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Investing in Financial Technology & Consumer Digital Technology We Accelerate Growth www.frost.com Investing in Financial Technology & Consumer Digital Technology Companies www.frost.com 1 Investing in Financial Technology & Consumer Digital Technology Companies Copyright © 2015 Frost & Sullivan. All rights reserved. We Accelerate Growth www.frost.com TABLE OF CONTENTS 1. OBJECTIVES 3 2. INTRODUCTION TO DIGITAL ERA 4 – CONSUMER TECHNOLOGY TRENDS 3. INTRODUCTION TO DIGITAL ERA 6 – FINANCIAL TECHNOLOGY TRENDS 4. INTERNET OF THINGS 7 5. WEARABLES 15 6. EMERGING SOCIAL MEDIA 26 7. ECOMMERCE 33 8. EPAYMENT 44 9. CROWDFUNDING 53 10. BIG DATA & PREDICTIVE ANALYTICS 64 11. CYBER SECURITY 73 12. DATA CENTRE & CLOUD SERVICES 85 13. BLOCKCHAIN 95 2 Investing in Financial Technology & Consumer Digital Technology Companies We Accelerate Growth www.frost.com 1. OBJECTIVES Technology today is radically transforming our lives in Investors in these companies have so far been a way we have not envisioned before. Smartphones, venture capital firms that understand technology Internet of Things (IoT), Bitcoin, ecommerce, and trends and valuation parameters well. While most of smartwatches, among others, are changing the these technologies have an exciting future, there are way we live. At the same time, technologies like Big significant risks involved as well. Hence, it is desirable Data and cyber security are transforming the way for retail investors to understand the technologies, businesses are run. trends, and potential risks before investing in these companies. The promise of new technologies is capturing tremendous investor interest. In fact, it is estimated This research paper aims to provide retail investors that approximately US$120 billion will be invested with valuable information on 10 key technology areas, by Venture Capital firms (VCs)1 in 2015, with the including the major trends, business models, risks, bulk of funding going into technology companies. and valuation drivers. The overall goal is to equip Private companies with more than US$1 billion in prospective investors with basic knowledge on the valuation, termed unicorns, are increasingly common potential of emerging technologies to enable them today. There are more than 140 technology unicorns to make well-informed investment decisions about globally as of September 20152. It is expected that these technology companies. The technology areas many of these companies will go for public listing covered in this research paper include: in the near future, drawing significant interest from retail investors. Figure 1: Technology Coverage3 CONSUMER TECHNOLOGIES FINANCIAL TECHNOLOGIES INTERNET OF THINGS EPAYMENT WEARABLES CROWDFUNDING SOCIAL MEDIA BIG DATA & PREDICTIVE MODELING ECOMMERCE CYBER SECURITY CLOUD & DATA CENTRE 1 Source: cbinsights, 2015 BLOCKCHAIN 2 Source: cbinsights, 2015 3 Some technologies may have a broader set of applications but only the financial or consumer aspects are covered in this research paper. 3 Investing in Financial Technology & Consumer Digital Technology Companies We Accelerate Growth www.frost.com 2. INTRODUCTION TO THE DIGITAL ERA – CONSUMER TECHNOLOGY TRENDS The past 20 years have been a remarkable era of rapid chess match in 1997, had a performance figure of improvements in digital consumer technology. Digital 11.38 GFLOPS or Giga Floating Point Operations Per technology, once limited to the confines of enterprise Second versus the 69 GFLOPS of a Xiaomi Mi4i). and big business, has now reached consumers worldwide at an unprecedented pace. Even poor While the smartphone and PC markets are considered people in emerging markets who may not even relatively mature, the rapid pace of technological have access to electricity, may own mobile phones advancements remains unabated and set to reinvent that have more processing power and memory than the way we work. These technologies and their the supercomputers of the 1990s (the Deep Blue enabling drivers are described below. supercomputer that defeated Garry Kasparov in a TRENDS SUPPORTING THE GROWTH OF CONSUMER TECHNOLOGIES Figure 2: Key Trends in Consumer Technologies FALLING PRICE OF COMPUTATION CONNECTED INTERNET OF & STORAGE SENSORS THINGS MINIATURISATION OF PERSONAL WEARABLES DEVICES MINIATURISATION OF COMPONENTS SOCIAL SOCIAL INTERACTIONS USING NETWORKS MULTIPLE DEVICES ENABLING DRIVERS SALES & PURCHASE RADICAL IMPROVEMENTS IN LAST- FROM COMPUTERS & ECOMMERCE MILE CONNECTIVITY SMARTPHONES FALLING PRICE OF COMPUTATION AND STORAGE Declining prices is a major catalyst spurring the The popular Moore’s Law observes that processors growth of consumer technology applications. More and memory chip performance will keep doubling consumers across the globe can now afford to own every 18 months. This indicates that performance a smartphone or PC. What’s more a larger number increases by 16 times every 6 years. As a result, of smaller devices can be given the same computing the price of a processor or memory with the same power of smartphones from previous generations, performance keeps reducing. For example, a US$125 leading to the proliferation of smart sensors and smartphone today has double the processing speed wearables into our everyday lives. of the iPhone 3G that sold at US$600 without a contract at the time of its launch in 2009. 4 Investing in Financial Technology & Consumer Digital Technology Companies We Accelerate Growth www.frost.com Figure 3: Average Price in US$ of 1 Megabyte Memory, RADICAL IMPROVEMENTS IN LAST-MILE 2008-2015 CONNECTIVITY Consumer devices do not only require processing power and memory; they also need fast connectivity to be truly useful. With the rapid development of wireless broadband technology in the form of ubiquitous and more efficient networks such as 3G, 4G, WiFi and Bluetooth, it is easier for new-generation consumer devices to be connected to a network and other devices. For example, modern cars use concierge and map services using 3G connectivity. Such solutions would not be possible without near- ubiquitous 3G connectivity. Similarly, Samsung Gear and Apple Watch connect with the smartphone using Bluetooth 4.0 that consumes only a fraction of power Source: jcmit.com, Frost & Sullivan Analysis compared to previous standards. With this connectivity, consumers can now shop from MINIATURISATION OF COMPONENTS their mobile phones, track their fitness levels using A direct consequence of improving chip performance fitness bands, check the security of their homes using is that similar computing power can now be connected IP cameras, and even remotely control the compressed in a smaller chip, which in turn, can be thermostats of their homes. fitted into a smaller device. A smartwatch today has the same memory and processing speed of a The combination of smaller, cheaper and more smartphone 3 years ago and of a PC from 6 years powerful devices with ubiquitous connectivity are ago. In future, even smaller components used in our key drivers behind the rapid progress in consumer clothing or smart glasses can have similar processing technologies. power, making these devices more useful to us. Figure 4: First Devices with 1 GHz processor and Their Launch Year COMPAQ TOSHIBA TG01 SAMSUNG DESKPRO EN Year: 2009 GALAXY GEAR Year: 2000 Year: 2013 5 Investing in Financial Technology & Consumer Digital Technology Companies We Accelerate Growth www.frost.com 3. INTRODUCTION TO THE DIGITAL ERA – FINANCIAL TECHNOLOGY TRENDS Financial technology (Fintech) refers to a business enabled by improvements in the cloud and cyber that provides financial services using software or security technologies. the Internet. Essentially, it brings many innovations in consumer technology such as web portals and Leveraging these technologies, innovative fintech smartphones to the financial world. Smartphones start-ups are revolutionising the once stagnant are being used to enable payments (epayments), financial services industry by enabling payments, the web is being deployed to raise funds for ideas loans and other financial services, which so far has and companies (crowdfunding) while big data been monopolised by banks and other major financial technology is helping to facilitate credit scoring institutions. and fraud detection. These advancements are being TRENDS SUPPORTING THE GROWTH OF FINANCIAL TECHNOLOGIES Figure 5: Key Trends in Financial Technologies INCREASING INTERNET & EPAYMENT CROWDFUNDING SMARTPHONE PENETRATION BIG DATA & CYBER IMPROVING CYBER SECURITY PREDICTIVE SECURITY ANALYTICS ENABLING DRIVERS INFRASTRUCTURE BLOCKCHAIN ADOPTION OF CLOUD AND BIG DATA TECHNOLOGY INCREASING INTERNET AND SMARTPHONE fintech areas would not have grown. Without strict PENETRATION security measures, we would not be able to make The Internet and smartphone are key enablers payments with our phones. of fintech. As the medium for crowdfunding websites, the Internet enables companies to raise Thus, improvements in cyber security play a huge funds without going to VCs or banks. Similarly, role in the uptake of financial technology. the smartphone facilitates innovative payment options like Apple Pay and smartphone-based ADOPTION OF CLOUD AND BIG DATA card readers like Square. Naturally, the larger Cloud and Big Data are the other two enabling the user base for Internet and smartphone, technologies powering fintech. On the one hand, the faster the growth for fintech companies. cloud technologies allow fintech start-ups to quickly scale up their infrastructure according to their IMPROVING CYBER SECURITY business growth. On the other hand, start-ups use Security is the number one
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