MIT Venture Capital & Innovation Conference 2017
February 10, 2017, Cambridge, USA
MIT Venture Capital & Innovation Conference 2017
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Emerging innovations in fintech
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About speakers

Michael Casey
Senior Advisor, Digital Currency Initiative at MIT Media Lab
Patricia Kemp
General Partner at Oak HC/FT

Patricia is a General Partner of Oak HC/FT where she focuses on growth equity and early-stage venture opportunities exclusively in financial services technology. Since Oak HC/FT’s launch in September 2014, Patricia has led the fund’s investments in Fastpay, Feedzai, Insureon and Trov among others, and sits on the boards of each. She is also a Board Observer on Poynt.Patricia joined Oak Investment Partners as a Venture Partner in 2002 and continues to serve on the Boards of Duedil and Freshbooks. Some of Patricia’s past portfolio activity includes Vesta Corporation, Acculynk, Argus Information & Advisory Services (acquired by Verisk Analytics), Harbor Payments (acquired by American Express), NetSpend Corporation (acquired TSYS), Point Carbon (acquired by Thomson Reuters), and TxVia (acquired by Google).Patricia’s history includes over 11 years of senior management experience at Cendant (formerly CUC International). At various times she was responsible for the marketing, operations, or general management of a variety of direct marketing credit card affinity programs. Patricia has also previously held positions at Hewlett Packard and Merrill Lynch.

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About the talk

Michael Casey of the Digital Currency Initiative at the MIT Media Lab discusses emerging financial technologies and the future of money with Tricia Kemp of Oak HC/FT, a venture capital firm focused on health care and financial services technologies. David Morczinek gives the introduction.

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I want to take it from machine learning Java next Topic in the furnace Technologies. We have to ask because here with us they will tell us all about the digital currency and fintech. Patricia Kemp is a general partner at Oakland at Oakland Healthcare & fintech. She has about 15 years of experience in investing and financial Technologies. I before that she worked 11 years and B companies is the senior advisor of the digital currency initiative. He admitted that he was working as a journalist for over two decades in

financial Technologies for others that Financial Times. Also, he has literally written the book about crypto Technologies. So I look forward to the finals and would like to ask the speakers and Sage. Okay, so we are the the gap between Raleigh and we have to do my world is defined by blockchain that they think you might have heard. Once they receive a bunch of you probably know what it is. But often it is a technology is still really quite nice and until I do find it was talking to crowd. Sometimes it don't

really understand what it is that's going to be a deal with here. You know. I personally think that it is a word about as the next wave of a profound disruption in the text reply to the infrastructure of our digital economy. Basically, does it just changes the framework and we'll get to that little while but Finn tack is is kind of like the Respect it's quite a quite a buzz word of them at the moment. It seems to be that everybody is a sense of what the investment environment sure.

I'm okay hcst and we've done maybe twenty-five Send tech Investments over the last decade looks like it's staying in the trump in Texas that can be you know, different definitions of what is send text but it has exploded over the last 3 to 5 years or so 2015 2016 both saw the numbers like 9 billion in each of those years a little bit off fourth-quarter 16th and Us in Europe, and that's about 10 times was in 2010/2011. Just you understand. So it's greatly exploded skit about 40% of those Investments have been in

both the lending portion of the payments portion. So it is sort of been focused in certain areas, but, you know the amount of money that's not in his nose greatly expanded. Couple other interesting facts to think about when you think about Centex is the valuations have remained Frosty and are just starting to fall. So we kind of track how many down rounds we can put all up and Pitch book and your general tech companies 2016. I think the number was 19% We're down round to 81% were up rounds in Tekkit Stilwell sub 10% So they're also having Higher and Higher valuations and

you know what, I mean, like healthcare it and another portion of our business is 30% down around so that valuations have kind of started tracking down and just kind of interesting. It's still frothy or than Tech and general even though it is cracked lot of tech investors expectation is this going to start to fall. I mean one other interesting fact that we looked at is that it again is just of interest if you're thinking about centech company is it strategic exit is most likely the highest percentage of exits. So he actually kind of track it, you know, 27% of companies. SEL

450 million dollars of the other just 73% the vast majority of percentage like 89% sell between 200 and 600 + Cellars strategic sale to a big lez Legacy player. So this is very different than you know, what direct-to-consumer Uber or filter whatever it might be. You know, they are our strategic sales to Legacy infrastructure players in the 200 to 600. Right? That's kind of how the market has won. The last 5 years we can pull that hot we can cool it since that this something big is happening

when the word is out that we are doing something very detailed. This is the first time really in 500 years that we've really just try to tackle a truly just dropped. The story of people that made who write books about it. We should have helped. Where is the value that you guys are going to have to beat them up some real life opportunities coming to market the next two or three years. Where are they? B2B company, so we're not doing the next direct-to-consumer Robo advisor like a better men or wealthfront or try to come up with an ex mobile bank. So

we think it's far less risky and actually easier because what I said earlier about valuation look at the world in terms of all, the financial services ecosystem, if you think that management companies Capital markets companies Etc, they all have ecosystem in and around the Pinellas tax from customer acquisition to onboarding to pricing to risk management to the account management profile to claims processing. They all have kind of legacy infrastructures is dramatic changes

by that. We just heard about you data and data being used for AI is one of the most compelling cases as in with International Services industry. Mobile all those Stacks have to have no mobile in instant uses. So all those new technologies are being brought to bear up and down those Stacks. So what we like to call this is kind of bomb enabling the ecosystems, right? So we think one large change in a large Trend that's going to happen any other 17 through the next decade is

you're going to see everything from your insurance carrier to see the Geico in the Progressive commercials. But besides that, you know, you get eight and a half by 11 pieces of paper and envelopes in the mail once a year in your price 20 year and your engagement once a year from your nuts. You know, there's no there's no engagement. There's no online pricing. There's no real Time pricing and pulling in data on you if there is no don't take the photo of the fender bender and send it in and get your claims processed immediately. So you can kind of go stack by Stack cross all those and there

has been money put into payments into the banking, but you're going to have Solutions up and down those stacks. Free brought to bear but your cloud-based Solutions Dayton etcetera if it allows me out of sync about in a business in in in the in the architecture of where we build applications in really quickly as the ultimate underlying stack, right is it is it is the bomb sack because what we're doing here for those of you who it is. I got 500 years we've had this centralized trust model where

by Banks and institutions of acted as the intermediate is about trust problems. We've relied upon these institutions to represent us when we haven't been able to exchange the P2P whatever reason we don't trust her money is the most important application of that. It's we we we trust each other Transfer cash with a stranger because we've got this one Bearer instrument that we all understand is the conveyance of the value that's being conveyed there. But once we move into a remote environments, how does the world know that the dollar that I'm spending? I'm not double spending

somewhere else the monetary system requires some understanding of how that that exchange happens. And if we have to invest the trust if you will in a bag in the skies back in five hundred years. So now what blockchain does which is the underlying technology that enabled Bitcoin is to create a decentralized architecture distributed system in which that trust can now be deferred to a consensus mechanism is driven by cryptography and a bunch of other things. You're this game theory involve. It's proven itself Bitcoin is actually the first use case if you like all this and as much

as it's it's had its hiccups as as a digital currency table. You like well, why do I want something that's you know, I got my dollars and I think of Bitcoin as a digital currency, that's all it is in many respects. It's the first use case and it proved itself because it hasn't been hacked. It has not been destroyed The Ledger is complete even in this decentralized environment so you can see it as this important foundational last Marc Andreessen when he was to the first confronted with Bitcoin said something like wow, this is the distributive

trust architecture that we always wanted when we were first rolling out, you know, the internet that this was this was the stuff that would truly allow Pete appearance change and if we had it maybe we wouldn't have these behemoths like Amazon and other the end up recent relies in control, right? So to do something quite profound Lee opportunistic about this moment, but it's it's very very early days. And so I can text her is is I think Compared to the internet is something like, you know, maybe the early nineties, right? We still haven't got to that we

may be with grappling with email, but we certainly don't have the World Wide Web when we don't have my Bob, you know, smartphones musically don't have Uber in everything else get right though. Those equivalent things don't yet exist but what's also interesting is because I think of this recognition that the that the the disruption could be so big enough to show you this so loud. We are rushing forward with attempts to build applications on top of it and in a way which is a really interesting idea that you use this immutable Ledger now to be able to sit

up rudely transfer title exchange mortgages and why is it if you going to build that on and it's it's this sum is interesting ways around that, you know, this private blockchain, but not quite as destructive as easy as models throw that coming along It's going to be very interesting to see how these interplay between what are ultimately like fintech applications. And the rollout of the of the of the of the underlying infrastructure is the opportunities of huge let the media lab. We looking at things like the project we're doing the fox actually involved

in aqua brother Warehouse receipt. So so this idea that you could really bring into our financial system is to individuals and entities who had been locked out of it because that centralized trust architecture is difficult to get into this huge requirements of Lisa and the case of Warehouse receipt to this is fine as that. We looking at in in Mexico who have will get a receipt for the grains that they submit to a warehouse which shouldn't be that should be able to use to then get a loan to be financed. But because there's no way to prove that this hasn't been double spent the

same receipt hasn't been replayed in three or four times. They get locked out of financing Banks don't want to finance them. So what if we place that into this immutable record that nobody can shines this decentralized trust architecture to see the possibility that we're exploring in this in this realm and I think it's it's it's very exciting really early TCP IP stage of development centralized systems died at least is a lot going on. What what do you supposed to go to some of the other big trains today

promises? We all know there are all these other things that may or use cases that may or may not use blockchain that which is within Financial Services need to be fixed. You know, I gave the example of insurance earlier. I'll give an example of identity authentication you when you show up to open a bank account. We all know you have to show up here to bring my he's killing me Billy. They bring you two forms of where my addresses all this sort of stuff. That is just 30 year old technology that needs to be

changed. Invoicing cfo's the cfo's you don't they receive payments in in 7 different ways including you know dog and pony and they send them out eight different ways and it's all electronic AR and AP it's all very but there are also used cases and solutions and services that are needed kind of up and down these facts we can talk about the digitization of payments which everybody smell her with and I know if you know the numbers because two more payments and it's going to be a proximately right but let's a 2005 41% of income

payments for digital 60% percent for cash in like 2015 that it completely slipped and it's close to 77% digital, you know, 30% cash and check B2B payments are still well over 50% Be a check so us companies send around there 70% of the check volume United States. They are sending round checks in something like 55% of the cases. So you're going to have you have to continue digitization of consumer payments. India many people think 2017 is when we're all going

to start putting Arc or leather wallet away and start using her phone is her full wallet because we all want your OneTouch purchase Etc. We'll see if that happens but made people think it's going to happen. But you're going to have this continuation of the digitization you not only have to be at least a cut across payments and then across B2B payments, which is a much larger volume than consumer payments if the digital ization of continue payments, which brings up what I can say it a third area of lots of promise. You don't 1718, which is what I call drag Tek

regulatory technology. So it's fraud its risk its identity. It's compliance know-your-customer saw that the There's a Wall Street Journal article recently and HSBC as you eight thousand people in a tower Long Island City New York, and they're literally doing it manually manually doing background checks you go open up an account. They are Googling your name and making sure you know, you're not that the ax murderer or the terrorists do whatever it is. I mean, it's all that whole world of compliance is now somewhere between 15 to 18% of Bank stated that

costs and as everything becomes more digitizing is all we all have more and more devices that those needs and what your identity is and you know the positive history which is your parents are the negative history, which is your background check and you're positive history is that no Patricia cap paid this utility bill for this many years at such-and-such address is all going to start to be organized fashion such that it becomes easier very interested in You

start to think about was it 1 is 1 is that compliance problem could be resolved by the transparency the date of that resides in a real-time way. I can start to look at where my clothes are at it because we don't necessarily want that dated to be publicly identifying people. But at the same time if I consider we talked about machine learning and in Big Data really want it looks like you can start to manage know about this because what what obviously the Thievius Raccoonus Master problem right now with this this demonetization from cash

and the massive backlash probably because people depend upon in cash as an anonymous phone. Bitcoin very interesting because it says it is digital cat. It's not it's not a new way to do digital banking. It's listening to the anonymity that the one had is a very important feature as well because it allows for fluidity of, so what you got to think about that architecture you then think of how much we apply compliance to that how what is what are things that we could do with this information and there's all sorts of interesting

applications around in KY seen, you know, your customer Concepts don't necessarily identify people not knowing their name and their social security number and what do utility bills is but it's knowing that this particular entity whoever it is that you're dealing with has this proved the record of transactions that makes them a good credit or bad credit or a high risk or low risk, and you have the sort of more automated interaction between financial institutions and the customers and then you start to see Okay, so we can have

potentially a safe world where these these flows a man aged in a way that doesn't undermine the financial system and we can identify risk from a kind of a patent prospective also protects anonymity and privacy and these things which are becoming increasingly important and hopefully that is the sort of thing that really reduces that massive compliance Risk. By the way that compliance problem is is creating a global problem, which is this D risking issue. There are there countries all over the world that have had remittance car doors shut down because banks are terrified about

being sued but somehow, you know, unwittingly funding a money launderer was like a terrorist operation on simethicone. I like six hundred million dollars. They are not an insignificant number because they are a ml in a money laundry techniques or not. Operations with with AC whiskey which is either way is going to close the same thing because that just adds to cost which means the barriers to entry to the financial system, Ohio. Do we have a duty for the sake is not as far as I'm concerned to the global economy to resolve this problem. And I do

think this is where I love the great opportunities where is data and then good use of data aai applicable Financial Services. Is it is it is a great use queso me just as we all know I walk through the security things to do at the airport, right, you know, 99.9% of us who are being double-checked before they let us hope they open are in a Merrill Lynch account. Right and it's only 2.1% that are in trouble a lot of AI and lots of data. Can you use to make all of this a lot smoother and it's a great it's it's it's a terrific match of use case in my mind is it is

meaning of eventually to a complete reorganization of what we considered to be a financial institution. What a backlit. What do you how long before? You know, we've got to think I will Banks be the same as they are now in 10 years 20 years time. What what's what's the kind of Glide path for this from that big pics of his when do we when do banks die of poses the question arises from 5 to 10 years. And we're trying to do is get them enough so that they can compete

station. I mean it's as if somebody in the United States said, ok, every 5-10 and $20 bill is worth zero December 31st, right and you all have stopped accepting it and they're trying to matically move that country to being completely digital payment and they they announced it last night in the u.s. Election November 9th, and they said Whatever value rupees as of 12:31 or no longer of value there 0 and so you had this enormous in a massive chaos, right? So what's my point? My point is that he owed to me like that in the United States is digitization continue. Right does the

concept of the bank how he will walk into a bank get no longer if I walk into the bank with your utility bill to show who you are then you know what happens if you were going to see dramatic change are obviously going to see from a change counter Michael that it's people's money. So I have always said, you know, it sounds great to have wealthfront and betterment and Robin Hood and all these are the things that all sounds great when you $5,000 right? If you have you know, whatever number dollars you're handing it to bandar to you're handing it and Chase are you're putting it simply the other

there is this is people's money. So I don't think it's quite the same as get rid of rid of taxis and getting 2 numbers, right? I think it's I think that is I think there is a difference to this because there's a sense of security. There's a send it heavily regulated. I mean the company has to be heavily regulated license. So I don't think it quite shifts like other Industries because I'm a loser in your life hacks on how far this technology can go. But at the same time is it Mountain that slowly starting to move

and I can just see how it goes both have to try to make it to transport to get us out of here in for the South switch.

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Michael Casey
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