Apr 30, 2014, 5:40 PM ETPanel

Disruptive FinTech: A Look at Markets in Five Years

Doug Atkin (Guggenheim Partners): Former CEO of InstantNet (acquired by Reuters, 35% of NASDAQ volume); focuses on financial services investors and operators.
Arjun Malhotra (Omidyar Network): Focuses on building inclusive financial systems in emerging markets via early-stage VC and non-profit advocacy.
Laura Roden (Capital Formation Consultants): CFO background in tech; currently advocates for democratizing alternative assets and serves on the board of Heritage Bank.
Dave McClure (500 Startups): Manages ~$110M AUM; made 750+ investments across 40 countries in the last four years.
David Tedden (FF Venture Capital): Manages 23 employees with $85M capital; invests in 50 active portfolio companies and leads Harvard Business School Angels (NY).

VC Skepticism: Dave McClure notes his firm owns no Bitcoin personally; 75% of their VC investments historically failed because they were "hot" deals chasing crowd sentiment.
Investment Strategy: McClure prefers investing orthogonally to the masses, currently holding positions in PotCoin and Dogecoin while being skeptical of Bitcoin 1.0.
Market Allocation: David Tedden reports their fund holds no Bitcoin but has invested in ~8 Bitcoin-related companies, planning 10–20 annually, with a 20/80 split between crypto and broader fintech services.
Utility vs. Speculation: Audience polling reveals Bitcoin ownership is low (~10% of attendees), with actual usage for payments limited to a fraction of owners.
Future of Currency: Arjun Malhotra argues Bitcoin is a precursor to inevitable digital currency adoption, noting novel uses like property rights registration in emerging markets and local community currencies.
Asset Valuation: Laura Roden compares current Bitcoin valuation spikes to tulip mania but views it as the "grandparent" of digital currencies that will overcome institutional friction.

Leapfrogging Technology: Arjun Malhotra identifies carrier billing as the foundational payment infrastructure in emerging markets, allowing prepaid airtime to become electronic store of value.
Agent Networks: Over 50 markets globally have more mobile money agents than bank branches; 12 markets have more mobile wallets than bank accounts.
Credit Scoring Data: Fintech firms utilize "thin file" data (call records, social graphs) to infer creditworthiness for unbanked populations lacking traditional credit history.
Platform Dominance: The panel predicts a shift from carrier-led innovation (last 5 years) to software platform dominance (Google, Apple, Amazon) over the next 5 years due to frequent user logins and low transaction margins.
Hardware vs. Software: Laura Roden argues that while carriers provide physical distribution, software platforms ultimately own the customer relationship and transaction flow.
Consumer Behavior: Doug Atkin notes that despite high phone penetration, trust in electronic transactions in emerging markets is built through physical intermediaries and SMS confirmation of value transfer.

Peer-to-Peer (P2P) Lending: Arjun Malhotra cites P2P platforms like Prosper and Lending Club originating ~$3B in loans, moving from "wild west" to regulated models with credit checks.
Social Scoring: David Tedden and others suggest incorporating social graphs and connection reputation to lower default rates, moving beyond FICO scores.
SMB Financing: The panel identifies Small and Medium Business (SMB) cash flows as the largest unsecuritized asset class, with predictive models shifting from debt-only to equity-based scoring.
College Lending: Innovations include Income Sharing Agreements (ISAs) where investors buy equity in a student's future earnings rather than traditional debt.
Equity Crowdfunding: Laura Roden predicts platforms like Kickstarter will evolve into equity-based crowdfunding, though legal and structural hurdles remain.
Angel Investing Economics: David Tedden cites median angel returns between 18% and 54%, noting that 95% of accredited investors have not yet participated due to liquidity risks and lack of access.

Regulatory Arbitrage: Laura Roden states regulations have forced traditional banks into "locking the barn after the horse," creating a barrier to entry for them while enabling agile fintech startups.
Scale and Margins: Dave McClure argues that large financial institutions may ultimately win due to their ability to absorb compliance and technology costs in low-margin environments.
Acquisition Trends: Banks are increasingly acquiring fintech startups (e.g., BBVA's $100M+ purchase of Simple) rather than building internal alternatives.
Security as an Industry: Security is identified as the second-largest growth industry post-healthcare; the panel notes cyber threats are an enduring problem rather than one to be fully "solved."
Trust Deficit: Arjun Malhotra highlights that in emerging markets, distrust of government-owned banks and hyperinflation drives mass adoption of alternative financial services.
Disintermediation vs. Automation: Laura Roden reframes the trend as "automated intermediation," suggesting the industry will consolidate into a high-scale, low-touch model serving the 20% of assets.

Mobile Payment Adoption: Doug Atkin predicts broad mobile payment adoption within 2–3 years as billions of devices gain smart capabilities without current payment integration.
Retail and Auto Decline: David Tedden identifies retail real estate (malls) and the automobile industry ("peak car") as sectors facing imminent contraction due to efficiency gains.
Platform Convergence: Dave McClure forecasts that frequent transaction providers (Google, Apple, Amazon) will dominate the payments landscape by 2030.
Investment Horizon: The panel collectively anticipates the most significant disruption in the US market over 2–5 years, and in emerging markets over 5–10 years.
VC Role Evolution: AngelList and syndicates are expected to detach capital from expertise, allowing expert operators to lead investments without capital constraints.