Reasons Why Broker Dealers Need a FinTech Strategy

presents

@S2EConsulting www.linkedin.com/company/S2E-Consulting-llc www.facebook.com/S2EConsulting

www.S2EConsulting.biz [email protected]

August 27, 2015

Copyright © S2EConsul3ng, LLC.

The presenter has spent more than a decade in the US Financial Services industry, and had built a successful corporate career that traversed multiple functional areas before turning an entrepreneur.

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•  13+ years in US financial services: American Express, Ameriprise Financial, Charles Schwab, LPL Financial

•  Career in Finance, Corporate Strategy, Marketing, Practice Management and Technology areas

•  Program/ Product/ Segment/ Business Management and Growth

•  Advised CXOs of large organizations as well as Executive Directors/ Owners of small to mid-sized businesses

•  MBA from Indian Institute of Management Bangalore

Sandhya Krishnamurthy Founder and CEO, S2E Consulting


Today, we’ll discuss why every Broker Dealer incumbent needs to have a FinTech strategy and share a step-by-step approach to creating one.


§  ‘FinTech’ and ‘FinTech Strategy’: Our perspective

§  3 Reasons why IBDs (you) need a FinTech strategy ü Robo-advisor landscape

ü Incumbent actions

§  Developing a FinTech strategy: A step-by-step approach

§  Resources available

1

2

4

3


‘FinTech’ refers to the role of software in the financial services institution’s business model. Though the ‘Radical view’ is no longer radical, for now, we will stick with the ‘Current view’ of FinTech.


RESTRICTIVE/ TRADITIONAL VIEW

“… use software to refresh their

interactions with customers by re-engineering their front end, middle

office and back office.”

CURRENT VIEW

“...use software to refresh their interactions with customers and to compete with upstart technology

disruptors.”

RADICAL VIEW

“…will be modeled after the Silicon Valley startup paradigm that fully

leverages technology ..across all aspects of their operations”

Source: Pascal Bouvier, General Partner at Route 66 Ventures; http://finiculture.com/defining-fintech-the-ultimate-rorschach-test/

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A deliberate decision taken by the financial services organization on the future role of technology, especially software, as a business (revenue) driver to effectively compete in the market place and identification of an approach with “big rocks”/ levers to reach that desired state.

FinTech Strategy:


“Four of today’s top 10 in each

industry will be displaced by digital

disruption in the next five years…..”

Digital disruption not seen as worthy of

board-level attention: 45% of companies

Not taking a proactive approach to digital

disruption: 75% of companies

Source: http://www.imd.org/uupload/IMD.WebSite/DBT/Digital_Vortex_06182015.pdf

- Global Center for Digital Business Transformation (DBT Center)

Financial Services Executives acknowledge that the threat of digital disruption is real, but are not doing enough to address it.


Why IBDs Need A FinTech Strategy:# 3 Reason

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Get ready for tomorrow’s world AKA Digital Network Evolution

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#3

#2

#1


Web 1.0: Access 1985 – 1999

Access, Information, Ecommerce

1: M Business to Consumers

Web 2.0: Sharing 2000 – 2010

Caring and Sharing 1:1

Consumers to Consumers

Web 3.0: Value 2010 – 2020

Mobile network, Internet of Things and 3D printing

M:M Machine to Machine

Web 4.0: Immersion 2020 – 2030

Web as a an extension M:1

Machines to consumers

After the first two generations of the digital network evolution, we are now in the 3rd generation, where high mobile penetration, IoT and 3D printing are redefining money and exchange of value.

8 @S2EConsul3ng #S2EWebinar Source: “The future of money, trade and finance” - Chris Skinner at USI Events 2015


Web 1.0: Access 1985 – 1999



Web 2.0: Sharing 2000 – 2010



Web 3.0: Value 2010 – 2020






Mobile network penetration now allows people previously left out of the financial system to get included; FinTech disruptor organizations are designed to operate in this new ‘digital’ paradigm.


Turning point: -  “mobile financial inclusion” -  Restructuring of financial

system for digital data distribution globally

Source: “The future of money, trade and finance” - Chris Skinner at USI Events 2015


Web 1.0: Access 1985 – 1999



Web 2.0: Sharing 2000 – 2010



Web 3.0: Value 2010 – 2020






It you don’t have a FinTech strategy to distribute digital data globally, you’ll be left behind of what comes next: Internet of Things. IoT will enable a value chain defined by effective use of data.




What’s next in 5 yrs: -  IoT => value driven by

digital data -  Devices transact on your

behalf; provide data for personalization



Web 1.0: Access 1985 – 1999



Web 2.0: Sharing 2000 – 2010



Web 3.0: Value 2010 – 2020






Many large, forward thinking, financial services institutions have realized that their business model needs to be ready for this future and have started investing in their evolution.




What’s next in 5 yrs: -  IoT => value driven by

digital data -  Devices transact on your

behalf; provide data for personalization

Is your business model equipped to effectively use real time data to provide personalized experience?



“Digital Darwinism is unkind to those who wait” – R ‘Ray’ Wang; Author, ‘Disrupting Digital Business’ (HBR Press)



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Compete effectively in the market place


#3: Get ready for tomorrow’s world

#2

#1


FinTech Sector scan shows close to 1150 FinTech disruptors. About 100 disruptors operate in the Retail Wealth Management space with 60 more in the Institutional Wealth Management space.

14 @S2EConsul3ng #S2EWebinar Source: Venture Scanner; https://venturescannerinsights.files.wordpress.com/2015/04/fintech-visual-map5.jpg


When compared to the overall US Wealth Management market size, these disruptors look small. But most are less than 5 years old and show growth potential – if backed by funding and clients.


Company AUM Started in

$2.5 Bn 2010

$2.6 Bn 2011

$1.5 Bn 2009

$600 MM 2010


Funding and deal sizes in the FinTech space have continued to grow the last few years; Several Financial Services and non- Financial Services incumbent Corporate VCs are actively investing.

•  VentureScanners: –  Total Funding: $19.7 Bn

•  CB Insights: –  YoY Funding growth: 45.83%

–  YoY Deal growth: 16.41%

–  Corporate VC backed deals up 75% between 2011 and 2014

•  Financial Services CVCs: –  Goldman Sachs, J P

Morgan, Citi Ventures •  Non Financial Services

CVCs: –  Google Ventures


Source: CB Insights


Wealth Management FinTech disruptor frontrunners have solid backing from investors. With increased consumer acceptance and funding, automated investment advice is here to stay.


Source: CB Insights; https://www.cbinsights.com/blog/fin-tech-startups-millennials/

Company AUM Select Investors

$2.5 Bn Bessemer Venture Partners, Athemis Group, Menlo Ventures

$2.6 Bn DAG Ventures, Index Ventures, Greylock Partners, The Social+Capital Partnership

$1.5 Bn Institutional Venture Partners, Venrock, Crosslink Capital

$600 MM (Bring acquired by BlackRock) Sequoia Capital, Canvas Venture Fund, Devonshire Investors

N/A Doll Capital Management, Union Square Ventures, Bain Capital Ventures

N/A Google Ventures, Index Ventures, Andreessen Horowitz, NEA, Ribbit Capital

N/A Norwest Venture Partners, Foundation Capital, Ignition Capital, Goldman Sachs

$110 Bn N/A


Incumbents sense both threat and opportunity. Several Financial Services and traditional FinTech incumbents have responded with partnerships, acquisitions and their own ‘robo-advisor’ versions.


•  8/2015 BlackRock > FutureAdvisor

Q4 2014

Q1 2015

Q2 2015

Q3 2015

•  10/2014 TD Ameritrade Open access Platform Veo

•  10/2014 Fidelity <> Betterment

•  12/2014 Fidelity <> LearnVest

•  2/2015 Fidelity > eMoney

•  3/2015 Northwestern Mutual > LearnVest

•  3/2015 Envestnet > Upside

•  3/2015 Schwab Intelligent Portfolios

•  5/2015 Vanguard Personal Advisor Services

•  5/2015 Envestnet > Finance Logix

•  6/2015 Pershing <> Marstone

•  6/2015 Schwab Institutional Intelligent portfolios

•  7/2015 LPL announces its robo advisor for Sep launch

•  8/2015 Envestnet > Yodlee

•  8/2015 FIS> Sungard

Legend:

Incumbent Robo-advisor

Partnerships Acquisitions



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Meet your customers’ and prospects’ expectations


#3: Get ready for tomorrow’s world

#2: Compete effectively in the marketplace

#1

Copyright © S2EConsul3ng, LLC. 20 @S2EConsul3ng #S2EWebinar Image: Business Insider

Are you ready to provide relevant, real time, contextual insight and advice to highly mobile, social media active, P2P engaged investors?


Basically, developing your FinTech strategy involves deciding what your FinTech capability should be to compete effectively and identifying a sound approach to get to that desired state.


A

B

Your FinTech capability (Today)

Your aspired FinTech capability (Future)

Your approach

(and enablers)


Should Broker Dealers only focus on ‘automated investment advice’ as their FinTech area? With disruption blurring sector lines, all FinTech areas need to be considered.


Source: http://www3.weforum.org/docs/WEF_The_future__of_financial_services.pdf


Documenting Point A is straight forward. Identifying Point B needs a little more work. Start by taking a closer look at your target segment and by anticipating their future needs/ expectations.


TARGET MARKET


How will you solve for their need and deliver your value proposition in this new digital paradigm? Like a future bank, a future wealth management business cannot count on its current revenue drivers.


TARGET MARKET

VALUE PROPOSITION

BRAND EXPERIENCE

“Vision of a future bank: -  Not see customer face to

face - only screens -  No margins on loans -  Free alternatives for

current bank offerings elsewhere”

Chris Skinner, FS Club


What products and services will you use to deliver your value proposition in that new paradigm? Decide on the role of software products in that business model. That is your Point B.


TARGET MARKET

VALUE PROPOSITION

PRODUCTS & SERVICES

BRAND EXPERIENCE


TARGET MARKET

VALUE PROPOSITION

PRODUCTS & SERVICES

COST STRUCTURE

REVENUE STREAM

BRAND EXPERIENCE

Your FinTech strategy will also inform several aspects of your business model: potential cost structure, potential revenue stream and potential changes in organization structure.


You have several options for reaching your desired state of FinTech capability; The option you choose will reveal the levers you need to pull to get to the desired state.


ü  Build/ enhance in-house §  Innovation programs §  Incubators §  Accelerator (monitored outside)

ü  Acquire

ü  Strategic partnership

ü Corporate VC investment

More Control/ Involvement

Less Control/ Involvement


Investment in these three areas is a requisite, irrespective of your FinTech strategy since the future will be more digital data intensive. Strategic IT should focus on security and computation accuracy.


1.  Transformation into a data-driven culture: Data analytics

2.  Strategic IT Roadmap

3.  FinTech 2016 Action Plan

Investment Areas

Leverage this webinar or invite us to your annual planning meeting to share this information


Find ways to convert Capex into Opex to pay for future investments.


1.  Cloud Computing

2.  Pay as you go (consumption)

3.  POC discussions with vendors

1.  Transformation into a data-driven culture: Data analytics

2.  Strategic IT Roadmap

3.  FinTech 2016 Action Plan

Investment Areas Cost Efficiency Areas

Leverage this webinar or invite us to your annual planning meeting to share this information


Since 2000, 52% of the Fortune 500 have merged or been acquired, gone bankrupt, or just fallen off the list. 75% of the current S&P 500 is expected to be replaced by 2027.


Image: 4ever.eu Source: Innosight; R ‘Ray’ Wang


Several resources are available to help your transformation. At the least, consider engaging a strategy and execution consulting firm as a thought partner.

•  Startup Researchers: CB Insights, Venture Scanner

•  Technology Researchers: Gartner, Forrester

•  Strategy Consulting Firms: Mckinsey & Co•  IT Consulting Firms: Deloitte, IBM, Accenture, Cognizant

•  Thought Leaders: –  @PascalBouvier–  @FSClub–  @JimMarous

•  FinTech Seminars and Conferences

•  S2E Consulting



Consider S2E Consulting as one of your resources. Here’s some additional information about us.

•  ‘Strategy’ to ‘Execution’ Consulting

•  Financial services industry

•  Small to Mid-sized businesses

•  Funded FinTech, Financial Services Incumbents and Service

providers to Financial Services industry

•  Partnerships with industry leading service providers

•  Services:

–  Business strategy planning

–  Marketing strategy planning

–  End-to-end program planning

–  Execution planning

–  Business Intelligence/ Analytics

–  IT strategy roadmap

–  Product strategy and development



Contact us: [email protected] (510) 516 6443 Visit us: www.s2econsulting.biz Connect with us: Twitter: @S2EConsulting LinkedIn: S2E-Consulting-LLC Facebook: S2EConsulting

We enable Financial Services businesses to navigate and compete effectively in this shifting industry landscape

Thank you for attending the webinar. S2E Consulting and our partners will be happy to explore if we can help you. Contact us.

Date post:	22-Jan-2018
Category:	Economy & Finance
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Reasons Why Broker Dealers Need a FinTech Strategy

Economy & Finance