1 © GfK July 12, 2016 | Innovation, Fintech and the Future of Banking
Innovation, Fintech and the
Future of Banking
Simon Ware @siware
2 © GfK July 12, 2016 | Innovation, Fintech and the Future of Banking
Technology adoption continues to get faster and faster
3 © GfK July 12, 2016 | Innovation, Fintech and the Future of Banking
Barriers to entry are getting increasingly lower
Content courtesy of
4 © GfK July 12, 2016 | Innovation, Fintech and the Future of Banking
Key themes:
• Deal volumes continue to grow
• Deal size increasing
• Unicorns
• Growth in Asia
• Successful IPO’s
• PayPal
• Square
• WorldPay
• First Data
• Notable failure: Powa
Global investment in financial technology ventures stands at $22.6bn. It grew by $20.8bn between 2010 & 2015
Fintech investment continues to grow
6 © GfK July 12, 2016 | Innovation, Fintech and the Future of Banking
Vertical business models will disaggregate into a new financial platform ecosystem,
enabled by regulation (e.g. PSD2) and open API initiatives
$ $ $ $ $
$
Infrastructure and
Utility Platforms
Consumer Service
Providers
$ $ $ $ $
$
Financial Product
Platforms
$ $ $ $ $
$
AISP - ACCOUNT INFORMATION SERVICE PROVIDER
PISP - PAYMENT INITIATION SERVICE PROVIDER
Including:
AS PSP – ACCOUNTING SERVICE
PAYMENT SERVICE PROVIDER
The new financial services ecosystem
7 © GfK July 12, 2016 | Innovation, Fintech and the Future of Banking
$ $ $ $ $
$
Infrastructure and Utility
Platforms
Consumer Service Providers
$ $ $ $ $
$ Financial Product Platforms
$ $ $ $ $
$
Core product offerings
Operational automation
Industry utilities
Blockchain API enablement
Digital platforms
GAFAA response
Compete, partner or withdraw?
Retail sales and distribution
Collaborative outsourcing How to increase ROE
Risk and regulatory capital
Banks require new strategies for their landing points in the ecosystem
8 © GfK July 12, 2016 | Innovation, Fintech and the Future of Banking
Source: Accenture Research, ‘Data Sharing and Open Data for Banks’ report for HM Treasury
A number of banks in Europe are collaborating with third-party
developers and startups in pursuit of a platform model
8
4
Examples of Banks Investing in a Platform Approach
BBVA,
Spain
• Built a strong developer community using Innovation Challenges based around reuse of aggregated (not personal) data
• The bank is now in the process of building and rolling out an Application Program Interface (API) across different aspects
of its business
Banco
Sabbadell, Spain
• Launched an ‘Open Apps’ innovation program that provides limited access to some APIs for trusted developers
• Perhaps curiously, one of the first integrations the bank sponsored was with Google Glass, enabling users to see their
account balance or receive directions to an ATM.
Crédit Agricole,
France
• Credit Agricole was one of the first banks to launch [in 2012] an open API initiative, which is now the Credit Agricole app
store.
• Applications allow customers to budget their finances and manage their credit card accounts. The API also uses its own
Geolocation service for enhanced customer data on how the apps are being used.
Citi,
Global
• Partnering with startups, platform companies like Uber, and other banks. E.g. Hapoalim, the largest Israeli bank is offering
their APIs to developers to use them along with Citi APIs
• Is attracting developers from over 100 countries with programs like Citi Mobile Challenge
Fidor Bank,
Germany
• Currently developing its API platform for developers. It is engaging independent developers throughout the process.
• It has a roadmap that will open a very wide range of functionality to third parties starting with transfers, payments and
account views before moving on to more complex transactions like KYC verification and new account creation.
Garanti,
Turkey
• Turkey’s second largest bank, Garanti, opens up its APIs to partners who want to integrate with them.
• Has a large range of applications for customers, which mixes those built in-‐house with others designed by third parties
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9 © GfK July 12, 2016 | Innovation, Fintech and the Future of Banking
Riding the forces of creative destruction
To prosper and survive incumbents need to…
Create Destroy
A digital operating
model
An enduring role in the
emerging ecosystem
Agility and innovation
An attractive culture
Unprofitable
product lines
Inefficient
operations
Legacy technology
Complacency
Fintech collaboration provides banks with a way of directing these forces
and protecting their futures
10 © GfK July 12, 2016 | Innovation, Fintech and the Future of Banking
Why are the banks collaborating?
• Access to consumers
• Access to cutting edge technology
• Poor results from in-house transformation
Both creation and destruction…
• Unsustainable cost:income ratios
• Hunger for talent and cultural challenge
Why are the fintechs collaborating?
• Access to core banking products
• Access to corporate and institutional
markets
• Access to market infrastructure
• Regulatory barriers
• High bank technology spending
The shift to Fintech collaboration
11 © GfK July 12, 2016 | Innovation, Fintech and the Future of Banking
Source: Adapted by Accenture Research from: OCTO Technology, FinTech is cannibalizing banks! (Access English version);
Data supplemented From: UK Government Chief Scientific Adviser “FinTech Futures”
By empowering new business models, Fintech are doing a
noble piece of banks’ work
P2P Payment
E-wallet Real-life txn
data
E-payment Crowdlending Crowdlending Online
advisory
Aggregated
a/c Card-linked
marketing
Invoice
trading
Bitcoin
Wallet
Digital
bank Emerging
Model
Card-linked
marketing
Current
Model Bank Credit Consultants Separate A/cs Coupon Debit Card Credit Score Credit Card Bank Credit Invoice Factoring Bank Transfer Traditional Bank
Role of Fintechs
Front Office
Customer focused
High Margin
Merchant Payment
Credit SME
Personal Loan
Project Lending
Private Banking
Bank Portal
e-Payment
Couponing Factoring fee
Bank Total Market Reach
Role of Banks
Back Office
Essential & Regulated
Low Margin
Core Banking Product
Platforms
2
12 © GfK July 12, 2016 | Innovation, Fintech and the Future of Banking
$ $ $ $ $
$
Infrastructure and
Utility Platforms
Consumer Service
Providers
$ $ $ $ $
$
Financial Product
Platforms
$ $ $ $ $
$
Examples from the Accenture Fintech Innovation Lab
14 © GfK July 12, 2016 | Innovation, Fintech and the Future of Banking
Source: Accenture Research, Celent, Banknxt
How banks are engaging with Fintech and Innovation
• Easiest and richest way of engaging startups
• Joint research and product development, partnering on
open platform or ecosystem innovation, connecting via
incubators
Examples
• Setting up a venture capital arm to invest in startups
• Good way to get deep into emerging disruptors but
requires deep pockets, feasible by cash-rich banks
• Acquire FinTech startups outright, integrating them or
running them as standalone entities
• Risk of parent bank’s legacy processes and culture
bleeding into acquired entity
• Build new innovations in-house to create products that
rival the best of FinTech
• Likely slower speed-to-market
• Santander UK agreement with Funding Circle to drive
referrals
• Fidor Bank Germany has architected its own open
platform for third-party developers
• Santander InnoVentures invested $4 million in Ripple
Labs
• Banks’ total investment in FinTech startups is estimated
at $5bn (2015), predominantly by the US banks
• Notable acquisition of Simple by BBVA Compass
• Citi’s internal innovation team has built its own
cryptocurrency similar to Bitcoin and aimed at cross-
border transactions, branding it “Citicoin”
Collaborate
1
Invest
2
Acquire
3
Build
4