MODULE 1 UNIT 1

Notes Video 1 Transcript

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Module 1 Unit 1 Notes Video 1 Transcript

DAVID SHRIER: Why is fintech exciting? Why are you taking this course? Well, fintech
has certainly attracted a lot of investment. So, in the past five years over a hundred billion
dollars US has gone into financing fintech companies. The investments are pouring
particularly into the most profitable areas of the banking and financial services industry.
So, personal finance is about 46% of global bank profits. It’s the single largest contributor
to bank profits. 73% of fintech investments have gone into efforts to try and disrupt the
personal finance industry.

What’s driving the need for these new kinds of financial services, these new kinds of
fintech companies? Well, for one thing, the existing financial system is not meeting the
challenges of society. It is not living up to the needs of humanity. There are about 3 and a
half billion people in the world who either have no access whatsoever to the financial
system or have highly expensive access: the unbanked and underbanked population. 3.5
billion. That’s about half of humanity. According to the World Bank, we need to create
600 million new jobs in the next 15 years just to stave off widespread famine and poverty
in Africa and Asia. The global south is facing a crisis. The good news is that small
businesses can help solve that crisis. Small and medium-sized enterprises create four
out of five jobs. What’s necessary to enable financial prosperity that can lift us out of this
looming crisis?

The problem is that 95% of small and medium-sized enterprises have insufficient access
to the financial system. That’s about 245 million small and medium-sized enterprises.
Fintech companies can solve this funding gap of over 2 trillion pound sterling. Citigroup –
as I mentioned earlier – thinks that about 73% of investment in fintechs is going into retail
banking innovation. That’s about two times the investment that’s going into innovation in
investment banking. Why is this happening? Well, let me give you an example.

How recently have you been to a retail branch? What was the experience like? For most
people, going to a retail branch is a terrible experience that’s just about as bad as paying
taxes. People avoid it at all costs. Younger generations eschew it completely. They’re
just using mobile banking services. In the words of Benjamin Palmer, a futurist I work
with, “the only time I go to a retail branch is when they did something wrong or I did”. The
failures of the traditional banking industry and the changing patterns and habits of
Generation Y, Generation X, millennials, even in the older generations as well of moving
to mobile and online banking has created opportunity for a new generation of challenger
banks: banks like Starling Bank, Fidor Bank, Monzo, Atom Bank, and others, Ant
Financial in China. These digital challenger banks cost 50% less to build in terms of IT
infrastructure investment. They require 90% fewer people to run. Think about that: 90%
less headcount.

This has caused some industry analysts to assert that somewhere between 2 million and
6 million banking professionals in the US and Europe are going to lose their jobs in the
next 10 years due to this innovation and automation that challenger banks and new
technologies are driving. Santander InnoVentures thinks that 20 billion dollars US is
going to be saved by large financial institutions who implement distributed ledger
technologies, what’s popularly known as blockchain technologies. When I mentioned this
statistic to Jeremy Allaire, the CEO of Circle, he said to me that he thought that that

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number was too conservative. He thinks the savings could be as much as a hundred
billion dollars US.

Artificial intelligence and automation is entering a number of different areas of the

financial services industry. It’s raising fear. Some of the headlines have said things like,
“Will fintech kill your banking job?” When we look at the rapid growth of assets in fields
like asset management, for example, driven by robo-advisors, we see robo-advisors
perhaps at about 2 trillion dollars or more of assets by 2020. Now, in a 65 trillion dollar
US industry, this may seem like a small number, but it has come from nothing and in just
a few years is going to become an appreciable portion of the overall asset management
industry.

Asset management firms are proactively responding to this. So, for example, one firm
recently cut 220 jobs to replace those asset management professionals with robo-
advisors. Some financial services professionals feel like they’re about to be crushed by a
wave of change, a tsunami that is rushing at their institutions. In the words of one mystic,
you can’t fight the wave, but you can learn to surf.

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