Innovation in financial services

www.ibsintelligence.com

Innovation in financial services:

The challenges of the digital world

Tuesday 12th May 2015, Mechelen, Davinci

Presented by Martin Whybrow

Agenda

Do we actually want to innovate?

What are the risks of not innovating?

What are the challenges?

What are the options – internal or external?

What is – and isn’t – innovative?

Three case studies?

Where do we go from here?

Do we want to innovate?

“Do we really want banks to be innovative?

The last time they did, the whole system

blew up”

Gottfried Leibbrandt, CEO, Swift,

Swift London Business Forum, April 2015

The risks of not innovating

“The music industry, travel industry, now the taxi

industry, each said ‘not me, not me’, then they fell

over” – Daniel Marovitz, European president,

Earthport

If the financial services sector does not innovate, then

there is the risk of institutions becoming low-margin

utilities, the settlement mechanism

The challenges

A faster aircraft carrier is still an aircraft carrier, it is

not going to turn into a speed boat

Innovate at 3pm on a Tuesday afternoon, then go

back to the day job…

Appoint someone with ‘Innovation’ in their job title and

think that’s ‘job done’

Good at ‘layering’ not at transforming

New rivals are niche, fast and have low cost bases

(e.g. ApplePay, AliPay)

NB. Incumbent suppliers have the same issues

Option 1: Internal innovation

Seek to change the culture of the organisation to

encourage innovation

Recruit from outside the industry

Move away from a culture of fear of failure

Move towards smaller projects, lots of prototyping

But…

Hard to balance this with running the bank, meeting

regulations, patching on top of legacy IT and

processes

Option 2: Encourage external

innovation, then harness

Innovation funds (Bank Leumi, Barclays, BBVA, Credit

Agricole, HSBC, Santander, UBS, Visa etc)

DBS – ‘Blockstream Hackathon’

Open Bank Project – Hack/Make the bank hackathon

Swift’s Innotribe

But…

How do you then bring this into the organisation?

Ends up ‘tacked on’ not part of the ‘DNA’

How do you achieve this is you are a

small to medium-sized institution?

The ‘Hero Carousel’

Visa International’s One Market

Visa

One Market in San Francisco since mid-2014

Visa Europe Collab just launched – London, Berlin,

Tel Aviv

Emphasis is on nurturing, from idea to proof of

concept to roll-out onto the Visa network

A lot of early emphasis on payment apps e.g.

restaurant bill app plus other areas such as fraud

detection

Visa does not intend to invest or buy but to partner to

build an ‘ecosystem’

Odd ‘bed fellows’

Coinstructors

NXT 2 Pay

Innovate Finance

COLU

Epiphyte

What is innovation anyway?


“Led by a team with a proven track record in the

UK financial services industry including Santander,

Handelsbanken, HSBC, Societe Generale, Lloyds,

Bank of Scotland and Metro Bank…”

“…a proven and scaleable technology platform…”

“fair, transparent and responsible”

“Our local bankers will be responsive to the banking

and financial needs of businesses in their

communities based on one

to one relationships with

their customers”



Barclays Pingit (including payments

via twitter) and Cloud It

Faster Payments (and mobile

payments on top)

Current Account Switching and

Midata scheme in the UK

Bank Zachodni WBK video tellers

CBA, realestate.com.au and RP Data

in Australia

KlickEx, Earthport, M-Pesa, P2P


Thin client HTML 5 ATMs

Wincor Nixdorf and NCR have

launched

Minimal software on the device so

significant (40%) reduced TCO

Flexibility to customise and launch

from the centre

Reduced chance of fraud

Case study: Holvi

Case study: Holvi

Finland-based, Payment Services Directive (PSD)

enabled

European digital business current account provider

Amazon Web Services cloud-based

Bespoke core banking system, integrated with

European payment systems, three minute set-up

Merchant accounts, in-built CRM, business financial

management tools

Free to open an account, €0.90 for incoming and

outgoing payments, three per cent service fee for

credit card payments

Case study: Compte Nickel

Allows customers to manage their budgets with due

and proper care via modern, non-intrusive

technological tools that ensure financial security

Convenience: available in thousands of newsagents

Accessibility: available to anyone including those

banned from banks or foreign residents

Five minutes account opening 'without intrusive

questions’ using an ID, phone number and address

Caring: 'a welcome without prejudice', transparent

pricing, no overdraft or credit facilities

Control: can withdraw all money and

close an account in 20 seconds

Case study: BankMobile

Case study: BankMobile

The first pure mobile bank and first no fee bank in

the US – “tech company with a bank charter”

Subsidiary of Customers Bank, Jan 2015 launch

“Effortless, enjoyable, empowering”

Personal banker for each customer, free financial

advice

Photo enroll bank account opening

Standard core banking system but bespoke

middleware and workflow, owns the IP

Low cost base, interchange fees, margins on loans,

partnering

What next? Blockchain

The hot topic – Blockchain: distributed, secure, public

and private ledger model

All large banks, officially or unofficially, are rushing to

evaluate blockchain, with its enticing vision of being

able to securely move value in real-time

Bitcoin probably an irrelevance, the technology is far

more interesting

Disintermediate or layer services on top? Banks,

governments, aid agencies etc

E.g. add screening, compliance, and monitoring, as well

as building the bridges between this and today’s

infrastructures

What next? Big Data

The amount of information held by banks is an

“amazing advantage over players at the periphery” -

Usama Fayyad, chief data officer, Barclays (ex-Yahoo!).

“We can know more about the customer than google

can ever dream about.”

Payment streams and the information captured for KYC

are part of this.

Package, provide back to customers as intelligent,

useful information

Conclusion

Probably a combination of culture change for internal

innovation and nurturing and harnessing external

innovation

Can’t underestimate the challenges but can’t stand still

Can the IT supplier sector keep up, perhaps a reversion

to bespoke developments for value-add?

Not more of the same but truly new business models

underpinned by new technology

Next ‘big things’ likely to be blockchain and Big Data