5M

Funding SocietiesSingapore $12.6M

MC PaymentSingapore $8M

However all FinTech startups in SE Asiaare very early-stage and not growing fast

400+ fintechsin South East Asia

early stage(seed and Series A)

will not reacheven Series B round

because they can’t scaleand show the real results

98% 95%

6-12 months-to-market$200-400K-to-market

3 monthsNegotiation with bank

+3 monthsNegotiation with IT-depatment

+6 monthsLong & expensivedirect integrationwith bank back-end

Head of Business

Head of IT

Startup

Startup’s pain

Challenges for Fintech evolution in AsiaDifficulty to launch financial services and products in cooperationwith traditional banks

Negotiations with banks to be licenced and integrated to back-end

Direct integration to the banking back-end (pain!)

For banks: - not main KPI’s - not safe & secure - not fast & cheap & easy - do not have ability to work with many startups

Going to BaaS platform or using open APIs 80%

to businessdevelopment

in tneUS/UK

80% 20%In Asia In the US/UK

1+ year 3-6 month

Spend 80% of their resources to be launched

Spend only 20% of their resources to be launched

Asia

US / UK

In developed markets, fintechinnovations are primarily aimed at improving the user experience for tech- and financial literacy advanced people. But, for the billions around the world with-out access to traditional financial services, fintech innovationsgo well beyond convenience.Fintech could be their ticket to financial inclusiveness and membership in the global digital economy.

“

Challenges for Fintech evolution in AsiaDifficulty to scale geographically due to differences in regulations and infrastructure

In each country you have to

start from scratch:

1. New regulation2. New integrations

In Asia In the US/UK 1. Easy regulation2. Easy integrations

EUROPE

US

Unbanked markets always loose competition for attraction of attention of the best talents & startups to deploy their cutting edge technologies for somebody who really need it

“

Recognizing the importanceof financial inclusion forthe global population, various international structures are investing efforts into developing strategies for facilitatingfinancial inclusion

There are more than 20 verticals in Fintech and more than 20 leaders in each vertical(about 5K fintechs total)

How to connect?Pri

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Banks’ pain: With whom to work?

OperationWho will control and develop?

How to integrate? How to invite foreign projects?

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BusinessWho will possess clients / startups?

ValueHow to help partners to expandto other markets?

Fin

tech

sfo

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tail

for

SME

it is expensive it takes time it is not main business / KPI

Banks’ pain

Who needs banking infrastructure in Asia?(top-down calculation)

The best and the biggestfintech services,

Fintech startups Telecoms Large e-commerce,retail corporates

Messengersand socialnetworks

which want to expound to Asia which want to launch & scale which wants to deliver fintech servicesfor their customer base

50+ 1000 + 30+ + +300 5

USA Europe Asia Pacific

Currently existing demand from non-banks for banking infrastructure in Asia Pacific is estimated at $1-1.5B USD in 2016

Market size and opportunity:

Key challenges: how regulators and banks

will approach the Fintech industry

APAC EMEARegulation activities in Europe

Most of activities are focused on controllingand regulation of existing regimes

UK sets out open banking API frameworkAimed for the creation of an open banking standard that makes it easy to share and use financial data, arguing that the move would improve choice for customers, promote competition;#regulation #bank #UK O

pen

Ban

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gThe cohort of the regulatory sandbox closed 69 firms from a diverse range of sectors, geogra-phies and sizes have been accepted. 24 applications met the sandbox eligibility criteria and were accepted to develop towards testing#regulation #opportunities #UK

San

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A specially created“Fintech” licence Plans to encourage crowdfunding and the market testing of new technologies. FinTech firms, with a minimum of $300k in capital, are allowed to accept funds from clients, up to $99m, which remain outside the depositor protection scheme and are not subject to the same regulations, auditing and the capital requirements applied to banks. 

#Implementation #Switzerland #EU #2016

Ban

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g

Standardized mobile andinternet payments (PSD2) in EU

PSD2 enables bank customers, both consumers and businesses, to use third-party providers to manage their finances. In the near future, customers may be using Facebook or Google to pay bills, making P2P transfers and analyse spending, while still having money their safely placed in current bank account.

#Announcement #Payments #Global #2017

Pay

men

ts Solvency II is a programme for insurance regimeIt introduced a new, harmonised EU-wide insurance regulatory regime. The Solvency II programme is divided into three areas, known as pillars: Financial Requirements (Capital Requirement and etc), Governance & Supervision (Own Risk & Solvency Assessment) and Reporting & Disclosure (Insurers required to publish details of the risks facing them).

#Implementation #Insurance #EU #2016

Insu

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Controlling & Regulation

Sou

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Introducing a European Standard for e-InvoicingThe European Commission announced the e-invoicing directive require all 28 EU member states to use specific e-invoicing standards for all B2G e-invoices by November 27, 2018. Europe’s current e-invoicing adoption rate of 24 percent is expected to rise to 95 percent by 2024 and accrue savings of approximately 64.5 billion euros ($72 billion) per year for businesses.

#Announcement #e-invoicing #EU #2018

e-In

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Key message

~30% banksinvested via their ownventure instruments

– VCs, accelerators, incubators

Banks are getting more and more active in FinTechBarclays, Goldman, CITI, Santander and BBVA are leading the show

Major Bank Investments to VC-backed Fintech Companies

-2015 -2016more companiesfunded by banks

in 2016

+61%

Top South-Asian banks are starting to follow Chinese/HK/Japanese/Korean megabanks

with playing active role in FinTech: DBS, OCBC, UOB, Siam Commer-cial Bank, Mandiri, RHB, MayBank, CIMB, KasikornBank and others

laucnehd a bunch of initiatives related to fintech

Leaders are mainly from developed

fintech regions

US, UK, Europe.

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however partnerships in 2016 seemed to be saferand more convenient for banks

Banks’ partnerships with financial technology start-upsare developing,

Enable Citi card members to use their Citi Cards with PayPal online, in-app and in stores

P2P payments, provides making payments via the social networks

Offering investing advice and data-driven recommendations

P2P-lending. Enables local SMEs to borrow short-term business loans

Study and test blockchain technology to enable payment transactions 

Provides direct financing to SMEs

To contribute to the acceleration of the rollout of its digital strategy

Online wealth management platform

Automotive pricing and information website for car buyers and dealers

Offering its clients access to equity crowdfunding opportunities

Use Fincast to advise customers on the types of financial products they need to meet their investment goals

To offer a TD and Westpacbranded spending app

An extensive interest was shown by banks and financial institutions partnering with robo-advisors, digital wealth managers;

In addition, there is a growing tendency by banks to partner with crowdfunding companies (Santander, UOB, Belfius Bank, Alfa Bank, etc);

Asian banks are widely partnering with Fintech accelerators in order to pilot new products with fintechs residents;

Many pilots were initiated in 2016 between blockchain companies and banks worldwide(SG, SCB, Barclays, etc)

Venture/debt investments and acquisitions from banks

Q4 D N/A

Q4 A $8,3M

Q3 A $8,3M

Q3 undisclosed

Q2 A $14M

Q3 $19.67M

Q2 $33MD

Q2 $56M

Q2 D $75M

As mentioned earlier,partnerships and investments are closely linked, however, investments primarily focused on realizing returns;

Investments generally go from venture instruments of banks:VCs, accelerators, debts financing;

Asian banks are getting involvedand investing through the partnerships with accelerators(StartupBootCamp Fintech, Nest, etc.)

Q4 $100M

was all about

blockchain

saw an explosion of interest in

machine learningand artificial intelligence.

2015

2016

2017will be the year of

open marketplaces and platforms.Platforms support the rapid cycle deploymentof micro services into a financial marketplace...

As the financial world is rapidly moving to open, loosely coupled marketplaces,any bank with old legacy technology will start to look like a dinosaur

APIs and Open Banking will start to shift the banking landscape with more traction in Europe and Asia, but we’re likely to start seeing the gap between leaders and laggards widen

William Sullivan, Head of Global Financial Services Intelligence for CapGemini

The hype around banking APIs will increase, even overtaking cryptocurrencies. Major banks will launch public API platforms.

APIs are arguably one of the biggest topics in the industry.The business model for profiting as a platform is key here, and many are still struggling with it

Global regulators will embrace fintech competition and regulatory concessions …Africa will embrace APIs … financial inclusion will become a mainstream and actionable topic … and the US will embrace change in the regulatory and political system

2017 will be the year of open marketplaces and platforms

Shamir Karkal, Head of Open APIs at BBVA

David Brear, CEO and Founder of 11:FS

Chris Skinner, Author and CEO of The Finanser Ltd

Open Banking and APIs – What else …

Simon Taylor, Co-Founder of 11:FS

Bank-as-a-service is a technological platform with a suite of APIs, that integrates seamlessly with any existing back-office of traditional banks and provides for non-banks a cost-effective, easy and fast way to launch various financial products.

Bank-as-a-Service do not compete either with banks or fintech, instead it’s a ecosystem builder that connects all players of financial indsutry,provide them newrevenue streamsand products for theircustomers.

Bank-as-a-Service (BaaS): solution to address Fintech challenges in Asia

Chris Skinnerone of the TOP5 fintech-influencersand predictors, author of bestsellers

“Digital Bank” and “Value Web”,managing partner of the BB Fund in London

” You’re probably all familiar with SaaS –it’s basically paying for applications as you use them, rather than buying them. These services used to cost you a fortune, but are now free or near enough. That’s where banking is going. Banking becomes plug and play apps you stitch together to suit your business or lifestyle. There’s no logical reason why Banking shouldn’t be delivered as SaaS.

” This is the future bank, and old banks will need to reconsider their services to compete with this zero margin model.

” ...anyone in the near future would be able to build their own bank through apps, APIs and analytics.

BanksLicensed and regulatedbanking back-ends (belongs to banks in each country in Asia-Pacific region)

based on 40+ universal APIs

100+ fintech-startups

Middlewareprovide for them universal APIs

Fintech-startups do notneed to spend time,money and humanresources to be integratedin each Asian country

Banks do not need tospend their time andmoney to create newAPIs and to communicatewith all startups all over the world

Bank-as-a-service

Ecosystem

Layers of BaaS platform

“ The real impact of fintech in developed countries will be felt in the back office, where new efficiencies and technologies, and improve-ments to know-your-customer processes, have the potentialto transform some banking operations for the better.

Integration of web based FintechWidgets and native Fintech Apps throughmulti-layer Digital Banking Hub

A holistic, digital marketplacebanking ecosystem with a set of servicesfor Fintech companies to connect to andintegrate into the platform

Required audit logging, user tracking,statistics and appropriate administrationtool functionalities

Appropriate subset of APIs and commondata used by Fintech

Orchestration API for collaboration andcommunication with Fintech

Connecting Blockchain application securelyto the platform

Sustainable and extendable platform,easy to connected to different bank’score systems

Billing and charging engine

Widget based FinTech

Native FinTechApps

Banking API‘s and overall concept delivery

SuccessfulPartnership

Clearly, not all of today’s banks will survive. The survivors will be those that reimagine relationships with their customers and partners.

Fintech offers banks access to technologies, brings new ideas to market at speed,enables to add value from bank’s data and changes bank’s culture

Why banks need FinTech?Acces to ideasAcces to new technologyAcces to agility: speed to marketAcces to expertise around dataExposure to different culture

Acces to customers - trust, inertiaAcces to clearing and Central BanksettlementAcces to in-depth payments expertiseAcces to dataAvoidance of regulation

Why FinTech need banks?

Banks and Fintech. For what reason?

Key initiatives in bank-as-a-serviceand open banking areas

BAASIS, launched in 2016 in Singapore,  is an open-API Bank-as-a-Service platform, aimed to connect banks and FinTech startups across Asia Pacific region. Currently is in integration phase with several banks on different markets.

In 1H 2016 was launched solarisBank, banking-as-a-platform startup with a full banking license in Germany. It provides account and transaction services, compli-ance and trust solutions, working capital financing, and online loans for fintech startups.

Bancorp – industry leading US-based largest bank-as-a-service platform, hosting 100+ non-banks with processing volume of $200+ billion USD annually. Different clients of different size, including google wallet, PayPal, T-Mobile, yodlee and others

In 4Q 2016 Citi launched global API Developer Portal aimed to open architec-ture to facilitate collaboration with FinTech companies. APIs includes account management, p2p payments, money transfer, rewards, investment purchases and account authorization.

Otkritie, the biggest privately-owned bank in Russia, through the process of integrat-ing with leading digital bank for SMEs Tochka, developed its own modern API-platform, that was later used to integrate with fintech startups, including mobile bank for retail clients Rocketbank.

In 2H 2016 BBVA launched its API market-place, aimed to offer other companies a way to leverage BBVA’s capabilities to build their services. Fintech startups has an access to such APIs as PayStats, Connect, Accounts and Cards

The UK government in 2016 has set up the Open Banking Working Group (OBWG) in order to create an open banking standard that makes it easy to share and use financial data. It includes development of open API to enable services to be built using bank and customer data

In Q4 2016 the Korean Government launched an open banking platform for financial institutions (16 banks) that will allow them to build services that automatically populate financial information for new customers. The platform will essentially serve as database of consumer financial informa-tion that is accessible via API.

In 4Q 2016 The Monetary Authority of Singapore (MAS) published 12 sets of data from MAS’ Monthly Statistical Bulletin as APIs. MAS is encouraging financial industry players to publish open APIs on their datasets, to allow users to connect information and offer innovative solutions

Startups and tech companies Banks Government initiatives

Business/Operating Model: The BBVA Story

BBVA’s leadership has reiterated its commitment to digital since 2015

But BBVA cannot simply embark on a complete redesign of its business — especially when the ideal target operating model is not clear

A good way forward in this type of scenario is to run experiments — they have invested in “beta banks” across the globe in markets not primary to them

Aimed to find the optimal operating model that could potentially be at the core of the new BBVA

Following the investment in Simple in 2014 they have invested in Atom in the UK and Holvi in Finland

They are all very innovative approach — superb CX focus, based in markets where theydo not compete with an established BBVA entity

For BBVA this is a well-hedged gamble: invest a few hundred million dollars to get a well-tested,blueprint of the bank of the future

India

Sri Lanka

Bangladesh

Myanmar

Malaysia

Philippines

Indonesia

Australia

South

Korea

North

Korea

Thailand

Hong Kong

Laos

Cambodia

Singapore

Taiwan

Japan

Bhutan

SME-lendin

& FactoriPOS-management

systems &

tablet based

cash-registers

Online

acquiri

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ding

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lending

P2B-lending

Crowdlending&

Crowdinvesting

Online-

remittances

PFM&PFP

mPOS-acquiring

Online-lending

for students

It enables banks to evolveand vital for fintechs as a helperin overcoming regulatory barriersas well as optimizes timeand money consumption beforegoing to market.

is very necessary for the futurefintech development

First BaaS-platform for Asia

APACSouth Korea permits for banks to invest in FintechsCurrently financial laws, financial institutions are allowed to buy stakes only from companies in the same business sector. The FSC have included fintech companies in the scope of the financial industry. #banks #2016

Sou

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a

MAS establishesa dedicated Fintech OfficeMAS and the National Research Foundation opened a dedicated FinTech Office to serve as a one-stop virtual entity for all FinTech matters and to promote Singapore as a FinTech hub. #opportunity

Sin

gap

ore

MAS establisheda regulatory sandbox.To allow more flexible application of the regula-tions, while maintaining safeguards to protect consumers and the wider financial system.

Sin

gap

ore Financial Sector Technology

& Innovation schemeMAS committed $225M ($166.48M USD) under the “FSTI” scheme to provide support for the creation of a vibrant ecosystem for innovation. Si

ng

apo

re

6 P2P Lending Licenses Granted in MalaysiaSix P2P lending licenses were granted in Malaysia recently, making them the first authorized platforms in the ASEAN region.

#p2p lending #license #2016

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Korea has launcheda platform for banksThe platform allows financial institutions to build services that automatically populate financial information for new customers.#banking #2016 H

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gHong Kong to launchbanking fintech 'sandbox'

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ngHong Kong establishes

a Facilitation OfficeHK Monetary Authority established the FinTech Facilitation Office to facilitate the healthy develop-ment of the FinTech ecosystem in Hong Kong and to promote Hong Kong as a FinTech hub in Asia.

#opportunity #2016

P2P Firms Regulationin Indonesia The draft regulation proposed that a Fintech company is required to have Rp. 2 billion in working capital and is required to show Rp. 2.5 billion applying for a business license.

To help maintain Hong Kong's competitiveness asa financial hub by supporting the development of fintech in the banking sector

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Malaysia issues the Fintech Regulatory Sandbox To experiment with FinTech solutions in a live controlled environment which is accompanied by the appropriate safeguards

#opportunity

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Establishing an infrastructure

Regulation activities in the APAC and AsiaMost of activities are focused on establishingan early stage infrastructure and development

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Key message

Traditionalbank

Servers

IT-guys to supportand manage servers

- complience- processing center

- card issuing- money storage

You may write off infrastructure investments or use them as new revenue streams

human resources

support

marketing

product

customers

Amazon’s profitcomes from AWS!

67%

2015

Creation of AWS for new players

2006

License

New fintechplayers

To fight with or to earn with

?

BaaS for banks as Amazon Web Services for e-commerce

www.fintech-research.com

Igor PesinPartner, Investment Director @ Life.SREDA VC

ipesin@lifesreda.com

Thank you