Bank of the Future Discussion on the latest banking and digital - - PowerPoint PPT Presentation

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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

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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

Banking Data companies

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

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SOURCE: McKinsey

Primarily front end Full Primarily back end

Value chain

Niche player

Narrow spectrum Typical broad banking spectrum

Offering

Broader than banking

Ecosystem

• rchestrator

White-label back-office

• perator

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

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An option is to become an ecosystem owner bank

ILLUSTRATIVE

SOURCE: McKinsey

Niche player Ecosystem

• rchestrator

White-label back-office

• perator

Fully digitized universal bank

McKinsey & Company 5

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An option is to become an ecosystem owner bank

ILLUSTRATIVE

SOURCE: McKinsey Panorama

McKinsey & Company 6

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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

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Banks need to proactively follow innovative ideas from inside and outside banking, including ideas from thousands of FinTech startups

SOURCE: McKinsey Panorama

ILLUSTRATIVE

OUTSOURCE CED/ D/ SAAS SERVIC ICES ES CRYPT PTO-CURR URREN ENCY MARK RKETIN ING G AND LOYALTY SOLUT UTIO IONS FOR SMEs E-COMMERC RCE E / E-TRA RAIL ILER ER DIGIT GITAL PRODU ODUCT AND IN-APP PP PURCH RCHASES ES ADVERT ERTISEM ISEMENTS AND DISCOUN OUNTS SOCIA IALIZ IZING G FINANCE E AND USER ER GENERA RATED D CONTENT GAMBLIN ING G AND GAMIN ING INNOV OVATIVE IVE LENDI DING G PLATFOR FORMS (P2P P AND CROWD OWDSOU SOURC RCIN ING) PERSONAL FINANCIA IAL MANAGE GEMEN ENT BIG G DATA DRIVEN IVEN SCOR ORIN ING G AND LENDI DING NEXT XT GEN ENERA ERATION ION INSUR URANCE CLOUD OUD BASED ED SERVIC VICES B2B SERVIC ICE PROV OVID IDIN ING FINANCIAL MANAGE GEMEN ENT AND LENDI DING

Link Like Love

E2E SERVIC VICE IN SELEC ECTED ED VERTIC ICALS REIN INVENTED ED REMIT EMITTANCE CROW OWD D INVES ESTMENT AND ADVIS ISOR ORY NEXT XT GENERA RATIO ION PAYMENTS P2P PAYMEN ENTS FINANCIAL INCLUSION USION

McKinsey & Company 8

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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 services

Entertainment 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

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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

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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

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Financial attackers can choose from three different strategic directions

SOURCE: McKinsey

Compete with and disrupt the banks Disintermediate the customer

• wnership of banks

Cooperate and partner with banks 5-10 20-30 60-75

% Share of fintechs

1

3

2

McKinsey & Company 12

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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

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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

• rigination 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

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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