megatrend 1 megatrend 2 megatrend 3 megatrend 4 ... · megatrend 1 highlights: negative interest...

Volatility and the

Voyage of Discovery

MEGATREND 1EXTRAORDINARY MACROECONOMICS/P. 6

MEGATREND 2DEMOGRAPHICSHIFTS AND TRADE /P. 11

MEGATREND 3EXPONENTIALTECHNOLOGY/P. 14

MEGATREND 4COLLABORATIVEBANKING/P. 19

2017 Market Outlook

INTRODUCTIONVolatility and the Voyage of Discovery . . . . . . . . . . . . . . . . . . . . . . . . 4

MEGATREND 1Extraordinary Macroeconomics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

MEGATREND 2Demographic shifts and trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

MEGATREND 3 Exponential Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

MEGATREND 4Collaborative Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

CONCLUSIONClosing remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

CONTENT

Report is issued by Business Innovation, Nordea Cash Management Customer Solutions.

2017 Market Outlook

Volatility and the Voyage of Discovery

3/24nordea.com / 2017 MARKET OUTLOOK2017/V1

NORDEA.COM

M EG AT R EN D 1

EXTRAORDINARY MACROECONOMICSnegative interest rates and what it means for you

M EG AT R EN D 2

DEMOGRAPHICSHIFTS AND TRADEradical shifts in demographics and geopolitics are shaping global trade

M EG AT R EN D 3

EXPONENTIAL TECHNOLOGYWelcome to the fourthindustrial revolution

M EG AT R EN D 4

COLLABORATIVEBANKINGnew regulations open up collaborative developer platforms

The 4 Megatrends

4/24IntroductIon / 2017 MARKET OUTLOOK2017/V1

The first weeks of any new year are a time to reflect upon the previous 12 months and plan for the year ahead. In that tradition, Nordea's Business Innovation team within CMCS Cash Management Customer Solutions has made some key observations, and put together our thoughts on a number of important megatrends that are shaping the world around us.

There is no doubt that the era of smooth sailing is over and we are facing choppy and volatile waters. In this report, we chart a course to navigate through these stormy seas of risk and fast-changing environments, while at the same time keeping sight of the horizon and the opportunities that lie ahead.

MethodologyMarket Outlook is an annual report issued by Nordea’s CMCS Cash Management Customer Solutions. We use various data sources to map out the hottest market trends, what they mean for our customers and how you can make the most of new opportunities.

We reach out across the Nordea organisation to gather views and opinions from a diverse community of colleagues ranging from business leaders, technologists, subject matter experts and senior management.

We combine this input with the topics that are at the top of our customers’ agenda and a range of secondary sources, including key reports issued by global consultancy organisations, media coverage and the sessions we take part in at major industry events such as Sibos, EuroFinance, Slush, Money20/20, and many others.

The report is a heady mix of art and science and takes both a telescopic view across society and a microscopic view within our industry. Journalistic observations are combined and blended with PESTLE 1 methodology to determine four megatrends for the next 12 months and beyond. We hope our multi-disciplinary approach provokes new ways of interpreting our current financial and digital environment and ignites an ongoing conversation.

1) a PeStLe (Political, economic, Sociological, technological, Legal, and environmental) analysis is a framework of macro-environmental factors used to evaluate an organisation's external influences, with the purpose of using this information to guide strategic decision-making.

Volatility and the Voyage of Discovery2016 . What a year . Brexit . Trump . Negative interest rates . Geopolitical instability . The warmest year on record (once more) . David Bowie RIP . And, of course, the insatiable march of digitalisation in the financial industry, especially in treasury and payments .

INTRODUCTION

5/24IntroductIon / 2017 MARKET OUTLOOK2017/V1

#1MEGATRENDEXTRAORDINARYMACROECONOMICSNegative Interest rates and what it means for you

'The Treasury function is taking on a more strategic role amidst a volatile global economy'. Sophia Wikander Head of Business Innovation Nordea Cash Management Customer Solutions

Extraordinary Macroeconomics

MEGATREND 1

7/24meGatrend 1: extraordInary macroeconomIcS / 2017 MARKET OUTLOOK2017/V1

The origins of this phenomena can be traced to a variety of different sources including — but not limited to — the deep global overhang and debt levels following the 2008 financial crisis, coupled with ageing demographics across a number of key markets (most notably in Europe and Japan).

Additionally, in Europe, we have witnessed political uncertainty. First came the threat of Grexit and then the reality of Brexit. The tragedy of the refugee crisis has played out in the background, creating chasms of its own in the corridors of a paralytic Brussels. We have also witnessed the continued polarization of Northern creditor nations versus Southern debtor nations as social, political and economic divides combine. The very existence of the Euro architecture is under intense pressure given the absence of an authentic European Banking Union (in marked contrast with the more robust banking model that prevails in USA).

Meanwhile, in China, an overreliance on capital expenditure has resulted in risky levels of debt exposure and areas of overcapacity in state-owned enterprises that invest in heavy industries. China’s corporate debt is more than 150% of GDP, which makes it among the highest in the world. There is widespread scepticism about the understated official NPL (non-performing loan) ratios released via the Chinese authorities.

It can come as no surprise that these forces have created a considerable headwind that has deeply subdued global aggregate demand over a number of years. The response of many economies has been to embark upon a programme of QE (Quantitative Easing). A policy of negative or near zero interest rates has also been widely

Extraordinary MacroeconomicsNever before in modern economics have we encountered negative interest rates . Many leading economists had proffered that such a scenario was an impossibility, while others labelled it “voodoo economics .” And yet, here we are . Leading global economies have been at negative or near zero interest rates for a substantial period, and the results of this era may take years to reveal themselves fully .

MEGATREND 1

HIGHLIGHTS: Negative interest rates, voodoo economics, centralized treasury, optimized working capital, AutoFX

Going negativeDenmark's central bank lowered its benchmark rate below zero in 2012, and Sweden followed in 2015.

Source: central banks

2012

SWEDEN

DENMARK

2.0 %

1.0

0

1.5

0.5

-0.5

-1.0 2013 2014 2015


MEGATREND 1: ExTRAORDINARy MACROECONOMICS

adopted by top central bank authorities across global economies including the Federal Reserve, Bank of England, European Central Bank, Bank of Japan, Bank of Switzerland and central banks across the Nordics.

Has this policy succeeded? Well, actually, the jury is still out. Few believe that dropping interest rates further into negative territory will do anything to encourage investors to invest or consumers to spend. In fact, eight years after the recession, few would have expected such anaemic or, particularly in Europe, non-existent levels of growth.

Policy makers, governments and global institutions have been fumbling around in their economic toolkits for ways to alleviate the global economic malaise, with some politicians opting for an “easy” solution via monetary stimulus (perhaps because central bankers do not face the challenges of regular election cycles). That said, some economists are challenging their political counterparts to consider the combined power of monetary and fiscal expansion towards a temporary higher target rate of 4% inflation in order to fuel better rates of recovery.

Looking ahead, we may begin to see a gradual adjustment in which some governments begin to borrow and spend in order to get their economies moving. In so doing, they just might change interest rate expectations and gradually bring to an end the long era of very low rates. The Fed’s small hike in December of 2016 could well have been the start of this process.

Henry Kaufman, former Salomon Brothers chief economist, acknowledges that “secular swings are hard to forecast, but the secular sweep downwards in interest rates is over, and we are about to have a gentle swing upwards.”

With Donald Trump’s administration in place from 20 January, early indications have pointed towards an expansionary strategy that we can expect to raise debt demand and lead to higher interest

rates over time. As always, US policy decisions will be observed closely, with governments and companies calibrating accordingly.

What do negative interest rates mean for treasurers?Even if we are expecting an upturn in rates, the current reality affects the treasury significantly. Gone are the days when holding surplus cash in the bank would earn a positive yield; now, banks are forced to pass on negative interest rates in the form of bank deposit fees (up to 40 basis points in the Eurozone), thereby turning convention on its head.

Some treasurers are philosophical, taking the approach "we are where we are" and simply factor in deposit fees as a cost of doing business during challenging macroeconomic conditions. Others, however, are searching for alternatives to minimise their bank deposit fee exposure.

At Nordea, we think the best course of action is to consider a tailored approach based on the unique profile of every customer. As always, there are multiple options to consider, and we can help customers consider the pros and cons of risk, yield and, of course, operational liquidity demands.

How can you boost yield in a sub-zero age?In a recent report focused on large corporates and issued by Nordea through the Insights.nordea.com website, we uncovered a number of statistics that reveal how idle cash is becoming a cost for treasuries.Source: https://insights.nordea.com/how-can-you-boost-yield-sub-zero-age?Wt.mc_Id=12001

Eight out of ten corporates we talked to said their cash reserves will remain steady or grow over the next three years. However, idle cash is becoming a problem. More than half of treasurers surveyed told us that they simply accept low return as a cost of doing business and do nothing else about it.

Some may have weighed the benefits of more actively investing cash and

'Secular swings are hard to forecast, but the secular sweep downwards in interest rates is over, and we are about to have a gentle swing upwards.'Henry Kaufman former Salomon Brothers chief economist



decided it does not justify the time spent on getting a better yield. After all, the treasury’s primary responsibility is to ensure that the business has access to funding with manageable levels of risk — it is not a speculative investment function.

Overall, high-yield, low-risk investments are simply not there for the taking in today’s economy.

The report examines two possible options:

• Push the limits on investment risk and duration. This option may be worth exploring, even though only 6% say they have strategically extended their investment duration to increase yield, and only 3% have pursued higher-risk investments.

• Reduce cash holdings. In total, 39% of treasuries are paying down debt; 16% are raising or issuing extra dividends. Other options include greater urgency for investments (capex or M&A) or buying back shares. Treasurers could leverage Nordea’s cross-border cash pooling to help improve visibility and cash forecasting to ensure optimisation.

Nordea’s relationship bankingNordea continues to focus on our core values of responsible lending and saving in response to QE, as well as low interest rates. In addition, Nordea, over many years, has developed significant knowhow and deep specialist knowledge in markets, treasury and trade finance in order to optimise results and mitigate risk in a climate of volatility. We can play a part by helping SMEs and corporates grow their business through superior advisory, helping them to consider the various options in light of their company profile and market conditions.

Centralised cash pooling, for instance, can support the visibility and transparency of cash demands in cross-regional and multi-currency environments. Cash forecasting remains vital as an operational tool to potentially minimise excess surplus cash and thereby help avoid bank deposit fees wherever possible. This opens up many possible alternative investment options, including: commercial paper loans, optimal cash balancing, FX hedging, high liquid Nordea 360 bonds and other risk mitigation strategies that employ Key Performance Indicators (KPIs).

A recently released Nordea report on Working Capital Management (WCM) Ö INSIGHTS.NORDEA.COM/GO/

WORKING-CAPITAL, Going to work on working capital, examines figures from 184 publically listed Nordic companies, exposing the vastly unused opportunity to optimise WCM — and free up a total of €65 billion.

Since our first WCM report in 2015, we still see Nordic companies unnecessarily lagging behind European rivals. If this is of interest to you, visit our report page and see how you can maximise working capital and drive up overall capital efficiency and returns.

Easier FX risk handling and hedging Based on collaboration with several customers, Nordea has created AutoFX, a new easy-to-manage, rule-based solution that automates FX handling and frees treasury from manually monitoring bank accounts and FX transactions. AutoFX automatically follows a customer’s hedging or cash flow policy and executes FX deals according to pre-defined rules.

For exporters with several foreign currency accounts, AutoFX sweeping automates the transfer of positive foreign currency account balances to home currency accounts, with the related FX conversions. For importers who have expenditures in one or several currencies but all income in domestic currency, topping automates the top-up of negative foreign currency account balances from the home currency account to the related FX conversions to avoid interest. AutoFX allows customers to define variables such as the minimum balances on foreign accounts and the time intervals for account emptying.

Automated cash flow and liquidity management executes overnight FX swaps between home and foreign currency accounts. This effectively eliminates the negative balances in foreign currency accounts while minimizing interest payments caused by overdrafts.

If you are interested in AutoFX, contact a Nordea Cash Management representative and we will set up and activate the service for you.

http://insights.nordea.com/go/working-capital

http://insights.nordea.com/go/working-capital



'Secular swings are hard to forecast, but the secular sweep downwards in interest rates is over, and we are about to have a gentle swing upwards.'Henry Kaufman

former Salomon Brothers chief economist

#2MEGATRENDDEMOGRAPHICSHIFTS AND TRADERadical shifts in demographics and geopolitics are shaping global trade

'The Global community continues to open up trade corridors not just for physical goods but also for the exchange of ideas, data and new technologies that have no concept of borders'. Tabitha Cooper Strategic Business Developer, Innovation Lab Nordea Cash Management Customer Solutions

Demographic shifts and trade

MEGATREND 2

12/24meGatrend 2: demoGraPhIc ShIftS and trade / 2017 MARKET OUTLOOK2017/V1

This will have significant implications for companies. More than ever, companies will need to have actionable data on which consumer groups have disposable income, where they are located, what they want to buy, and what drives their spending.

This granular approach to targeting consumer groups has already begun and is set to increase in the years ahead, playing an increasingly important role in future business expansion both at home and abroad. According to a recent report by McKinsey, “nine groups of urban consumers will generate nearly 75% of global urban consumption growth from 2015 to 2030.” In the examples below, we look at two of the largest emerging demographic groups and their potential impact on business.

1. Working-age groups in emerging markets: Urbanisation and development are likely to introduce up to 3 billion middle class consumers to the market over the next 15 to 20 years. The next 10 years will be dominated by the emerging regions of Asia and Africa. By 2025 roughly half of the most significant global companies will be Asian, and Africa is on the move as the second-fastest growing region in the world. This poses enormous opportunities for companies pursuing overseas markets, in particular those that are developing products and services around infrastructure and agri-food.

2. Ageing populations in many developed markets: By 2050, the percentage of the world’s population over age 65 will double, while the number of people worldwide aged 80 or older will quadruple to 400 million. 80% of people 65 and over will live in low or middle-income countries. By 2050, for the first

time in history, it is projected there will be more people over the age of 65 than under the age of 14. In Italy, Japan and Spain, one in three people will be 65 or older. Although a political hot potato, immigration will be needed to boost productivity and demand. A very obvious implication is in healthcare where an aging population will put heavy pressure on the industry — whether public or private. With estimates claiming that around 75% of medical costs occur in the last three years of a person’s life, this has to be considered as a ticking time bomb.

The highs and lows around evolving global tradeThe positive side of globalism has heralded technological advances hastened by the market economy. Vast swaths of people in the developing world have been lifted out of poverty, as access to healthcare and clean water has increased. Trade corridors have opened up not just for physical goods but also for the exchange of ideas, data and new technologies that have no concept of borders. We are also beginning to see the increasing importance of the city as an economic entity, driving the new commerce and development of the 21st century.

On the flip slide, the rise of trade protectionism, unchecked income inequality and continued environmental degradation are profound risks to the global economy.

To get a temperature check of the latest economic outlook, download a copy of the Nordea Markets, Global Research report here Ö DOCS.NORDEAMARKETS.

COM/ECONOMICOUTLOOK/EO-EN-01-2017 or contact your local Nordea adviser.

HIGHLIGHTS: Developing economies and urbanization, ageing societies, Treasury international footprint, Trade Portal

Demographic shifts and trade Dramatic demographic shifts are transforming the global consumer landscape . Traditionally a rising population fuelled a significant amount of consumer-led growth . However, in the new world, we will see a more targeted shift towards growth in per capita spending .

MEGATREND 2

http://docs.nordeamarkets.com/EconomicOutlook/eo-en-01-2017

http://docs.nordeamarkets.com/EconomicOutlook/eo-en-01-2017

13/24meGatrend 2: demoGraPhIc ShIftS and trade / 2017 MARKET OUTLOOK2017/V1

MEGATREND 2: DEMOGRApHIC SHIFTS AND TRADE

From an economic perspective, cross-border trade and investment clearly promote economic growth and prosperity. However, not all parts of the global economy have benefited, which has been a likely factor in the recent political shakeups in the UK, US and other parts of the world. Donald Trump has already announced that the US will not ratify the Trans Pacific Partnership (TPP) free trade agreement, while the TTIP free trade agreement with the EU is also likely to be shelved.

If trade barriers are erected, this could be damaging to small, open economies such as the Nordics where welfare models might be challenged. However, global value chains have become so deep-rooted, it is likely that politicians will allow pragmatism to prevail over dogmatism in order to reach some kind of compromise.

Treasury has a growing international footprint across new regions The international footprint of corporates is rapidly expanding across both the established mature markets and also across the fast-developing emerging markets. Increasingly, treasury is serving new regions via central liquidity and cash overview and centralised key functions.

Recently, Nordea introduced a Trade Portal and Trade Club to help our customers explore growth opportunities and risks while trading and expanding into new markets. The portal functions as a vital information resource to expand and sustain international business, especially in growing demographic segments.

We invite you to browse the portal or to talk with our local Cash Management or Trade Finance advisors. Ö WWW.NORDEATRADE.COM/EN

Capitalism with a conscience Changing demographics, environmental concerns and changing consumer demands are also fuelling the concept of “capitalism with a conscience.” Populations are calling upon business to "do good" for society, while maintaining a profitable bottom line.

This change has also hit the banking industry. For instance, Nordea CEO Casper von Koskull has signalled the next chapter in the evolution of the organisation’s culture, which will enable the bank to become a sustainable and successful business run on ethically sound investment principles. One of the immediate results of this was the launch of Nordea’s Sustainable Finance initiative in late 2016, which is tasked with exploring investments that are more ethically sound.

The main purpose of Sustainable Finance is to strengthen our value propositions and the contribution we make towards society. To support this, the sustainability strategy focuses on three themes: climate change, engaging people and transparency. We aim to embed sustainability into all our investment advice and tools. By advising our customers and acting on their behalf, we make important contributions to economic growth and prosperity, through capital allocation and interaction with companies.

Visit the Sustainable Finance website site Ö SUSTAINABLEFINANCE.

NORDEA.COM for information on how we invest in a sustainable future and our focus on partnerships, as well as educational films, in-depth reports and how Nordea is addressing global challenges.

Facts about the Nordea Trade Portal

180country profiles

20,000markets reports, statistics and databases of importers and exporters

15,000+events to expand your business abroad

Alerts to monitor changes for regulations and new tenders

List of international trade shows

Check local barriers, shipping documents and compliance issues

Export and import calculators

Benefits of the Nordea Trade ClubAccess to more than 15,000 members world wide (Santander Bank, Rabo Bank, etc.)

Business opportunities sent to you every month

Possibility to promote your products and services to businesses abroad

http://www.nordeatrade.com/en

http://sustainablefinance.nordea.com

http://sustainablefinance.nordea.com

#3MEGATRENDEXPONENTIALTECHNOLOGyThe next 10 years will be game changing

'Technology will define our future society. Data is at the heart of everything. your data'. Ewan MacleodChief Digital OfficerNordea Group Digital

Follow me on Twitter: @Ew4n

Exponential TechnologyMEGATREND 3

15/24meGatrend 3: exPonentIaL technoLoGy / 2017 MARKET OUTLOOK2017/V1

In particular, mesh architecture networks, spanning the physical and virtual worlds, make it possible to bring together many individual technological components in order to yield even greater holistic benefits. For example, we foresee huge advances in areas such as big data analytics, artificial intelligence, robotics, the Internet of Things (IoT), cloud computing and cybersecurity. Additionally, we are likely to experience a continued momentum in cutting-edge Blockchain technology as protocols and use cases mature over time.

Technology matters. Why? Because technology will define our future as a society and, by extension, the future of banking. Customers now expect us at Nordea to be technology experts as well as banking experts and to provide the best technologies to drive their businesses forward.

In Nordea, we are committed to continuing our digital journey so we can provide safe, stable and personalised real-time convenience, premium digital tailored services and centralised services via in-house banking offerings.

There is no doubt that technological advances coupled with ongoing regulatory initiatives such as PSD2 contribute positively towards increased banking innovation. According to Francisco González, CEO of BBVA, we will go from 20,000 “analogue” banks worldwide to no more than several dozen “digital” banks in the next two decades.

We are also seeing a continued trend towards a cashless society across the Nordics and in other advanced economies. Meanwhile, improved security and identity technologies are playing a game of cat and mouse

HIGHLIGHTS: Digital era, artificial intelligence, robotics, the Internet of Things, mobile convenience

The Digital Universe is Huge — And Growing Exponentially If the Digital Universe were represented by the memory in a stack of tablets, in 2013 it would have stretched two-thirds the way to the Moon*

By 2020, there would be 6.6 stacks from the Earth to the Moon*

4 .4ZB

44ZB

2013 2020

Source: IDC* iPad Air - 0.29” thick, 128 GB

Exponential TechnologyThe rate of technology-driven change is not linear, but exponential . This has led some future analysts to claim that we are at the very beginning of a fourth industrial revolution, which will unleash the immense power of technology and artificial intelligence . Technological advances certainly have the potential to be a bright spot in the future, and over the next 10 years we are sure to see significant advances in many areas as technology, smart data and AI combine .

MEGATREND 3


MEGATREND 3: ExpONENTIAL TECHNOLOGy

with cybercriminals as online trust and identity security become key battles.

Increasingly, Nordea sees itself as a technology company as well as a bank. We continue to develop as “knowledge distributors,” leveraging the advantage of a vast array of customer data accumulated over many years to provide better services, tailored to customer needs. One could say that we are becoming banking, information and technology providers, as we continue to invest ambitiously in data and digitisation.

Digital transformation in NordeaNordea embarked on a significant enterprise-wide Simplification programme two years ago to prepare for the new digital age in banking. Part of this programme is a New Payment Platform, which will enable rapid, straightforward processing on all of Nordea's incoming and outgoing payments. This will improve the service's 24/7 stability as well as the quality of deliverables. The reduced system complexity will mean faster introduction of new services and an improved ability to adapt and respond to changes in customer demand and the regulatory environment. The New Payment Platform, combined with Common Data Warehousing and an updated Core Banking system, will be essential elements in our enterprise infrastructure and future banking approach.

Mobile banking Mobile services not only provide a more flexible, convenient customer experience, but also offer tremendous potential to grow the number of customers worldwide in the years ahead. We can expect to migrate to fewer, more interconnected domestic and cross-border platforms. Over time, and in response to PSD2 regulations, third party providers will enter the market with new, innovative solutions that will compete in the new Open Banking ecosystem. Continued collaboration between banks is expected to leverage economies of scale, further enhancing user experience and reaching customers across large volume markets. Future developments will continue to refine cashless, real-time payments, deliver simplified checkout methods, create attractive interfaces and provide immediate payment and shipping status and tracking.

We see a continuing shift to mobile where customer interactions can happen anytime, anywhere.

Robotics The robots are coming and they are going to take our jobs! Partially true, but they will also make our lives easier and create new employment opportunities in the years ahead. In fact, Nordea is already active in employing robots. But if you are imagining physical

I-want-to-knowmoments

65%of online consumers look

up more information online now versus a few

years ago.

66%of smartphone users turn to their phones to look up something they saw in a

TV commercial.

I-want-to-gomoments

2Xincrease in “near

me” search interest in the past year.

82%of smartphone users use a search engine

when looking for a local business.

I-want-to-domoments

91%of smartphone users turn to their phones for ideas

while doing a task.

100M+hours of “how-to” content

have been watched on YouTube so far this year

I-want-to-buymoments

82%of smartphone users

consult their phones while in a store deciding what

to buy.

29%increase in mobile conversion rates in

the past year.

Source:Dialogtech and Google’s “I-Want-To” Micro-Moments



robots typing out this report, you may be disappointed. These robots are not visible as such: they work from inside a computer. Two examples of one of our new "colleagues" are the Swedish robot, Glenn, who performs Know Your Customer (KYC) verification in Operations in Personal Banking, and the Danish robot, Edna, who will complete paid-up policies and transactions in the systems of Customer Service at Nordea Life & Pensions.

Real-time Nordea is a leading participant in the Swift Global Payments Initiative (gpi) that is moving towards real-time, cross-border payments. Nordea, together with 45 other major banks from across the world, together controlling approximately 69% of worldwide payment traffic, have signed up to the initiative. A key initial benefit will be the introduction of real-time payment tracking. Erik Zingmark, co-Head of Nordea Transaction Banking commented: "We’re excited to be part of the Swift-coordinated global payments innovation initiative, which we believe will deliver tangible benefits to customers, while setting a new standard in cross-border payments.”

Startups, FinTechs and collaboration Nordea is exploring new ways to drive digital development, collaborate with exciting new companies and find new tools to accelerate our innovation power for the benefit of the customer. Nordea is currently running FinTech roundtables, Innovation Labs, student-led innovation sprints (Summer of Innovation) and a Startup Accelerator programme to boost our digital development and collaboration opportunities. Jan Sirich, Head of Experimentation & Learning at Nordea, explains: “We are developing great digital services for our customers, and to do this in an optimal manner, we need to acquire expertise and creativity from outside

the organisation, too. The Nordea Startup Accelerator, for instance, focuses on ideas in new technology such as cognitive computing, artificial intelligence and Blockchain technology. But, we are also interested in other areas, where new technology can help us offer better services to our customers.”

New technology, new opportunitiesUndoubtedly, technological breakthroughs will continue to arrive in quick succession. This both affords opportunities and poses threats for society and for the financial industry. On balance, however, if we harness data and AI in an ethical and secure way, then the future is bright. Personal AI assistants are already leveraging the combined technologies of data analytics, cognitive computing, cloud technologies and voice recognition technology to augment human activities. We are rapidly evolving toward the next chapter, with intelligence becoming increasingly commoditised. Where exactly this will take the corporate treasury and banking is yet to be seen — but efficiency and error-free processes are likely outcomes, while resources will increasingly be freed up so treasury can pursue a more strategic role in supporting overall business goals.



‘The new digitally empowered banking customer is confident, well-informed and constantly connected — with an expectation of a 24/7 online convenient customer experience. We will start to see a development towards corporate payments becoming fully automated, self-serviced, executed in real time, and seamlessly available across all channels. This new dynamic payment ecosystem will in the long-term become the “new normal” for the industry.’Erik ZingmarkCo-Head of Transaction Banking, Nordea

#4MEGATRENDCOLLABORATIVEBANKINGNew regulations will open up collaborative developer platforms

'The customer is King. Top-level customer experience will be the primary grounds for competition'. Jarkko Turunen Head of Open Banking Nordea Cash Management Customer Solutions

Collaborative BankingMEGATREND 4

20/24meGatrend 4: coLLaboratIve bankInG / 2017 MARKET OUTLOOK2017/V1

Regulation and Nordea’s Open Banking InitiativePSD2 will see Nordea introduce Open APIs (Application Programming Interfaces) and a special developer portal open to third party developers. This will allow the third parties and developer communities to create collaborative apps on Nordea’s platform to solve customer pain points and create innovative new services and products. According to Jarkko Turunen, Nordea’s responsible business partner for the Open Banking Initiative, “Open Banking is an inspiring programme. We are responding to the challenge of change in the industry and to PSD2, which will come into effect on 13 January, 2018. We will deliver a platform that enables Nordea to create products that can be used inside third-party digital offerings via APIs.”

At the heart of these transformations is customer data. In this area, a shift is underway to move from a channel- and product-centric view to a data-centric view. People want simple, transparent services with real-time customised pricing; and they have to be available on the move. Customers expect the same level of service in all channels and the ability to move freely from one to another without any disruption. Ultimately, the customer owns their data and they can share it with whomever they like. In a sense, the bank is merely a custodian of the data, providing the ability for the customer to access and share their data with third parties.

In the future, however, we can expect third parties to be subjected to tighter regulation where they must be explicit about why they need to access to and how they will use the data. Open Banking provides customers with access to their data through a suite of applications

built by the bank, partners and — potentially — anyone. Recently, there has been an active debate about whether incumbent banks would compete or collaborate with the emerging FinTechs. Nordea firmly takes the position that collaboration is the name of the game.

Gunnar Berger, Head of Cash Management Channels at Nordea, referring to the broader Open Banking Initiative envisions that Nordea may have up to 100 partnerships by 2020.

Technological developments are advancing unabated and we can expect that in 10 years banking will look and act in a completely different manner.

A number of leading economists and thinkers point to seismic changes across society that will be ushered in by technology — and banking will not be excluded from the disruption. Jeremy Rifkin, a leading voice on the “zero marginal cost society,” has highlighted that technological advances in many sectors of the economy are bringing marginal costs to near zero, effectively freeing goods and services from market forces. According to Rifkin, the emerging Internet of Things (IoT) is powering us towards an era of practically free goods and services, precipitating the meteoric rise of a global collaborative commons.

There is no question that there is widespread disruption across the banking sector. The same is also very true across our customers’ industries. Practically every corner of the global economy is experiencing a shift in their business models towards a more collaborative landscape. The rate at which businesses rise and fall is accelerating at a faster pace than ever before. Facebook

HIGHLIGHTS: Customer experience, PSD2 Regulation, Collaborative Open Banking, digital banking superstores

Collaborative Banking

The maxim "The Customer is King" will still ring true in 2017 . In fact, this statement will be amplified via the converging benefits of open banking regulation and technological advances with nuanced shifts in societal and consumer expectations . In the face of these change factors, most business leaders still recognise that the delivery of top-level customer experience matters the most and that customer satisfaction and engagement will be the primary grounds for competition .

MEGATREND 4


MEGATREND 4: COLLABORATIVE BANKING

founder and millennial Mark Zuckerberg had barely exchanged his college hoodie for his trademark grey t-shirt when he earned his first billion by the age of 23.

At 2016’s agenda-setting banking conference, Sibos, an oft-repeated message was that small teams of five to seven people were the key to unlocking disruption. At Nordea, we are experimenting with this structure. Nordea's Innovation team ran a six-week "Summer of Innovation programme" which put a select group of top students together with a number of customers to prototype concepts for their business in a series of weekly sprints. We also recently concluded our second Startup Accelerator programme, which brought a selected group of startups together to collaborate on finding innovative solutions to future banking problems.

Nordea knows there is great value in learning from the advances of the tech giants and from larger global success stories, such as the way some Asian economies have successfully embraced e-commerce and omnicommerce. Digitalisation has enabled a shift from variable cost production towards large-scale, value-add platforms, while business models have been radically transformed to take out the intermediary — something we have seen in the so-called sharing economy with Uber, AirBnB and Spotify all disrupting their industries.

At Sibos in 2016, Claus Richter, Head of Cash Management Customer Solutions at Nordea, spoke about evolving business models where data is key, saying, “There will be ongoing attempts at fee-based models and shared revenue models between banks and FinTechs; but the core thing they will all rely on is data.”

In one likely scenario, large banks will leverage new technology by providing platforms that act as “digital banking superstores.” Nordea began making significant investments to its core banking and payment platforms in order to optimise technological advances and prepare for the post-PSD2 landscape. This investment and the next chapter in Nordea's outward culture, is opening up the opportunity to collaborate and experiment with different niche providers, business model innovators and a community of non-bank players.

"We are seeing more and more tech giants moving in our domain, be it Apple Pay or Microsoft Simplify. Nordea needs to approach this issue head on. Everyone is talking about FinTechs, but

Innovate or die:

'75% of S&P500 will be replaced by 2027'Innosight



one could argue that tech giants have a greater potential to rock the boat due to their large customer base, constant access to the customers and extremely deep pockets," says Peder af Ugglas, Nordea Partnership Development & Collaboration.

Changing societal expectations Societal expectations are shifting and we are beginning to glimpse the habits of future generations.

“Generation Z,” the generation born after the millennials, best highlights the ongoing shift in developing customer expectations. Generation Z is loosely defined as those born between 1996 and 2010, many of whom are true digital natives.

Some of the key traits of GenZ include higher delivery expectations, low brand loyalty, business-mindedness and social responsibility. These global citizens value experience over commodities and easy access over ownership — for instance, access to green transportation is more important than owning a car.

Developing customer expectations centre on the "me:" Know me, Look out for me, Reward me. In an ever more crowded business landscape, no one provider has the privilege of a captive audience. Increasingly the way to get attention is by surprising and delighting customers with messages telling them what they need before they need it. And the key to delivering this customer experience? Data.

Again, at Sibos 2016, Andy Schmidt of CEB TowerGroup consultancy, commented, “In my opinion, data is the most under-leveraged asset banks have available to them at the moment.” Recognising that this is the future of superior customer experience, Nordea is actively experimenting on a number of fronts to leverage data in order to understand customer pain points and to resolve these via integrated services.

Service design and customer initiated product design are in the spotlight

CommunicationVia Global Platforms

Advancing TechnologyA digital Renaissance Via

Internet of ThingsCollaboration

is the name of the game in the Shared Economy to

meet customers needs

From: Minimum Viable ProductTo: Minimum Lovable Product

Open RegulationsZero Marginal Cost Society

As Industries open up

Customer ExpectationsService and customer centric

product design key for success

EnergyVia Renewables

LogisticsVia Driverless Electric



‘When it comes to Nordea’s Open Banking Initiative: The biggest potential benefits for corporate customers may come from new value propositions, services and solutions that result from banks and new entrants combining their individual strengths.’Jarkko TurunenHead of Open BankingNordea Cash Management Customer Solutions

24/24cLoSInG remarkS / 2017 MARKET OUTLOOK2017/V1

Closing remarks

We are certainly living through some interesting times . In fact, the only thing we can reliably expect to see is seismic disruption across a wide variety of areas as society adapts to the ever-changing trends in the marketplace and the impact of technology . At Nordea, we are excited to be at the helm during this voyage of discovery in finance, and we look forward to connecting with our customers and stakeholders on this journey .

CONCLUSION

Here are some of the ways we will take you there:

As a reliable and trusted partner: Nordea is an AA- rated bank (S&P, Fitch’s, October 2016) with a strong policy of conservative and responsible banking in the current era of volatility, negative interest rates, excessive global debt and geopolitical tensions. We continue to focus on the backbone of the economy towards SMEs as well as large corporates and financial institutions.

Banking as a platform:New regulations such as PSD2 are opening up banking, forcing the industry to look at new operating models. Nordea is experimenting by positioning itself as a Nordic banking hub that is to open up collaboration with third parties so that optimal solutions are delivered to the customer.

Delivering new technology: Rate of technological change is exponential, not linear. Nordea is investing ambitiously on a multi-year journey to leverage the vast opportunities presented by advanced mesh technologies and open banking partnerships. Exciting developments lie in digitalisation, data analytics, artificial intelligence, the Internet of Things, robotics and distributed ledger technology.

Next generation culture: Nordea is evolving its culture and embracing ever more sustainable practices. Nordea is exploring opportunities to transcend technology and to consider new business models based on trust, long-term relationships, co-creation and the development of an ethical and sustainable society.

We invite you to download this report, book a meeting, or visit our special website for more information.

Ö INSIGHTS.NORDEA.COM/GO/MEGATRENDS-2017

http://insights.nordea.com/go/megatrends-2017

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