Silicon Valley has upended enormous parts of the world economy, and now a growing number of start-ups have their sights set on transforming — and in many cases radically shrinking — the financial industry.
Next week, many of these fintech geeks, hackers, entrepreneurs and investors will descend on Las Vegas for the Money 2020 Conference — the fourth annual gathering for companies at the intersection of financial services, payments and ecommerce.
Khosla is a big fintech booster, and has invested in a number of companies who will be in the spotlight at the conference, including — whose CEO Max Levchin co-founded PayPal and will take the stage on Tuesday — Square and . "All very exciting bets we are very optimistic about," said Khosla.
He believes that money itself will be completely reinvented through machine learning and artificial intelligence, resulting in a reduction in costs of as much as 90 percent. "The kinds of things the financial institutions, the banks, did traditionally will completely disappear. It's unwarranted and not very efficient or very good."
"Traditional financial institutions have not been very good at saying, 'We need radically different approaches to how you assess risk, how you value a transaction, what overhead should look like,' " Khosla said. "Some will adapt, many won't."
Affirm is another start-up taking aim at traditional banking. The company uses data science in credit-scoring algorithms combined with more traditional measures such as credit history and income to determine credit worthiness, unlocking access to credit to a whole new set of consumers. It offers shoppers loan terms of 12 months and interest rates of zero to 30 percent APR. Most of its users are millennials, but Gen X and Boomers are also catching on.
"They can do in seconds what banks took weeks to do. That's pretty stunning," said Khosla.
In his on-stage keynote, CEO Levchin will unveil three new products and a new partnership. He will also discuss Buy with Affirm, the company's substitute for credit cards. Levchin will be joined on stage by Tradesy CEO Tracy DiNunzio to provide the merchant perspective.
Stripe CEO Patrick Collison will sit down for a keynote with Khosla on Sunday. The 5-year-old start-up, now valued at more than $5 billion, processes billions of dollars a year for thousands of businesses in 21 countries.
Stripe is taking a different approach, working with banks rather than against them — this year it announced partnerships with Visa and American Express. The company is also a key player in the war for social commerce, but does not care who wins: It powers Buy Buttons on Facebook, Pinterest and Twitter. This year has been a busy one; it also announced Relay, an application program interface that lets merchants sell across multiple platforms with a single tech integration.
But can it compete with public rival PayPal? "I do believe Stripe has significant competitive advantages over PayPal," said Khosla.
"First, it's a much better experience for the user, and user experience on mobile or the Web always wins. But really the larger point I would make to you is this is such a large space, PayPal doesn't have to lose for Stripe to win. They can both win."
Money 2020 will be PayPal CEO Dan Schulman's first public event since assuming the CEO role, and we can expect him to lay out his vision for what PayPal as an independent company looks like. PayPal is striving to position itself as the go-to solution for digital transactions.
PayPal's total payment volume in the second quarter of 2015 was $65.9 billion, up 20 percent year over year and the company reported revenue of $2.3 billion, up 16 percent year over year. Expect Schulman to talk about his plans to grow that business and offer services targeted to the mobile millennial generation.
The company is building out its Payments business, acquiring a family of payments businesses. Among the most prominent: Venmo is an app that lets users instantly send money for free. It processed $1.6 billion in the second quarter of this year. Braintree's platform is used by companies including Airbnb, OpenTable and Uber. PayPal expects Braintree's payment volume run rate to be $50 billion this year. PayPal is also in the process of acquiring online remittances platform Xoom whose CEO John Kunze will also take the stage at the conference.
Also vying for attention are thousands of fintech start-ups courting venture capital investment in the StartupPitch180 competition and on Startup Row seeking to derail, or partner, with traditional financial services institutions like sponsors, Chase, Bank of America and Visa.