Technology is reshaping the operating-model of financial institutions fundamentally. Some thoughts:
1/ Banking & credit are the lifeblood of capitalism, and Credit and Debt play a big role in driving demand and economic growth.
2/ The line between deposits and lending is becoming blurred as cash-flow is delivered “as a service”. Non-traditional data makes it possible to create new products and serve new customer categories and markets.
3/ Deposit accounts are no longer the locus of control for customers as the center of the retail customer experience shifts to financial-management platforms, reducing interaction points between large banks and customers.
1/n: “Everything gains or loses from volatility. Fragility is what loses from volatility and uncertainty.”
Had 4-5 uninterrupted flight hours this Friday. Re-read #Antifragile by @nntaleb. So here’re some nuggets/quotes/insights from one of my favorite books. #TweetThread 👇🏼
2: Some things seem to improve if they are placed in environments of volatility and unpredictability. ‘Antifragile’ analyzes why this is the case. It suggests that this quality has been vital for the progress of human civilization since ancient times.
3: Taleb describes that something is antifragile when it gets better with chaos, disorder, and time whereas anything fragile hates volatility.
Nature is the ultimate example of something antifragile as it can adapt and gets stronger with difficult times.
1) Re-read ‘the lessons of history’ by Will and Ariel Durant. Some insights/quotes/extracts below
Our knowledge of any past event is incomplete. Most history is guessing and the rest is prejudice. Other sciences tell us how we might behave. History tells us how we have behaved.
2) History is the map of human character. To know how the man will act you must know how man has acted. The laws of biology are the fundamental lessons of history. Human nature has largely been unchanged throughout history – the means change, but the motives remain the same.
3) The individual instincts were hardwired into us by evolution. They are millions of years old. The social instincts are much younger and were learned over the last 70,000 years. Inequality among humans is inherent in the unequal distribution of inborn ability.
Re-read "Deep-Work" last nite. Some learnings/notes/extracts:
1) Ability to master hard things quickly and produce high quality work quickly are two vital characteristics in order to succeed. “If you don’t produce, you won’t thrive—no matter how skilled or talented you are.”
2) Those who can work intelligently with machines, those with access to capital and those who are the best at what they do will vastly outperform others – world becoming more ‘winner take all’
3) Deep work goes hand in hand with awareness and attention which are strongly correlated with happiness. The clarity for what matters gives clarity into what doesn’t.
1: The global banking industry is showing signs of renewed health:
i. Deep capital reserves-Tier-1 capital is at decade-high ~12.6%.
ii. High liquidity: Loan-to-deposit ratio fell to~90%, as comp. to 120% in 2007
iii. Innovation: Investment in digital capabilities & partnerships
2: Banks have taken an axe to costs, yet profits remain elusive (falling ROE and P/B Multiples), leading to depressed valuations.
The unstoppable march of ‘Four Horsemen’ —Disintermediation, Commoditization, Unbundling/Rebundling, and Invisibility— continues.
3: Technology is breaking up traditional value chains into new stacks.
—Traditional Model: Banks vertically integrated. Competition between banks with similar offerings.
—New Model: Modularization. Specialized service providers compete on product innovation and distribution.
1. NBFCs grew fast, led by retail loans, Bingeing on cheap money. This in turn created a virtuous cycle -as numbers kept growing, so did cheap credit. While ~11,400 NBFCs operate in India, the top 400 —primarily backed by banks and fin. companies— control 90% of the sector’s AUM.
2. Between FY13-17, nearly $57B flew into Indian bond & liquid funds, resulting in wholesale borrowing rates fall to as low as 6-7% around mid-2017.
Interestingly, the flow of cheap money changed the funding mix of NBFCs over the decade and re-adjustment became more pronounced...
3. ..during the last five years. Bank funding (as %) went down and market borrowing (as %) went up. Low rates resulted in NBFCs borrowing significantly from wholesale market, mutual funds, banks, etc. and lending it primarily for retail loans.
FinTech Wave 1 (08-18) is ending, and Wave 2 (18-> ) is starting. Exciting times ahead. More innovation likely in the next 10 yrs than the previous 80 yrs. I’ve been writing about big shifts, trends, & strategy. So wrapping 2018 with a thread of some selected tweets/posts. (1/n)
2) China is the "FinTech capital of the world.” : - 700M+ mpay users, pymts vol > $15Tn, Alt-lend ~$300bn+. I spent 2016-17 in 🇨🇳 with a ringside view of the size/scale/on-ground realities for the biggest FinTechs. Here’s a long ( 60+ articles) thread:
3) During 2018, the shakeout in China’s $192 B peer-to-peer (P2P) lending industry accelerated at a rapid clip. In many ways, this regulatory crackdown is a step in the right direction towards industry standardization/clean-up. Long thread:
There’re lot of tweets (within the FinTech community in India) about Whether 'lending is a feature' or not? So, let’s unpack that a bit..
3/n: True definition of Lender = Lending Money from own balance-sheet (i.e. skin in the game). The primary revenue here is Interest Income (Net Revenue from Funds), and margins computed basis NIM (Net Interest Margin) and COF (Cost of Funds).