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Retail – Wholesale

Benoît Legrand, Global Head of Fintech

Universwiftnet 2017

Paris | 14 March 2017

Are digitization trends in Retail and Wholesaleso different?

Innovation is a key priority in ING’s Strategy

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Helping the organization to focus its energy effectively and on the right battles…

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The global Fintech landscape can roughly be mapped across 8 broad areas, which have seen investments grow dramatically...

4

... and threat of disruption of traditional banking comes from everyone of those areas...

5

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Traditional FI players

Tech companies

Fintechs

The threat also comes from outside our known banking world...

• The GAFA (Google, Apple, Facebook, Amazon) have a massive reach: • Google is often stated the most popular webservice1

• 1.8 billion users for Facebook2

• 800 million iTunes accounts, • 250 million Amazon customers,

• More importantly, they compete to be at the centre of digital lives.• Since finance plays a critical role in our lives, it is natural that their

business plans might intersect with Fintech at some point. • Previously this led to Apple Pay, Google’s Android Pay, Facebook

Messenger Payments and Amazon Lending with loans to their SME clients.

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... as large tech companies also move into financial services...From user base to expanding services Financial services strategic rationales

1. In terms of share of visits; 2. Monthly active users, as of 31.12.16.

Marketplace function naturally

expands into transaction

management

Integral part of strategy

Maintain volume on platform by

offering extending functionality

Adjacent to current service

offering

Commercialise user intent based

on payment behaviour,

less focus on transaction

margins

Monetizing transaction data

• GAFA is looking to cherry pick elements of the traditional banking business.• With access to user bases with massive reach, revenue from financial service markets

traditionally serviced by banks are at risk. • Banks need to decide which roles to play, which businesses to prioritize and transform,

which new businesses to launch, and how to develop and deploy relevant digital enablers.

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Transaction Services: industry trends

Industry trends Investment levels of TS propositions1

1. Selected transactions funded with disclosed amounts in the Transaction Services Payments domains, corrected for the 3Q14 USD3.5bn transaction. Source: Tracxn.com

• Regulation to provide 3rd parties access to customers’ accounts through open APIs, enabling them to build financial services on top of banks’ data and infrastructure.

• Consequently, 3rd parties can adopt the front-office role towards customers with a solid platform and auxiliary services

• Potentially, this demotes banks to being a utility provider, without client access or control over the process or data

PSD2

• Payment services increasing volume and growing customer base.• Banking license allows them to pre-finance.• Take over the payments end-to-end payment process from PoS or e-

commerce to transaction processor.

Payment companies expanding services

• Niche companies are focussing on making international liquidity management less complex, expensive and more transparent.

International money transfersM

illion

s0

200000000

400000000

600000000

800000000

1Q14 3Q14 1Q15 3Q15 1Q16 3Q16

40000000

310000001900000032000000

24000000

6000000

35000000

21000000

20000000

11000000

10000000

B2B Payments EnablersPayment cards Payment gatewayPayment Network PoS suiteWallet Acquirer ProcessorGrand Total

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Financial Markets: industry trendsIndustry trends Market Investment levels in Fintech1

1. Selected transactions funded with disclosed amounts in the financial markets domains. Source: Tracxn.com

• Rise of more effective niche electronic trading platforms for bonds, treasuries, stocks, commodities, FX, Interest Rates Swaps and others.

• Rise of new trading players coming out of the bank industry using advanced Artificial Intelligence algorithms to price bank clients.

• The rule-based digitized process gives way for pricing and hedging decision support technology, unlocking a myriad of information streams compared to a human manual decision process.

Rise of electronic trading & non-bank market makers

• By identifying distinct steps being taken by traders, the trading process is being translated into a digital rule-based process

• Previously, trades were priced manually and hedged with inter-dealer voice brokers who are now replaced by electronic venues.

• Now, non-exchange traded securities with fluctuating prices, like currencies and bonds, are being automated at rapid pace.

Automating the trading process

Algorithm & AI based tradingM

illion

s

-

43 750 000

87 500 000

131 250 000

175 000 000

1Q14 3Q14 1Q15 3Q15 1Q16 3Q16

19 000 000

13 000 00016 000 000

16 000 000

13 000 000

7 000 000

14 000 000

9 000 0007 000 000

8 000 0006 000 000

5 000 000

Back-end solutions Data managementElectronic trading Fixed incomeFraud detection Portfolio managementPortfolio reporting Regulatory & complianceGrand Total

# Number of deals

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Can we still escape from a game-changing reality?

The digital revolution is a given and drives customers expectations

The rise of empowerment is here to stay

The 2008 financial crisis is still fundamentally shaping the financial industry

1.

2.

3.

The need and the drive for change are similar in Retail and Wholesale, only the pace may be differentWHY?

• Pressure from the environment• Pressure from customers• Pressure from inside : cost, revenue, margin

HOW TO ADAPT? : LEADERSHIP WILL MAKE THE DIFFERENCE

1. Opt for a new banking model :• From “cost+ driven” to “customer value-driven”• Based on authentic values : consideration, transparency,

simplicity and performance• Open to the external world, partnering with FinTechs, walking

away from the « not-invented here » syndrome

2. Embrace innovation at the core

3. Transform Corporate culture : from a vertical model (knowledge, decision-making, implementation) to an horizontal model (collaborative, structured, empowering)

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« The main challenge of the digital revolution is not digital… it is human and cultural »

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