Google = Bank Of The Future;Future Of The Bank = ?
Digital (R)Evolution In The Financial Services Industry
Alexis Eisenhofer, financial.com - Thomson Reuters, 21 January 2015
“Banking Is No Longer Somewhere You Go, But Something You Do.” (Brett King)“Banking Is Essential, Banks Are Not.” (Bill Gates)
Digital Business Models Aim At A Disintermediation Of The “Man In The Middle”
➢ Producers (brands) and consumers interact directly
➢ "Prosumer": customers influence product design
➢ "Non-physical production" (the core business model of a bank) is ideal for
digital strategies
➢ Innovation in banks has been limited to financial instruments (financial
engineering)
➢ Retail banks in Europe only have 20-40% of their processes digitized (McKinsey,
October 2013)
More And More Customers Expect Changes In Banks
➢ Generations X (1964-1979) and Y (1980-1995) reach the age for wealth creation;
"Millennials" (from 2000) do not want consultation
➢ Millennial Disruption Index: "Banking is at the highest risk of disruption."
(71% would rather go to the dentist than to the bank)
➢ Rising equity markets with no risk-free investment opportunity
➢ "Paradox of choice": Too much supply reduces the total demand
➢ "Disenchantment" of financial advisors by two crises; Bad image of banks
New Technologies Offer Numerous Opportunities
➢ Big data: volume, variety, velocity, veracity
➢ Access: anyone, anything, anytime, anywhere, any device
➢ Social media (Collaboration and sharing)
➢ Technologies disrupt industries faster than ever
(Skype, Uber, WhatsApp, Spotify, YouTube, Google Maps, Digicams etc.)
➢ One million users in 9 years / months / days: AOL / Facebook / Draw Something
➢ $ 3 billion in Venture Capital for Fintechs in 2013 (2008: $ 930 million) is still
small compared to total bank IT costs ($ 485 billion) - but growing fast
Signs Of A Tsunami Are Already Visible
➢ Productivity ratios of retail branches have been deteriorating for a long time
➢ Lower barriers to the provision of financial services
➢ Rising acquisition costs ($ 350 for checking account, $ 2500 for mortgage)
➢ Advertising campaigns are less efficient (declining conversion due to
multichannel sales)
➢ Tsunami: Number of taxis in San Francisco dropped by -65% in a single year
(due to Uber.com)
➢ Accenture expects 30% sales decline in banks by 2020 due to new competitors
(September 2014)
➢ Platform for structured data
➢ All major sources (FRED, ECB, etc.)
➢ Ongoing updates
Quandl.com: 10 Million Free Time Series Of Financial Data (Download, API, Excel & Plotly)
Plot.ly: Free Graphical Data Analysis
➢ Almost as powerful as programming language R
➢ Sharing & Collaboration
➢ Numerous import / export formats
Quantopian.com: Free Algorithmic Trading Community With Live Backtesting / Valuation Of Complex Structures
➢ Source code and risk ratios available
➢ Community of highly specialized professionals
➢ Business model: Seed funding of hedge funds for top users with a revenue share
Rizm.equametrics.com: Drag And Drop Algo Builder & Paper Trading
➢ No programming experience required
➢ Backtesting & Paper Trading
➢ Financing of the platform through introducing broker fees (IB, FXCM)
Estimize.com: Crowdsourced Estimates (4,500+ Analysts)
➢ Wisdom of the crowd (without sell side bias); Better results than Wall Street analysis
➢ Numerous rankings, alerts, calendars
➢ Social Media Features
SeekingAlpha.com: Peer Group Blog For Equity Research With More Than 7,000 Authors
➢ Excellent quality due to intensive discussions
➢ Disclosure of new, non-public facts
➢ Free Transcripts of all earnings calls
No One Could Predict Quotes Better Than Google
➢ 90% of all purchases start with a search (70% thereof Google searches)
➢ Already public search results allow outperformance
➢ Eric Schmidt (Chairman) has implemented a code of conduct for not forecasting the stock market
LimeBrokerage.com - Sub Millisecond Execution & Clearing (880 ns Market Data); 20% Of US Equities Volume
➢ "Discount broker" for algos
➢ Order execution much faster than "normal" brokers
➢ Extensive market data (Level 2)
Paypal Handles A Quarter Of The World's Online Shopping - 148 Million Customers Are Numerically "Germany Plus France"
➢ After 7 years Paypal has more online accounts than all savings banks in Germany
➢ eCommerce doubled in 5 years at 14% market share - with accelerated growth
➢ Possible spin-off of Ebay brings further growth for Paypal
Alipay Is Already The Largest Provider Of Fixed-Term Deposits In China (6.3% Instead Of 3.25% For State Banks)
➢ Payment processors start with deposits
➢ Currently the only bank in China with a positive real interest rate
➢ Alipay has better image than state-owned banks
TransferWise.com: Extremely Cheap International Transfers - "Money Without Borders"
➢ International transfer is the honey pot of bank charges
➢ Banks charge high fees even within a single currency area (e.g. Eurozone)
➢ Share price of Western Union has been falling for years
Facebook And MoneyGram: Bank Transfer From The US To Over 200 Countries Via "PicomoPay" App
➢ 25% of all clicks in the USA on Facebook
➢ 73% of Millennials want payment function of Facebook (Millennial Disruption Index)
➢ Not a "chicken and egg" problem (network effect)
Mint.com: Personal Financial Management Service With Multi-Account Aggregation (198 Mln Accounts In US / Canada)
➢ Personal financial planning with savings recommendations by peer group comparisons
➢ Financing through commissions from selling long-term contracts
➢ Founded in 2006, taken over in 2009 by Intuit (170 million USD)
Social Banking "Kaching" Of Australian Commonwealth Bank
➢ Mobile Payment via Facebook / E-Mail / SMS
➢ Complete integration into the timeline of friends
➢ Push Notifications for payments
Lendingclub.com: Peer-To-Peer Lending ("Social Lending")
➢ Peer-to-peer lending, the world's largest crowd lending platform
➢ Google hold 8% stake, IPO in Q4/2014, market capitalization USD 9.5 bln
➢ Risk management through pre-selection of loan applications (only the top 10%) and diversification
Crowdfunding Is Growing At Double-Digit Annual Growth Rates
➢ Even large projects are financed
➢ The video game "Star Citizen" collected 55.5 million USD on the platform Kickstarter in 2012
➢ Crowdfunding is often used for social projects
Lightfin.de: Private Placement To Qualified Investors
➢ Institutional investors are pushing into banking
➢ Platforms bring credit requests without sales force
➢ Often ratings are provided (eg White Label Moody's)
Kreditech.com: Big Data For Credit Scoring
➢ Fully automated rating of 15,000 data points
➢ Social graph, browsing behavior and GPS data to explain the bulk of creditworthiness
➢ Forecasting accuracy better than with traditional models
Wonga.com: Short-Term Consumer Loans Up To £ 400 In 5 Minutes
➢ Standardized detection of small consumer loans
➢ Credit statement in less than 5 minutes
➢ Improving efficiency compared to traditional retail banking
Vaamo.de: Asset Management For Everybody - "Transparent. Simple. Profitable. "
➢ Simplicity as a key product feature
➢ Customization through "self-counseling" via sliders
➢ Cost advantages through index funds
Wealthfront.com: ETF-based, Commission-Free Asset Management (AuM $ 1 Bln In 30 months)
➢ International market leader with 1.8 million visits per month
➢ 3-digit annual growth rates
➢ Far stronger growth than Charles Schwab in their early stage (Direct Brokerage)
Etoro.com: Social Trading - "Friends" Replace Bank Advisors
➢ The world's leading Copy-Trading platform
➢ Nearly 130 million trades since 2007 (with continued strong growth)
➢ Comdirect (German market leader): 5 million trades / quarter
➢ Leading Community for Active Traders for Charting Analysis
➢ Sharing of chart patterns via HTML5 Tool
➢ Subscription Fee for Real Time Data
Tradingview.com: Community Of "Active Traders" For Technical Analysis
Open Architectures, Collaborations And An Innovative Organizational Structure
➢ Open architecture: flexibility and network effects
("If you can’t beat them, join them.")
➢ Software-as-a-Service: Continuous improvements through clickstream analysis
➢ Cooperation: V.me by Visa provides white label online payment processing
➢ Outsourcing of software development to small flexible partners (no
cannibalization, new thinking, no legacy systems)
➢ Takeover of Fintechs (Problem: Valuations up to several billion USD)
➢ Promotion of Digital Natives to the Board of Directors (only 9 out of 206 DAX
supervisory board members with obvious IT background, Handelsblatt 2014)
Social Graph, Peer Group Data, And (Location-Based) Contextualization
➢ Consistent use of the social graph (Facebook, XING, LinkedIn)
➢ Similarity analysis, eg “Customers who have a similar profile bought these
securities."
➢ Value-added services: Cost savings by changing providers (Peer group
information)
➢ Framing concepts ("40-year-old father" etc.)
➢ Right time and right context (Location-based data)
Design, Integration And Differentiation
➢ Design is a key success factor of applications / products (eg iPhone, Nespresso)
➢ "Mobile First": "Less is more" when designing surfaces
➢ Gamification: Use of game mechanics in non-game contexts to engage users
➢ Financial products are seen as commodities by retail customers; distinction to
the competition is key
➢ Paid content can not be accessed through an aggregator like Google
➢ Higher "customer ownership costs": Free content offerings require investments
in added value
➢ Significantly lower distribution costs of paid content
Paid Content And Customer Ownership Costs
Thank You For Your Attention!
“You must unlearn what you have learned...” (Yoda)
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