From Value Chain to Value Network:

Possible Digital Transformation Scenario

for the Financial Industry

Public

Tarmo Ploom

November 10, 2015

November 10, 2015 Tarmo Ploom/15-010878 2

Key Messages

Not the regulatory challenge but the technology challenge is the main challenge for financial institutions

Banks should focus on their core competencies – handling relationships with customers and on

optimizing their business processes for digital business

Banks can replace big parts of their existing

IT–landscapes with Services provided by new FinTech

entrants

Banks and Web Service providers can leverage

financial industry messaging standards to simplify

integration

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Agenda

Regulatory challenge The technology mega tornado

Emergence of Fintech

Dimensions of digital business Strategy for digital operational excellence

From value chain to value network

Current state – Combined Domain Model at Credit Suisse Current state – BPM at Credit Suisse

Overview industry messaging standards

Possible future state – Combined Domain Model at Credit Suisse Transformation – application of managed evolution

Conclusion

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Regulatory Challenge

Dodd–Frank Wall Street Reform and Consumer

Protection Act (DFA)

European Markets and Infrastructure Regulation (EMIR)

Alternative Investment Fund Managers Directive (AIFMD)

UCITS V

Market Abuse Directive (MAD)

Markets in Financial Instruments Directive (MiFID II)

US Dodd–Frank Act Volcker Rule

UK banking reform

Foreign Account Tax Compliance Act (FATCA)

OECD's Common Reporting Standard for the Automatic

Exchange of Financial Information (CRS)

UK Crown Dependencies and Overseas Territories

(UKCD and OT) Regulations

Basel III

Capital Requirements Directive (CRD) IV

…

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The Technology Mega Tornado

Cloud – Elastic storage

– Elastic compute power

Mobile – Accessibility

Analytics

– Big data – Machine learning

– Recommender systems

Social – Social network analysis

– Social marketing

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Emergence of Fintech

Digital currency payments – Circle Peer to peer payments – Facebook payments

Foreign exchange – TransferWise

Risk calculation – Riskmetrics Fixed income derivatives – TreasuryView

Portfolio management – TrueWealth

Portfolio valuation – Markit Settlements – Blockchain

Peer to peer lending – Bondora

Croudfunding – Kickstarter Credit Scoring – Big Data Scoring

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Mill

ion U

SD

Num

ber

of

deals

Growth of FinTech Investments

$13.7 bn Funding in last year

150 Avg Deals per Quarter

+45.83% YoY Funding Growth

$1.31 bn Avg Funding per Quarter

+16.41% YoY Deal Growth

Q1’15 Biggest Quarter (nr of deals)

821 Deals in last year

Q2’14 Biggest Quarter ($ Funding)

https://www.cbinsights.com/industry?sector=281&setup=2&public_list

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Dimensions of Digital Business

Forrester: The future of business is digital, March 2014.

Digitize end-to-end

customer experience

Digitize products and

services as part of the

value ecosystem

Create trusted

machines

Digital customer experience

Source enhanced

operational capabilities

within a dynamic

ecosystem

Drive rapid customer-

centric innovation

Digitize for agility over

efficiency

Digital operational excellence Enterprise

Customer

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Strategy for Digital Operational Excellence

New entrants don’t have – Client contacts

– Banking license

– Don’t know end to end business processes of banking

New entrants focus usually on a very small and detailed business process which

could be exposed as a web service

Instead of competing with new entrants

collaborate and integrate them into banking

business processes using web services

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From Value Chain to Value Network

Firm Infrastructure

Inbound Logistics

Operations Outbound Logistics

Marketing and Sales

Service

Primary Activities

Support

A

ctiv

ities

Procurement

Technology Development

Human Resource Management

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Current State – Combined Domain Model at Credit Suisse

Business Partner Applications Financial Market Information Enterprise Content Management

Communication and Access

5: Communications & Collaboration

Street Side Interfaces

Acc

ountin

g

Contr

ol

Fin

anci

al

Acc

ountin

g

Regula

tory

, R

isk

and L

iquid

ity

6: A

cco

un

tin

g, C

ontr

ollin

g a

nd

Re

po

rtin

g

Wealth Management and Advisory

2: Finance, Investment

and Sales

Credits and Syndication

Trading

3: Trading and Markets

Order and Trade Management

Product Control

Payments

4: Cash and Asset

Operations

Settlement and Clearing

Single Accounts

Corporate Actions

Custody

Cust

om

er and P

art

ne

r

Cust

om

er R

ela

tionsh

ip

Managem

ent

1: P

art

ne

rs a

nd

Pe

rso

ns

7: Enterprise Common Services

Logistics

Basic Facilities

V 0.96 2008/12/10

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Current State – BPM at Credit Suisse

200 level 0 business processes

ca 800 level 1 business processes

ca 3000 level 2 business processes

> 10 000 level 3 business processes

> 30 000 level 4 business processes

Level 0

Level 1

Level 2

Level 3

Level 4

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Overview Financial Industry Messaging Standards

Financial industry messaging standards – ISO 20022

– FIX/FixML

– FpML

– XBRL – BIAN

Together these standards offer ca 7 500 unique

attributes

Overall banking needs ca 11 000 unique attributes.

Financial industry messaging standards cover already

ca 70% of unique attribute need in financial industry.

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Possible Future State – Combined Domain Model

at Credit Suisse

Business Partner Applications Financial Market Information Enterprise Content Management

Communication and Access

5: Communications & Collaboration

Street Side Interfaces

Acc

ountin

g

Contr

ol

Fin

anci

al

Acc

ountin

g

Regula

tory

, R

isk

and L

iquid

ity

6: A

cco

un

tin

g, C

ontr

ollin

g a

nd

Re

po

rtin

g

2: Finance, Investment

and Sales

Payments

4: Cash and Asset

Operations

Settlement and Clearing

Single Accounts

Corporate Actions

Custody

Cust

om

er and P

art

ne

r

Cust

om

er R

ela

tionsh

ip

Managem

ent

1: P

art

ne

rs a

nd

Pe

rso

ns

7: Enterprise Common Services

Logistics

Basic Facilities V 0.96 2008/12/10

IFX FIX, FPML, ISO 20022

FP

ML

Trading

3: Trading and Markets

Order and Trade Management

Product Control

FIX, FPML

FIX

FIX, FPML

Wealth Management and Advisory

Credits and Syndication

RI-XML

ISO 20022

XB

RL

XB

RL

HR-XML

BIA

N

Reuters

ISO 20022

ISO 20022

ISO 20022

ISO 20022

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Transformation – Application of Managed Evolution

Define/o

ptim

ize

Transfer

Deplo

y

Monitor

Continuous

Improvement

Business Process

Analysis Business Process

Modeling

Business Process

Enactment

Business Process

Monitoring

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Conclusion

Focus on digital operational excellence can rescue financial industry from technology mega

tornado

Industry messaging standards can be a mean to carry out semantic integration of FinTech

Web Services

Core competence of banks becomes relationship

management and business process management

Managed evolution can be used as an approach

to transform current banks to digital banks

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Questions?