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The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA
The Impact ofFintech on the Traditional
Payments ParticipantPeter Tapling
Managing Director, PTap Advisory, LLC
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DRAFT
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Today’s Objective
• Avoid this …
July, 2017; Timo Elliot; https://timoelliott.com/blog/innovation-cartoons
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Agenda
• Innovation and industry change
• Define Fintech
• Other “non bank” competitors
• Incubators
• Innovating from within
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INNOVATION AND PAYMENTS?
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Source: https://www.riaa.com/u-s-sales-database/Idea to use the slide borrowed from Peter Davey
Out With The Old, In With The New
CD took 10 years to reach 50% of market
CD market share drops from a peak of 93.4% to 39% in just 3 years
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Source: https://www.riaa.com/u-s-sales-database/Idea to use the slide borrowed from Peter Davey
But Not Always…
Some things will go away (8-tracks died out by
1984)
Others will never quite go away (LPs still available –
and growing!)
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A Macro Backdrop
• World Economic Forum 4th Industrial Revolution research– https://www.weforum.org/agend
a/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/
– https://toplink.weforum.org/knowledge/explore
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What is the Payment Landscape?
December 2018, Business Insider, https://www.businessinsider.com/payments-ecosystem-report
But this is really only the CARD ecosystem
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Evolving Business Models
https://investor.firstdata.com/financial-news/2019/01-16-2019-120649159
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And New Business Models
• Blockchain is certainly “new”
– But “traditional payment participants” seem to be all in!
July 2019; https://www.jpmorgan.com/global/news/digital-coin-payments
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The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA
Pick a broken payments process…
What could you do to improve the process?
WORKSHOP
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DEFINING FINTECH
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What is Fintech? Financial technology, often shortened to fintech, is the technology and
innovation that aims to compete with traditional financial methods in the delivery of financial services. It is an emerging industry that uses technology to improve activities in finance. The use of smartphones for mobile banking,
investing services[3] and cryptocurrency are examples of technologies aiming to make financial services more accessible to the general public. Financial technology companies consist of both startups and established financial
institutions and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies.
July 2019, https://en.wikipedia.org/wiki/Financial_technology
• What’s wrong with “traditional financial methods”? • Is there a need for financial services to be “more
accessible to the general public”?
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BUT WAIT!!!
• The last line was:
Many existing financial institutions are implementing Fintech solutions and technologies in order to improve
and develop their services, as well as gaining an improved competitive stance.
• Does your institution/company have an innovation “function”?
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Focus on Startups
• Many financial technology firms are startups
• Why do founders start companies?
• Opportunities exist where current needs are not being served
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Evidently, many companies see LOTS of opportunities to fulfill unmet needs!!
July 2019, https://www.bankingtech.com/files/2017/10/Fintech-Landscape-VentureBeat.pdf
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Startups Have Assets
• They are laser focused on solving the problem they have identified
• Small teams
• They hold the “veto rights”
• Flexible funding
• A startup has limited “guard rails”
• Broad market for whatever they build
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FIs Have Assets
• Customers
• Business process knowledge
• Relationships
• Capital
• Resources (people, data centers, etc)
• “Whole system” knowledge
• Why doesn’t innovation happen here?
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Starkly Different Approaches
• Economic flexibility
– Short/long term view
• Non-linear thinking
• Willingness to fail
• Desire to change the market structure
• Feature thinking
• Market for whatever is built
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• “Digital Natives” may never enter a branch or visit traditional on-line (web) channels
• Mobile is not a “feature” – it is the branch of tomorrow
– Or is it the BANK of tomorrow?
• Develop mobile around a cohesive strategy for customer engagement
Building for a New Generation
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• Who is your customer?
– How will you engage with them?
The Prize is Large
Source: https://www.statista.com/statistics/283261/annual-expenditure-of-us-millennials/
This represents $800 BILLION in
payments of some sort!
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The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA
Recent experience
List new bank services you have seen succeed and fail.
Is there a pattern?
WORKSHOP
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• Assets
• Speed to market
• Regulatory requirements
• Risk appetite
• Brand value/risk
• Product focus
• Cost of failure
Some Ways to Compare
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• Assets– Monetary, people, facilities, relationships
• How is the enterprise willing to use them?
• Regulatory requirements– Is the focus living within the guardrails or moving
them?
• Product focus– If you build something really useful, would you be
willing to sell it to your competitors?
Each of These Have Tentacles
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• You don’t have to “be” a startup
• Innovation can happen at many different scales
• Fintechs can be partners, too
– Focus on services you want to offer to your highest value customers
Innovating from Within
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Where Do You Fit?
Assets
Speed to Market
Regulatory flexibility
Risk Appetite
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The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA
What is your Organizational Flexibility?
Use the last chart – Are these the right categories?
DISCUSSION
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• Let’s focus on two areas
1. Faster payments
2. Libra
• We’ll discuss each to some depth, then see how we might innovate
Deeper Discussion
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FASTER PAYMENTS
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• What is a “Faster Payment”?
– Once the payment instruction is given by the sender, value is instantly available to recipient
– Payment is “safe”
– Payment is irrevocable
– First focus tends to be person-to-person, but there is no reason to limit to P2P
• Digital is central to “Faster”
“Faster” Money Movement
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• Why “faster”?
– Better availability of value for businesses and consumers
– Modernize payments
– Macro economic value in faster movement of money
“Faster” Money Movement
“Payments Are Moving To Real-Time In Countries Around The World”
Forbes, October 5, 2017https://www.forbes.com/sites/tomgroenfeldt/2017/10/05/payments-are-moving-to-real-time-in-countries-around-the-world/#4021b7d5128d
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• Faster Payments in the United States
– Taking a look at a few initiatives
“Faster” Money Movement
Federal Reserve
Payments Improvement Initiative
Early Warning Services
ZelleSM
The Clearing House
Real Time Payments
NACHA
Same Day ACH
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• When will a “faster payment” just be a “payment”?
• Considerations for you digital initiatives– Clarity/certainty of sender/receiver is paramount
– Need protections against unintended payments
– Risk management cannot be back office
• Faster may not always be better
“Faster” Money Movement
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The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA
How will you expand on “Faster”?
Will your focus be business or consumer?
WORKSHOP
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LIBRA
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Libra is a global, digitally native, reserve-backed cryptocurrency built on the foundation of
blockchain technology. People will be able to send, receive, spend, and secure their money, enabling a
more inclusive global financial system. July 16; https://libra.org/en-US/vision/#how_it_works
• Sounds pretty much like a central bank, doesn’t it!?!
Have You Heard of Libra?
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• No central authority
• Immutable
• Consensus
• Balanced economic incentives
What Characteristics Make Blockchain Special?
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• A stablecoin is a cryptocurrency structured to minimize price volatility
• Generally, this is done by pegging the value of the currency to the value of an asset
– Usually a currency, but that’s not strictly necessary
Libra is a “Stablecoin”
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Who “Owns” Libra?
• While funded by Facebook, Libra seeks to be an independent entity governed by the Libra Association
– Libra Association founding members are a who’s who of non-bank providers
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Structure of Libra
The Currency
• The unit of currency is called Libra. The aim is to make Libra as widely accepted and as easy to use as possible to create a currency that people can use with confidence and convenience in their everyday lives.
The Reserve
• Unlike the majority of cryptocurrencies, Libra is fully backed by a reserve of real assets. A basket of currencies and assets will be held in the Libra Reserve for every Libra that is created, building trust in its intrinsic value.
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• It appears each of the Currency and the Reserve operate their own blockchain– The currency runs on a blockchain available to participants
to trade in Libra– The reserve operates only between “authorized resellers”
(likely the Association members at the beginning)
• The reserve operates on a separate cryptocurrency denominated in Investment Tokens– “Users of Libra do not receive a return from the reserve.”– But don’t worry…
• “Users do not need to worry about the association introducing inflation into the system or debasing the currency.”
Two Separate Blockchains
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There is a Lot to Learn
• Beneficial characteristics
– “Universal” access
– Seemless cross border transfers
– Inexpensive small value transactions
• Challenges
– AML/KYC/CDD
– Global regulatory compliance
– Conversion to fiat
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The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA
Let’s assume Libra comes to market and WORKS!
What related services could you offer to your customers?
How would you pitch this to management?
WORKSHOP
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• How do you bring today’s session back to your institution?
• Innovation can happen at different scale
• Must tolerate some failure
• Build on your strengths
What Do We “DO” With This?
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• None of this relieves you of your regulatory obligations
• Regulators do want to “learn” about new technologies– But new guidance will not occur until there is
some maturity
• Stop by the “Intersection of Innovation” session!
Regulatory Considerations
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THANK YOU!
Peter Tapling, Managing DirectorPTap Advisory, LLC