Grow VC Group ++ www.growvc.com ++
@growvc ++ Enabling Digital Finance ++
Copyrights © Grow VC Group 2016 1
Digital Hybrid Finance: Bringing Traditional Finance and Fintech Together Jouko Ahvenainen, Hong Kong, September 27, 2016
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Digital Finance Companies
Digital Finance Startups
New Concepts in Acceleration
Grow VC Group
Worldwide pioneer and leader in the digital finance, fintech and crowd & p2p finance solutions
Hong Kong - London - New York - San Francisco - Milan
Global leader of digital finance groups
■ Started its operations in 2009 being the pioneer to start digital finance service
■ Grow VC Group was the first in the world to launch an online startup equity investing service in the world
■ The group includes 10 businesses
■ Grow VC Group companies have more than 100 active customers with millions of end users globally having launched new digital finance services
■ The main hubs are in London, New York, San Francisco and Hong Kong
■ Several its companies are leaders in their own areas, e.g. Crowd Valley, DealIndex and TradeUp Capital Fund
People ■ Grow VC Group’s management and founders have been listed as top
influencers in the world in digital finance, Fintech, crowdfunding and digital business
■ Our key people are serial entrepreneurs who have experience to launch several new companies and products around the world to consumer and business market
■ Our people have been in executive roles to launch international corporates’ products to new markets and build data analytical approach for go-to-market and sale
Grow VC Group
FinTech Firm of the Year Award Winner 2015
3
Finance Sector Challenges
6
1. The finance crisis in 2008 started a chain reaction that impacted regulation, credibility and business models of banks
2. More regulation and requirements on capital have limited banks’ capability to lend to business customers
3. Digital currencies and especially underlining technology, like blockchain, enables new ways to make transactions without payment processors and banks
4. People and companies are more critical towards finance institutions and service costs, e.g. in fund raising, wealth management and asset management
› Leads to try alternative providers
› Crowdfunding and p2p lending have emerged
5. Goldman Sachs has estimated that the alternative finance addressable market is $3.3 Trillion
6. Average growth rate of the UK alternative Finance market is 159%
47% 68%
23% 49%
UK US
Level of confidence in banks
2008 2013
Source: Edelman Trust Barometer 350m
873m
2337m
0
500
1000
1500
2000
2500
2012 2013 2014
The UK alternative finance market growth
Source: University of Cambridge and EY: The European Alternative Finance Benchmarking Report
EARLY ADOPTERS ARE SKEWED TOWARDS MILLENNIALS
Boomers Gen X Millennials Gen Z 6.2m We can build a vibrant digital community that increases connections
► Born 1946–1964 ► 4.2% use FinTech
products
5.7m Established in the business world, mostly married with homes and children
► Born 1965–1980 ► 17.9% use FinTech
products
6.2m Largest customer group in history, target group for most major corporations
► Born 1981–1998 ► 28.4% use FinTech
products
5.5m (7m in 2020)
The first truly mobile generation
► Born 1998–present ► Attention span of ~8s ► Make up ~25% of
workforce in 2020
= 1m customers
Source: http://www.forbes.com/sites/danschawbel/2013/09/04/why-you-cant-ignore-millennials/ http://urbantimes.co/2013/07/the-difference-between-baby-boomers-gen-x-and-gen-y-infographic/, http://www.huffingtonpost.com/rhonda-l-randall-do/baby-boomers-redefining-aging_b_1448949.html EY FinTech Adoption Index http://www.ey.com/GL/en/Industries/Financial-Services/ey-fintech-adoption-index
Grow Advisors material
HIGH-INCOME MILLENNIALS ARE PARTICULARLY HEAVY FINTECH USERS
44% 58%
24% 43%
15% 33%
Current use
Future use
6% 18%
Over US$150,000
US$70,001-150
,000
US$30,001-70,
000
Less than US$30,000
Consumers who have used at least 2 FinTechs in the past 6 months
Current and expected use of FinTech by income segment
US$150,001 over
Source: EY FinTech Adoption Index
US$70,001 - 150,000
Grow Advisors material
DRIVERS AND BARRIERS TO THEIR FINTECH ADOPTION
Source:http://www.ey.com/GL/en/Industries/Financial-Services/ey-fintech-adoption-index
9.0% for better quality of service
Why use fintech?
13.0% do not trust it
Why not use fintech? 52.5% think it is easy to set
up an account
13.4% use for access to different products and
services
8.1% use for the better online experience and functionality
7.8% think there are more attractive fees
51.7% were not aware it existed
29.1% prefer to use a traditional Financial services
provider
35.3% did not have a need to use it
19.0% don’t understand how it works
Grow Advisors material
ALIGNING FINTECH TO THEIR THINKING
Consumers have new expectations of how they interact with providers of products and services – these are set outside of financial services
Companies need to engage emotionally with their customers
A robust social media strategy is quickly becoming table stakes for reaching target consumers
82% trust a brand more when an executive is active on social
media2
73% used their smart-
phone to research a product3
90% trust peer
recommendations1
Trust Know me Human Guided
Collaboration
Grow Advisors material
Two categories of fintech and digital finance
Approach based on products
1. Digital transaction processing
• Payments
• Money transfer • Process
transactions to 3rd parties
• Success based on # of transactions
2. Digital finance services and instruments
• Investing & lending
• Instruments for alternative finace
• Success based on long-term healty
profitability
The success of transactions and instruments are measured in very different way
How incumbents can operate in digital finance?
Form a “white label” partnership
Launch own digital finance platform
Collaborate as an investor or offer
finance instruments
Collaboration models Compete directly
Some collaboration examples
Blackrock purchased $320mio consumer debt
Santander Consumer agrees to buy 25% of
all loans issued
Estimated 80% of all loans purchased by
institutions
2/3rd of all loans purchased by HNWI, institutions, private
banks
€230 mio. agreement with Victory Park
capital to lend through platform + agreements with many institutions
Santander direct
borrowers who don’t meet traditional requirements
Source: Grow Advisors
Translating data into actionable insights to drive business outcomes
TRACK PRIVATE COMPANIES RAISING CAPITAL IN REAL-TIME
USE INTELLIGENT FILTERS TO SCREEN DEALS
HOW DOES DEALFLOW FLUCTUATE OVER TIME?
WHERE’S INVESTOR MONEY GOING?
INTERNATIONAL / AGGREGATE EQUITY CROWDFUNDING GLOBAL INDEX
Equity Crowdfunding Marketplace Lending RE Crowdfunding Online M&A Private Deals
Emerging New API Ecosystems
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Digital Back Office Services: • Authentications, transaction processing, user accounts, transaction history, reporting
• Assets and their securities, ownership ‘tables’, finance instrument models • Interfaces to 3rd party components, databases, ‘blockchain ledger’ processing
Payment processing Credit Rating ID verification 3rd party
services Blockchain
‘type’ services
Investing Service A
Investing Service B
P2P Lending Service A
Users: Private & Institutionals M
arke
t Dat
a Se
rvic
es
Wealth Management A
Secondary Market
Service A
Asset Management A
Syndicate Service A
Digital Fund Service A
Ris
k M
anag
emen
t an
d in
sura
nce
serv
ices
Many possible positions in the ecosystem
Wholesale offering
Consumer offering
Transaction focus
Refined instruments
Independent offering
API economy
Ecosystem example: Crowd Valley – the fast lane to implement a digital finance service
● 100+ enterprise clients served, including banks ● Digital Infrastructure enables online finance models and
facilitates billions in deals globally ● Open API, Certified Developer Ecosystem ● Use cases from real estate, private company financing,
solar bonds, investment banking, multi asset strategies ● Clients from California to Japan
Digital Finance Infrastructure: a Back Office platform to create, operate and manage your online investing or lending marketplace
Origination Compliance
Deal Origination, Investor Onboarding
KYC, AML, ID Verification, Accreditation services
Diligence Execution
Screening, Deal Rooms, Document Access Control
Payments, Escrow, E-Signature
Settlement
Closing & Settlement, Digital Ledgering
Four Forces Drive Disruption
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New finance models and instruments
2. Distribution: Need for new scalable cost-effective
distribution channels
3. Instruments: New Alternative Finance instruments
1. Capital: Increased
requirements to have
capital for loans
4. Customers: Look for
competitive prices and better ROI
1. Better Capital Efficiency
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Investors
• Combining equity and lending enables, for example, to
1. Leverage equity investments
2. Get collateral for loans
• Investors can use platforms to attract more co-investors and syndicate investments
• Participate in the securitization of p2p loans as an additional option to invest
Banks • Banks have regulatory requirements (e.g. Basel II / III) to
have a certain capital ratio for their risk-weighted assets
• Even well profitable loans can tie so much capital that capital requirements make them to have sub par ROI
• Equity investors, other lenders, different lender seniority levels and use of equity or loan from p2p as a collateral helps manage the capital ratio
• Possible to develop instruments (funded through platforms) that can offset loan liability or in cases work as a guarantee for loans
Ins,tu,onalInvestorsorLenders
P2PLendersorInvestors
RequiredCapital
Lesscapitalrequired,ifotherinvestorsorlendersdecreaseriskofloans
2. More Effective Distribution
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Platform as a Customer Interface
• Investors and lenders can operate in equity and lending platforms
• Platforms take care of many needed processes like customer acquisition, origination, KYC, Due Diligence, collection
• Typically possible to choose a risk level
• Open API also enables to automate a part or all of this work
• Requires trust in platforms, and agreements and T&C that are in line by all parties
Automated Allocation to Smaller Ticket Size • Pension funds and other large LP’s cannot handle small
investments (e.g. less than $500M) in a cost effective way
• Funds to make smaller investments have significant management fees
• Technology enables the automation of smaller investments based on given criteria
• Hybrid models combine automated processes and professional work
LargeFund(e.g.$100B)
SmallFund
SmallFund
SmallFund
SmallFund
InvestmentOpportuni,es
AutomatedInves,ng
Alloca,onPlaMorm
Managementfees
3. New Instruments for Investors
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New Finance Instruments
• Alternative Finance offers new attractive investment opportunities and its securitizations make the market more liquid
• Instruments to invest and lend money in platforms
• E.g. ‘p2p trust’ type instruments
• Securitization of online and p2p loans
• Risk management and guarantee instruments
• Work needed to find optimal regulatory and instrument models for these instruments (e.g. Open-Ended, Closed-Ended, ETF, or Evergreen fund)
• Crucial to have enough data from platforms and assets
Fund Simulators • Technically implemented investment services that work like
funds
• Investors can define their investment criteria, e.g.
• Geographical, industry sector, and risk level
• No costs from traditional management work
• Data and analytics needed to enable these products
Investment/LendingPlaMorm
Investment/LendingPlaMorm
P2PFundCrowdFund
Securi,za-,on
FundSimulator
Investors
4. Customers Expect Better ROI and Prices
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Enable Smaller Fees
• Competition in fund and wealth management business is more and more about lower fees and more scalable models
• More effective and automated customer acquisition, investment processes and more scalable investment models make it possible to cut fees
• Data, Analytics and Artificial Intelligence offer new solutions to manage and optimize investments and instruments
• APIs to cooperate with 3rd parties
Better ROI with Alternative Finance • Alternative Finance, e.g. p2p loans, real estate and growth
capital, offers new high return opportunities to funds and portfolios
• More uncorrelated assets and better diversification
• Need a scalable and cost effective solutions to invest in different assets
• APIs to invest in Alternative Finance platforms
Investment/FundManagement
OpenAPI
Robo-advisor Bank Investmen
tadvisorInvestmentplaMorm
OpenAPI
Investors
StockExchange
P2PLending
EquityCrowdfund
DealAggregator
What Enables All This?
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1. Knowledge and Competence to Develop New Models ■ Combination of finance, banking, technology, and data science competences
■ Important to understand the API Ecosystem and innovate new business models
■ More global knowledge and mindset are needed 2. Data
■ Data enables institutional investors and banks to participate in the market ■ Data is the key component to develop new instruments and service
■ Advanced analytics and Artificial Intelligence (AI) enables new services and instruments 3. Technology
■ Open API
■ Ubiquitous back offices and middle ware for fundamental finance functions ■ Agile models to develop new applications on an open API back office
4. New innovation models ■ Building a new ecosystem, no one can do it alone
■ Accelerate innovation and ecosystem with partnering and open interfaces
Where is your organization?
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Business Unit 1
Business Unit 2
Business Unit 3
Digital Digital Digital
Digital centre of excellence Business
Unit 1 Business
Unit 2 Business
Unit 3
Digital Digital Digital
Business Unit 1
Business Unit 2
Business Unit 3
Digital centre of excellence
Digital DNA Digital
Opportunism Digital
Centralism
Source: Grow Advisors analysis adapted from an original idea by BCG
Pros • Builds digital tools, digital
processes, and digital talent at scale
• Provides clear ownership and specialised expertise
• Delivers integrated and standardised end-to-end customer experience
Cons • Requires a strong mandate to
create change • Requires strong digital leaders • Requires tight integration
between the centre and business units for execution
Pros • Manages digital policy from the
centre to maintain quality and create scale
• Entrusts digital execution fully to business units
• Ensures a cohesive digital strategy at the enterprise level
Cons • Resistance from business units
around strategic priorities • Requires significant resources
in each business unit that deeply understand digital
Pros • Champions digital adoption
within the business, building groundswell of support
• Allows for quick wins Cons • Limits innovation outside the
core business • Creates business-unit-centric
thinking and fragmented customer experience
Summary – 4 points to remember
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1. Digital and Alternative Finance are changing finance value chain and products ■ More de-centralized models, e.g. based on API ecosystem and blockchain
■ From service silos to more more seamless collected services 2. Four key areas: 1) Capital, 2) Distribution, 3) Instruments, and 4) Customers
■ This is not only about technical, but it is one key driver to enable new services, business models, better efficiency, and new finance instrument
■ Data is a key components for many new services
■ Develop fast – test – improve 3. Accelerating innovation and competence development
■ Open interfaces are needed to be fast enough and utilize ‘external resources’
■ New comers need to build competence and work with right partners, incumbent must especially focus on culture and attitude change
■ Digital economy is not just add technology or services, but adapt to a new business 4. Grow VC Group works in the core of these changes
■ Competence, technology, data, global presence, and constant innovating
Jouko Ahvenainen – [email protected] +44 7889 833 165 (UK), +1 646 363 6664 (US)
Twitter: @jahven, LinkedIn: joukoahvenainen Grow VC Group - growvc.com
ENABLING DIGITAL FINANCE
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