Fintech Chapter 2: Disruption and Disintemediation in Financial Services and Products: Why Now?

FinTech: At the Center of Banking, Technology and Entrepreneurship

FinTech: Millennials, Technology and Entrepreneurship Millennial Preferences Startup Lifestyle Technology Innovation FinTech

Important Factors Millennials Technology Financing Attractive startup ecosystem

Millennials Howe and Strauss 1992 Those born between 1982 and 2004 Or 1981 to 1997 Or 18-34 years old in 2015.

Millennials Fact 1: Largest, most diverse generation Fact 2: Shaped by technology. Fact 3: Value community, family, and creativity Fact 4: Invested in human capital Fact 5: More likely to study social science and applied fields Fact 6: Loans to pay for education Fact 7: Focus exclusively on studies instead of combining school and work. Source: 15 Economic Facts About Millennials. The Council of Economic Advisers, October, 2014.

Millennials Fact 8: More likely to have health insurance coverage Fact 9: Effects of starting their careers during a historic downturn Fact 10: Investments in human capital are likely to have a substantial payoff Fact 11: Staying with their early-career employers longer Fact 12: Millennial women have more labor market equality than previous generations Fact 13: Marry later Fact 14: Fewer homeowners Fact 15: College-educated Millennials have moved into urban areas

Millennials Fact 1: Largest, most diverse generation

Millennials

Millennials

Millennials Fact 2: Shaped by technology. Source: 15 Economic Facts About Millennials. The Council of Economic Advisers, October, 2014.

Millennials

Millennials Fact 3: Value community, family, and creativity Fact 4: Invested in human capital Fact 5: More likely to study social science and applied fields Fact 6: Loans to pay for education Fact 7: Focus exclusively on studies instead of combining school and work. Source: 15 Economic Facts About Millennials. The Council of Economic Advisers, October, 2014.

Millennials Fact 8: More likely to have health insurance coverage

Millennials

Millennials Fact 9: Effects of starting their careers during a historic downturn Fact 10: Investments in human capital are likely to have a substantial payoff Fact 11: Staying with their early-career employers longer Fact 12: Millennial women have more labor market equality than previous generations Fact 13: Marry later Fact 14: Fewer homeowners Fact 15: College-educated Millennials have moved into urban areas

Millennials Millennials are using money as a social network. CFA Institute (2014): Millennials Use Money Differently Millennials are using money as a social network. Millennials are moving money more places faster. Millennials are increasingly saving and investing money sooner. Millennials are banking without a bank. Millennials are investing in more than just return on investment (ROI). Millennials are not intimidated by charitable giving.

Millennials FINRA (2016): Millennials as Investors Robos: Millennials 38% vs 4% of >age 55 Crowdfunding awareness: Millennials 58% vs 2.2% > age 55 Are markets fair?: Millennials saying “yes” 42% vs 19% Fear of being defrauded: Millennials 61% vs 28% > age 55

Technology Dramatic increases in processing power Lower costs, smaller size Cloud services Open source software Collaboration Artificial Intelligence Talent “Pot of Gold” “Geek Chic”

Moore’s Law has held for 50 years, now slowing

Growth in Cloud Services

Technology Benefits of cloud computing minimize capital expense and lower operating costs speed and agility economies of scale

Technology Cloud Computing service models Infrastructure as a Service (IaaS) Platform as a Service (PaaS) Software as a Service(SaaS)

Technology Cloud Computing service models Public Private Hybrid

Technology Collaboration Open Source software Collaboration platforms

Technology Artificial Intelligence (AI) the process whereby a machine learns to solve a given problem have machines act in a “smart” way, using advanced decision making processes to go beyond specific instructions supplied by human operators

Technology Machine Learning AI centers on designing and building machines which can act in an intelligent manner ML focusses on getting those machines to perform tasks without explicit instructions ML is a subset of AI

Technology ML example Offer index fund choices A,B,C to investors Investors choose only B and C Identify characteristics of those investors Offer index fund choices B,C and D to future investors with these characteristics

Technology AI approaches Probabilistic or Bayesian models Randomized decision trees Commercial AI research Baidu, DeepMind, Facebook, Google, Microsoft, OpenAI Scotiabank: credit card default early warnings

Technology Humanistic AI Hathaway caution Machine discovery: humans set parameters

Technology Emerging applications of new cognitive technologies in capital markets automation of routine tasks Smart work flows Machine learning: application of advanced algorithms to large data sets to identify patterns Natural language processing: turning speech and text including legal documentation and client-service queries into structured, searchable data Cognitive agents: computerized interaction with humans on help desks and in internal contact centers

Startup Lifestyle Not for everyone But attractive for many Millennials Undefined roles Low pay, long hours High risk But attractive for many Millennials Responsibility/empowerment Flat org structure Energy/enthusiasm Founder charisma Minimal authority restrictions Equity

Collabortion Open source Collaboration chat apps