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2017 FinTech
Predictions
December 2016
2016 has been a year where FinTech was a catalyst for significant change.
2017 promises to be an exciting year, with more sophistication and growth
following a great year in 2016, where investments in FinTech totalled
EUR 12 Bn and where we saw the acceleration of collaborative models and
the slow down of B2C attacker models.
In the following pages you will find a brief summary of our predictions for
2017 in terms of investment themes, geographic trends as well as the impact
of FinTech on the incumbents and regulation.
In 2017 we will publish a series of reports summarizing our perspectives on
selected thematic and geographic opportunities we are excited about.
For those interested in the more detailed report underlying the trends, feel
free to reach out to one of us.
Radboud Vlaar Hans de Back
Managing Partner Managing Partner
Radboud@ogc-partners.com Hans@ogc-partners.com
Annette Wilson Aman Ghei
Partner, COO and IR Principal
Annette@ogc-partners.com Aman@ogc-partners.com
Orange Growth Capital (“OGC”)
is an investment firm with a
thematic approach. We focus on
the financial technology
transformation (incl. artificial
intelligence). OGC has 3 offices, in
Amsterdam, London and
Singapore, out of which it is
sourcing and supporting great
entrepreneurs.
OGC is now investing its second
fund with a geographic focus on
Europe and selectively on South
East Asia.
Introduction
2
2017,	
  a	
  year	
  where	
  winners	
  
…collaborate	
  more
…specialize	
  in	
  complexity
…fix	
  unmet	
  needs
…CTR-­‐ALT-­‐DEL	
  insurance
Investment	
  trends	
  2017
More collaboration with financial pays off
➢ Collaborative B2B or B2B2C players win more than
disruptive B2C disruptive plays
• B2B - Enablers such as security (KYC, compliance and
fraud), big data software, insurance claim & data,
artificial intelligence and payments where we expect
strong growth and attractive economics and exits.
• B2B2C - plays in FX/remittance, lending, savings, wealth
and P&C insurance scale faster with much better
economics due to substantially lower CaC.
➢ Capital market blockchain and ROBO are key areas
incumbents will win:
• Blockchain capital markets - Winners take it
all…benefits will go to the big banks. Many of the
2014/2015 hype driven companies, consortiums and
initiatives die silently.
• ROBO – As incumbents will either build themselves or
license, the ROBO players are either way not billion
dollar companies. As such we will see down rounds of
some of the high profile ROBO players.
Investment trends 2017 (1/2)
Structurally fixing unmet financial needs
➢ SMEs: Overhaul of SME solutions in banking and
insurance
• Banking – Boost customer on-boarding experience
(from 2 months to 2 days), FX and lending at
healthy economics for all parties.
• Insurance - From art to science in underwriting
allowing for better price differentiation and more
automation.
➢ Millennial solutions need anywhere, anytime access
and flexible need based products
• Consumer lending - Mobile and data driven
underwriting anytime, anywhere, one click away.
• Protection - P&C insurance on the fly and pay only
when you need and use it.
• New banks - Launching a new bank is easy,
building trust, profits and scale will turn out only
few can do.
4
Next generation winners specialises
➢ Lending: From mainstream to high yield and supply chain
finance specialists
• Supply chain finance – Sector driven solutions saving
billions of interest expense.
• Trade finance – Massively reduce complexity and cost
making it available to many more.
• High yield assets – Marketplaces to shift from low risk
to high yield and off B/S to on B/S.
➢ Artificial intelligence: From mainstream to sophisticated
solutions solving key productivity or quality issues
• Digital Financial Advisors – AI led solutions drive
more engagement with clients, provides more
consistent and high quality advice.
• The rise of chatbots – Call centers getting empty as
95% of questions can be addressed by AI.
• Next generation underwriting software – allowing for
faster and more differentiated underwriting.
• ROBO 2.0 – Software that combines personal interest
with sophisticated investment strategies making
institutional solutions available for affluents.
CTR – ALT – DEL of insurance value chain
➢ Car insurance most impacted by following shift
• From driver to car – creating the rise of the next
generation telematics use cases.
• From proof to IoT behavior based – creating the first
set of real “real time” seemless claim handlers.
• From always insured to when you need it – driven
by the rise of on demand insurance companies.
➢ Health insurance made easier, earlier and better
detection and protection if you dare to share the data
➢ Re-insurers working with start-ups to capture the end to
end value chain in one go and boost economics
➢ Cost of claims proven to be reduced by 20-30% using
smarter management of claims and reduction in fraud.
➢ Distribution being digitalised and powered with AI
• Model I : Tech helping brokers transform – Successful
brokers will either build in-house or license.
• Model II: Digital brokers – focused on end to end
digitalizing the process and manage all contracts for all
consumers.
• Model III: Digital Insurance Brokers – mainly focused
on selling digital only products.
Investment trends 2017 (2/2)
5
Geographic	
  hotspots
2017	
  a	
  year	
  where
…Innovation	
  pole	
  position	
  is taken	
  based	
  on	
  impact	
  vs	
  hype/noise
…Asia	
  outpaces	
  US
…innovation	
  shifts	
  to	
  the	
  east
Geographic	
  hotspots (1/2)
➢ London hype cools down in favor of Amsterdam,
Milan and Stockholm: More specialisation of cities that
create strong ecosystems in certain areas of FinTech e.g
Amsterdam (trading, payments and FX), London
(capital markets and consumer lending) and Stockholm
(eCommerce).
➢ Big domestic plays source of most unicorns with key
large Asian markets outpacing US
• China: Domestic controlled market making shift from
fast copier to innovator… some "big names" might go
bust.
• India - Breeding place for enterprise and Aadhaar
unique ID base for new consumer FinTech.
• Indonesia - The hidden treasure with digital savvy
customers.
➢ Battle for regional Asian hub likely won by Singapore
(SEA plays, security and wealth) while HK making shift
from China springboard to Asian hub.
7
➢ Regulation hampering growth: US will need to
tackle the issue of nationwide vs state by state
regulation, which does not seem to be happening
soon enough to help FinTech’s scale.
➢ Silicon Valley not well positioned for
collaborative models: With a shift towards more
collaborative models, Silicon Valley is missing
the financial ecosystem, whereas New York is
missing the tech ecosystem.
➢ US not likely to shift towards a fast follower
model in FinTech: The collaborative trend and
the regulatory disadvantage results in the lower
competitive advantage for the US than it has in
other tech verticals. In China, India and
Indonesia the opposite is happening where
especially in China, financial services is driven by
tech…like Jack Ma says TechFin instead of
FinTech.
The fight for relevance…and shift to impact vs hype US losing out unless gets act together
Geographic	
  hotspots (2/2)
➢ Asia increasingly seen as an alternative market to the
US: As sentiments about FinTech in US continue to
deteriorate, startups may find that it gets increasingly
tougher to raise capital. On the other hand, Asia offers a
huge untapped market with a huge potential:
• Increasing internet and mobile penetration rate due
to lower prices as technology advances.
• Huge number of millennials and growing middle
class.
➢ Fragmentation of Asian markets: Asia is often
compared to European and US markets with regards to
fragmentation. Singapore and Hong Kong have been the
FinTech powerhouses in Asia. However in recent years,
we have seen the developments in Jakarta, Kuala
Lumpur, and Bangkok that shows signs of challenging
the two traditional powerhouses.
➢ Increase collaboration in Asia: Regulators are breaking
down entry barriers for talent to enter Asia. As a result,
we begin to see an influx of foreign startups and teams.
We foresee that passporting of licenses between the
countries will happen in the near future.
8
➢ Decrease in VC funding in 2016: FinTech
funding by VCs hit a staggering $14.5 billion in
2015, more than doubling 2014’s funding total.
However, 2016 will not hit the highs of 2015, with
the 1st three quarters of 2016 recorded at
$9.8 billion of funding.
➢ Funding in 2017 will be more than 2016 due to
the increasing complexity of FinTech: As the
definition of FinTech continues to broaden to
include blockchain, insurtech, cybersecurity, big
data analytics, and regtech, the amount of
companies needing capital will increase.
➢ Proliferation of FinTech focused funds: Due to
the increasing complexities of FinTech, the need
for more specific expertise to understand and
guide the companies would be required.
Rise of Asia as a FinTech hub VCs taking centre stage
2017	
  a	
  year	
  where
…biggest	
  bank	
  for	
  millennials	
  is	
  not	
  a	
  traditional	
  bank
…first	
  signs	
  of	
  existential risk	
  of	
  subscale	
  banks	
  and	
  insurers
…regulators challenged	
  between	
  stimulation	
  and	
  regulation
State	
  of	
  disruption
State of disruption
➢ Banking: Seeing real pain of incumbents on the
distribution to young clients and in fee income
• Distribution – Gradually losing control of
the end clients with 3 of top 5 most popular
apps from non-banks.
• Margin pressure – Continued pressure on
non interest income as well as high yield
interest products.
➢ Insurance: Massive shake up of value chain
• Insurance distribution – Primary insurers
fail to win clients back, brokers replaced by
marketplaces and mobile.
• Value chain – Primary insurers’ future at
risk powered by re-insurers.
10
First signs of existential risks
Regulators face growing tension between
stimulating and regulating
Growing tension due to impact of lay-offs
➢ Last year, regulators focused on stimulating,
with most public active role playing the FCA
and MAS.
➢ Growing tension between stimulating and
regulating as start-ups become bigger and
innovation is seeking boundaries.
➢ Next 5 years, 2 million banking jobs and 1
million insurance jobs expected to be at risk
due to automation and FinTech trend.
➢ Banks will get blamed for lay-offs creating
political unrest, creating room for FinTech to
accelerate. First signs already visible of this in
Northern Europe in 2016.
For questions or a copy of the detailed report please email
Aman@ogc-partners.com
Annette@ogc-partners.com
Hans@ogc-partners.com
Radboud@ogc-partners.com
Amsterdam
Concertgebouwplein 9
1071	
  LL	
  Amsterdam
London
1	
  Fore	
  Street
London	
  EC2Y	
  5EJ
Singapore
80	
  Robinson	
  Road
#08-­‐01,	
  Singapore	
  068898

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Finch Capital predictions 2017

  • 2. 2016 has been a year where FinTech was a catalyst for significant change. 2017 promises to be an exciting year, with more sophistication and growth following a great year in 2016, where investments in FinTech totalled EUR 12 Bn and where we saw the acceleration of collaborative models and the slow down of B2C attacker models. In the following pages you will find a brief summary of our predictions for 2017 in terms of investment themes, geographic trends as well as the impact of FinTech on the incumbents and regulation. In 2017 we will publish a series of reports summarizing our perspectives on selected thematic and geographic opportunities we are excited about. For those interested in the more detailed report underlying the trends, feel free to reach out to one of us. Radboud Vlaar Hans de Back Managing Partner Managing Partner Radboud@ogc-partners.com Hans@ogc-partners.com Annette Wilson Aman Ghei Partner, COO and IR Principal Annette@ogc-partners.com Aman@ogc-partners.com Orange Growth Capital (“OGC”) is an investment firm with a thematic approach. We focus on the financial technology transformation (incl. artificial intelligence). OGC has 3 offices, in Amsterdam, London and Singapore, out of which it is sourcing and supporting great entrepreneurs. OGC is now investing its second fund with a geographic focus on Europe and selectively on South East Asia. Introduction 2
  • 3. 2017,  a  year  where  winners   …collaborate  more …specialize  in  complexity …fix  unmet  needs …CTR-­‐ALT-­‐DEL  insurance Investment  trends  2017
  • 4. More collaboration with financial pays off ➢ Collaborative B2B or B2B2C players win more than disruptive B2C disruptive plays • B2B - Enablers such as security (KYC, compliance and fraud), big data software, insurance claim & data, artificial intelligence and payments where we expect strong growth and attractive economics and exits. • B2B2C - plays in FX/remittance, lending, savings, wealth and P&C insurance scale faster with much better economics due to substantially lower CaC. ➢ Capital market blockchain and ROBO are key areas incumbents will win: • Blockchain capital markets - Winners take it all…benefits will go to the big banks. Many of the 2014/2015 hype driven companies, consortiums and initiatives die silently. • ROBO – As incumbents will either build themselves or license, the ROBO players are either way not billion dollar companies. As such we will see down rounds of some of the high profile ROBO players. Investment trends 2017 (1/2) Structurally fixing unmet financial needs ➢ SMEs: Overhaul of SME solutions in banking and insurance • Banking – Boost customer on-boarding experience (from 2 months to 2 days), FX and lending at healthy economics for all parties. • Insurance - From art to science in underwriting allowing for better price differentiation and more automation. ➢ Millennial solutions need anywhere, anytime access and flexible need based products • Consumer lending - Mobile and data driven underwriting anytime, anywhere, one click away. • Protection - P&C insurance on the fly and pay only when you need and use it. • New banks - Launching a new bank is easy, building trust, profits and scale will turn out only few can do. 4
  • 5. Next generation winners specialises ➢ Lending: From mainstream to high yield and supply chain finance specialists • Supply chain finance – Sector driven solutions saving billions of interest expense. • Trade finance – Massively reduce complexity and cost making it available to many more. • High yield assets – Marketplaces to shift from low risk to high yield and off B/S to on B/S. ➢ Artificial intelligence: From mainstream to sophisticated solutions solving key productivity or quality issues • Digital Financial Advisors – AI led solutions drive more engagement with clients, provides more consistent and high quality advice. • The rise of chatbots – Call centers getting empty as 95% of questions can be addressed by AI. • Next generation underwriting software – allowing for faster and more differentiated underwriting. • ROBO 2.0 – Software that combines personal interest with sophisticated investment strategies making institutional solutions available for affluents. CTR – ALT – DEL of insurance value chain ➢ Car insurance most impacted by following shift • From driver to car – creating the rise of the next generation telematics use cases. • From proof to IoT behavior based – creating the first set of real “real time” seemless claim handlers. • From always insured to when you need it – driven by the rise of on demand insurance companies. ➢ Health insurance made easier, earlier and better detection and protection if you dare to share the data ➢ Re-insurers working with start-ups to capture the end to end value chain in one go and boost economics ➢ Cost of claims proven to be reduced by 20-30% using smarter management of claims and reduction in fraud. ➢ Distribution being digitalised and powered with AI • Model I : Tech helping brokers transform – Successful brokers will either build in-house or license. • Model II: Digital brokers – focused on end to end digitalizing the process and manage all contracts for all consumers. • Model III: Digital Insurance Brokers – mainly focused on selling digital only products. Investment trends 2017 (2/2) 5
  • 6. Geographic  hotspots 2017  a  year  where …Innovation  pole  position  is taken  based  on  impact  vs  hype/noise …Asia  outpaces  US …innovation  shifts  to  the  east
  • 7. Geographic  hotspots (1/2) ➢ London hype cools down in favor of Amsterdam, Milan and Stockholm: More specialisation of cities that create strong ecosystems in certain areas of FinTech e.g Amsterdam (trading, payments and FX), London (capital markets and consumer lending) and Stockholm (eCommerce). ➢ Big domestic plays source of most unicorns with key large Asian markets outpacing US • China: Domestic controlled market making shift from fast copier to innovator… some "big names" might go bust. • India - Breeding place for enterprise and Aadhaar unique ID base for new consumer FinTech. • Indonesia - The hidden treasure with digital savvy customers. ➢ Battle for regional Asian hub likely won by Singapore (SEA plays, security and wealth) while HK making shift from China springboard to Asian hub. 7 ➢ Regulation hampering growth: US will need to tackle the issue of nationwide vs state by state regulation, which does not seem to be happening soon enough to help FinTech’s scale. ➢ Silicon Valley not well positioned for collaborative models: With a shift towards more collaborative models, Silicon Valley is missing the financial ecosystem, whereas New York is missing the tech ecosystem. ➢ US not likely to shift towards a fast follower model in FinTech: The collaborative trend and the regulatory disadvantage results in the lower competitive advantage for the US than it has in other tech verticals. In China, India and Indonesia the opposite is happening where especially in China, financial services is driven by tech…like Jack Ma says TechFin instead of FinTech. The fight for relevance…and shift to impact vs hype US losing out unless gets act together
  • 8. Geographic  hotspots (2/2) ➢ Asia increasingly seen as an alternative market to the US: As sentiments about FinTech in US continue to deteriorate, startups may find that it gets increasingly tougher to raise capital. On the other hand, Asia offers a huge untapped market with a huge potential: • Increasing internet and mobile penetration rate due to lower prices as technology advances. • Huge number of millennials and growing middle class. ➢ Fragmentation of Asian markets: Asia is often compared to European and US markets with regards to fragmentation. Singapore and Hong Kong have been the FinTech powerhouses in Asia. However in recent years, we have seen the developments in Jakarta, Kuala Lumpur, and Bangkok that shows signs of challenging the two traditional powerhouses. ➢ Increase collaboration in Asia: Regulators are breaking down entry barriers for talent to enter Asia. As a result, we begin to see an influx of foreign startups and teams. We foresee that passporting of licenses between the countries will happen in the near future. 8 ➢ Decrease in VC funding in 2016: FinTech funding by VCs hit a staggering $14.5 billion in 2015, more than doubling 2014’s funding total. However, 2016 will not hit the highs of 2015, with the 1st three quarters of 2016 recorded at $9.8 billion of funding. ➢ Funding in 2017 will be more than 2016 due to the increasing complexity of FinTech: As the definition of FinTech continues to broaden to include blockchain, insurtech, cybersecurity, big data analytics, and regtech, the amount of companies needing capital will increase. ➢ Proliferation of FinTech focused funds: Due to the increasing complexities of FinTech, the need for more specific expertise to understand and guide the companies would be required. Rise of Asia as a FinTech hub VCs taking centre stage
  • 9. 2017  a  year  where …biggest  bank  for  millennials  is  not  a  traditional  bank …first  signs  of  existential risk  of  subscale  banks  and  insurers …regulators challenged  between  stimulation  and  regulation State  of  disruption
  • 10. State of disruption ➢ Banking: Seeing real pain of incumbents on the distribution to young clients and in fee income • Distribution – Gradually losing control of the end clients with 3 of top 5 most popular apps from non-banks. • Margin pressure – Continued pressure on non interest income as well as high yield interest products. ➢ Insurance: Massive shake up of value chain • Insurance distribution – Primary insurers fail to win clients back, brokers replaced by marketplaces and mobile. • Value chain – Primary insurers’ future at risk powered by re-insurers. 10 First signs of existential risks Regulators face growing tension between stimulating and regulating Growing tension due to impact of lay-offs ➢ Last year, regulators focused on stimulating, with most public active role playing the FCA and MAS. ➢ Growing tension between stimulating and regulating as start-ups become bigger and innovation is seeking boundaries. ➢ Next 5 years, 2 million banking jobs and 1 million insurance jobs expected to be at risk due to automation and FinTech trend. ➢ Banks will get blamed for lay-offs creating political unrest, creating room for FinTech to accelerate. First signs already visible of this in Northern Europe in 2016.
  • 11. For questions or a copy of the detailed report please email Aman@ogc-partners.com Annette@ogc-partners.com Hans@ogc-partners.com Radboud@ogc-partners.com Amsterdam Concertgebouwplein 9 1071  LL  Amsterdam London 1  Fore  Street London  EC2Y  5EJ Singapore 80  Robinson  Road #08-­‐01,  Singapore  068898