Fintech CertificateFintech Certificate

Fintech – Disruptors And Enablers, Both Winners

January 2018

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Fintech Certificate

➢ Record investments in Fintech over the last three years (above $100bn according to KPMG) are

about to spark a massive wave of innovative financial and banking services

➢ One of the most obvious outcomes of the Fintech revolution is the disintermediation of financial

services as nimble companies take advantage of technologies such as AI and blockchain to

develop new services or to take business away from legacy players

➢ While the emergence of mobile payment platforms has drawn much attention, other Fintech

applications ranging from robo-advisers to peer-to-peer lending are also taking off

➢ Blockchain represents the final disintermediation step: the technology has wide-ranging

applications (smart contracts, decentralized apps…) in the financial world and in many industries

➢ Against this backdrop, banks and insurers have to reinvent themselves and invest heavily in

new technologies in order to enhance customer experience and extract operating efficiencies

➢ This suggests that tech enablers (both hardware and software) should also be in the

spotlight as they are in the early stages of a secular growth cycle

Fintech Certificate details

✓ Issuing bank: Natixis, Calculation agent: Natixis SA

✓ ISIN: XS1365787230

✓ Currency: USD

✓ Fees: 1.65% management fee + 15% performance fee, high water mark

✓ Bloomberg ticker: NXSRFINT

Investment Case

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Fintech Certificate 3

Payment Processing

Biometrics & Security

FinancialSoftware

Mobile Payments

B2B Payments

Loyalty &Rewards

P2P Lending

AI & Bots

Blockchain

Fintech CertificateFintech Certificate

➢ Now that the mobile payment infrastructure is in place, widespread adoption of mobile payments by

consumers is just a question of when, not if

Mobile Payments: The Tip Of The Iceberg (I)

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➢ Upcoming catalysts:

Loyalty programs and P2P features In-car payments Payments in virtual stores

Seamless, mobile-based checkout experience Government incentives

Fintech Certificate

➢ Asia Pacific and Africa are early and faster adopters of mobile payments with more than 100

million mobile payments users

5

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32.8 26.7

8.5 1.5

163.6

101.390.7

64

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0

20

40

60

80

100

120

140

160

180

Asia/Pacific

Africa NorthAmerica

Europe LatinAmerica

MiddleEast

2012 2016

450

620

780

930

1080

2015 2016 2017 2018 2019

Annual transaction volume in US$ bn -Mobile Payments

Mobile Payments users by region (in mn)

Source: AtonRâ Partners, TrendForce, NFC World+ Source: AtonRâ Partners, Gartner Inc.

CAGR ~ 20%

Mobile Payments: The Tip Of The Iceberg (II)

➢ The annual transaction volume via mobile payments in 2015 was $450bn and is expected to exceed

$1tn in 2019

Fintech CertificateFintech Certificate

Mobile Payments: The Tip Of The Iceberg (III)

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➢ Highly scalable business models hint at significant earnings leverage

➢ Strong balance sheets and cash-flow generation give ammo for M&A in a highly

fragmented industry

➢ Payment processors are the best way to capture the volume growth of

digital transactions

Fintech Certificate 7

Infrastructure

✓ Online / P2P

lending

✓ Mortgage

✓ Auto finance

✓ Credit scoring

✓ Blockchain

✓ Artificial Intelligence, bots

✓ Cybersecurity

✓ Risk assessment

✓ Anti-money laundering

✓ Client profiling

✓ IoT and

connected

devices

✓ Analytics

✓ Mobile payments

✓ Digital wallets

✓ Payment

processing

✓ B2B payments

✓ International

remittances

✓ Point-of-sale devices

✓ Artificial

Intelligence

✓ Robo-advisors

✓ Advanced analytics

✓ Process Automation

✓ Crowdfunding

✓ Social investing

Asset and Wealth Management

Insurance

Lending

Payments

The Fintech Universe Is Much Larger

Fintech Certificate 8

BorrowerLending Platform

(e.g., Lending Club)

Partner Bank (e.g., Web Bank)

Lender/ Investor

Applies for a loan (1)

Loan repayment (10)

Loan note (8)

Commits to a borrower (2)

Gives cash to the platform (6)

Investor receives loan note (9)

Loan repayment (11)

Informs a third-party bank that borrower is verified, investors have committed (3)

Purchases the loan note using investor’s cash (7)

Loan note purchasing

Loan repayment

Loan note transfer

Initial application and funding

How peer-to-peer lending works

Online Lending Has Been A Major Area Of Development

➢ According to KPMG, non-bank startups arranged more than $36bn of loans in 2015, mainly for

consumers, up from $11bn in 2014

➢ The boom of peer-to-peer lending platforms is mainly due to:

✓ Reduced lending by incumbents to small merchants and consumers following the 2008 financial

crisis

✓ The low rate environment, a positive for the funding of P2P platforms

✓ Increased use of online banking services by consumers

Fintech Certificate

➢ A few examples:

✓ Amazon has offered more than $1bn in small loans to third-party sellers on its site in the past

12 months, compared with $1.5bn in the 2011-2015 period. Loans range from $1,000 to

$750,000 and interest rates from 6% to 14%

✓ Square and PayPal have launched lending businesses targeting small businesses

✓ Qiwi, the Russian digital wallet and remittances company, is just launching a consumer lending

business

✓ Robinhood, which lets customers trade stocks for free, makes money thanks to margin trading

➢ Lending has become a natural extension of the services offered by many fintech and tech companies

Online Lending At The Core Of Many Fintech Offerings

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✓ They can leverage their existing relations with

consumers and merchants to develop a potentially

large and profitable lending business

✓ They can increase the stickiness of customers to

their main platform / business

Fintech Certificate

➢ Lending, and more generally financial services, fit well with tech companies’ know-how

✓ They are data-rich businesses

✓ The large amount of data that is easily

labeled makes this an interesting place

for Deep Learning (DL) methods

Online Lending And Banking: Tech Companies To Play A Major Role?

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✓ Access to detailed data on the customers’

business allows to mitigate risks

✓ Securitization suggests balance sheets

will not balloon

➢ A couple of tech companies already act de facto as banks

✓ By storing clients’ cash and allowing them to use their cash

balance through debit cards

Fintech Certificate

➢ Until now, Fintech companies have grown wild, without many restrictions

➢ The US government (through the OCC) just set up of a specific bank charter for fintech

companies that may seem at first sight as a regulatory headwind…

➢ It has actually more pros than cons:

The Bank Status Offered By The US Government Is A Major Positive

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Fintech Certificate

➢ Mobile payments offerings from Tech giants (Apple/Android Pay…) could be a Trojan horse to

develop a full financial services offering in the future

✓ Bypassing credit card companies would allow them to fully monetize mobile

transactions

✓ Leveraging huge numbers of users, unique data sets and AI skills, would then allow

them to expand into lending and banking and to find a new growth avenue

Tech Giants Likely Eager To Tap A Huge Market

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0

200

400

600

800

1'000

1'200

1'400

1'600

1'800

The 20 largest banksin US

The 20 largest banksin Europe

Credit cardscompanies (V, MA,

AXP, DFS)

In $bn

Market Capitalization (in $bn) – banks & credit cards companies

Source: Bloomberg, Banksdaily.com, Relbanks.com

Fintech Certificate

Traditional Banks Have No Choice But To Make Large Fintech Investments (I)

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ew competitors always will be emerging and

that is even truer today because of new

technologies and large changes in regulations.

The combination of these factors will have a lot of people

looking to compete with banks because they have fewer

capital and regulatory constraints and fewer legacy

systems. We also have a healthy fear of the potential

effects of an uneven playing field which may be

developing. Below are some areas that we are keeping an

eye on

NThere always will be new emerging competitors that we need to keep an eye on…

ilicon Valley is coming. There are

hundreds of startups with a lot of

brains and money working on variousSalternatives to traditional banking. The ones

you read about most are in the lending

business, whereby the firms can lend to

individuals and small business very quickly and

- these entities believe – effectively by using

Big Data to enhance credit underwriting.

JP Morgan CEO, Jamie Dimon in April 2015

hey are very good at reducing the “pain

points” in that they can make loans in

minutes, which might take banks weeks.TWe are going to work hard to make our

services as seamless and competitive as theirs.

And we also are completely comfortable with

partnering where it makes sense.

Fintech Certificate

Traditional Banks Have No Choice But To Make Large Fintech Investments (II)

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RBC wants 40% of total technology budget

devoted to innovation

JPMorgan Chase pumped $600mn into fintech in 2016

What JPMorgan is doing with that $9.5bn tech spend

French Bank BNP Paribas is spending €3bn to “build the bank of tomorrow”

Credit Suisse further enhances digital banking with Fintech Partnership;

launches regional industry’s first digital client onboarding application

Fintech Certificate

➢ Robo-advisory start-ups (Betterment, Wealthfront…) have been making the buzz lately

✓ Taking over traditional financial advisors, they offer asset allocation services to users based on their personal and employment situation, assets and liabilities, savings and retirement targets…

➢ Their success so far is limited (roughly $100bn in AUM) as brand is key and client acquisitioncostly

➢ While it’s highly unlikely to see a high number of start-ups thriving in this low-margin business,traditional banks are expected to capitalize on bots to reduce costs

✓ From portfolio allocation in wealth management

✓ To customer service (chatbots) and process automation

Robo-Advisory And Bots: A Major Cost Saving Opportunity For Banks

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Fintech Certificate

Software Solutions: The Picks And Shovels of Banks’ Fintech Revolution

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• Customer analytics

• Portfolio analytics

• Automated compliance checks

Analytics & regulatory compliance

• Consumer lending

• Mortgage

• Auto

• Credit cards

• Customer loyalty programs

• Direct marketing services

• Analytics

Marketing. Credit scoring

• Bill presentment

• Automatic invoice processing

• Payment forms on web or mobile apps

• Integration with mobile payment platforms and digital wallets

• Currency conversions

• Dispute management

• Fraud detection

Electronic payments

• Online and mobile platforms

• Online account opening

• Financial document automation

• Electronic payments

• Compliance and fraud prevention

• Financial messaging

• Front - trading, asset allocation, portfolio construction, investment products…

• Middle - performance reporting, due diligence, tax optimization…

• Back office -reconciliation, account administration, processing, clearing…

• Functions

Asset & wealth managementDigital banking

Electronics payments

Fintech Certificate

Software Solutions: Outsourcing A secular Trend

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➢ Keeping up with the latest fintech developments proves difficult

➢ Rising interest rate environment a positive for banks’ revenue and capex/IT spending outlook

➢ Regulatory burden on financial institutions is a driver of continued outsourcing

✓ According to IDC, 79% of bank IT spending is still in-house!

Banks

Convenience -multi channel

(mobile, internet)

Personalizedbanking

Ease of useReliability

Basel II and III

MIFID II

PSD II

TelcosFintech

Technologygiants

Poor ROEs

Weakrevenue

momentum

New CompetitorsFast-changing Technologies

Increasing Regulations Financial Metrics Under Pressure

Fintech Certificate 18

Blockchain 1.0 CryptoCurrencies

Blockchain 2.0+ Smart ContractsDecentralized Apps…

The building block of Web 3.0 and Industry 4.0

Blockchain: The Most Disruptive Technology Of The Past 10 Years

Fintech Certificate

Blockchain: It’s Just Getting Started (I)

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Blockchain looks like the Internet back in 1994…

➢ The decentralized software market value is $100B+

➢ ~20M crypto accounts in the world today or 0.3%

1994/1995

0.3% 0.4% 0.8% 1.3% 2.0%3.1%

4.6%6.8%

8.1%

10.6%12.3%

14.2%15.8%

17.6%

20.6%

23.3%

25.8%

29.2%

31.8%

35.1%

38.0%

40.7%

43.4%

46.1%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

500

1'000

1'500

2'000

2'500

3'000

3'500

4'000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Wo

rld

Po

pu

lati

on

Pen

etra

tio

n

Internet Users (Millions) World Population Penetration

We are here

2014

2012

2013

2004

1995

1996

1997

19981992

Source: scribblrs.com

➢ In 1995, the entire internet sector (public & private) was ~$70B

➢ In 1994, the entire global internet population was ~20M or 0.4%

Today

Fintech Certificate 20

Blockchain Disrupting Old And New Business Models

OLD (centralized) NEW (decentralized)

Data Storage

E-commerce

Social Media

Sharing Economy

Fintech Certificate

ICO: $1,327VS.

VC: $259

Blockchain: It’s Just Getting Started (II)

21

In 2017 alone, $4bn has been raised through ICOs (Initial Coin Offerings)

Source: CB Insights, BI Intelligence

$179 $161$122

$83$130

$248 $259

$12 $21 $21 $39 $38

$757

$1327

$0

$200

$400

$600

$800

$1000

$1200

$1400

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017

Conventional VC Funding To Blockchain Firms Vs. ICO FundingGlobal, Millions ($), Q1 2016-Q3 2017

VC funding ICO Funding

Q3 2017:

ratio of 5 to 1

Fintech Certificate 22

➢ A Blockchain (2.0+) is a distributed database of transactions (and computer code) recorded and

verified across a network of participants

Someone requests a

transaction

How blockchain works:

The first block is created

online and represents the

transaction

The requested transaction is broadcast to a P2P

network consisting of computers, known as nodes

The network of nodes

validates the transaction

and the user’s status using

known algorithms

A verified transaction can

involve cryptocurrency,

contracts, records or other

information

Once verified, the

transaction is combined

with other transactions to

create a new block of

data for the ledgerThe new block is then added to the existing blockchain, in a

way that is permanent and unalterable

The transaction

is now complete

Validation

Blockchain: The Ultimate Disintermediation

Fintech Certificate 23

Streamlining compliance procedures (AML, client onboarding…), hence reducing manual

intervention

Smart contracts allow the performance of trackable and irreversible transactions without third

parties. This level of automation and security has the power to revolutionize the management of

traditional contractual engagements across all industries.

Use cases

lockchain technology isn't just a more efficient way to settle securities. It will

fundamentally change market structures, and maybe even the architecture of the

Internet itself.”Abigail Johnson, CEO Fidelity Investments

Bitcoin is a remarkable cryptographic achievement…The ability to create something

which is not duplicable in the digital world has enormous value… Lots of people will

build businesses on top of thatEric Schmidt, Executive Chairman of Google

B

Improving and speeding the post-trade clearing and settlement processes

Blockchain: Wide-Ranging Applications

Fintech Certificate 24

WEALTH MANAGEMENT

PAYMENTS

LENDING

A rich newsflow ahead in Fintech: expected IPOs and M&A targets

$60 bn

Lufax

$4 bnSoFi

$4 bnCommonbond

$3.5 bnCredit Karma

$1 bn

Kabbage

$70 bnest. valuation

Ant Financial

$10 bn

Stripe

$1.3 bn

Robinhood

$2.3 bn

Adyen

$7.5 bn

$2.3 bn

$1.6 bn

Transferwise

$700 mn

WealthFront

$800 mn

Betterment

Fintech Certificate

M&A frenzy in sight: many Fintech businesses are highly fragmented and

scalable

Conclusion

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A major positive impact on GDP growth (greater efficiency of the banking

system)

A huge revenue opportunity in lending and payments

Many cost savings opportunities at stake for traditional financial institutions

Financial software a sweet spot

Blockchain to have a massive impact as it represents the ultimate

disintermediation

DISCLAIMER

This report has been produced by the organizational unit responsible for investment research (Research

unit) of AtonRâ Partners and sent to you by the company sales representatives.

As an internationally active company, AtonRâ Partners SA may be subject to a number of provisions in

drawing up and distributing its investment research documents. These regulations include the Directives

on the Independence of Financial Research issued by the Swiss Bankers Association.

Although AtonRâ Partners SA believes that the information provided in this document is based onreliable sources, it cannot assume responsibility for the quality, correctness, timeliness or completenessof the information contained in this report.

The information contained in these publications is exclusively intended for a client base consisting ofprofessionals or qualified investors. It is sent to you by way of information and cannot be divulged to athird party without the prior consent of AtonRâ Partners.

While all reasonable effort has been made to ensure that the information contained is not untrue ormisleading at the time of publication, no representation is made as to its accuracy or completeness and itshould not be relied upon as such.

Past performance is not indicative or a guarantee of future results. Investment losses may occur, andinvestors could lose some or all of their investment.

Any indices cited herein are provided only as examples of general market performance and no index isdirectly comparable to the past or future performance of the Certificate.

It should not be assumed that the Certificate will invest in any specific securities that comprise any index,nor should it be understood to mean that there is a correlation between the Certificate’s returns and anyindex returns.

Any material provided to you is intended only for discussion purposes and is not intended as an offer orsolicitation with respect to the purchase or sale of any security and should not be relied upon by you inevaluating the merits of investing in any securities.

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