SVB Analytics Asia Tour 2015 SSVB Frontier Technology Forum Fintech Forum

Transcription

1 SVB Analytics Asia Tour 2015 SSVB Frontier Technology Forum Fintech Forum Steve Allan, SVB Analytics Dec 18,

2 SOURCES Utilities of a Bank Functions Intermediary Risk Mgmt. Enforcement Custody Transit USES Attributes Trust Reputation Regulation Utility Location 2

3 Unbundling the Platform Banking Lending Personal Finance Payments Remittance & FX Lending Club Simple Square WorldRemit Affirm Digit Stripe TransferWise SoFi BillGuard LevelUp peertransfer Zopa Moven Venmo Ripple Labs Kabbage Credit Karma WePay Azimo Financial Services Wealth Management Insurance Payroll & Benefits Funding WealthFront Oscar Zenefits AngelList Personal Capital Acorns CoverHound Insureon ZenPayroll JustWorks Equitynet Kickstarter Betterment Crowdfunder Robinhood 3

4 Exploding Level of Investment in Fintech Fintech Investment Volume Investment ($MM) # of Deals $14, $12, $10, $8, $6, $4, $2, $ United States Europe Asia Pacific Other # of Deals 100% 80% 60% 40% 20% 0% 9% 28% 16% 29% 2014 Investment Mix 4% 12% 25% 54% # of Deals Investments ($MM) Payments Lending Other Wealth Mgmt Markets Risk & Security Insurance While the broader Fintech ecosystem has experienced incredible investment growth, the lending and payments areas have dominated the landscape, accounting for nearly 80% of all Fintech venture investment dollars in 2014 Source: Accenture, CB Insights 4

5 Fintech Investment Maturation Median Round Size ($MM) Invested Capital by Round $60 $50 $40 $30 $20 $10 $- 100% 80% 60% 40% 20% 0% Seed Series A Series B Series C Series D Series E+ Fintech venture investments have steadily migrated towards later-stage funding rounds (Series C and above) since 2013, driven by lending and payments. These once nascent areas shifted to scaling businesses Source: Pitchbook 5

6 Fintech Crowned Unicorns Company Valuation ($B) Lufax Square Stripe Zenefits SoFi CreditKarma Powa Technologies Mozido Adyen Klarna Avant Credit One97 Prosper Oscar TransferWise Zuora Kabbage China Rapid Finance Coupa Jimubox FundingCircle $0 $2 $4 $6 $8 $10 $12 Fintech Segment Unicorns Market Value Lending 8 $23.7B Payments 8 $21.9B Other 5 $11.8B Total 21 $57.4B With the explosion of unicorn valuations over the past three years, Fintech has seen a disproportionate share of those esteemed valuations concentrated in lending and payments Source: CBInsights 6

7 Alternative Lending 7

8 Low Interest Rates Drive Alternative Lending ROI Spread over Deposits Origination Volume Growth 12% 10% 8% 6% 4% 2% Loan Volume ($M) $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 0% * $ * 60-month CD Rates <$100k Lending Club Prosper Lending Club - ROI (Adjusted for Charge Offs) Prosper - ROI (Adjusted for Charge Offs) In an environment of sustained low interest rates, coupled with the technology advancements, investors on P2P lending platforms are increasingly finding enhanced yield opportunities in alternative lending investments, driving loan origination volume growth Source: Lending Club, Prosper Marketplace, Federal Reserve Bank of St. Louis 8

9 OpEx % of Loan Balances Platform Efficiencies Platform Lending Business Model Drives Lower Costs Illustration of Platform Lending Efficiency 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 4.9% 5.1% 5.9% 6.2% 7.1% 8.5% Median 2.0% 25% 20% 15% 10% 5% 0% 22.1% 1 Costs, Revenue, & Charge Offs 0.79% % 3 7.9%+ Net Annualized Return 4 Traditional Banks Lending Club Platform lending efficiencies driven by technology and business model lead to 50-70% lower operating expenses over traditional lenders, resulting in greater savings for borrowers and improved returns for investors Source: Left Chart: Company filings Right Chart: Lending Club SEC Form 10-Q 09/30/ Based on borrower responses to survey conducted by Lending Club between 10/1/14 10/1/ month CD rates < $100k, St. Louis Federal Reserve. 3. Average interest rate for borrowers who received a loan to consolidate existing debt or pay off credit card balances per Lending Club survey. 4. Median Adjusted Net Annualized Return for investors with 100+ notes, note concentration of <2.5% of portfolio value, all loan grades, and portfolio age of months 9

10 The Refinance Incentive Lending Club Reported Loan Purpose Revolving vs Term Loan Interest Rate Spread 18% Other 32% Refinancing 49% 16% 14% 12% Credit Card Payoff 19% 10% 8% Finance Rate on Personal Loans, 24 Months Credit Card Interest Rate, All Accounts Borrowers, presented with a substantial cost savings incentive to refinance existing credit card and other debt, represent the predominant borrowing use-case. At the same time, platform investors are presented with an opportunity to gain exposure to an asset class previously restricted to banks and financial institutions with the infrastructure to facilitate such transactions Source: Lending Club, Federal Reserve Bank of St. Louis 10

11 Payments 11

12 Technology Fuels Card Payments Growth Cloud Networks Devices Driving. U.S. Card Payment Volume Growth $10.0 $7.6 $4.9 $ P 2023P Technological advancements in the payments sector has lead to the popularization of card payments and the increased acceptance of card payments 12

13 Leveraging the Existing Payments Networks Value-add layer: innovating at the endpoints Payment Networks Payors Fed ACH / Wire / Check Card Networks Visa, MasterCard Payees Considering the strength and viability of the traditional payments ecosystem, there is a clear trend with investments in payments companies to innovate on top of this existing ecosystem and disrupt incumbents at the endpoints 13

14 Global Remittance Market Drivers of Growth Globalization Internet Proliferation Mobility 10% 9% 8% 7% 6% Global Cost of Sending Remittances Disruption Opportunity $600B Market Billions Put Back in the Hands of Consumers Closed Loop Advantage 5% 4% Global Weighted Average Global Average The historical concentration of players in the remittance market coupled with high transaction fees creates a tremendous opportunity for technological improvements Source: World Bank 14

15 Blockchain Technology over Bitcoin 250, , , ,000 50,000 0 Daily Transactions - BTC 400% 350% 300% 250% 200% 150% 100% 50% Volatility - BTC 0% 2013/1/1 2014/1/1 2015/1/1 Daily Transactions BTC Annualized Volatility S&P Annualized Volatility GLD Annualized Volatility Focus is shifting from the promise of Bitcoin to the power of the Blockchain, a technology that leverages the power of a distributed ledger to simplify financial transactions Source: Coindesk, Yahoo Finance 15

16 Concluding Summary Technology enablement and regulatory constraints are unbundling the value chain of many core financial products, moving it away from centralized financial institutions back to the nodes of capital supply and demand The rise of alternative lending models holds a lot of promise for both borrowers and investors; recent economic trends have greatly contributed to the sector s growth, but their tech stack and customer experiences are re-writing the playbook for consumer and SMB lending Payments innovation is highly focused on the endpoints, leveraging the existing payments infrastructure in new ways to create value for both consumers and merchants Extension of financial services will grow to the previously underbanked or uncardable populations as technology reduces barriers to individualized financial servicing while lowering the overall costs of financial transactions with the greatest impact on the underserved 16

17 Disclaimers This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information from third-party sources that we believe to be reliable, but which have not been independently verified by us and for this reason we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction SVB Financial Group. All rights reserved. Member Federal Reserve System. SVB>, SVB Financial Group, and Silicon Valley Bank are registered trademarks. SVB Analytics is a member of SVB Financial Group and a non-bank affiliate of Silicon Valley Bank. Products and services offered by SVB Analytics are not FDIC insured and are not deposits or other obligations of Silicon Valley Bank. SVB Analytics does not provide tax or legal advice. Please consult your tax or legal advisors for such guidance. 17

18 Thank you.