FinTech – opportunity or threat for financial services/media/Corporate/Pdf-alumni/... · 2015-12-14 · FinTech – opportunity or threat for financial services. ... Download an

Vlerick FinTech Event

Brussels, November 26, 2015

FinTech – opportunity or threat for financial services

220151126_Vlerick_FinTech.pptx

Roland Berger constantly monitors the interplay between FinTechand Financial Services

Recent RB Brussels publications

Source: Roland Berger

Direct banks in Belgium – Innocent kids of annoying teenagers

(February 2015)

The "sharing economy" and Financial Services: friend or foe?

(September 2015)

Digitalization in retail banking –European retail banking survey

(November 2015)

The Blockchainrevolution

(… 2015)


Overview of survey participants

WESTERN EUROPE (WE) > 16 banks

SOUTHERN EUROPE (SE)> 20 banks

EASTERN EUROPE (EE)> 16 banks

> Belgium (8 banks)> France> Netherlands

> Italy> Portugal> Spain

> Bulgaria> Czech Republic> Hungary> Romania> Slovakia

CENTRAL EUROPE (CE)> 13 banks

> Germany> Switzerland


Executives of 65 banks from 13 European countries have participated in our retail banking survey, of which 8 in Belgium


Most retail banks have completed the first wave of digitization and are now investing in closing the loop for complex transactions

% of banks initializing and closing following processes

Open a new account

Apply for a debit card

Request a consumer loan

Request a standardized investment credit (EUR < 50k)

Request a mortgage loan

Request a P&C insurance (e.g. home, car)

Online banking

Smartphone application


> In the first wave, banks have invested mainly in client-facing applications like initializing certain transactions online, especially the basic ones

> The second wave concerns closing transactions & mobile applications, which are still in their infancy. There is no consensus whether the smartphoneis a suitable platform for closing more advanced transactions

> While traditional players struggle with closing contracts (e.g. as a result of internal compliance rules), direct banks in many countries have found innovative ways to complete the processes online

Comments

We use webcam validation to close the underwriting process

92%

50%

16%

50%

5%

48%

48%

79%

23%

29%

44%

79%

18%

11%

6%

32%

8%

15%

10%

24%

15%

5%

26%

0%

Initializing Closing

Bas

ic t

ran

sact

ion

sA

dva

nce

d t

ran

sact

ion

s

100%

88%

25%

13%

88%

75%

0%

0%

63%

25%

0%

0%

63%

25%

13%

0%

25%

0%

0%

0%

25%

25%

0%

0%


Instant delivery [% of banks] Within 1-2 working days [% of banks]

Banks are not particularly fast in delivering services, even though consumer expectations have strongly evolved

Consumer loan -

Existing customer9%

New current account -

New customer11%

Standardized investment

credit (EUR < 50k)16%

New current account -

Existing customer33%

New debit card -

New customer11%

29%New debit card -

After card loss

30%New debit card -

Existing customer

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Comments

80%

0%

17%

50%

40%

25%

20%

> Financial services are

no longer "different'' in

terms of service level

expectations: should be

fast, reliable,

traceable

> Though progress has

been made, some

critical processes still

take too long from a

client perspective

(debit card delivery,

loan underwriting, etc.)

> Public awareness

about the stringent

regulations imposed on

banks is often limited


25%

63%

43%

38%

75%

38%

63%

57%

100%

0%

0%

0%

0%

Most banks experience regulation and competition from non-banks as the main external hurdles for transforming their business models

34%

49%

52%

52%

60%

40%

45%

38%

100%

Unavailability of

right technology11%

Lack of customer

awareness6%

Competition

of non-banks9%

Unfavorable regulatory

environment3%

Critical threatPotential threatNo threat


CommentsExternal hurdles for transformation towards a new business model [% of banks]

> Ambiguous role of regulationwhich is seen as a hurdle for transformation, while also acting as an entry barrier for new players (esp. quoted by WE banks)

> Compared to prior studies, competition from non-banks is perceived as more fierce:

– Broader range of players (large

or small)

– Capacity to interfere along the

value chain, disintermediating

where value is

– Greater agility and benefiting

from investors' appetite

> Access to technology seen as the least critical hurdle to transform


Banks have experimented with a wide variety of innovation techniques, but their effectiveness is questionable

26%

40%

42%

58%

42%

45%

68%

31%

29%

32%

16%16%

15%

100%

Subsidiary specialized in

data analysis

Own investment fund in

digital technologies 10%

5%

Startup accelerator

programs

Innovation labs 8% 5%

External developer

/ open API12%

Very effectiveEffectiveSomehow effectiveNot effective at all


Techniques banks apply to foster innovation [% of banks] Comments

50%

67%

33%

50%50%

67%

33%

50%

100%

0%

0%

0%

0%

0%100%

0% 0%

0% 0%

> Effectiveness of most initiatives perceived as relatively low,

having in mind though that initiatives (Open API, labs, …) are often recent, and banks are still "learning by doing"

> Greater penetration of the digital ecosystem through startup accelerator programs or dedicated investment funds: less conclusive so far (seen most valuable by WE banks, with the exception of France)

> Some banks very active in the FinTech world, "learning from the inside" (rather than "copy/pasting")


Be it on the revenue or the cost side, banks must accelerate their transformation due to the growing pressure of FinTech

0

2

4

6

8

10

12+197%

US

Europe

201420132012201120102009

[USD bn]

Source: CB Insights, StrategyEye, The Economist, Roland Berger

Investments in FinTech have tripled to more than USD 10 bn in one year

The desintermediation / debundling threat is closer than ever with an estimated 20-30% of revenues at risk

Success of FinTech companies

[Global investment in FinTech, 2009-2014]

AggregatorsInvestments

Payments Lending

20 to 30%of revenues

at risk


Most FinTech companies purely focus on the front-end, and outsource their back-end to partner banks

Majority of FinTech companies active in Savings are small players that replace the front-end of banks

> Advanced functionalities of (mobile) applications

> In most cases, core banking system and banking license of partner banks used

Fidor did not only create a new operating system but a complete ecosystem

> Full-fledged online bank with advanced functionalities and proprietary middleware and front-end software

> External developers invited to create applications using FidorOS (open API)

> Complete IT system offered as customizable white-label solution to other companies

1) With a focus on Savings activities

Key learnings from FinTech

Long-list of analyzed FinTech players1)

FinTech companies can keep their IT budget low

> No legacy

> Limited product offering of most FinTech players, e.g. only current account (Number 26, Moven, Compte Nickel)

> Low number of clients (mostly <100,000)

> Core banking system of partner banks used

1

2

3



Fidor is an online bank, which uses proprietary middleware and front-end for its retail banking and builds a complete ecosystem

Case study: Fidor

Foundation

Countries

Key facts

# of customers

Products2)

2009

100,000

> Current and savings account with online payments2)

> Loans, pension savings > Crowdfunding, social trading,…

Strategy

Business model

IT mode (retail banking)> Enable customers to perform all day-to-day banking operations at low

cost, relying only on digital channels with a focus on its community

– Online sign-up in < 5 minutes using video call to confirm identity

– Smartphone app with transactions shown in real-time, options to lend money to friends, loans and savings options, etc.

> Build an ecosystem which allows Fidor to expand its services

– Allow third-party applications to build apps on Fidor

– Allow white-labeling and customization of the FidorOS

Shareholders Listed on stock exchange

Source: Expert interviews, Fidor Bank, Roland Berger

> Fidor Bank holds a banking license and all accounts are held at Fidor Bank

> Fidor executes all front-office and back-office activities of its retail bank

> Revenues come from net interest income (60%), Fidor-technology related charges (30%) and transaction fees / commissions (10%)

1)

1) UK launch delayed due to IT issues; 2) Banking products

Front-end

CBS

Middleware

Payment system


TechnologyLayers

Fro

nt

En

dM

idd

le W

are

Bac

k E

nd

Interface to Core Banking

Country-specific core banking system

FidorOS CORE

(workflows)

Core-Modules

Product-Features (loans, savings …)

Web / Mobile

Ruby / Ruby on Rails / MySQL

HTML5 / Native iOS, Android

MQ Series

Bancos, but nearly any CBS possible

Community Bonus Account Payment Third Party

CBS Country 1 CBS Country 2 CBS Country n

General Admin

Activities

Security

Customer

Authorization

Transaction

Booking

…

Co

re

FidorOS

Apps developed by third parties are based on core modules and consist of production features and presentation elements combining multiple countries,…

Fidor is the first bank ever which allows third parties to create applications based on its IT system through open and free API


Case study: Fidor – Open API


Fidor offers its operating system in white label: it can be built on most core banking systems and companies can customize it to their needs

Case study: Fidor – White label operational system


Example 1

German logistics companyExample 2

UK mobile virtual network operator

> Fidor allows other banks and retail institutions to use its operating system in white-label

> Companies can customize the IT set-up to their own needs:

– Middleware is not limited to the CBS used by Fidor, but can work with almost every other CBS as well

– Modular set-up allows companies to combine only those functional and presentation modules they require

– Front-end can be adapted to the home style of the company


Different viewpoints on the role and success of FinTech players persist, but they have strong prospects in convincing end-clients

Selected quotes from interviews

"Banks used to consider FinTechas the enemy, but now we are invited at their innovation events, e.g. ING's FinTech Village."

"Building a back-end requires specific expertise, which those new and young companies don't have."

"Banks that try to score both in back-end efficiency and front-endexcellence fail in 99% of the cases."

"FinTechs know a lot about Tech, but they don't know anything about Fin."

"Most of the FinTechs are monoproduct and can not handle large volumes. They're more or less doomed to remain a small player."

"FinTechs often burn cash due to lack of revenues. Once they're in trouble, they can either pull the plug or find a bank to bail them out."

"Traditional banks try to create something new based on something existing, but they don't stand a chance against the new kids."

"Traditional banks need to focus first and foremost on getting their back-end sorted. Just buy front applications from FinTechs."

Source: Expert interviews, Roland Berger


FinTech are a necessity for Financial Institutions … and vice-versa!

Take-aways and key questions


FinTech are more than a hype, they are transforming the Financial Services by

1. Better answering customer needs

2. Delivering much-needed innovation

✓

Financial Institutions will benefit from FinTech

1. Regulation management, scalability, security, network … remain key competencies of financial institutions

2. FinTech will have to rely on financial institutions strengths

✓

Where are Belgian FinTechs?✓

Documents

FinTech – opportunity or threat for financial services/media/Corporate/Pdf-alumni/... · 2015-12-14 · FinTech – opportunity or threat for financial services. ... Download an