Creating Strategic Value through Financial Technology

Lessons in innovation from key FinTech trends and successes

Creating Strategic Value through Financial Technology explores the growing Financial Technology (FinTech) industry to provide insight on how traditional financial institutions and FinTech companies can boost innovation and enhance valuation in a complex regulatory environment. In plumbing the depth and breadth of several niches within in the FinTech sector, author Jay Wilson uncovers key themes that have contributed to the industry's success; in this book, he maps them together to provide useful guideposts for investors, entrepreneurs, and traditional institutions looking to facilitate growth as technology and financial services collide. With an expert's perspective on FinTech history and outlook, certain trends and examples of value-enhancing strategies stand out. FinTech niches covered include: payments, crowdfunding, alternative/marketplace lending, the blockchain, and technology solutions in the context of banking, insurance, and investment companies.

There is no denying the growing importance of technology in the financial services industry, and the FinTech sector offers valuable solutions for a diverse array of financial services providers and their customers. This book guides you through several niches of the FinTech sector, and highlights the most important takeaways from recent endeavors.

• Navigate the financial technology sector
• Enhance customer and product offerings
• Improve efficiency and cost structure
• Enhance profitability and company valuation from the intersection of technology and finance

Innovation and customer preference is a key driver of FinTech's growth. Customers are demanding better value and convenience, and the organizations that provide it are reaping the rewards of growth. As financial regulations grow more and more complex, and customers are presented with more and more options, it is becoming imperative for traditional institutions to modernize processes and carve out a place in the future of financial services. Creating Strategic Value through Financial Technology provides a handbook for navigating that space, with practical guidance on how FinTech companies and traditional financial institutions can enhance profitability and valuation from the trends.

Preface xi

Acknowledgments xv

Section One

Chapter 1 What is Financial Technology? 3

Technology’s Impact on Financial Services 3

What is FinTech and Who are the Players? 5

Why the Hype for FinTech? 10

Why is FinTech Potentially So Important to Society? 12

Recent Trends and Market Conditions for the FinTech Industry 14

Conclusion 18

Notes 19

Chapter 2 Community Banks and FinTech 21

Is FinTech a Threat or an Opportunity for Community Banks? 21

FinTech’s Potential Impact on Bank Valuation 29

How Community Banks Can Help FinTech Companies 31

Conclusion 32

Notes 33

Chapter 3 The Historical Context for FinTech 35

Introduction 35

FinTech History 35

Visa and MasterCard: The Largest IPOs in FinTech History 40

Core Vendors 43

Notes 50

Section Two

Chapter 4 State of Community Banks Embracing FinTech Today 53

Introduction 53

Overview of U.S. Community Bank Industry Trends 53

Banks and FinTech Increasingly Intersect 56

Serving More Customers Digitally 56

Evolving Regulatory Oversight of FinTech 61

Conclusion 66

Notes 67

Chapter 5 The Alternative Lending Niche 70

The Mortgage Market 70

The Consumer Lending Market 72

Government Regulation of Alternative Lending Platforms 78

Conclusion 79

Notes 80

Chapter 6 The Payments Niche 82

Trends to Watch 82

Digital Currencies and Blockchain Technology 91

Conclusion 99

Notes 100

Chapter 7 The Wealth Management Niche 104

Introduction 104

The Evolution of the Online Brokerage Industry 106

The Rise of Robo-Advisors 108

Conclusion 116

Notes 118

Chapter 8 InsurTech and the Future of Insurance 120

Introduction to InsurTech 121

Technology Trends in Insurance 123

Conclusion 129

Notes 129

Section Three

Chapter 9 Partnering with a FinTech Company 133

Introduction 133

Conclusion 154

Notes 155

Chapter 10 Early Stage FinTech Valuation Issues 156

Introduction 156

Why You Should Have a Valuation Performed 157

Valuation Considerations for FinTech Companies 160

What about Preferences and FinTech Valuations? 172

Special Issues: Valuations for Other Stakeholders 173

Conclusion 183

Notes 183

Chapter 11 Acquiring a FinTech Company 185

Introduction 185

Recent Trends in FinTech M&A Activity 187

Metrics to Analyze FinTech Transactions 192

Accounting Considerations and Goodwill Creation in FinTech Deals 202

Special Issues to Consider with FinTech M&A 218

Conclusion 224

Notes 224

Chapter 12 Liquidity Options Beyond a Sale 227

Introduction 227

Liquidity Options 228

Is Your Buy–Sell Agreement Solidly Built? 234

Conclusion 240

Notes 240

Chapter 13 Is There a Bubble Forming in FinTech? 242

Introduction 242

Factors Leading to a Bubble? 243

Signs That a Bubble May Be Forming in FinTech 246

Case Study of a FinTech Failure 246

Conclusion 251

Notes 252

Index 253

JAY D. WILSON, JR., is vice president of Mercer Capital's Depository Institutions practice. He leads the firm's FinTech industry team, publishes research quarterly related to the FinTech industry, and is involved in the valuation of FinTech companies, banks, thrifts, and credit unions for a variety of purposes including corporate strategic planning, transactions, equity compensation, and financial statement reporting.

Today's customers demand better value and convenience from their financial services providers, and innovations in the financial technology (FinTech) sector have answered the call. While some see a future where FinTech makes traditional banks and wealth management firms obsolete, many visionaries in the industry see how established financial institutions can integrate FinTech into their models to gain an edge over competing banks and non-banking firms. Creating Strategic Value through Financial Technology is the much-needed handbook to navigating the complexities of practice and regulation to enable traditional financial institutions and FinTech companies to discover mutually beneficial partnerships to boost performance, enhance customer satisfaction, and improve profitability and returns.

Whether you're an investor, entrepreneur, or with a traditional financial services company, this comprehensive road map to the FinTech industry shows you how to navigate the sector by looking at the major guideposts with a goal of facilitating the creation of strategic value at the intersections of financial services and technology. Community banks have the most to gain since offering customers state-of-the-art services and convenience can help them overcome competition from larger banks and non-banking organizations. No other resource more quickly and thoroughly brings you up to speed on the FinTech evolution and prepares you to take a leading role in its progress by offering:

• Practical ways community banks can use FinTech to enhance customer service offerings, efficiency, profitability, and valuations
• Useful overviews of the emerging trends in existing niches of FinTech, including bank technology, alternative lending, payments, wealth management, and insurance
• Key insights from successful FinTech companies, including illuminating case studies of inspired ways technology disrupted and improved traditional banking

This is only the beginning of how technology will alter finance as we know it, and Creating Strategic Value through Financial Technology gets you ahead of the curve and prepares you to be an influencer tomorrow.