The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and...

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THE DISRUPTED FUTURE OF BANKING RAMEZ NAAM @ramez

description

Digital technology is disrupting industry after industry. The price of computing, data storage, communication, and coordination continues to plummet. Artificial Intelligence, sharing networks, crowdsourcing, crowdfunding, and digitization of old analogue processes are revolutionizing huge swaths of the economy. It's these trends that are radically changing the needs and behaviors of banking customers AND it's these trends that are now forcing the banking industry to revolutionize. Banks must disrupt themselves or be disrupted.

Transcript of The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and...

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THE DISRUPTEDFUTURE OF BANKING

RAMEZ NAAM@ramez

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[TEXT HAS BEEN ADDED TO SLIDES TO MAKE THEM USEFUL WITHOUT A SPEAKER]

DON’T USE TEXT IN PRESENTATIONS

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WHO AM I?

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SCIENCE FICTION AUTHOR

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14 YEARS IN TECH

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HELPED LEAD INTERNAL STARTUP

DOING HIGH SCALE,DISTRIBUTED SYSTEMS,

MACHINE LEARNING,INFORMATION RETRIEVAL

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LEARNING FROM A DISRUPTIVE ADVERSARY

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NOW TEACHING IMPACTS OF EXPONENTIAL TECHNOLOGIES

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SCIENCE FICTION IS HERE

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1 MILLION MILES DRIVEN ZERO ACCIDENTS

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SEES THINGS YOU CAN’T SEE

REACTS FASTER THAN YOU CAN

DRIVES BETTER THAN YOU EVER WILL

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30,000 US ROAD FATALITIES / YEAR1 MILLION /YEAR GLOBALLY

50 BILLION DRIVING HOURS / YR IN US

~8% OF GDP LOST TO DRIVING TIME

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“DRIVING” WILL GO AWAY

HUGE INDUSTRIES DISRUPTED

YOUR LIFE CHANGED

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IBM’S WATSON

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TROUNCED TWO BEST HUMANS

TASK RECENTLY CONSIDERED IMPOSSIBLE

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IBM’S TARGET MARKET: MEDICINE

16% OF US GDP

A BETTER DOCTOR, BETTER DIAGNOSIS

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MEDICINE A LARGE TARGET

X-PRIZE TRICORDER PRIZE

MOBISANTE ULTRASOUND

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$35K DEDICATED ULTRASOUND -> $500 ANDROID

+ TELEMEDICINE AND ALGORITHMIC MEDICINE

Mobisante mobile ultrasound

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SENSORS EVERYWHERE

EVERY APPLIANCE, VEHICLE, DEVICE, CONNECTED

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SENSORS FOR THE BODY

THE INTERNET OF US

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iPhone vs. ENIAC

Michael O’Donnell

$10 TRILLIONTO BUILD IPHONE 5 WITH 1940s TECH

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$0

COST OF COMPUTING GOES TO ZERO{AND OF STORAGE, BANDWIDTH, COORDINATION, DISINTERMEDIATION,

ETC..}

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WINNERS AND LOSERS

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PHOTOGRAPHY AT AN ALL TIME HIGHKODAK CRUSHED

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$18 Billion

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$10 Billion

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$9.5 Billion

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$18 Billion

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$23 Billion

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AIRBNB HAS NEVER BUILT A HOTEL…

BUT HAS A HIGHER MARKET CAP THAN HYATT

AND LIKELY TO PASS HILTON < 3 YEARS

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AIRBNB vs. HOTEL CHAINS (MARKET CAPS)

• AIRBNB: $10b• HYATT: $9.5b• STARWOOD: $15B (LIKELY PASSED IN 2015)• MARRIOTT: 18B (LIKELY PASSED BY 2016)• HILTON: $23b (LIKELY PASSED BY 2017)

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WANT TO BE A WINNER?OR A LOSER?

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DISRUPTED

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DISRUPTION STARTS AT THE EDGES

THEN HITS THE CORE

PAYMENTS ARE THE EDGE

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20%BANKS EARN UP TO 20% OF REVENUE FROM NON-INTEREST SOURCES:

ATM FEES, CREDIT CARD FEES, ACCOUNT FEES, ETC..

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3%CREDIT CARDS TAKE 2-3% OF EACH TRANSACTION

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SQUARE WOULD LOVE TO REPLACE VISA AND MASTERCARD

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BUT DOES THE WORLD EVEN NEED SQUARE?

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MOBILE PHONES PER 100 PEOPLE

Cellulari

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UBIQUITOUS SMART PHONES WILL ENABLE PAYMENTS WITHOUT ADDED HARDWARE

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$1.6 TRILLION

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CHINA

$1.6 TRILLION IN MOBILE PAYMENTS IN 2013

317% GROWTH FROM 2012

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VISA AND MASTERCARD WANT TO OWN THIS SPACE TOO

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BUT 3% SKIM CREATES AMPLE INCENTIVES FOR MERCHANTS & RIVALS

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ANALOGY: MOBILE SOCIAL & MOBILE MESSAGING

UBIQUITOUS HARDWARE LOWERED BARRIERS TO ENTRY

ALLOWED MULTIPLE NETWORKS TO SOAR RAPIDLY TO HIGH SCALE

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DISRUPTEDMONEY WIRING ESPECIALLY VULNERABLE

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DEVELOPING WORLD MAJOR GROWTH AREADRIVEN BY ‘REMITTANCES’ FROM EMIGREES

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$500 B Transfers

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$528 BILLION IN REMITTANCES IN 2013

8% YOY GROWTH

>10% OF GDP IN 20 COUNTRIES

$50B IN MONEY TRANSFER FEES

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10%

FEES AVERAGE 10%. CAN BE 12% OR HIGHER.$200 KENYA = $24 IN FEES. OUTRAGEOUS.

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0%?

BITCOIN AS A TRANSFER PROTCOLINHERENTLY GLOBAL AND INSTANT

PROCESSORS BIDDING AT 1% CHARGES

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DISRUPTED

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80%THE REAL MONEY FOR BANKS IS LOAN INTEREST

80% OF REVENUE: LOANS & SECURITIES

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BANKS DEPEND UPON DEMAND FOR THEIR LOANS

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US INDUSTRY IS LESS AND LESS CAPITAL INTENSIVE.

A LONG TERM NEGATIVE TREND FOR LENDING.

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RECENT EXAMPLES

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$280 million funding

$22 BILLION exit

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$800 million funding

$10 BILLION value

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AIRBNB NEVER BUILT ONE OF THESE

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BUT AGAIN:

NOT JUST RECENT.

A LONG TERM TREND TOWARDS INCREASED CAPITAL EFFICIENCY OF PROFITS

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PROBLEM 2: COMPETITION IN LENDING

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PEER TO PEER LENDING

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“AIRBNB FOR LOANS”

CONNECTS BORROWERS TO LENDERS

DISINTERMEDIATES BANKS

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LENDERS GET HIGHER RATES THAN BONDSBORROWERS GET LOWER RATES THAN CREDIT CARDS

LOANS OFTEN PAY DOWN CC DEBT

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LENDERS BUILD PORTFOLIOSTYPICALLY COVER ONLY FRACTION OF A BORROWER

SPREAD & SHARE RISK

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188% YOY GROWTH

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P2P LENDING STILL TINY VS $1.8T US LOAN MKT

BUT DOUBLING EVERY 9 MONTHS

2/3 NEW LOANS FROM INST. INVESTORS

DEFAULT INSURANCE NOW AN OPTION

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GOOGLE LEAD $125M LendingClub ROUND

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OTHER COMPETITORS BEYOND P2P

PRIVATE EQUITY FIRMS

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$70+ BILLION IN LENDING IN 2013UP FROM $50B IN 2012

SHIPYARDS, HEAVY INDUSTRY, ETC..

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NIGHTMARE SCENARIO:

LARGE ASSET HOLDERS MOVE INTO LENDING

ASSISTED BY ALGORITHMS THAT VET LENDERS

& NETWORKS THAT DISINTERMEDIATE BANKS

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TRILLIONS IN AVAILABLE ASSETS

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?

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WHAT SHOULD BANKS DO?1. MOVE FAST IN A FAST CHANGING WORLD

2. KEEP YOUR CUSTOMERS HAPPY!

3. UNDERSTAND YOU’RE NOT THE ONLY GAME IN TOWN

4. KNOW YOUR ADVANTAGES:– FDIC, PERCEIVED STABILITY, CONVENIENCE,

RELATIONSHIPS

5. DISRUPT YOURSELF BEFORE SOMEONE ELSE DOES

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THE DISRUPTEDFUTURE OF BANKING

RAMEZ NAAM@ramez