Why Fintech?

We’re in a golden age of technological transformation

Source: Visual Capitalist

An example of technology disrupting a traditional industryAmazon is a prime example of how technology can transform an industry. Through offering a better customer experience and reducing overhead costs, Amazon has grown to the point where it’s market capitalization is larger than those all the publically-traded department stores added together.

Source: Visual Capitalist

Financial services stands out in terms of potential value creation

Financia

l Servi

ces

Information Tech

nology

Consumer disc

retionary

Health Care

Energy

Industrials

Consumer Staples

Telecommunica

tions

Materials

Utilities

Real Esta

te

$6.8 $6.5

$4.4 $4.4$3.7 $3.6 $3.4

$1.8 $1.8$1.1 $1.1

Market Cap ($T)

Source: Fidelity Investments

As one of the largest sectors in the economy, financial services is a clear target for disruption.

Factors opening the way for new financial service providers

Market Timing and

Regulation

Technology

Unmet Demand

Customer Expectations`

• Low NPS scores for many leading providers in financial services• Shift in the way people interact with services including financial services (mobile and

online capabilities expected, ability to connect data sources increasingly common)

• Banks running on legacy systems due to the complexity, cost, and risks in migrating to newer system

• Dropping costs of technology development and spread of online sources of data has made it much easier for startups to enter the market

• The credit crisis of 2008 and the resulting regulation has impeded innovation as banks dedicated more resources to compliance and risk management programs

• 17M adults in the US are unbanked and 43M are estimated to be underserved • New data sources and data science enable companies to provide services that might

have been economically viable before

Leading fintech entrants have shown that they can produce returns

1

2

3

4

Clear monetization strategy

Proven and measurable customer demand

Reduced cost structure

Highly scalable business models

5 Exit multiples on par in some instances with internet and software companies

Venture dollars have flooded into fintech…US venture deal count and capital invested has increased dramatically in the last 2 years.

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016$0M

$2B

$4B

$6B

$8B

$10B

$12B

0

100

200

300

400

500

600

700

800

$405M$783M $639M $607M $685M

$1B $2B

$2B

$5B

$9B

$10B

5895 102 116

153

230

333

461

629

705

589

Total Capital Invested Deal Count

Source: Pitchbook

...spurring innovation across the various subsectors of financial services

Source: Venture Scanner

Numerous fintech startups have come to scale

Source: CB Insights

And we expect the trend to continue

We're just at the beginning of this renaissance in alternative lending--and I look forward to the day it's not called alternative.- Rob Frohwein, Kabbage