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THE DISRUPTED
FUTURE OF BANKING
RAMEZ NAAM
@ramez
[TEXT HAS BEEN ADDED TO SLIDES TO
MAKE THEM USEFUL WITHOUT A SPEAKER]
DON’T USE TEXT IN PRESENTATIONS
WHO AM I?
SCIENCE FICTION AUTHOR
14 YEARS IN TECH
HELPED LEAD INTERNAL STARTUP
DOING HIGH SCALE,
DISTRIBUTED SYSTEMS,
MACHINE LEARNING,
INFORMATION RETRIEVAL
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
LEARNING FROM A
DISRUPTIVE ADVERSARY
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
NOW TEACHING IMPACTS OF
EXPONENTIAL TECHNOLOGIES
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
SCIENCE FICTION IS HERE
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
1 MILLION MILES DRIVEN ZERO ACCIDENTS
SEES THINGS YOU CAN’T SEE
REACTS FASTER THAN YOU CAN
DRIVES BETTER THAN YOU EVER WILL
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
30,000 US ROAD FATALITIES / YEAR
1 MILLION /YEAR GLOBALLY
50 BILLION DRIVING HOURS / YR IN US
~8% OF GDP LOST TO DRIVING TIME
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
“DRIVING” WILL GO AWAY
HUGE INDUSTRIES DISRUPTED
YOUR LIFE CHANGED
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
IBM’S WATSON
TROUNCED TWO BEST HUMANS
TASK RECENTLY CONSIDERED IMPOSSIBLE
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
IBM’S TARGET MARKET: MEDICINE
16% OF US GDP
A BETTER DOCTOR, BETTER DIAGNOSIS
MEDICINE A LARGE TARGET
X-PRIZE TRICORDER PRIZE
MOBISANTE ULTRASOUND
$35K DEDICATED ULTRASOUND -> $500 ANDROID
+ TELEMEDICINE AND ALGORITHMIC MEDICINE
Mobisante mobile ultrasound
SENSORS EVERYWHERE
EVERY APPLIANCE, VEHICLE, DEVICE,
CONNECTED
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
SENSORS FOR THE BODY
THE INTERNET OF US
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
iPhone vs. ENIAC
Michael
O’Donnell
$10 TRILLION
TO BUILD IPHONE 5 WITH 1940s TECH
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
COST OF COMPUTING GOES TO ZERO
{AND OF STORAGE, BANDWIDTH, COORDINATION,
DISINTERMEDIATION, ETC..}
WINNERS AND LOSERS
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
PHOTOGRAPHY AT AN ALL TIME HIGH
KODAK CRUSHED
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
$18 Billion
$10 Billion
$9.5 Billion
$18 Billion
$23 Billion
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
AIRBNB HAS NEVER BUILT A HOTEL…
BUT HAS A HIGHER MARKET CAP
THAN HYATT
AND LIKELY TO PASS HILTON < 3
YEARS
AIRBNB vs. HOTEL CHAINS
(MARKET CAPS)
• AIRBNB: $10b
• HYATT: $9.5b
• STARWOOD: $15B (LIKELY PASSED IN 2015)
• MARRIOTT: 18B (LIKELY PASSED BY 2016)
• HILTON: $23b (LIKELY PASSED BY 2017)
WANT TO BE A WINNER?
OR A LOSER?
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
DISRUPTION STARTS AT THE EDGES
THEN HITS THE CORE
PAYMENTS ARE THE EDGE
20%
BANKS EARN UP TO 20% OF REVENUE FROM NON-INTEREST
SOURCES:
ATM FEES, CREDIT CARD FEES, ACCOUNT FEES, ETC..
3%
CREDIT CARDS TAKE 2-3% OF EACH TRANSACTION
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
SQUARE WOULD LOVE TO REPLACE
VISA AND MASTERCARD
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
BUT DOES THE WORLD EVEN
NEED SQUARE?
MOBILE PHONES PER 100 PEOPLE
Cellulari
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
UBIQUITOUS SMART PHONES WILL ENABLE
PAYMENTS WITHOUT ADDED HARDWARE
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
$1.6 TRILLION
CHINA
$1.6 TRILLION IN MOBILE PAYMENTS
IN 2013
317% GROWTH FROM 2012
VISA AND MASTERCARD WANT TO
OWN THIS SPACE TOO
BUT 3% SKIM CREATES AMPLE INCENTIVES
FOR MERCHANTS & RIVALS
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
ANALOGY: MOBILE SOCIAL & MOBILE
MESSAGING
UBIQUITOUS HARDWARE LOWERED BARRIERS
TO ENTRY
ALLOWED MULTIPLE NETWORKS TO SOAR
RAPIDLY TO HIGH SCALE
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
MONEY WIRING ESPECIALLY VULNERABLE
DEVELOPING WORLD MAJOR GROWTH AREA
DRIVEN BY ‘REMITTANCES’ FROM EMIGREES
$500 B Transfers
$528 BILLION IN REMITTANCES IN 2013
8% YOY GROWTH
>10% OF GDP IN 20 COUNTRIES
$50B IN MONEY TRANSFER FEES
10%
FEES AVERAGE 10%. CAN BE 12% OR HIGHER.
$200  KENYA = $24 IN FEES. OUTRAGEOUS.
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
0%?
BITCOIN AS A TRANSFER PROTCOL
INHERENTLY GLOBAL AND INSTANT
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
80%
THE REAL MONEY FOR BANKS IS LOAN INTEREST
80% OF REVENUE: LOANS & SECURITIES
BANKS DEPEND UPON DEMAND
FOR THEIR LOANS
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
US INDUSTRY IS LESS AND LESS CAPITAL
INTENSIVE.
A LONG TERM NEGATIVE TREND FOR LENDING.
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
RECENT EXAMPLES
$280 million funding
$22 BILLION exit
$800 million funding
$10 BILLION value
AIRBNB NEVER BUILT ONE OF THESE
BUT AGAIN:
NOT JUST RECENT.
A LONG TERM TREND TOWARDS INCREASED
CAPITAL EFFICIENCY OF PROFITS
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
PROBLEM 2: COMPETITION IN LENDING
PEER TO PEER LENDING
“AIRBNB FOR LOANS”
CONNECTS BORROWERS TO
LENDERS
DISINTERMEDIATES BANKS
LENDERS GET HIGHER RATES THAN BONDS
BORROWERS GET LOWER RATES THAN CREDIT CARDS
LOANS OFTEN PAY DOWN CC DEBT
LENDERS BUILD PORTFOLIOS
TYPICALLY COVER ONLY FRACTION OF A BORROWER
SPREAD & SHARE RISK
188% YOY GROWTH
P2P LENDING STILL TINY VS $1.8T US LOAN MKT
BUT DOUBLING EVERY 9 MONTHS
2/3 NEW LOANS FROM INST. INVESTORS
DEFAULT INSURANCE NOW AN OPTION
GOOGLE LEAD $125M LendingClub ROUND
OTHER COMPETITORS BEYOND P2P
PRIVATE EQUITY FIRMS 
$70+ BILLION IN LENDING IN 2013
UP FROM $50B IN 2012
SHIPYARDS, HEAVY INDUSTRY, ETC..
NIGHTMARE SCENARIO:
LARGE ASSET HOLDERS MOVE INTO LENDING
ASSISTED BY ALGORITHMS THAT VET LENDERS
& NETWORKS THAT DISINTERMEDIATE BANKS
TRILLIONS IN AVAILABLE ASSETS
?
WHAT SHOULD BANKS DO?
1. MOVE FAST IN A FAST CHANGING WORLD
2. KEEP YOUR CUSTOMERS HAPPY!
3. UNDERSTAND YOU’RE NOT THE ONLY GAME
IN TOWN
4. KNOW YOUR ADVANTAGES:
– FDIC, PERCEIVED STABILITY, CONVENIENCE,
RELATIONSHIPS
5. DISRUPT YOURSELF BEFORE SOMEONE
ELSE DOES
The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance
THE DISRUPTED
FUTURE OF BANKING
RAMEZ NAAM
@ramez

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The Disrupted Future of Banking - How Tech Will Disrupt, Destroy, or Reinvent Banking, Payments, and Finance

Editor's Notes

  1. Photo: Michael O’Donnel We’ve done it with computers. At the efficiency of the 1940s, an iPhone would have to be larger than the city of Chicago, and draw more power than the entire state of California. ---- We’ve even done it with oil and water. The average american now uses a third less of each than in 1970, even as the size of our economy has doubled. That’s not enough, not yet. But it’s a start. Images: Wikimedia
  2. AIRBNB HAS NEVER BUILT A HOTEL… BUT HAS A HIGHER MARKET CAP THAN HYATT AND LIKELY TO PASS HILTON < 3 YEARS AIRBNB: $10b HYATT: $9.5b STARWOOD: $15B (WILL LIKELY PASS IN 2015) MARRIOTT: 18B (WILL LIKELY PASS BY 2016) HILTON: $23b (WILL LIKELY PASS BY 2017)
  3. DO YOU WANT TO BE A WINNER? OR A LOSER?
  4. DISRUPTION STARTS AT THE EDGES THEN HITS THE CORE
  5. BANKS EARN UP TO 20% OF REVENUE FROM NON-INTEREST SOURCES: ATM FEES, CREDIT CARD FEES, ACCOUNT FEES, ETC..
  6. CREDIT CARDS TAKE 2-3% OF EACH TRANSACTION
  7. SQUARE WOULD LOVE TO REPLACE VISA AND MASTERCARD
  8. BUT DOES THE WORLD EVEN NEED SQUARE?
  9. Cellulari: http://www.celularis.com/noticias/obama-day-1400-millones-de-mensajes-de-texto/
  10. UBIQUITOUS SMART PHONES CAN ENABLE TRANSACTIONS WITH NO EXTRA HARDWARE
  11. $1.6 TRILLION IN MOBILE TRANSACTIONS IN 2013 317% GROWTH FROM 2012
  12. VISA AND MASTERCARD WANT TO OWN THIS SPACE TOO
  13. BUT AT 3% OVERHEAD, NO GUARANTEE THEY’LL WIN!
  14. MOBILE PAYMENTS WILL MAKE IT EASIER FOR NEW PAYMENT NETWORKS TO GROW ANALOGY: WHATSAPP, VIBR, SNAPCHAT, SECRET MAKE ANALOGY TO CHAT NETWORKS ONCE YOU HAVE THE HARDWARE, SOFTWARE CAN SPREAD MENTION BITCOIN
  15. Remittances totalled $534 billion in 2012, grows annually by ~8%, and accounts for more than 10% of the GDP in over 20 countries. Remittance is one of the most expensive forms of payment. The average cost for remittance in the first quarter of 2013 was 9.05%. At this rate, remittance operators will collect over $50 billion in fees this year. Remittance operators profit from transactions fees, margins added to currency exchange rates, recipient fees, cash payout fees, plus a variety of additional fees. In 2012, Western Union, the largest remittance operator, generated $5.66 billion in revenue with a net profit of $1.02 billion. These fees and margins would be excessive to anyone, but are especially burdensome to the people who use remittance most: low-income migrant workers and their even-lower-income families. “If the cost of sending remittances could be reduced by 5 percentage points…developing countries would receive over $16 billion dollars more each year than they do now. This added income could then provide remittance recipients more opportunity for consumption, savings, and investment in local economies.”—The World Bank
  16. Remittances totalled $534 billion in 2012, grows annually by ~8%, and accounts for more than 10% of the GDP in over 20 countries. Remittance is one of the most expensive forms of payment. The average cost for remittance in the first quarter of 2013 was 9.05%. At this rate, remittance operators will collect over $50 billion in fees this year. Remittance operators profit from transactions fees, margins added to currency exchange rates, recipient fees, cash payout fees, plus a variety of additional fees. In 2012, Western Union, the largest remittance operator, generated $5.66 billion in revenue with a net profit of $1.02 billion. These fees and margins would be excessive to anyone, but are especially burdensome to the people who use remittance most: low-income migrant workers and their even-lower-income families. “If the cost of sending remittances could be reduced by 5 percentage points…developing countries would receive over $16 billion dollars more each year than they do now. This added income could then provide remittance recipients more opportunity for consumption, savings, and investment in local economies.”—The World Bank
  17. US INDUSTRY IS LESS AND LESS CAPITAL INTENSIVE. A LONG TERM NEGATIVE TREND FOR LENDING.
  18. BETTER RATES FOR LENDERS THAN BONDS BETTER RATES FOR BORROWERS THAN CREDIT CARD DEBT
  19. 2/3 OF MONEY IS NOW INSTITUTIONAL INVESTING LEAD INVESTOR IN LAST ROUND WAS GOOGLE
  20. WHAT CAN BANKS DO? MOVE FAST IN A FAST CHANGING WORLD KEEP YOUR CUSTOMERS HAPPY UNDERSTAND YOU’RE NOT THE ONLY GAME IN TOWN KNOW YOUR ADVANTAGES – FDIC, STABILITY, CONVENIENCES DISRUPT YOURSELF BEFORE SOMEONE ELSE DOES