Stanford Webinar - Fintech Revolution: How Disruptive Innovation is Transforming Financial Services

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I would like to introduce today's speakers.
Larry Lagerstrom, who you'll be hearing from later in this session,
is the Acting Director of Academic Programs responsible for
graduate education offerings.
Today's featured presenters are Bruce Wallace and
Reetika Grewal from Silicon Valley Bank.
Bruce Wallace is the Chief Digital Officer of Silicon Valley Bank Financial Group.
He is responsible for client digital banking experience and
channel delivery services along with the sales, development, and
delivery for fee-based products including payments, cash management,
cards, merchant services, foreign exchange, and global treasury services.
Previously, Bruce was Silicon Valley Bank's Chief Operations Officer,
responsible for global operations and IT.
Prior to joining Silicon Valley Bank, Bruce spent more than 20 years in
a variety of management positions with Wells Fargo and Company.
Reetika Grewal is the Head of Payment, Strategy, and
Solutions at Silicon Valley Bank.
She joined the company in 2012 to lead the Payment, Strategy, and Solutions team.
This team focuses on internal payment strategy and development,
as well as working collaboratively with Silicon Valley Bank clients and
partners to help deliver payment solutions to the market.
She leads Silicon Valley Bank's partnership with MasterCard to run
Commerce.innovated, an accelerator program focused on helping early stage
companies innovating across the commerce space.
Prior to Silicon Valley Bank, Reetika was at JPMorgan Chase.
Reetika was recently awarded as one of the most influential women in payments.
Actually, she won this honor for the last two years.
At this time, I'd like to turn the floor over to Bruce and Reetika.
>> Good morning, everyone, this is Bruce.
And we are excited to be here this morning to talk about what's happening with
the Fintech revolution.
So, we're going to have some slides that we're going to walk through as Beth had
mentioned.
We'll be more than happy to answer questions throughout
the course of the presentation, and
actually would recommend that you provide questions throughout the course.
So I'm going to turn it over to Reetika,
who's going to start stepping through the presentation.
Reetika?
>> Great, good morning everyone.
So I'm going to start first with a slide that we've received
-- some data from CB Insights, which is an analysts firm.
-- and what is going on in this slide is really to help illustrate
the Fintech innovation in here.
What they did was use the Wells Fargo homepage as an example of the top half
is the consumer home page, and the bottom half is the small business home page,
and really describe all of the different companies that are innovating and
attacking every single segment of banking from lending,
to banking services themselves, to investing.
There are a slew of companies that are going after and
truly disrupting banking as you know it today.
On the consumer side, there's some names that I'm sure you've heard
of in the market, right, on the lending side, companies like SoFi and others.
As well as on the banking side, some of the banking startups that
are trying to disrupt the way that consumers receive just the basic
services that come along with a bank account, companies like Moven.
There's a slew of companies focused on the savings side: savings,
wealth management, companies like Digit that help to automate your savings.
Companies like Betterment, Wealthfront, etc.,
that are focused on that wealth management space.
And then finally there's a whole world of companies that are focused on sort
of the payments aspect from a consumer perspective as well.
Companies like Bill.com that help make bill payments easier,
cleaner, and with a beautiful UI in front of it.
On the small business side there's even more pronounced
disruption that's happening from, again, same thing,
where pretty much every tab of that display
from the Wells Fargo example here is being disrupted.
You can look at, again, banking, lending and credit,
and I'm sorry, merchant services, insurance, all of those
things are all being disrupted again by a wide variety of services.
Some of the more well-known services because they've IPOed or
are out in the market really aggressively, companies like Square that have
truly disrupted the way merchant services are being delivered.
Giving small businesses,
extending the aperture of small businesses that are able to accept card payments
as well as changing the way people accept card payments.
And then on the lending side companies like Kabbage and
OnDeck helping small businesses get access to capital in unique ways.
Is there anything else that you would add on this slide?
>> Just one thing I would add at the macro level is, I think what's happened
over the past, I would say, three to five years, with a lot of these companies is,
every single one on there is a pure digital solution.
So I think what's happening is, there's a lot of disruption specifically
around companies coming into the financial services space without the traditional
infrastructure required, with a purely digital or mobile based experience.
>> Okay, yeah, and we're going to talk a little bit about some of the main
disruption, or some of the main drivers that's causing this inflow of disruption.
And we will talk a little bit more about how digital comes into play here.
So the next slide is to sort of see the parallel that's happening in the UK.
It's a very similar trend where again, consumer banking,
business banking is being disrupted by a whole slew of startups.
Obviously the Brexit news is fresh in everyone's mind,
so it'll be interesting to see how this evolves.
But given that SVB has an office in London,
we get a good front row seat into seeing a lot of this as well.
And it's, again,
very similar in nature to the destruction that's happening on the US side.
And attacking pretty much every aspect of banking, lending,
investing, etc, that consumers and businesses are focused on.
>> Yeah, so there were a couple questions that I think were pretty interesting that
came up related to the first two slides.
The first one was, where is Blockchain?
So in terms of what's happening with the percentage of startups
that are in Blockchain or digital currencies, and
in terms of overall venture investing, there's been approximately
a billion dollars that have gone into Blockchain startups.
And in terms of where it stacks against all of the other startups that Reetika had
been referencing earlier, it's probably about the sixth or seventh largest
sector in terms of where a lot of the investment dollars are going right now.
It' s primarily going into the lending space.
It's going into the payment space.
And it's also going into kind of a combination of individual finance,
consumer finance, and then also into different types of individual investing,
in consumer investing, or I'm sorry, business investing.
But if you look at the trajectory around investments
in blockchain technology, it is on a very high trajectory.
And in terms of what's happened so far in the first half of this year,
there has been no tampering of investments going on in Bitcoin and Blockchain.
And the second question was related to emerging markets such as Africa,
Latin America, Asia.
I would say, again, in terms of investment dollars,
probably about 75 to 80% of the overall venture investment dollars for
Fintech are primarily going in North America in the UK and EU.
I think in terms of some of the emerging countries because they still have a very
high unbanked or underbanked population, a lot of these startups that are in those
specific spaces are really tackling much more simplified financial services.
I'm just trying to get basic consumer products such as
mobile payments into the hands of million of consumers that are unbanked.
>> Yeah, and the other thing I'll say about that is in reference to some of
the other markets is the US and the UK are very similar in terms
of people leveraging credit cards and merchant services and things like that.
And in those markets, that basic infrastructure isn't even there.
Right, so if you go to Brazil, for example,
the maturation of credit cards is nowhere near as deep as it is here.
So it's similar to what you were saying in terms of leveraging alternative ways of
moving money.
>> While Reetika goes to the next slide, we're getting a lot of great questions.
I'm doing my best to kind of synthesize them together because there's some common
questions, so just to let everyone know.
And a few of them,
we're going to specifically address on some future slides.
So I am watching everyone's questions, just wanted to let you know that.
>> [LAUGH] >> Yeah, and the next slide really is
meant to focus on why is the financial services under attack so
aggressively by all these startups?
And I think it's because financial services represent
20% of the S&P 500 Index.
And if you just look at the names of the companies that are in the middle of this
target, they are household names that have been in the business
of banking and providing payment for years and years,
hundreds of years in many cases.
And I have a colleague who's from Texas, and he always talks about Texas tea.
And the banking global financial institution market is in the trillions,
8.5 trillion, so again, reiterating the prize at the end of the disruption.
And this is sort of an interesting fact from Accenture that they are estimating
that full service banks, meaning the banks that offer sort of consumer banking and
payments and things like that similar to like a Bank of America, JP Morgan,
Wells Fargo, etc, could lose 35% of their market share globally to digitally and
oriented disrupters.
And sort of to Bruce's point earlier,
it is digitally that these guys are bringing their solutions to market.
>> I would say the two other factors that are primarily involved that we see,
with respect to a lot of the Fintech disruption, is one is,
I think a lot of these solutions are offering speed and simplicity.
And I think that almost everybody on the call probably has a personal experience of
dealing with a traditional financial institution that in terms of how long it
took to finally get a product delivered or to get your mortgage refinanced or
whatever it is.
Many times it's kind of a long cumbersome process to go through that.
And so a lot of the business models that we see that are being successful in
getting traction, they really focus on speed and
simplicity in terms of delivering the product.
And the second one, which Reetika referenced a little bit earlier,
but I'd just like to highlight a little bit more, and
that is, it's really around the user experience.
I think that a lot of the Fintech disruptors are very focused on starting
with an experience that the consumer of the business expects to get.
That's maybe a little bit more aligned with what they would get from another
software company or another technology company, as opposed to trying to kind
of just provide a better financial services product.
Many times it's not focused on the product because, as I think everyone would agree,
many financial services products are very commodity based products.
There's not a lot of differentiation around a checking account or a debit card.
However, there can be massive differentiation in the user experience in
using the products.
And so, speed, simplicity in the user experience are kind of the real key areas
that the innovators are focused on in trying to get market share.
>> Yeah and that's a great transition to sort of the macro level themes that we see
really the trends shaping the Fintech landscape.
And so we talked a little bit about some of the technology that's fueling
the disruption, right.
The barriers to entry for entering in and bringing a startup to market
are significantly lower than they have been in previous years.
Thanks to wonderful things like the mobile devices and
the iTunes marketplace, I'm sorry, the app store, where you
can just get your product in front of millions of eyeballs pretty quickly.
As well as things like being able to host your service in the Cloud without
having to invest a whole bunch of money in
infrastructure to bring your solution to market.
And then lastly, leveraging the networks, the social networks and
the other kinds of networks to distribute your solution to market.
So leveraging services like Twitter and Facebook and Medium and
all those other channels to really distribute marketing at a very,
very low cost have made the barriers to entry significantly lower.
And it really helps to fuel the innovation.
There's also a big trend around trying to remove paper.
And this is sort of along the lines of removing friction from processes,
and shifting from paper to electronic.
The idea that checks will leave our ecosystem is
a reality that I really hope happens one day.
But in the interim,
the technology around remote deposit capture has made accepting checks easier.
And people moving to a more cashless to a card filled society is really,
is happening significantly across business and consumer.
Businesses like electronic payments because of the richness
of data that goes along with transactions and reconciling data.
And removing humans from being in the position to constantly move paper through
processes is something that businesses have been looking for for a long time.
So this shift from paper to electronic is pretty significant.
>> So one other comment I would make, I'll try to synthesize four or
five questions with a common theme.
And I think the common theme is around people understanding the value
proposition around ease of use and simplicity and speed, but
talking a little bit about How this works in
terms of the current products that you use on a day-to-day basis.
And I think on a day-to-day basis,
what we're seeing with a lot of Fintech disruptors.
Again, that's a common trend is, they're embedding the payment experience
directly into how you do commerce on a day-to-day basis.
And, I know Uber is a very overused example in the innovation economy.
But, they are kind of a perfect example how they have embedded a financial
product, which the payment experience directly into how they use their product.
And there are many other examples with Amazon and Apple, and many others.
Where again, I think that what we see happening with a lot of this,
the disrupters is they're actually pushing payments more into the background.
It's less around making the payment.
It's more around making the payment digitalized and
embedded in with the commerce experience.
So the payment is much more of a utility as opposed to a produce.
And really again, going back to what we talked about earlier.
It's about the user experience, and
many of the models that are doing a great job of, again,
elegantly embedding the financial product into the experience that you're doing.
So you don't actually even have to think about making the payment or
executing on the financial product.
Like another example is, in the small business lending.
What we have seen is some Fintech disruptors that are doing a great job of,
you actually never apply for a loan.
They just look at everything in your accounting system.
They look at your accounts receivable.
They go ahead and qualify which ones they will advance credit on.
And then, it's literally as simple as pressing one button to say.
Yes, I would like to get an advance on my receivables.
So again, what they're doing is taken the financial product itself and taken so
much of the friction out of what you do to kind of apply and qualify.
And use it and embed it in to kind of your day-to-day working experience, or
your social experience.
>> Yeah, and for the last big trend that's really helping to
shape the Fintech landscape is the regulatory environment.
So, one thing that we've been talking about is when the great recession
happened.
Banks sort of took a step back and
started to divert resources away from driving innovation, and
driving new products and services, and focus more on compliance.
Making sure that they, safety and
soundness was sort of the big mantra of the time.
And, it always is in the world of banks [LAUGH] but
that left open a big gap in terms of innovation, right?
So it was a big gap that allowed for all of the disruptors to come in is
that when banks stopped thinking about how do we innovate.
And Bruce will say that banks are not really good at innovating in general.
But when they completely stopped thinking about that,
that's really when the whole world of innovation came out.
Just the general dissatisfaction with banks that came out of that, that crisis.
As well as the focus on regulatory compliance, and
the world of regulation is not easy by any chance, right?
So, the emergence of the CFPB happened that during that time where
there's a very strong champion out there for consumer protection.
And then there's, in the world of payments.
So you think about things like money transmitter rules and regulations.
It's a very complex ecosystem, and
the financial institutions are sort of the gate in and
out of the payments network.
So, the disruption that's happening, and the successful disruption that's happening
is in many ways in partnership with banks helping to innovate around the front-end
experiences and the back-end experiences while leveraging that infrastructure.
>> Yeah, so a question that just came up very similar to what you
were talking about, Rotica is.
What are the disrupters doing to actually streamline and
innovate the regulatory process?
>> Well, I don't know if they can streamline the regulatory process.
But the way that we've seen the disrupters work around,
or within the regulatory framework is focusing on the front-end pieces, right?
So if you think about the infrastructure of payments and ordering.
I can't help but not think about it that way.
[LAUGH] But if you think about the infrastructure of payments, there's
ways to get into that infrastructure, and it typically goes through a bank.
And so the innovators that are being successful at it are partnering
with banks to get access to that whole world of payment's infrastructure.
And looking at their services as thinking through compliance and
regulations and monitoring, and
all those things makes them a very solid stable player in the ecosystem.
>> Yeah, one other thing I would add that has been interesting to watch.
And it's related to a few other questions folks have in here around,
kind of cost to switching.
And it sounds great to move over to some of these other solutions.
But how frequently do I now have to re-enroll and do all of that?
And again, I think what we see happening here is just leveraging digital and
leveraging data that you already possess,
is a far more efficient way to do those things.
So to Rotica's point on the regulatory side.
There is a specific sub-sector called reg tech of companies that are actually trying
to streamline and automate some of the processes.
And it's really about when you think about it from a consumer and
a business perspective.
A lot of the data that banks, or financial services ask for,
you already have that data.
But they don't make it easy for
you to make that data portable to just go ahead and give them what you need.
So, everyone probably has a lot of sore fingers from having to key so
much into various online sites and various mobile devices to provide data
that actually is already digitalized somewhere.
Probably in your mobile device, or in your digital wallet.
And again, I think whether it's in the reg tech space, or
actually just some of the models that we were talking about earlier.
I think they're doing a very effective job of minimizing the frequency in
which you have to provide them data that they can get through another way.
Through your consent, or through your permission to allow you to go ahead and
provide data.
And I think that, that has a huge impact in terms of the cost of switching.
I think that there's a direct correlation that
the more information you have to provide around buying a product.
Your abandonment rate, I mean there's a lot of statistics around abandonment
rate with e-commerce shopping carts.
That, the more data and
information you have to enter the more frequently you're going to abandon that.
I think what a lot of these Fintech disrupters are doing
are minimizing the amount of data that you have to provide.
So that you can quickly get to a buy and
move your business over to their product or their platform.
>> Yeah, and I think that getting your, from a switching perspective, and
a management perspective.
Getting your data moved over, or getting your sort of enrollment process is one
thing, and being able to manage multiple different services that you've got.
So, you're piecing together sort of a banking solution,
is something else that has changed dramatically with some
of the advances that we were talking about in terms of technology.
So before, people would want to concentrate all of their banking and
their financial services need with one entity.
Because the overhead of managing all these different relationships and
entry points was so high.
Now, you've got an app for all your services.
There's notifications that come out.
So there's not the need to have everything so
concentrated with one financial institution.
You can have solutions that you manage through one interface which
is your mobile phone.
That's making that switch easier and sustainable.
So, I think a few questions around how are banks
responding to all of the disruption that's happening.
And I think that there's a wide variety of things that are going on in the market.
But one of the things that we see a lot of is just some of the banks setting up
their own Fintech venture capital funds to make sure that they're looking and
partnering and making investments in companies that they can either learn from,
be strategic partners with, etc.
So you can see here the back from 2/1 of 2015 to 2016 there's
been a wide variety of banks that have participated in this strategy.
Either by setting up separate funds or
just within their balance sheet lending as well.
And Fintech Investments, last year was an all time high of 11.4 billion.
And despite some of the easing that's happening in funding
this year across the entire technology sector,
Fintech is continuing to see the levels of investment.
And it is expected to be even higher in 2016,
primarily fueled by later staged rounds in companies.
And we'll talk about some of those companies in a minute that are seeing some
of those this bigger rounds coming through to help sort of grow and
accelerate their businesses.
Is there anything else you'd add?
>> Some of the questions that came in were related to what you
spoke on the last slide we take about.
So what are the incumbents doing?
They see a lot of new startups coming into the space.
They're trying to basically offer competitive products.
In addition to the investing that Rotica spoke about a little bit earlier,
I think one of the fundamental challenges banks are going to have to deal with right
now is how they think about their brand in the market in the future.
And so the reality is, Fintech has actually existed for a long time.
Because financial services buy a lot of technology from software companies and
from hardware companies.
There's actually been a sector that's been in existence for a long time of companies
to specifically build products and sell them to financial services companies.
However the motto and the path is always been we sell it to the financial services
company and then they white label it or they rebrand it with their brand and
then they put it out in the market.
What's been the real fundamental shift over the past three or
four years are Fintech companies that are going directly to consumers and
directly to businesses.
And I think a lot of financial services providers,
going back to the last slide Rotica spoke to, recognize that there's a need for
them to properly partner differently with some of the Fintech disruptors.
But I think that this key question of are they going to allow their brand
to coexist?
Or are they actually going to allow their brand to maybe be pushed into
the background and
to allow one of the disruptor's brands to be in front of the client is a key
decision point that a lot of financial institutions are grappling with.
>> Yeah, and they're looking at it from a demographic-by-demographic
perspective as well, right?
So what's that number again?
70% of Millennials would rather go to the dentist than go to the bank.
So [LAUGH] there may be a different strategy that
you take with certain demographics around putting a startup brand more
in the forefront versus somebody in a later stage of their life that is more
comfortable with the bank's brand being in front.
So we were talking about a lot of money going into the financial services or
financial Fintech ecosystem.
And the one thing that we want to just talk a little bit about is that most
of the value has yet to be realized.
There, obviously last year, were some exits by OnDeck, Square,
LendingClub IPOing and we'll talk a little bit about LendingClub in a little bit.
I think I've seen a few questions come through on that.
But then there's this whole world of other companies, some would call them unicorns.
In the Fintech space that were the exits,
there's not been exits and there's a significant value to be realized.
>> Yeah, so one of the questions that just came up that I think is
a good question related to everything we talked about is kind of the demographics
of Fintech clients, whether it's consumers or businesses.
And again, most of the industry data that we look at, as
much as there's a lot of hype about it's really the Millennials and the digital
natives that are driving a lot of the adoption, actually we see it across.
I think that the reality is, I'm personally a Gen-Xer,
I'm not a Millennial, but it doesn't matter to me.
A really good digital experience is a really good digital experience.
And if somebody can provide a product or solution that is going to take 90% of
the friction in the time I have to spend enrolling or utilizing that product.
It's appealing to me and
I don't think that that's very different across the different demographics.
So in terms of what the adoption rate has been and
what the penetration rate has been.
On the average, it is higher with Millennials, but it's probably
not as big a chasm as people would think with respect to Gen-X or Baby Boomers.
They're adopting a lot of the digital products just as quickly as anyone.
And I think probably less around financial services.
But I think the real great use case of this is Facebook.
I think probably six or seven years ago if you asked people who would
be using Facebook from a demographic perspective,
everyone would think, well, it's young children.
Actually, what you see is, it's got tremendous adoption with the Baby Boomers.
So, I don't think financial services tech is going to be much different.
I think as long as they can provide a great digital experience and
remove a lot of the friction.
Probably the last comment I would make with respect to
point on most of the value has yet to be realized.
I think that we're still in what I would call
an early stage of seeing how these companies are going to be able to scale
to become very large sustained operating models.
And it's not because none of them have done that yet,
some of them have done that really well.
But most of these companies have just formed over the last five to seven years,
so it's going to take some time to see how they actually scale and
how they become very large sustainable organizations.
>> Yeah, the other point I would make about sort of the demographics is that
several of these companies on here, like coupa for
example, is a B to B solution, right?
So as the world of business professionals are seeing the technology
solutions sort of disrupting and transforming the way that
they're able to do their work or save time and money, etc.
Then it's going to trickle through to the consumer side as well.
So there is also that because it's not just a consumer only disruption.
It is on the business that there is,
it has the potential to reach the broader populous.
The one thing,
and I've seen a few comments up there as well on this is that the ones that have
exited sort of the OnDecks were the Lending Clubs of the world.
It's hard to ignore the fact that they struggled
a bit amongst the current market condition.
And I think that there's a variety of reasons for some of the struggles,
there's just general market instability that's been going on.
As well as just some of the things that have happened
with some of these companies in particular.
>> Yeah, again, I think it's very, very, it's very early still.
I think this chart will be interesting to look at over the next three to five years.
And again, I would say, if you go back and look at other areas around innovation.
You look at the early days of when Apple became public, or
even when Facebook became public initially.
Some of the challenges of going from being a private
organization to a public organization.
So I think that there's not enough data points right now to come to
a conclusive position on this.
But I do think that because of this, and there's a broader macro
thing going on right now, there's just less IPOs going on right now.
There's less companies that are going public.
So I think in terms of understanding the long-term sustainability and
market value proposition of many of these business models.
It's probably going to take another five to seven years before we truly
understand that.
>> Right, and so because of this, because of the some early innovations that
are going on with the companies that have IPOs.
It is trickling down to the private market.
Given the position that we have in the ecosystem, we have.
Seeing some companies sort of pull back a little, or
have down rounds relative to the recent fundraising
that they're doing because of the early indication.
On these companies, that's Bruce's point,
right, it's still early days however we are seeing it.
>> One of the other things I think is unique about this sector, and
I know there's been a lot of questions about regulatory type
questions around these companies.
I think that first and foremost, if you just take a step back and look at
the venture backed start up community, the reality is companies will fail.
[LAUGH] That's part of the innovation ecosystem is the reality
that many start ups will not be able to get traction.
Will not be able to move their business model forward.
I think what's a little bit different in the sector is because there's regulatory
element because it involves financial transactions, there's
a different type of scrutiny around failure in this particular industry.
I've personally spent quite a bit of time regulators over the past
year talking a little bit about how they are going to approach
regulating the Fintech community differently than banks.
Because the reality is the main goal of a regulator for
a bank is to ensure they don't fail, and the reality is within not only Fintech.
But within the venture back start-up community that there will be failures.
I mean that is part of the innovation ecosystem that happened.
And in many cases actually it's celebrated to a certain extent that fact
that failure will absolutely drive more innovation.
If you're not seeing failure you're probably not taking enough risk and
you're not innovating.
So I do think that's a particular area again, the regulators are going to have to
really figure out, probably a different type of model for this sector.
Because trying to just overlay the bank model,
where the bank model is heavily predicated upon, you will actually never fail.
If they overlay that model onto to the Fintech companies,
they probably will suppress a lot on innovation.
At least in the limited conversations I've had with some regulators and
some government officials.
They fully recognize the need to have a modified regulatory
model around these companies because they are not banks.
And they shouldn't hold them to a, not a similar standard, but they shouldn't try
to overlay the exact same regulatory model or probably will suppress innovation.
>> Yeah, oops wrong button.
However, given some of the challenges that some of the disruptors are seeing in
the Fintech ecosystem.
Fintech will persevere and the best companies will continue to disrupt.
I think that, with this flight is sort of going through
is there's companies that are sort of in their early days.
And are sort of presenting significantly new,
unique value propositions to the model and are starting to gain traction.
The next traunch is where they've gotten sort of significant traction in their
particular markets.
And then finally, with the top share or
category is really interesting and are gaining significant strides.
One of the trends that we're seeing which is really sort
of prevalent amongst this top tier or this top share category is
they have entered the market in one particular segment.
Say Sofi, for example, they started their model with lending to MBAs,
students from the top 25 institutions in the country.
And then have taken a broad approach to
product development across more of financial services.
So the first slide we started with banks becoming unbundled,
and point solutions addressing every single aspect of banking.
Now, we're seeing disruptors that started with that approach of let me unbundle,
let me do that one thing better, faster, more seamlessly.
And there's coming back and rebundling some things together
in order to have a more holistic solution to offer to the market.
So we see that pretty much in all of these companies, that they are going back and
trying to rebundle more things together in order to continue to drive the market.
>> Yeah, I would say the other point to that
the most of these companies are doing it again.
It's very consistent with what you would see across
the innovation start up community.
And that is they try to get some product in market as fast as
possible to ideate and learn.
And again, I think that where one of the challenges the incumbents have,
is if you think about the model today around product design,
product development, introducing something into the market.
It's a very long cycle for a traditional financial institution to do that.
A lot of them are thinking about accelerating that cycle,
including in our organization.
But I think the model of developing, finding a pain point, like Ratika said, or
finding a point of friction,
quickly getting a product into the market and then doing rapid ideation on that.
And then doing horizontal product expansion off of
that gives them an opportunity to quickly respond to changes in the market,
quickly respond to client expectations.
And again, most of these companies on
here will be releasing product on a weekly basis, if not on a daily basis.
Which is very unusual for a financial services organization to do releases
that quickly of enhancements and new features.
And I think that's a clear point of differentiation and
advantage that they have in the market right now.
>> So I think that's it in terms of what we've got from a prepared
material perspective but I know there's a bunch of questions [LAUGH].
>> A pretty intriguing question is,
will there be a point where banks are no longer needed?
And it's something that we've spent a lot time talking about,
less around whether or not banks will be no longer needed.
But what could potentially be the future role of
traditional financial institutions.
I'll start and then I'll let Reetika weigh in here.
So how we think that this potentially is going to evolve is, so first and foremost,
financial institutions have a lot of incredible assets and infrastructure.
They have trillions of dollars of federally insured deposits,
which are basically the oil for the engine.
>> [LAUGH] >> To do lending and to do payments, and
to provide liquidity services.
So they have an incredible asset with respect to their balance sheets,
their infrastructure.
The fact that they are regulated, they are trusted, they have access to a lot
of the payment clearing and settlement systems, which are incredibly valuable.
So what we think about is kind of the distinction between
all of the great infrastructure services that a bank can provide and
then kind of the consumer facing products.
And, not the best analogy, but one of the things we think
about all the time is kind of how Apple has evolved their model.
And it's really interesting, and Apple, either the largest or second largest,
I haven't looked today on their market cap versus Google's, but
in terms of what they provide in terms of an operating platform.
And I think people, they think about their Apple device but the reality is,
they're using so many other products that are built off of the hardware and
the operating system, off of the Apple device.
And so I think that what we could see evolving with some financial
institutions is them being maybe more of an operating platform provider.
Allowing a lot of other software or client facing technologies that,
again, can leverage their infrastructure, can leverage their assets in
a way that they can still monetize that, provide some very valuable services.
But get the network effect, and I'm stealing a little of Reetika's thunder,
because the network effect is something she talks about all the time.
Of actually having other companies that are out there originating business for
you off of your platform or off of your infrastructure.
So we see kind of, possibly not for every single traditional financial institution,
but for some kind of an evolution to a model like that.
But in terms of the broader question, will banks need to be in existence?
Some form of an entity that can manage federally insured deposits on behalf
of consumers and can provide some of the major infrastructure services,
we think will be a necessity.
>> Yeah,no, I mean,
I think that you've pretty much summarized what I was going to say as well.
But I did kind of allude to it earlier is that companies today,
the startups today that are successfully innovating and
successfully disrupting in the backend are actually partnering with many banks.
And we are, that we'll work with a start up and help them gain access
to the infrastructure that helps power the ecosystem while they spend the time and
energy focusing on the front-end experience.
And gaining that network effect of reaching
a broad customer base with their particular solutions.
So, yeah I'm very much in agreement that I think that that
infrastructure is still going to be very important in the future.
>> And there have been a lot of questions about whether or
not this has been recorded and whether or not the materials will be available.
And yes they will be available.
Correct?
Okay, the recording will be available.
The slides will not be available.
So another question that just came in,
which is pretty interesting, is trying to summarize this.
This is kind of a long question.
But in terms of what we have found through our own experiences is the most
valuable ways to improve the user experience or UI.
Since a lot of this comes down to the experience.
Well, I'll let you start with that one, Reetika, just in terms of what we've seen
in terms of working within tech companies and venture backed companies on how they
approach that maybe a little bit differently than the incumbents.
>> Yeah, I mean, I think that one thing that we see, and
I mentioned that I run the accelerator program in conjunction with MasterCard,
called Commerce Innovated.
So we some very, very early stage companies that come with their ideas,
and their businesses and how to bring to market.
And one thing that we see predominantly among those companies is, they're
all trying to solve a particular pain point that they've experienced themselves,
from frustration that they've got with the UI or
UX that they've been struggling with.
So they bring that sort of personal experience and
that personal perspective to the solutions that they bring to market.
The other thing is, they're taking influences from
technology companies instead of banks, so it's the,
how do I vote things up and down in Facebook versus how
do I express preferences in the world of banking, right?
So, they're taking cues from the ecosystem of technology providers that they like and
pulling those together and sort of driving unique experiences.
>> Yeah, and I would just say the last thing is a little redundant from what I
said earlier is, they start with customer or business expectations first.
And really, kind of the design process starts with the experience with
the customer with the business, as opposed to the design starting with a product.
And that's kind of a profound difference in user experience development is really
starting with the overall end-to-end experience that you're trying to deliver.
And to Reetika's point, most of the times it's around solving a pain point or
eliminating friction from the process.
And then the product is kind of built from there.
The other thing that I think that they do very well.
The ones that do this very well have a recognition of the necessity for
backwards compatibility.
And what I mean by that is, a lot of these things,
a lot of these models are built on other infrastructure.
Or they have to have access to existing clearing networks or
existing payment networks.
And creating that level of backwards compatibility is very important.
So again, I think they start with trying to design a user experience first and
then insuring that there's backwards compatibility about how that then is
engineered and configured to work within the existing.
So again, many times it's just about building a complete abstraction layer
between the consumer and
all of the kind of friction that can be created around the product.
Another interesting question that came up was around PayPal,
in terms of their role around the Fintech revolution.
And I would say that they're one of the pioneers [LAUGH].
So I think PayPal is unquestionably one of the first fintech companies
that did have a consumer direct product and a small business direct product.
And again, if you go back, and
it's been awhile, but they were solving something very, very specific.
What was very challenging, and that was, how could individuals exchange value
between each other if they weren't physically with each other?
[LAUGH] And as much as we take that for granted today,
the ease in which, that didn't exist back then.
So the idea of, if I was in one physical location and
Reetika was in another physical location, and
we wanted to conduct commerce, it was really difficult to do that.
And again combined with kind of the birth of eBay and the idea that
there could be a digital marketplace that people could go to to conduct commerce.
I think that absolutely was a key aspect of helping PayPal get launched.
But they solved something that was really big and that was how to create a digital
experience where stored value could be exchanged between two individuals, that
not only are not physically in the same place, but don't even know each other.
They created a trusted network where they could between two individuals who
wanted to conduct commerce and really kind of facilitated a way to do it
digitally that really didn't exist prior to that.
So, they were really incredible pioneers, and they're obviously an unbelievable
success story just in terms of, going back to what we talked about earlier,
about can these companies build sustainable, growing organizations.
I think PayPal has absolutely proven to do that.
>> Yep.
>> One or two other questions?
>> There's a question in here about, stage do you recommend a fintech
startup to approach a venture capital of EC to raise money?
And there's a few different answers to that question, and
I'm sure Bruce has got some opinions as well.
But I think that today, venture capitalists tend to look for
specific factors when they are investing in a brand new company,
early, early, earliest stage.
And I think today there are so many different ways to raise capital outside of
the traditional VC model based on the level of experience that you've got,
bringing new ideas to market,
some of those alternative methods might be a good way to get started, right.
There's angel investing, there's crowd funding.
We talked a little bit, Kickstarter was on one of our slides.
There's AngelList, etc.
So, there may be a point where some of those alternative methods of
getting some seed funding in place might be a better strategy than trying
to go straight to a VC firm to raise money to get your product off the ground.
And then bringing in somebody of a more strategic nature,
like a venture capitalist, to help you when you're at an inflection point is
more of what we're seeing in the market.
For bringing new founders, for repeat entrepreneurs,
going directly to the VC is still happening.
>> Yeah, the last comment I would make since we are at the top of the hour is,
I think for fintech companies in terms of getting venture funding.
Two things that they probably have to do that's a little different than other
venture backed tech companies is one is, I think they have to show and
demonstrate that they've got a robust compliance risk management and security.
And I would understrike security,
because again you're now dealing with some element of financial transactions.
And I know there were a few questions earlier about cyber security and
I think cyber security is important in almost any industry, but
in this particular industry it is at the absolute top.
And the last comment I would make is, I think that you really need to demonstrate
that you have a client acquisition and more importantly a client retention model.
One of the things around fintech that again is slightly different than some
of other tech models, is it can't be a transactional model.
It has to be a relationship model where you're going to get sustained
continuous transactions from the individual on your platform.
And showing that you can not do just a single transaction with a consumer,
but you can actually have a model that you can continue to
sell to that consumer is very important.
I think we're at the top of the hour.
>> I think so. So again thank you Reetika and Bruce.
Very informative and enlightening and thank you all for attending.
I hope you will come back again soon and attend one of our other webinars.
So have a great day, wherever you might be in the world at this point.