The Why of FinTech:

Overview
Professor David LEE Kuo Chuen

1
Let us start with

FinTech!
In the beginning

2
 Fintech Growth
Global Fintech Financing Activities
25000
1200
There was a
$23
Billion 1100
159% increase
20000
in the number
Funding
1000 of deals to
Deals 1202 in 2015
Investment in MM USD

15000 se 900 with more

Number of Deals
a
cre
In than USD23b
59% $12 800
investment,
1 Billion
10000
700
with a CAGR
of 75%
600
5000
$4.4 500
$2.5 $3 Billion
Billion Billion
0 400
2011 2012 2013 2014 2015
Source:
 USD2.2b raised for Millennials Fintech
Loyal3, Motif, Robinhood, Kapitall, Tip’s Off, DriveWealth, Openfolio, eToro, Stox, TradeHero

Level Money, Wealthfront,

Homeslice, Hello Betterment,
Digit, Acorns, Even, LearnVest, Sigfig,
Qapital Personal capital,
WiseBanyan,
Rebalance IRA,
FutureAdvisor

Moven, Osper

Valorie
Tilt, GoFundMe

Venmo, Square CommonBond, SoFi, Upstart, Affirm, Earnest, Vested, Vouch, Pave, Tuition.io,
Valorie
 FinTech refers to new solutions which demonstrate
innovation development of applications, processes,
products or business models in the financial services
industry. These solutions can be differentiated in at least
five areas:
Current Customer Interaction
Business process Market position
Sector segment form

• Payments
• Investments • Retail
Financing banking
• • C2C • Bank/insurer
(e.g. crowdfunding) • Corporate
banking • Non-bank/insurer –
• Insurance (e.g. risk bank/insurer-
• Bank management) • Private
• B2C cooperation
• Insurer • Advisory banking
Cross-process (e.g. big • Non-bank/insurer –
• • Life bank/insurer-
data analytics and insurance
predictive modeling) • B2B competition
• Infrastructure (e.g. • Non life
security) insurance
 FinTech, TechFin and BankTech
According to Bard
• Fintech refers to companies that use technology to provide financial
services. These companies can be startups or established financial
institutions. Some examples of fintech companies include PayPal,
Venmo, and Robinhood.
• Techfin refers to technology companies that offer financial services.
These companies typically have a large customer base and a lot of
data about their users. They can use this data to offer financial
products and services that are tailored to their customers' needs.
Some examples of techfin companies include Google, Amazon, and
Apple.
• Banktech refers to the use of technology by banks to improve their
operations and services. Banks are increasingly using technology to
automate processes, improve customer service, and offer new
products and services. Some examples of banktech initiatives include
mobile banking, online banking, and ATMs.
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 Differences As Summarised by Bard

Feature Fintech Techfin Banktech

Origin Financial services Technology Banking

Provide financial Offer financial products Improve banking

Business model
services and services operations and services

Large customer base Existing bank

Customer base Varies
with data customers

Tailored to customer Traditional banking

Products and services Varied
needs products and services

7
 • Whether Fintech or
Techfin, they must be
using new technology to
In
serve new customers,
Summary beyond the current
traditional customer base,
related to finance.

8
 Core Difference: Silo Versus Flat

Traditional Financial Services Fintech

Ap
pli
ca
tio
n
ud
Infrastructure

Cl o
Platform

Medium
Channel
Product

Custom

Custom
Core Difference: Liability Versus Mission accounting

Traditional Financial Services Fintech

Infrastructure

Product
application
Data

Platform

Computing
Channel

customers
Medium

Custom
 • Lower margin businesses like micro-finance
and micro-insurance will become not only
viable but profitable
• Additional services such as credit rating, e-
commerce, O2O (Online-Offline), LBS
(Location Based Services) can enhance
stickiness and profitability
Financial • Consumers will be attracted by the low costs
Technologies and convenience these new technologies
will bring
and • Traditional financial institutions with heavy
Disruption assets and large fixed costs will be unable to
respond to these disruptions and will be
disrupted
• Compliance cost and political resistance will
be lowered by aligning with the
governments’ social, economic and financial
inclusion agendas with skillsfuture job
creation as a priority
Unbundling the
bank with Fintech
• Why is unbundling the trend?
• Millennials demand personal
control and transparency of their
financial interactions from banking
to insurance
• Less than half of Millennials (46%)
see themselves staying with their
current financial services companies
over the next few years
• 76% of affluent millennials would
seek information about personal
investing on a social network, as
opposed to just 18% of the affluent
Gen Xers
 How does Fintech do it?
Low Costs with Innovative Use of Compliance
Technology Technology

• Align with
Government’s
Lower Margins Mission of
Social,
Economic and
Financial
Inclusion
• Social Networks
• Light
Asset Light • Crowd Knowledge/Wisdom
Regulation or
• Big Data:
 Market Analysis Compliance Is
 Credit Scoring Not Necessary
• Artificial Intelligence
• Cyber Security:
 Private Key
Scalability is High  Touch Recognition
Rebundling the
Bank
• Some Fintech companies expand into
other financial services after initial
success
• Next, we look at some examples of
how this re-bundling occurs
• Telecom Fintech: MPESA
• Social Media Fintech: Fidor Bank
• E-commerce Fintech: Alibaba and
Alipay
M-PESA
• Launched in 2007, M-PESA
(pesa meaning money in
Swahili) is a mobile money
transfer service introduced by
Safaricom (a
telecommunications provider
in Kenya)
• It drives financial inclusion by
providing money transfer
services, local payments and
international remittance
services
M-PESA
• As of 2014, M-PESA has
• 81,025 agents
• 122,000 registered merchants (24,137 active),
• 19.3 mil registered customers (12.2 mil active)
• It accounts for 18% of Safaricom revenue and has
penetrated 90% of Safaricom’s customers
M-PESA

M-PESA: Percentage of Safaricom Users

25 100.00%

20 80.00%

15 60.00%

10 40.00%

5 20.00%

0 0.00%
FY08 FY09 FY10 FY11 FY12 FY13 FY14

M-PESA Users (mil) Safaricom Users (mil)

Penetration Rate for M-PESA

Figure 5. Percentage of Safaricom customers registered on M-PESA

 M-PESA

M-PESA has since expanded to Tanzania,

Afghanistan, South Africa, India and Eastern Europe

It has also expanded into more products:

• M-Shwari, a paperless banking platform with loan services
• Lipa Na M-PESA, payment for goods and services
• Lipa Kodi, rental payments to landlords
• Pay bills, public transport, insurance premiums
• Receive pension or social welfare payments
Fidor Bank
• Fidor Bank was established in
Germany in 2007
• It is the world’s first online-only
bank that operates only through
the internet and using social media
• In 2014, Fidor has more than
300,000 people registered and
250,000 community members
• €200m worth of deposits, and its
lending totals about €160m
• Only 34 staff and no branches
• Cost of only €20.00 to set up a
customer with full banking, the
overheads are low compared with
traditional banks
Fidor Bank
• Fidor Bank is a leader in
innovative banking processes
with several awards including:
• Most Innovative Bank for
Social Media- Germany
(2013, Global Banking and
Finance Review Award)
• Most Innovative Bank-
Germany (2013, International
Finance Magazine)
• Bank Innovation Award (2013,
Bankinnovation.net)
 Fidor Bank
• Ways they engage customers through
social media
Fidor Tecs

• fidorOS is an open middleware software on

top of local core banking systems and
provides next generation community,
payment, and banking service solutions
• fidorOS is also a middleware written
specifically for modern banking which
enables:
• Send money instantly to friends via
Twitter, Email or mobile number
• Lend money to friends
• Social trading, Social lending
• Crowdfinance: Funding & Investing
Fidor TECS

• Using public APIs, Fidor seeks B2B clients to

do for banking what Apple did for mobile
applications with iTunes
• A completely new technology that is not
tied to any legacy code
• Flexible enough to be used on nearly any
core banking system and powerful enough
to be used by banks as white label
• Full white label: look and feel can be
customized
• Content of In-Account App-Store can be
defined by white label partner
Alibaba and
Alipay
• The Alibaba Group is a
Chinese e-commerce
company started in 1999
by Jack Ma
• It provides c2c, b2c and
b2b sales services via the
internet
Alibaba and Alipay

• In 2004, Alipay was established as a

payment platform and provide an escrow
service
• It quickly expanded to include movie,
plane and lottery tickets, ordering of
takeaways, insurance, payment of
utility bills
• Soon, it went offline and is used as a
POS system by small businesses
• However, the payment platform was just
the beginning
Alibaba and Alipay
Rebundling:
Lessons Learnt
Institutions with large existing consumer base have the most
potential

The integration of social networks with technology is

innovative and crucial

The provision for innovative and

Agent Based, Risk Capital Based or
specialized fintech products Insurance Based
through large trusted entities
 LASIC Principles
CHARACTERISTICS DESCRIPTION
Start Low to:
• Attract & Build Critical
LOW MARGINS Mass
• Prevent Competition

Ride on Existing Infrastructure

ASSET LIGHT • E-Commerce
• Telecom Companies
• Expandable without Exponential
Costs
SCALABLE • Technology allows for Large Scale
Changes
• Use of Technology such as Social Media
to find Untapped Markets
INNOVATIVE • Disruptive & Inclusive (NOT Exclusive)
• Solves Real Issues/Problems
• Great Likelihood for Gov’t
COMPLIANCE EASY Support
• Lowly Regulated

Lee, David K.C. and Teo, Ernie G. S., Emergence of Fintech and the Lasic Principles (September
30, 2015). Available at SSRN: http://ssrn.com/abstract=2668049
FROM LASIC To CLASSIC Principles
The Economics of Financial Inclusion

• The global emergence of mobile technology

will play a large goal in enabling financial
inclusion
• Through mobile and other smart devices
– Many unbanked and underbanked segments
of the world will be able to gain access to
financial services.

Source: mashable.com
The Economics of Financial
Inclusion

Figure 2. Active mobile phone subscriptions

The Economics of Financial
Inclusion

Figure 3. Active mobile phone subscriptions per 100 inhabitants

The Economics of
Financial Inclusion
• The problem of financial exclusion does not
just exist in undeveloped countries
• 7.7% of US households are unbanked and
20% are underbanked
• The underserved in the world turn to non-
traditional forms of alternative financial
services such as those provided by cheque
cashers, loan sharks and pawnbrokers
• For example, illegal workers in the US who
cash cheques via agents such as cheque
cashing depots or convenience stores
The Economics of Financial
Inclusion

• The global picture of the

unbanked and underbanked
is even more skewed
• Only 50% of adults in the
world have an individual or
joint account at a formal
financial institution
(Demirguc-Kunt and
Klapper , 2012)
• There are 2.5 billion adults in
Source: newsroom.mastercard.com the world with no formal
bank accounts, most of them
in developing economies
 Mobile banking customers at the top 12 global banks

Mobile annual Online Mobile

Forbes Total
Bank HQ location banking mobile banking percentage
rank customers
customers growth customers of customers

Industrial and
1 Commercial Bank China 100 million + 49.5% 390 million 432 million 23.2%
of China
China Construction
2 China 117 million 38.9% 150 million 291 million 40.2%
Bank
Agricultural Bank
3 China 83.0 million N/A 110.9 million 320 million 25.9%
of China
4 JPMorgan Chase USA 16.4 million 24% 35.0 million N/A N/A
Wells Fargo &
8 USA 12.5 million 23% 23.8 million 70 million 17.9%
Company
9 Bank of China China 52.1 million 24.6% 101.1 million N/A N/A
13 Bank of America USA 14.4 million 19.8% 30.0 million 50 million 28.8%
14 HSBC Holdings UK 2.5 million N/A N/A 60 million 4.2%
16 Citigroup USA N/A N/A N/A 100 million N/A
24 BNP Paribas France 1 million N/A N/A N/A N/A
Mitsubishi UFJ
37 Japan N/A N/A N/A N/A N/A
Financial
43 Banco Santander Spain 2.6 million N/A 11.6 million 106.6 million 2.4%
Source: Banks 2013 annual reports
Via © mobiThinking
Except JPM and WFC: Q1 2014 report.
Mobile (Internet) Banking Penetration

July 2015
 What can banks do?

Act open Collaborate Invest

Engage with external
technology solutions early
Open own IP to generate
new ideas
Co-innovate Venture investing in
Within industry: SWIFT, startups
Mastercard
Engage with startups:
Fintech Innovation Lab
Challenge: Organizational
Culture

Accenture (2015), “The Future of Fintech and Banking: Digitally disrupted or reimagined?”,
http://www.fintechinnovationlablondon.net/media/730274/Accenture-The-Future-of-Fintech-and-Banking-digitallydisrup
ted-or-reima-.pdf
 Insurance Tech
• Goggle Insurance Tech Moves
– Investments: Collective Health, OSCAR,
Gusto, The Climate Corporation
– Partnerships: American Insurance,
CoverHound, Liberty Mutual Insurance, VSP,
AXA

In Q2 2015, Zhong An and Zenefits invested USD1.4b

The Rise of China
FinTech
• China P2P (Peer-to-Peer) market is 5 times
larger than the US and UK combined
• Supply Chain Financing is growing
substantially
• RMB10b market in China
• Aggressive acquisition in logistic
facilities and companies outside and
inside China
• Crowdfunding is also expanding rapidly
• Debt, Equity, Donation and Reward
Based
• Real Estate Crowdfunding
• Movie Crowdfunding
 The Rise of eICBC

The Ranking of Rong e Gou is Number 3 in 2014

Transaction Volume in 2014
2,250,000

1,750,000
Mil (RMB)

1,250,000

750,000

250,000

Rong e Gou JD Alibaba

Transaction volume 70000 260200 2300000

Sources:
Rong e gou: http://finance.people.com.cn/money/n/2015/0112/c218900-26369498.html
JD: http://tech.gmw.cn/jd/2015-03/04/content_14993388.htm\
Alibaba: http://news.xinhuanet.com/fortune/2015-01/29/c_1114184822.htm
 By 2015 H1, Rong e Gou Has Overtaken JD

The Battle of Internet Finance and Internet Banking

Transaction volume in 2015 Q1-Q2 Total register users
375
¥1,300,000
325
¥1,100,000
275
¥900,000
225
Mil (RMB)

¥700,000

Mil
175
¥500,000
125
¥300,000
75

¥100,000 25
Rong E Gou JD Alibaba Rong E Gou JD Alibaba
Tranaction amount 204400 202300 1273100 Register users 18 105.2 367

Period: Jan 2015 – Jun 2015 (6 months)
Sources: Alibaba 交易额 : http://tech.sina.com.cn/i/2015-05-07/doc-icpkqeaz3326433.shtml （为
阿里巴巴 2015 第一季度的数据，京东和融 E 购数据是上半年的）
阿里巴巴 Q2 ： http://www.yocajr.com/news/detail/3056
京东交易额：为两季财报公布交易额的加总： 878 亿 +1145 亿
融 E 购交易额： http://news.xinhuanet.com/fortune/2015-08/06/c_128100835.htm
京东活跃用户 : http://news.xinhuanet.com/tech/2015-05/08/c_127780088.htm
融 E 购活跃用户 : http://www.ggjrw.com/zixun/xinjinrong/2015-06-16/4297.html
2014nian
Alibaba 活跃用户： http://tech.sina.com.cn/i/2015-05-07/doc-icpkqeaz3326433.shtml
China FinTech is Ready to Disrupt
the World
• Quick Loans
• Wealth Management
Products
• Supported by policies
on Big Data, Artificial
Intelligence, Internet
Plus (O2O, LBS),
Internet Finance, and
Financial Inclusion
• Capturing of capital outflow
from China
– Tourist expenditure
– E-commerce consumer
expenditure
• Locking in Lending to
Suppliers from Abroad
• Infrastructure Financing via
Asia Infrastructure
Investment Banks
• Acquisitions by Chinese
State-Owned Banks and
Internet Finance
Companies

44
Chinese Article that
presented arguments
for using “Blockchain
Technology” for
Singapore to expand
into ASEAN with 600m
people and to use the
Financial Inclusion
model of China and
Kenya for Singapore’s
neighbours.

-David Lee and Yan Li

15th May 2015, Lian Zaobao

45
 One Belt, One Road. One Net and One Fund.

They said it is not possible for China and some ASEAN countries to dispel all reservations and
cooperate merely on the basis of economic gains. Trusted by both sides, Singapore can act as a
platform for China to enter the ASEAN market. Furthermore, Singapore could adopt the strategy
supported by “Smart Nation” policy to set up infrastructure to boost internet finance and inclusive
investment, which will not only improve the quality of life in underdeveloped regions in ASEAN
countries, but further sustain Singapore’s leadership.

While Chine focuses on hardware, Singapore should focus on Smart Finance and Smart Nation
initiatives.

They also commended the Monetary Authority of Singapore for setting up the new FinTech and
Innovation Group to enhance efficiency and competitiveness of Singapore’s financial sector, and
guide the transformation of Singapore’s leading traditional financial institutes. 46
US Fintech: Mindset and Eco
System
48
Half the Unicorns are backed by a Corporate VC

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Corporate VCs: Financial Services

50
 Silicon Valley Eco System – The 3Cs

Community Compassion Creativity

• Supportive – funding, • Failure is a badge of • Crazy ideas are

mentorship, fiscal Honor (What have rewarded (table
you learnt?) tennis, sleeping
• Sharing of information, bags)
• Success is how high
network, knowledge,
you bounce after • It is all about having
food, bicycles
hitting the bottom fun: free, open,
• Accelerators, VCs, cool, awesome and
• A Sense of Mission
R&D, Universities, happy
(What problems are
Parents, Industry,
you trying to solve?)
Regulators, Sponsors,
BATS, listed
companies, SMEs,
startups
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 BBVA: Disappearing Act

Fintech acquisitions

Laying the groundwork for future potential acquisitions and strategic

partnerships

Reinventing services by investing in start-ups that set the pace for how
people borrow, lend and spend money in the future

Online-only bank – for Online-only bank – for Online-only bank – for

consumers (Europe) consumers (US) businesses

52
 BBVA: Disappearing Act
Investing activities
challenging the incumbents:
investing in technology-driven
companies that are Rethinking and
Rebuilding financial services
February 2016
Moved in-house BBVA Ventures to Propel
Additional 150M, on top of current 100M fund
Investments
Earnest – Loan financing platform
Coinbase – Digital currency platform to buy, sell and use
bitcoin
DocuSign – Digital transaction management software
53
 The Future of Blockchain
Concluding Remark
of A Podcast in Oct
2014:
This “Revolution” is
about
Decentralised
Blockchain
resulting in a
Reduction in Business
Cost!
https://engage.smu.edu.sg/cryptocurrency-revolution-and-its-impact

54
 What is Blockchain?
• http://mashable.com/2016/03/03/bitcoin-bl
ockchain-explainer#jCtLR6NNgkqI

55
Network Types
A single, centralized ledger shared by all participants.
E.g. In UK, Faster Payments Service.
Typically expensive and, as their data and processing is centralized, they
often must be integrated with each participant’s own systems.

Alternatively, many decentralized databases can sit around the edges of

a network while messages move between them.

Distributed databases synchronizes thousands of computers in a

distributed network via the internet. It is able to avoid time-consuming
reconciliation processes.
This technology could replace certain aspects of paper-based banking with
processes that operate in a much speedier and paperless way.

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 Cost Saving
The Cost Saving is most promising
somewhere between Centralised
and Distributed!

Centralized
Distributed
(100% Decentralized),
Trustless, and Transparent

57
 Distributed ledgers using merkle tree
Step 1: Each transaction in the set
that makes up a block is fed through a
program that creates an encrypted
code known as the hash value. Nonce Nonce Nonce
4
Step 2: Hash values are further 5
combined in a system known as a
Merkle Tree. 3
Timestamp Timestamp

Step 3: The result of all this hashing

goes into the block’s header, along
with a hash of the previous block’s 2
header (proof of work) and a
timestamp.

Step 4: The header then becomes a

part of a cryptographic puzzle solved 1
by manipulating a number called the
nonce.

Step 5: Once a solution is found, the Source: https://21.co/learn/bitcoin-mining/#the-merkle-root

new block is added to the blockchain.

58
Distributed Ledger taxonomy
Centralized
Traditional Ledgers
Who can use Single User e.g. Personal Bank Account

these copies?

Distributed Ledger Technology Covers a Broad Set of

Permissioned, private shared ledger
e.g. Bankchain, a clearing and
Owner group
settlement network

Permissioned, public shared ledger

Anyone (i.e. a decentralised or distributed
Trusted ledger owners ledger)
Who maintains or actors, by validation e.g. Ripple, a global financial
transactions system
the integrity of
the ledger?

Usages
Any user, by untrusted Permissionless, public shared ledger
consensus i.e. Distributed Ledger)
e.g. Bitcoin, a cryptocurrency
Distributed
(100% Decentralised),
Trustless, and Transparent

59
US Compliance Costs have Skyrocketed!
• Research from American Action Forum has
suggested banks have so far paid $24bn and
allocated 61 million employee hours to comply with
Dodd-Frank, passed in the US amid outcry over the
financial crisis.
• Even smaller banks have been hit with added
burdens, with 83% reporting their compliance costs
had escalated by 5% following the rule, according to
Mercatus Center.
• Any cost savings here would be of benefit to financial
institutions
• Is Blockchain the solution?
60
Bitcoin

61
 Beyond Bitcoin

Source: Economist

62
Digital Currency

63
 From Dark Lane to Wall Street
• Switching the Focus from Bitcoin to Blockchain
– From Blockchain to Consensus Ledger
– From Consensus Ledger to Distributed Ledger
• Estimated Cost Saving: USD15-20b annually from
2022 by Santander
– From disruption to cost saving (Goldman reports)
– From Permissionless (non-permissioned) to Permissioned
• Estimated Increased Spending: USD400m by 2019
by an independent research firm AITE Group
– From Permissioned to Open Data
– From Open Data to Open API
– Open API will fuel Smart Contract with Proof of Identity!

64
Blocktech in financial services

65
UK has been most OPEN and SMART!

66
Is a Fad?
Legacy
Aging IT infrastructure in Banks

Talent Collaborat
The very best minds in Active ion
collaboration with
the Finance and IT BLO different industry players
sectors are helping to results in an ever
shape development CK evolving tech ecosystem

CH
At present a lightly
Plenty of innovative ways AIN regulated industry,
to harness its distributed resulting in interesting
computing technology growth opportunities

Regulato
Uses ry
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Who is at the core of bitcoin?

https://bitcointalk.org/index.php?topic=1337008.msg13640148#msg13640148

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