Financial Technology Changes in 3 – 5 years

July 27, 2016

Fundamentals of banking is dissolving and being replaced with the new fintech world now to 10 yrs ahead.
The seeds are being sown now through the last 3-4 yrs. mobile banking, millennials, ubiquitous internet, evolving technology for distributed, libertarian controls being the triggers.
Conventional technology and process is fast turning a liability in this new order.

In the year 2018 and ahead any banking technology company  will find it tough to survive… as all the customers themselves will have a huge pressure on their profitability.

  • Security considerations are a reaction to the new fintech challenges.. Tighten and push the barriers higher
  • The millennials drive the change with less apprehension of risks in using alternate financial channels across mobile platform
  • Lower n lower durations for innovation in products in the market in future
  • Change in future can be driven from even just ease of use, minor margins, superficial payback et als.. with minimal guarantee of account security
  • Banks / FIs will have to downsize considerably, invest in morphing tech space, to get similar margins as the innovators
  • Aggregators, subscription based service, SaaS model will be key to margin reductions

Implications for Tech Firms:

  • Be lot more agile, startup like in modules : Reduce cycle times for new ideas/ innovations for go-to market
  • Take calculated risks in new product developments.. 90% can fail
  • Identify the whitespaces and invest in even lower spectrum of the market in newer products independent of the main product line
  • SMBs will be key to rolling out innovations not the traditional route from large FI downward
  • Hype cycle identification is key to move forward aggressively

Lending Products:

  • P2P Lending is going to be viral and spread to SMBs
  • Syndicated lending may be the most important area of expertise as all lending converges to syndication due to P2P lending
  • Fintech innovations like blockchain can be core to syndicated or any form of lending, need to invest on it
  • Innovate in faster processing / turn-around, lesser exception handling, reduce operations pressures / workarounds as implemented today for all lending products

Syndicated Lending:

  • Higher demand for straight through processing
  • More integrated front to back office origination
  • Crowd Lending integrated with main syndicated platform
  • Streamlined payments, billing in the servicing of Deals
  • Crowd or networked trading platform
  • Move from the niche segment of high value low volume product usage to high volume, straight through processing with multiple lenders and single borrower deals
  • Blockchain based settlement process replacing the Markit and Clearpar or even depository services like DTCC or Intralinks. Or these services will adopt some of the new blockchain based new platform

Nice infographics: It is laden with huge significance for the future..

@http://www.gartner.com/newsroom/id/3114217

Gartner_HypeCyle


TransferWise

July 13, 2016

Payments market can be viewed as merchant trading onsite or core forex driven remittance payments. TransferWise is focused on the multi-billion-dollar foreign exchange remittances and non-remittance payments.  Its intent is a libertarian goal of free flow of money beyond borders addressing the issues of high hidden fees, exchange rates and time taken to effect the payments.

Market Size:

The World Bank reports the global market for remittances was about $580 billion in 2015 and forecast to exceed $700 billion this year, with UK only estimates of $21 billion.  TransferWise’s business strategy is built on scaling in volume and value with low margins, recently joined the Billion Dollar Unicorn Club.

Per Transfer Average Amount Comparison:

TransferWise: $2300
WorldRemit, Azimo, or Remitly:  $800 - $1200
CurrencyFair:  $5000+
JPMC and other banks: $12500 - $7500

Go To Market Strategy:

GTM strategy is to provide a blueprint for delivering a product or service to the end customer, taking into account such factors as pricing and distribution.

“TransferWise’s growth strategy is centered around referral channels. TransferWise’s phone reps stood out in their ability to quickly understand and resolve issues, doing it with some humor.” [Link]

TransferWise is laying new grounds on how to engage customers, in acting as its virtual army of individual PR agents, while giving equal splits to both referrer and the referred customers, as well as testing various referral amounts.

Transferwise has presence in more than 25 countries beyond all of Eurozone with about 35+ currencies it deals in.

[GTM Link]   |  [Currency and Countries Link]

Revenue Model and Monetize Customers:

Traditional banks, Western Union and the Money Shop typically charge between 5-8% for transfers, as well as forex and other hidden fees. TransferWise charges a flat commission, ranging from 0.5% in UK to  3% for transfer to Ukraine.

Transferwise has transferred more than $4.5 billion in transactions till now, with a growth of 15%-20% month on month. TransferWise had revenues of $13.8 million with a net loss of $11 million for the year FY 2014-2015. The loss of $11milion on a $14million revenue indicates a burn rate of 25 million dollars per year.

If TransferWise were to gain about 5% of the global remittance market, their annual revenue would exceed GBP 175 million a year (0.5% fee charged on 35 billion).

[Model Link]  | [Revenue Report]

Critical Note:

In the highly competitive, price sensitive USA-to-India corridor, TransferWise ranks a low 7th, thereby be cautious of advertising fees and costs as its USP. This is a market that is headed for a showdown of low fees, nett charges and the trustability factor for the consumer. Stripping in public or such acts can catch eye balls, but to retain customers will be a challenge in the post Brexit, digitally connected fintech world.

Concluding Note:

Despite the usual risks, TransferWise has already shown that it can be a leader in technology, domain, marketing, branding and is poised well.