Digital technology is disrupting industry after industry. The price of computing, data storage, communication, and coordination continues to plummet. Artificial Intelligence, sharing networks, crowdsourcing, crowdfunding, and digitization of old analogue processes are revolutionizing huge swaths of the economy. It's these trends that are radically changing the needs and behaviors of banking customers AND it's these trends that are now forcing the banking industry to revolutionize. Banks must disrupt themselves or be disrupted.

1. THE DISRUPTED
FUTURE OF BANKING
RAMEZ NAAM
@ramez

2. [TEXT HAS BEEN ADDED TO SLIDES TO
MAKE THEM USEFUL WITHOUT A SPEAKER]
DON’T USE TEXT IN PRESENTATIONS

3. WHO AM I?

4. SCIENCE FICTION AUTHOR

5. 14 YEARS IN TECH

6. HELPED LEAD INTERNAL STARTUP
DOING HIGH SCALE,
DISTRIBUTED SYSTEMS,
MACHINE LEARNING,
INFORMATION RETRIEVAL

8. LEARNING FROM A
DISRUPTIVE ADVERSARY

10. NOW TEACHING IMPACTS OF
EXPONENTIAL TECHNOLOGIES

12. SCIENCE FICTION IS HERE

14. 1 MILLION MILES DRIVEN ZERO ACCIDENTS

15. SEES THINGS YOU CAN’T SEE
REACTS FASTER THAN YOU CAN
DRIVES BETTER THAN YOU EVER WILL

17. 30,000 US ROAD FATALITIES / YEAR
1 MILLION /YEAR GLOBALLY
50 BILLION DRIVING HOURS / YR IN US
~8% OF GDP LOST TO DRIVING TIME

19. “DRIVING” WILL GO AWAY
HUGE INDUSTRIES DISRUPTED
YOUR LIFE CHANGED

21. IBM’S WATSON

22. TROUNCED TWO BEST HUMANS
TASK RECENTLY CONSIDERED IMPOSSIBLE

24. IBM’S TARGET MARKET: MEDICINE
16% OF US GDP
A BETTER DOCTOR, BETTER DIAGNOSIS

25. MEDICINE A LARGE TARGET
X-PRIZE TRICORDER PRIZE
MOBISANTE ULTRASOUND

26. $35K DEDICATED ULTRASOUND -> $500 ANDROID
+ TELEMEDICINE AND ALGORITHMIC MEDICINE
Mobisante mobile ultrasound

27. SENSORS EVERYWHERE
EVERY APPLIANCE, VEHICLE, DEVICE,
CONNECTED

29. SENSORS FOR THE BODY
THE INTERNET OF US

31. iPhone vs. ENIAC
Michael
O’Donnell
$10 TRILLION
TO BUILD IPHONE 5 WITH 1940s TECH

33. COST OF COMPUTING GOES TO ZERO
{AND OF STORAGE, BANDWIDTH, COORDINATION,
DISINTERMEDIATION, ETC..}

34. WINNERS AND LOSERS

39. PHOTOGRAPHY AT AN ALL TIME HIGH
KODAK CRUSHED

42. $18 Billion

43. $10 Billion

44. $9.5 Billion

45. $18 Billion

46. $23 Billion

48. AIRBNB HAS NEVER BUILT A HOTEL…
BUT HAS A HIGHER MARKET CAP
THAN HYATT
AND LIKELY TO PASS HILTON < 3
YEARS

49. 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)

50. WANT TO BE A WINNER?
OR A LOSER?

52. DISRUPTION STARTS AT THE EDGES
THEN HITS THE CORE
PAYMENTS ARE THE EDGE

53. 20%
BANKS EARN UP TO 20% OF REVENUE FROM NON-INTEREST
SOURCES:
ATM FEES, CREDIT CARD FEES, ACCOUNT FEES, ETC..

54. 3%
CREDIT CARDS TAKE 2-3% OF EACH TRANSACTION

57. SQUARE WOULD LOVE TO REPLACE
VISA AND MASTERCARD

59. BUT DOES THE WORLD EVEN
NEED SQUARE?

60. MOBILE PHONES PER 100 PEOPLE
Cellulari

62. UBIQUITOUS SMART PHONES WILL ENABLE
PAYMENTS WITHOUT ADDED HARDWARE

64. $1.6 TRILLION

65. CHINA
$1.6 TRILLION IN MOBILE PAYMENTS
IN 2013
317% GROWTH FROM 2012

66. VISA AND MASTERCARD WANT TO
OWN THIS SPACE TOO

67. BUT 3% SKIM CREATES AMPLE INCENTIVES
FOR MERCHANTS & RIVALS

69. ANALOGY: MOBILE SOCIAL & MOBILE
MESSAGING
UBIQUITOUS HARDWARE LOWERED BARRIERS
TO ENTRY
ALLOWED MULTIPLE NETWORKS TO SOAR
RAPIDLY TO HIGH SCALE

72. MONEY WIRING ESPECIALLY VULNERABLE

73. DEVELOPING WORLD MAJOR GROWTH AREA
DRIVEN BY ‘REMITTANCES’ FROM EMIGREES

74. $500 B Transfers

75. $528 BILLION IN REMITTANCES IN 2013
8% YOY GROWTH
>10% OF GDP IN 20 COUNTRIES
$50B IN MONEY TRANSFER FEES

76. 10%
FEES AVERAGE 10%. CAN BE 12% OR HIGHER.
$200  KENYA = $24 IN FEES. OUTRAGEOUS.

78. 0%?
BITCOIN AS A TRANSFER PROTCOL
INHERENTLY GLOBAL AND INSTANT

80. 80%
THE REAL MONEY FOR BANKS IS LOAN INTEREST
80% OF REVENUE: LOANS & SECURITIES

81. BANKS DEPEND UPON DEMAND
FOR THEIR LOANS

83. US INDUSTRY IS LESS AND LESS CAPITAL
INTENSIVE.
A LONG TERM NEGATIVE TREND FOR LENDING.

85. RECENT EXAMPLES

86. $280 million funding
$22 BILLION exit

87. $800 million funding
$10 BILLION value

88. AIRBNB NEVER BUILT ONE OF THESE

89. BUT AGAIN:
NOT JUST RECENT.
A LONG TERM TREND TOWARDS INCREASED
CAPITAL EFFICIENCY OF PROFITS

91. PROBLEM 2: COMPETITION IN LENDING

92. PEER TO PEER LENDING

93. “AIRBNB FOR LOANS”
CONNECTS BORROWERS TO
LENDERS
DISINTERMEDIATES BANKS

94. LENDERS GET HIGHER RATES THAN BONDS
BORROWERS GET LOWER RATES THAN CREDIT CARDS
LOANS OFTEN PAY DOWN CC DEBT

95. LENDERS BUILD PORTFOLIOS
TYPICALLY COVER ONLY FRACTION OF A BORROWER
SPREAD & SHARE RISK

96. 188% YOY GROWTH

97. 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

98. GOOGLE LEAD $125M LendingClub ROUND

99. OTHER COMPETITORS BEYOND P2P
PRIVATE EQUITY FIRMS 

100. $70+ BILLION IN LENDING IN 2013
UP FROM $50B IN 2012
SHIPYARDS, HEAVY INDUSTRY, ETC..

101. NIGHTMARE SCENARIO:
LARGE ASSET HOLDERS MOVE INTO LENDING
ASSISTED BY ALGORITHMS THAT VET LENDERS
& NETWORKS THAT DISINTERMEDIATE BANKS

102. TRILLIONS IN AVAILABLE ASSETS

103. ?

104. 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

106. THE DISRUPTED
FUTURE OF BANKING
RAMEZ NAAM
@ramez