Commerce and Fintech 2020 Outlook - First Data...02. Fintech unicorns: Stay private or go public?...

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FORTUNE Magazine World's Most Admired Companies®

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Commerce and Fintech 2020 Outlook


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Glenn Fodor, CFASenior Vice President and

Head of Data & Analytics

January 23, 2020

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02. Fintech unicorns: Stay private or go public?

08. Amazon to expand in 800B U.S.

grocery market

09.B2B eCommerce

10. Retailers explore rental and resale

05. Crypto –Beyond Bitcoin and Libra

04. Challenger banks come calling for small business

61%

Of small businesses

use mobile banking

compared with

53% in 2018.1

+5.9%

YoY holiday spending growth:

06. AI –Everywhere you want to be

of consumers used

take out more often

than the previous year1

29%

11. Consumers hunger for food delivery

07. The state

of installment loans

01.

Consumer

update

Commerce and

Fintech 2020

Outlook

03.

Banking moves to the cloud

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Note: Figures include Brick & Mortar and e-commerce channels.Source: Fiserv aggregated same-store consumer spending data.

01.Consumer spending update: Holiday Highlights

Full Holiday Season

+2.9% Brick & Mortar

+9.8% eCommerce

+5.9% +3.8%Total Spend Retail Spend

+1.4% Brick & Mortar

+8.1% eCommerce

-1.5% Furniture and

Furnishings

-0.8% Sporting

Goods

8.4%Electronics and

Appliances

4.8%General

Merchandise

3.0% Specialty

Retail

Slowest Growth Fastest Growth (Retail)

YoY Spending Growth

Dollars

5.7%

2.6%

5.1%

11.9%

7.1%

11.5%11.3%

5.0%

13.9%

6.2%

3.4%

5.9%

2017 2018 2019

Pre-Holiday Thanksgiving + Black Friday

Thanksgiving Thru Cyber Monday Full Season

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01.Consumer spending update

Source: Respective bank quarterly earnings reports. FORTUNE Magazine World's Most Admired Companies®

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“– JPMorgan, January 14, 2020

“So the fourth quarter definitely, I would say, stabilized…

stopped getting worse. And we saw sentiment improve a

bit. The U.S. consumer remains in very strong shape, both

from a credit perspective, sentiment, spending. Obviously,

the labor market is very strong. Capital spending still a bit

soft, but sentiment is at least certainly better than it was

6 months ago. So, broadly speaking, we have a

constructive outlook as we're heading into 2020.

– Bank of America, January 15, 2020

“ In our consumer business, we see that our

customers are coming off a strong finish in 2019

in their spending activity.

“Consumer payment volume

growth remains solid.

Issuer Metric 3Q19 4Q19

Capital One Credit +11% +11%

Chase Credit +10% +10%

Chase Debit +7% +7%

Citi Credit (Branded) +7% +7%

Wells Fargo Debit +6% +6%

Bank of America Debit +6% +6%

Wells Fargo Credit +5% +4%

Bank of America Credit +7% +5%

U.S. Bank Credit +8% +4%

U.S. Bank Debit +7% -0%

Citi Credit (Retail Services) -2% -2%

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Many that did go public have

underperformed, as public

market investors remain skeptical

of their paths to profitability.

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Mar Apr May Jun Jul Aug Sep Oct Nov Dec

S&P 500

~7x as many tech

companies (and Fintechs)

raised mega-rounds in

private financing than

conducted IPOs in 2019.1 -21%

+14%

-27%

-38%

-45%

Source: 1. The 2020 Tech IPO Pipeline, CB Insights.

2019 Stock price performance since IPO

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Opendoor

$500 M

Chehaoduo

$1.3B

Didi Chuxing

$15B

Tokopedia

$1.3B

Rappi

$1B

Compass

$1B

ParkJockey

$900M

Doordash

$900M

Oaknorth

$390 M

Grofers

$380M

Brandless

$240M

$9.3 B

$3B

Grab

$5.8 B

The We Company

$19.9B

Lemonade

$420M

Valuation of (Select)

SoftBank investments

Many outsized valuations

of private companies

were driven by

Softbank investments.

Source: 1. Business Insider, “SoftBank is reportedly taking control of WeWork.Here's a running list of all the Japanese giant's major investments in tech.”, October 22, 2019


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While 2019 saw some successful debuts, most are

likely to continue taking private money in 2020.


Some of the largest privately

held Fintechs do not appear

to be heading to IPO anytime

soon, as they are sitting on a

large amount of funding to

fuel growth.

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03. Banking moves to the cloud

“We’re all-in

on the cloud.”

Scott Blackley

Capital One Chief Financial Officer

September 10, 2019

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Capital One was one of the

first large banks to move a

substantial part of their

technology to the public

cloud, using Amazon AWS. Number of data centers

Capital One is planning

to have by end of 2020

(down from 8 in 2014).1

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Source: 1. Fortune, August 24, 2019.FORTUNE Magazine World's Most Admired Companies®

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Bank of America recently announced it

was partnering with IBM to build a

cloud for banks running on IBM’s

existing public cloud.

Servers Data Centers

Past

200,000+

Today

70,000

Key benefits:

• Consolidate and

simplify infrastructure

• Cost savings

• Improve client service

Today

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Past

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Source: CIO Dive, “Bank of America prioritized internal cloud. Now it's evaluating third-party providers”, October 17, 2019.

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After some initial hesitancy, banking service providers

and FIs of all sizes will increasingly embrace the public

cloud.

Historically:

• Large FIs kept everything in-house, preferring to

maintain control over security and compliance,

believing scale = cost-effectiveness

• Smaller and mid-sized FIs outsourced to private

systems operated by specialized providers


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The last few years brought

an influx of challenger and

digital-only banks.

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Source: General industry information.

04.Challenger banks come calling for small business

Business models are based on targeting

retail consumers and driven by mobile

banking adoption and consumer comfort

with Fintech.


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The digital-only bank

market may have

reached a tipping point

for small businesses.Are adopting

mobile banking

61% now use mobile banking

compared with 53% in 2018.1

Overall satisfaction among

mobile users is higher than

among non-users.1

Don’t feel appreciated

by their banks

37% say their bank

appreciates their business.

Only 32% say their bank

understands their business.2

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Small businesses:

Source: 1. J.D. Power 2019 U.S. Small Business Banking Satisfaction Study. 2. J.D. Power 2018 U.S. Small Business Banking Satisfaction Study. American Banker, November 1, 2018.

– Jacob Jegher, President at Javelin Strategy &

Research, November 1, 2018

“Small business is still an orphan from

a business banking standpoint.

“


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Expect greater focus on, and competition for, small

business digital banking in the next year and beyond.

Recent digital-only banks have arrived

that target small businesses, startups,

and entrepreneurs.


Source: General industry information.

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Bitcoin price in 2019

$3,000

$5,000

$7,000

$9,000

$11,000

$13,000

Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19

In 2019, headlines

were again dominated

by Bitcoin’s ups and

downs, as well as

the launch of, and

reaction to, Libra.

Source: CoinDesk, CNBC, CNET, Fortune. FORTUNE Magazine World's Most Admired Companies®

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Source: Reuters, December 19, 2019, General industry information.

In 2020, it may be the

seemingly lower profile

projects that will drive

the crypto sector forward.

“

– Patrick Ellis, board member of the Libra Association

At this stage, there is no strategy set in

stone for the markets or the product, or

how it will actually get rolled out.

“


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06.AI – Out of sight (but not out of mind)

AI is already powering many

leading consumer experiences.

Source: General industry information.FORTUNE Magazine World's Most Admired Companies®

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06.AI – Out of sight (but not out of mind)

Investing in AI will lead

the way in the future.

Big…

58% of large

companies report adopting

AI in at least one function or

business unit in 2019, up

from 47% in 2018. 1

..and small

$26B+ invested

globally in AI startups in

2019, up from $22B+ in

2018, and $16B in 2017. 2

AI investing happening across entities both:

– Kevin Johnson, President and CEO at

Starbucks, October 30, 2019

“ We have been dialing up our in-house capabilities

and investments in AI with an initiative we call Deep

Brew. Deep Brew will increasingly power our

personalization engine, optimize store labor

allocations and drive inventory management in our

stores. We plan to leverage Deep Brew in ways that

free up our partners so that they can spend more

time connecting with customers. Deep Brew is a

key differentiator for the future and as we continue

our quest to build world-class AI capabilities to

better support partners.

“

Source: 1. AI Index 2019 Annual Report, Stanford University. 2. CB Insights, retrieved from VentureBeat, January 22, 2020.FORTUNE Magazine World's Most Admired Companies®

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Approximately 75% of

consumers who made a

big ticket, installment

purchase decided to do so

well before the actual

transaction took place.

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Source: McKinsey, “US lending at point of sale: The next frontier of growth,” November 4, 2019; TransUnion, “FinTechs Continue to Drive Personal Loan Growth,” February 21, 2019.

07.The state of installment loans

Regardless of revenue model,

omnichannel merchant

integration will be crucial.


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07. The state of installment loans

Blue chip incumbents are in the

market, looking to incorporate

these technologies into their core

offerings.

Acceleration of investment in

deployment to continue thru 2020

Lasting impacts?

Source: Company reports.

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Amazon confirmed plans to open a

grocery store distinct from its Whole

Foods brand. Initial plans indicate:

Will not use

Amazon Go

cashierless tech

Will target

mainstream

consumers who shop

at traditional grocers

Will facilitate online

orders and

test new tech

08.Amazon to expand in $800B U.S. grocery market

Source: Company reports; CNET, “Amazon will launch new grocery store as alternative to Whole Foods,” November 11, 2019.

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$1.1B

$1.8B

$0.0

$0.4

$0.8

$1.2

$1.6

$2.0

2018 2023

B2B eCommerce

Marketplaces are a

$1 Trillion opportunity.

09.B2B eCommerce

Though not as prominent as

consumer eCommerce, the

sector is growing fast.

Source: Forrester Research, “Landscape: The B2B eCommerce Playbook,” January 28, 2019.

US B2B eCommerce Sales

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Changes in B2B

buying behavior and

online efficiencies

are fueling growth.

Advancing digital-first approaches to discovery

and purchasing

09.B2B eCommerce

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Source: Company reports; Forrester Research, “Landscape: The B2B eCommerce Playbook,” January 28, 2019.


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Rental clothes subscription market expected to

more than double in next 5 years

Changes in consumer

preferences have driven

retailers across a variety of

industries to explore rental

services.

$1B

$2.5B

$0.0

$1.0

$2.0

$3.0

2018 2023

Clothing retailers

Other retailers

10.Retailers explore rental and resale

Source: Company reports; Reuters, “Garments for lease: 'rental' apparel brings new wrinkles for retail stores,” September 18, 2019.

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Key benefits:

• New revenue streams

• Add customers

• Valuable feedback

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Secondhand market

expected to reach

$51B by 2023.

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Source: Company reports; ThredUP, “2019 Resale Report,” Mach 19, 2019.

Retailers are now adapting to

a generation no longer buying

with the intent to keep

10.Retailers explore rental and resale

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– Neil Saunders, Managing Director and Retail

Analyst at GlobalData Retail, March 19, 2019

“Compared to the overall apparel market,

resale’s growth has been phenomenal. As

the market uniquely meets consumers’

preference for variety, value, and

sustainability, we expect the high growth

to continue.

“


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11.Consumers hunger for food delivery

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Source: 1. 2019 National Restaurant Association and Technomic.2. 2018 QSR Drive-Thru Performance Study. 3. Statista, January 2020.

When it comes to food,

consumers love

“convenience”…

…and that attraction is driving the growth of food

delivery

$22B

$29B

$0B

$10B

$20B

$30B

$40B

2019 2024

Revenue for online food delivery in the U.S.3

Number of users of online food delivery3

85M116M

0M

50M

100M

150M

2019 2024

+32%

+22%

39%of consumers used drive-thrus

more often than last year1

29%of consumers used take out more

often than the previous year1

70%of QSR sales come from

drive-thru2

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– Grubhub, October 28, 2019

“The easy wins in the market are disappearing

a little more quickly than we thought. This is a

significant change in our industry that will require

us, and everyone else, to compete by creating the

most value for diners and restaurants rather than

relying on industry tailwinds…

“As the food delivery market

grows, increasing

competition is close behind.

Source: 1. Statista, January 2020. FORTUNE Magazine World's Most Admired Companies®

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Source: 1. Merriam-Webster, General industry information.


As the impact of food delivery

grows, how we define “restaurant”

may ultimately change.

Restaurant noun

res-tau-rant

Definition:

A business establishment where meals or

refreshments may be purchased1, or prepared.

Synonyms:

Cloud kitchen, shared kitchen, dark kitchen, ghost

kitchen, virtual restaurant or restaurant-as-a-service.

Cloud kitchens are dedicated to

preparing food for delivery, or take

out, and not for serving in-house.

These could be a shared common

kitchen for multiple “restaurants” or an

internal kitchen for a single food brand.

Allows testing of new food

concepts without taking on

leases or hiring staff.

Increases efficiency

of delivery operations.

VC firms are investing in

startups in the space.

Established food outlets

are investing as well.

Long term viability

remains a question.

Source: 1. Merriam-Webster, General industry information.

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Glenn Fodor, CFA

https://www.firstdata.com/en_us/insights/spendtrend.html

[email protected]

212-515-0278

Senior Vice President and Head of Data & Analytics

First Data is a registered trademark owned by First Data, a subsidiary of Fiserv Inc. All trademarks referenced are the property of their respective owners.

https://www.firstdata.com/en_us/insights/spendtrend.html

Commerce and Fintech 2020 Outlook - First Data...02. Fintech unicorns: Stay private or go public?...

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Transcript of Commerce and Fintech 2020 Outlook - First Data...02. Fintech unicorns: Stay private or go public?...