Consumer FinTech deck from Charles Moldow at FinTEx
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Transcript of Consumer FinTech deck from Charles Moldow at FinTEx
Consumer FinTech
Charles Moldow
General Partner
Financial Engines and EnvestnetShare price through funding rounds ($US)
S-A S-C Sec. IPO Curr.0
5
10
15
20
25
30
35
40
45
50
5.52
11.657.65 10.23
45.00
S-B S-C S-D S-E S-F Sec. IPO Curr.0
510
1520
2530
3540
1.253.79
0.54
10.68
4.75 6.28
17.25
34.45
+1,280%
+100%
+85%
+340%
Financial Services Portfolio
Lending Wealth Management Personal Investing Payments
In 1994 the S&P 500 had an Aggregate Value of $5.2TMarket Capitalization of S&P 500 (Year End, $T)
1994*
*Adjusted to 1994 dollarsSource: ThomsonOne
$5.2
By Year-End 2013, It had Reached $17TMarket Capitalization of S&P 500 (Year End, $T)
2013*Adjusted to 1994 dollarsSource: ThomsonOne
$17.0
2013
6.4% CAGR
1994*
$5.2
By Year-End 2013, It had Reached $17TMarket Capitalization of S&P 500 (Year End, $T)
*Adjusted to 1994 dollarsNote: Sectors defined by Industry Classification Benchmark; Financial Administration included within FinancialsSource: ThomsonOne
$2.1 Technology 17% of Growth9% CAGR
2013
1995-2013 Growth
$12T
1994*
$5.2
Which makes sense
$2.1 Technology 17% of Growth9% CAGR
Healthcare Accounted for 12% of that GrowthMarket Capitalization of S&P 500 (Year End, $T)
*Adjusted to 1994 dollarsNote: Sectors defined by Industry Classification Benchmark; Financial Administration included within FinancialsSource: ThomsonOne
2013
1995-2013 Growth
$12T $1.5 Healthcare 12% of Growth7% CAGR
1994*
$5.2
Which makes sense
The Financial Sector Grew Even FasterMarket Capitalization of S&P 500 (Year End, $T)
*Adjusted to 1994 dollarsNote: Sectors defined by Industry Classification Benchmark; Financial Administration included within FinancialsSource: ThomsonOne
2013
$2.1 Technology 17% of Growth9% CAGR
1995-2013 Growth
$12T $1.5 Healthcare 12% of Growth7% CAGR
$2.3 Financials 20% of Growth9% CAGR
1994*
$5.2
Which makes no sense…
Source: Occupational Employment Statistics, Bureau of Labor Statistics
Total Sector Employment
Financials IT Healthcare0
2
4
6
8
10
12
14
1997 2013
Financials saw essentially no employment growth between 1997 and 2013
0.3% CAGR 4.2% CAGR 2.0% CAGR
Market Cap Per Employee**
*Note: Adjusted to 2013 dollars**Note: Market cap data from 1994, employment data from 1997 (inflates IT and Healthcare 1997 result)Source: Occupational Employment Statistics, Bureau of Labor Statistics; Thomson One S&P 500 Data
Financials IT Healthcare$0
$100
$200
$300
$400
$500
$600
$700
1997 2013
Market cap value per employee has sky-rocketed
0.3% CAGR 4.2% CAGR 2.0% CAGR
Thousands
Yet, few major banks are becoming more efficient
70% stayed the same
or became less efficient
30%of the top 500 global banks
improved cost efficiency between
2009-2012
Source: McKinsey
Financials Growing Despite an Adverse Environment
Financials Growing Despite an Adverse Environment
Regulatory OverhangConsumer Dissatisfaction
Macro Trends
2008 Correction2008 Correction
Banks Walked Away From Financing Small Businesses
Source: FDIC, data for C&I loans <$250K
Financials Growing Despite an Adverse EnvironmentMacro Trends
Regulatory Overhang2008 Correction Consumer DissatisfactionConsumer Dissatisfaction
Source: Bain & Company, 2012 NPS Survey
Friends Don’t Let Friends Use Banks
Millennials REALLY dislike banks
Source: Viacom Media Networks
Financials Growing Despite an Adverse EnvironmentMacro Trends
Regulatory Overhang2008 Correction Consumer Dissatisfaction Regulatory Overhang
A (non-exhaustive) list of federal marketplace lender laws
Equal Credit Opportunity Act (ECOA)
Fair Housing Act (FHAct)
Bank Secrecy Act/OFAC
Truth in Lending Act (TILA)
E-Sign Act (FDIC)
Dodd-Frank - Wall Street Reform and Consumer Protection Act
Know Your Customer (KYC)
Fair Debt Collection Practices Act (FDCPA)
Fair Credit Reporting Act (FCRA)
Fair and Accurate Credit Transactions Act (FACTA)
CARD Act (CARD)
A thicket of regulation
A (non-exhaustive) list of federal regulatory bodies
Securities and Exchanges Commission (SEC)
Federal Reserve (FED)
Financial Industry Regulation Authority (FINRA)
Office of the Comptroller of the Currency (OCC)
Federal Deposit Insurance Corporation (FDIC)
National Credit Union Administration (NCUA)
Consumer Financial Protection Bureau (CFPB)
Federal Trade Commission (FTC)
Financial Stability Oversight Council (FSOC)
Commodity Futures Trading Commission (CFTC)
Federal Housing Finance Agency (FHFA)
And there are state-by-state licensing requirements specific to each asset class and business model.
Source: https://www.fas.org/sgp/crs/misc/R43087.pdf
What’s fueling banking’s 9% CAGR?
Banks are capturing ever more value
Where is growth going to come from now?
The fundamental driver of growth in techTr
ansi
stor
count
1971 1980 1990 2000 2008
2,000,000,000
1,000,000,000
10,000,000
1,000,000
100,000
10,000
2,300
$ p
er
1M
tra
nsi
stors
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
$1000.00
$100.00
$10.00
$1.00
$0.10
$0.01
$527
$.05
Moore's Law Computing Costs
Note: Y-axis on graph is logarithmic scaleSource: John Hagel, Deloitte , 5/14.
Enables a financial services revolution
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Source: Comscore, Internet World Stats, 2003 Kansas City Fed Guide to ATM + Debit Card Industry, Nilson Report, ATM & Debit News
Moore's Law Computing Costs
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000
300,000,000
350,000,000
400,000,000Smartphones
CC/Debit Terminals
Online Debit Terminals
Bloomberg Terminals
Internet-Enabled Computers
ATMs
A Financial Services Revolution
A financial services revolutionConsumer Trends
1. Simplification 2. Transparency 4. Reduced Friction3.
Analytics
Sunrun distills the complexity of solar panel installation and financing into a few simple clicks
Let’s see if your home and solar are the
perfect match
Our innovative software Lightmile™ gives you multiple design options
for you to choose from. You’ll save and lock in low monthly rates for 20 years
Lower your utility bill with solar
• Find out how much you can save
• Zero to little down means virtually nothing to worry about
• Low monthly payments leave more money for just about anything
• Free quote to get started – who doesn’t like FREE?
A financial services revolutionConsumer Trends
1. Simplification 2. Transparency 4. Reduced Friction3.
Analytics
Investors know what they’re getting with Lending Club
A financial services revolutionConsumer Trends
1. Simplification 2. Transparency 4. Reduced Friction3.
Analytics
Motif Investing brings complex portfolio optimization to the masses
Make any motif your own
Want to modify a motif to better suit your interests or your existing portfolio? No problem. We give you the tools to easily customize any motif. Add and remove stocks, change weightings – all at no additional cost.
A financial services revolutionConsumer Trends
1. Simplification 2. Transparency 4. Reduced Friction3.
Analytics
Friction is being taken out of the system
Consumer Payments
Remittance
Consumer Finance is massiveEstimated annual US revenues generated by sector
90
2,147
300
Lending
189
TotalPersonal Finance
Insurance
697
Payments
872
Wealth Management
Source: Federal Reserve, SBA,; Goldman Sachs, Bloomberg, FRBNY, McKinsey, SwissRE
Opportunities abound
1 Lending
2 Wealth Management
3 Personal Investing
4 Payments
5 Insurance
A Trillion Dollar Market by the People, For the PeopleHow Marketplace Lending will remake banking as we know It
Big opportunity in front of us Annual Lending Revenues IN 2013 (US$B)
Source: Federal Reserve, SBA,; Goldman Sachs, Bloomberg, FRBNY, McKinsey, SwissRE
Traditional
New Players
Big opportunity in front of us
Con
sum
er Consumer
Pay Day
Purchase Finance
Student Loans
Real Estate
Merchant Cash Advance
SMB CreditSM
B
Loan originations by marketplace lenders have exploded
We expect close to
$9B in marketplace loans to be originated in 2014
Total loan Issuance
And Lending Club is the Leader
2007 2008 2009 2010 2011 2012 2013 2014
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
Tota
l Lo
ans
Issu
ed
($
)
Billions
Marketplace lending could generate >400 BP cost advantage vs banks
Source: Lending Club based on St. Louis Fed, Federal Reserve
A financial services revolution
1. Simplification 2. Transparency 4. Reduced Friction3.
Analytics
Applying for a loan can be easier than buying an iPhone
1. Simplification
Cost to the borrower is fully disclosed
2. Transparency
Underwriting leverages a vast array of data
1970 1980 1990 2000 2010 2013
Ownership
FICORelationship
Performance Data
FICO
Consumer Lending Underwriting
Education
Ownership
Income
Heuristics
Social Graph
Performance Data
FICO
.
..
3. Analytics
Investors can ‘set it and forget it’
4. Reduced Friction
Average NPS Scores
*Note: Adjusted to 2013 dollars**Note: Market cap data from 1994, employment data from 1997 (inflates IT and Healthcare 1997 result)Source: Occupational Employment Statistics, Bureau of Labor Statistics; Thomson One S&P 500 Data
Customers actually like marketplace lending
Insurance
Lending Club Credit Unions Community Banks
Regional Banks
Credit Cards National Banks
0
20
40
60
80
Industry Averages
Technology
Travel/HospitalityBanking
Borrower NPS79
The free markets have spoken Marketplace vs. Fintech in the market
Trading Multiples
Marketplace Traditional Fintech Lenders
Source: Yahoo Fiannce
eBay Inc.
LinkedIn Corporation
Yelp, Inc.
Mercadolibre, Inc.
Zillow, Inc.
HomeAway, Inc.
Shutterstock, Inc.
Trulia, Inc.
0 2 4 6 8 10 12 14 16 18 20
3.84
13.72
17.41
9.7
19.59
7.78
8.94
9.42
ORIX Corporation
Jack Henry & Associates Inc.
Wintrust Financial Corporation
Marlin Business Services Corp.
0 1 2 3 4 5 6 7 8
1.33
3.54
3.83
2.05
2.84
7.1
3.16
3.22
11.3 3.4
“People have long thought that the Internet is overhyped. But when you realize that it now has the power to
reinvent the multi-trillion banking industry – I argue that it still hasn’t been hyped enough.”
The next generation of crazy ideas
• Origination costs approach zero = auto-refi’s to optimize leverage
• Real-time + continuous underwriting
• Fractionalized labor connected directly
to consumption
• Distributed ownership
• Conventional transactions become free + micropayments enabled = machine-to-machine payments
• Micro insurance policies
Thank You!
Charles MoldowGeneral Partner | Foundation Capital
@cmoldow