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Bank of the Future

Discussion on the latest

banking and digital trends

and their implications

April 11-12, 2016

McKinsey & Company 2|SOURCE: McKinsey

In the next decade, we will see the emergence of a unified mobile

ecosystem of 24 trn, most of the world's customers

Ba

nk

ing

Data

co

mp

an

ies

DATA

COMPANIES

Data

Customer ownership

Talent pool

Difficult to monetize

Limited emotional

connection with

customers

TELCO

Owns the channel

No emotional

connection with

customers

BANKING

Data

Trust

Regulation

Slow reaction

RETAIL

Data on customers’

buying habits and

spending

Lack of daily

customer contact

McKinsey & Company 3|SOURCE: McKinsey

Primarily

front end

Full

Primarily

back end

Value

chain

Niche player

Narrow spectrum

Typical broad

banking spectrum

Offering

Broader than banking

Ecosystem

orchestrator

White-label

back-office

operator

In the new ecosystem banks will have to fundamentally rethink their

business model and they have three strategic options to go after

Fully digitized

universal bank

ILLUSTRATIVE

McKinsey & Company 4|

An option is to become an ecosystem owner bank ILLUSTRATIVE

SOURCE: McKinsey

Niche playerEcosystem

orchestrator

White-label

back-office

operator

Fully digitized

universal bank

McKinsey & Company 5|

An option is to become an ecosystem owner bank ILLUSTRATIVE

SOURCE: McKinsey Panorama

McKinsey & Company 6|

Banks need to proactively follow innovative ideas from inside and outside

banking, including ideas from thousands of FinTech startups

SOURCE: McKinsey Panorama

Retail

Institutional

RETAIL ASSET

GATHERING

C/A

B2C

PAYMENTS

LENDING

CAPITAL

MARKETS

AND AM

CASH

MANAGEMENT

LENDING

B2B

PAYMENTS

SELF-LEARNING

EFFICIENT

OPERATIONS

E2E

PROCESSES

INNOVATIVE

ORGANIZATION

AND CULTURE

DISTRIBUTION

MARKETING

DIGITIZED ADMIN

AND SUPPORT

NEXT GENERATION

RISK AND PRICING

2-SPEED IT

CUSTOMER

SERVICE

McKinsey & Company 7|

RETAIL ASSET

GATHERING

C/A

B2C

PAYMENTS SELF-LEARNING

EFFICIENT

OPERATIONS

E2E

PROCESSES LENDING

INNOVATIVE

ORGANIZATION

AND CULTURE

DISTRIBUTION

MARKETING

CAPITAL

MARKETS

AND AM

DIGITIZED ADMIN

AND SUPPORT

NEXT GENERATION

RISK AND PRICING

CASH

MANAGEMENT

LENDING

2-SPEED IT

B2B

PAYMENTS

CUSTOMER

SERVICE

Banks need to proactively follow innovative ideas from inside and outside

banking, including ideas from thousands of FinTech startups

SOURCE: McKinsey Panorama

ILLUSTRATIVE

OUTSOURCED/SAAS SERVICES

CRYPTO-CURRENCY

MARKETING AND LOYALTY SOLUTIONS FOR SMEs

E-COMMERCE / E-TRAILER

DIGITAL PRODUCT AND IN-APP PURCHASES

ADVERTISEMENTS AND DISCOUNTS

SOCIALIZING FINANCE AND USER GENERATED CONTENT

GAMBLING AND GAMING

INNOVATIVE LENDING PLATFORMS

(P2P AND CROWDSOURCING)

PERSONAL FINANCIAL MANAGEMENT BIG DATA DRIVEN

SCORING AND LENDING

NEXT GENERATION INSURANCE

CLOUD BASED SERVICES

B2B SERVICE PROVIDING

FINANCIAL MANAGEMENT AND LENDING

Link Like Love

E2E SERVICE IN SELECTED VERTICALS

REINVENTED REMITTANCE

CROWD INVESTMENT AND ADVISORY

NEXT GENERATION

PAYMENTS

P2P PAYMENTS

FINANCIAL INCLUSION

McKinsey & Company 8|

Digital players in China are at the forefront of creating such ecosystems

by expanding their core capabilities

SOURCE: McKinsey

e-Commerce

Online

search

Social

media

Ad

union

IM

payment

Security

Financial

servicesEntertainment

Smart devices

O2O

ads

Yu’e Bao: AuM

$93+ billion

Sesame Credit: credit score for

300+ million

Alipay: 800+ million Number of registered accounts

Ant Micro Loans: SME loans

$12+ billion

WeBank: Total loan credit line for

SMEs: $300+ million

WeChat: Social and mobile wallet app with

650+ million monthly active users

McKinsey & Company 9|

Several core elements of the new business model are visible

across the value chain, but it’s not easy for banks to adapt

SOURCE: McKinsey

Control the retail value chain

One-stop Shop for Corporates

Robo-advisory

Emerging post-trade services in CMIB

Self-learning e-operations

Big data-based real-time risk management

Augmented reality-based servicing

Fully personalized and automated customer servicing

McKinsey & Company 10|

Fintechs have six markers of success which make them easy to achieve

this transformation, well ahead of banks

SOURCE: McKinsey

Advantaged modes of customer acquisition

Fintech attackers need to find ways to attract customers cost-effectively, e.g. via partnerships and

distribution agreements, an alternative way payments POS attacker Poynt is increasing its scale

Step-function reduction in the cost to serve

The erosion of the advantages of physical distribution make this a distinctive marker for the disruptive

FinTech attackers, e.g. FinTech lenders have up to 400 bps cost advantage over banks

Innovative uses of data

Big Data and advanced analytics allow Fintechs to experiment with new credit scoring approaches

and to understand customer needs or “next best actions”, e.g. by leveraging social media data

Segment specific propositions

Successful Fintech attackers will cherry pick from banking products and excel only in that segment,

e.g. Wealthfront targets fee-averse Millenials who favor automated service over human advisors

Leveraging existing infrastructure

Fintech attackers embrace “co-opetition” and find ways to engage with existing ecosystem of banks,

e.g. Lending Club’s credit supplier is Web Bank, PayPal’s merchant acquirer is Wells Fargo

Managing risk and regulatory stakeholders

Regulation is a key swing factor in how Fintech disruption could play out as once these attackers

reach scale they will attract more regulatory attention and the ones lacking the required capabilities

could easily fail

1

2

3

4

5

6

McKinsey & Company 11|

Financial attackers can choose from three different strategic directions

SOURCE: McKinsey

Compete with

and disrupt

the banks

Disintermediate the customer

ownership of banks

Cooperate

and partner

with banks

5-10

20-30

60-75

%Share of

fintechs

1 3

2

McKinsey & Company 12|

True transformation and innovation in banking can only be achieved

through banks partnering with Fintechs along three pillars

Customer acquisition and retention – banks bring large,

established customer bases, while non-banks give access

to ‘sticky’ and innovative products to increase involvement

Regulatory and risk management – banking players have

sophisticated practices, which non-banks will likely need

going forward entering the financial services option space

Refining and scaling new tech – collaboration provides

an opportunity to pressure test innovations and expand to

new markets or demographics

NOT EXHAUSTIVE

SOURCE: McKinsey

McKinsey & Company 13|

Partnerships between start-ups and banks take many different forms

SOURCE: McKinsey

Degree of

affiliation

High

Low Access to technology – e.g., PayPal Sandbox

allowing developers to test PayPal application

components; Metro Bank agreement to use Zopa’s

P2P platform to expand lending services to its clients

Investment in products – e.g., Santander agreement

to purchase up to 25% of Lending Club’s total

origination for 3 years

Alliances – e.g., Santander and Funding Circle

partnership agreement to transfer leads of loans that

Santander is not able to finance

Funding – e.g., Credit Suisse led $165 M Series D

financing for Prosper based on a $1.9 B valuation

Acquisition – e.g., BBVA purchase of Simple and

Holvi

McKinsey & Company 14|

2015 global net profits by industry, USD trillion

Banking and asset

management

1.3

Printing & publishing

0.1

The financial industry has a much larger profit pool than recently disrupted industries

This business transformation heralds the largest industry transformation

in history and provides a great opportunity for innovation

SOURCE: World Industry Service

1 Excluding motor vehicles 2 Transmission of sound, images, data or other information via cables, broadcasting, relay or satellite

Communi-cations2

0.5

Retail sector1

0.7