WP-Digital-Banking-EN-HD

www.octo.com – blog.octo.com

FinTechis cannibalizing banks!

DIGITAL LECTER

Digital Banking

A Note to Our Readers:This White Paper is the translation of “Banque Digitale : Les FinTechs cannibalisent la Banque”

released in France in November 2014. You will note that some examples and annotations are from

the French market and have no equivalent in English. We hope you’ll be pleased with the reading

though, and who knows, it may bring you a French exotic touch while you enjoy the tasting!

3White Paper March 2015

The best job in banking: Chief Cannibal

“Everybody missed the [job] title that will be the most important one in

the future: the Chief Cannibal.

The Chief Cannibal runs the internal Cannibalization Department, a

group with the one pure mission: destroy our business.

The focus of the cannibals is to look at every part of the bank and

see if they could destroy it. Using technology, new structures, new

thinking, new business models, the aim of the cannibals is to knock

down the sacred cows within the bank, leap across the product silo’s

and challenge every nuance of thinking.

Of course, the cannibals are really annoying – who wants to get eaten? –

and they don’t necessarily appear on your doorstep every day but, when

they do, prepare to be destroyed. (…)

That is why banks need an Internal Cannibalisation Unit and, if I could

get that job, I would be happy to be nominated as the Chief Cannibal. In

fact, it would be a pleasure, as I enjoy a bottle of Chianti.” *

Chris Skinner.Well known for his blog The Finanser, Chris Skinner regularly posts independent commentary

on the world of finance. Skinner is also the author of Digital Banks: Strategies for launching

or becoming a Digital Bank, a book about digital banking in the 21st century.

* http://thefinanser.co.uk/fsclub/2014/09/the-best-job-in-banking-chief-cannibal.html


Introduction

Across all industries, the emergence of digital technology is stigmatizing businesses

that don’t adapt to economic and social changes. As Chris Skinner puts it in

his book,1 Digital Bank: Strategies to Launch or Become a Digital Bank, even

though banking is a regulated industry, it will be no exception. Industries such as

culture, the media, and education have already been profoundly affected by this

transformation.

Francisco González – CEO of the Spanish bank BBVA –

estimates that ten years from now, no more than 100 banking

operators worldwide will have been strong enough to survive

the digital tidalwave.2

A few exceptions aside, there is no sense of urgency in the banking sector overall.

Few banks embrace radical adoption of new uses, in particular the technological

potentialities of the Web. To further our understanding and be in a position to take

action, we have decided to share our analysis of the digitization of the banking

sector in this white paper, where we examine the reasons behind and the possible

impacts of this necessary transition. Our aim is to provide an insight to help

relevant players ride the wave. In the last part of our paper we offer some building

blocks for starting a digital bank.

[1] http://thefinanser.co.uk/fsclub/2014/05/digital-bank-revised-is-released-today.html

[2] http://press.bbva.com/latest-contents/press-releases/francisco-gonzalez-says-8220-knowledge-banking-offers-more-

andbetter-solutions-for-our-needs-8221__9882-22-c-107358__.html

Hors d’œuvres


[3] http://money.cnn.com/2014/07/21/technology/netflix-subscribers/

[4] http://goodereader.com/blog/e-book-news/amazon-is-heavily-invested-into-the-success-of-kindle-unlimited

[5] https://www.uber.com/

[6] http://www.blablacar.com/

[7] https://www.coursera.org/

[8] https://www.airbnb.com/

[9] http://blog.octo.com/les-agences-bancaires-la-fin-dun-modele-v2/

[10] http://www.boursorama.com/banque-en-ligne/credits/

[11] http://www.tobechanged.com/1184-le-trafic-sur-mobile-du-secteur-bancaire-depasse-celui-du-web.html

Digital technology will not spare banks!

The Digital wave has seriously affected other industries

If one looks at how events have unfolded in other industries, one sees that the digital wave has forced some radical changes. Music is digitized, people under 30 hardly remember what CDs are. In the wake of Napster, services such as Spotify, iTunes, Deezer and Qobuz showed the way to legally acquired digitized music. Photography is digitized – Kodak would certainly agree. When it comes to TV, Netflix recently cracked the 50 million-mark for worldwide subscriptions.3 In the US, Netflix accounts for over 30% of all Internet bandwidth at prime time. We once thought books were safe, but they are also being digitized and are headed the same way as music and video – Amazon’s Kindle Unlimited offer is an example in point.4 We could provide a myriad of examples in other industries, e.g. transportation with the entry of new players such as Uber5 and Blablacar;6 teaching with Coursera;7 or tourism with AirBnB.8

Early signs in the banking sector

Let’s start with visits to bank branches: the global trend is downward,9 and isn’t expected to improve since even mortgages, long considered the private turf of bank branches, can now be taken out online (such as Boursorama’s basic packages).10 Most financial instruments can now be subscribed online. The use of cell phones and the “mobile first” trend are driven by the growing habit of using everything digital – “anywhere, anytime, and most importantly, whenever I want”. Banks are no exception: Mobile banking surpasses any other banking solution,11 while the number of daily checks on mobile devices has increased – per client.

20,000 bank branches in Europe

have closed since 2008.

FINTECH IS CANNIBALIZING BANKS!

10www.octo.com – blog.octo.com

[12] http://www.finance-watch.org/

[13] http://www.challenges.fr/galeries-photos/finance-et-marche/20120810.CHA9569/15-scandales-financiers-qui-ont-marquela-

crise.html

[14] Bill Gates quote (1994)

[15] http://nicolasguillaume.fr/nouveau-cadre-juridique-du-financement-participatif-crowdfunding-en-france/

[16] http://www.01net.com/editorial/623666/miche-l-sapinprepare-l-encadrement-des-monnaies-virtuelles/?page=2

Anger against banks

The digital pressures being put on banks stem from society’s discontent on the whole, which is leading to significant upheavals in mentalities. Initiatives such as Finance Watch,12 whose goal is to build “community service finance”, attest to the fact that even former bankers have come to see the discrepancies between banking practices and economic and social reality.

Since the 2008 subprime crisis, discontent with banks has done nothing but grow and a succession of scandals in finance have not helped.13 The confidence crunch is severe and translates in particular by the fact that society is even considering finance and banking... without banks! “we need banking, not banks”.14 A further effect is that given the morose economic mood, and given their awareness that banks are not doing what they should to finance the economy, the government is ever pushing for more competition.

This decree opens the field to new arrivals, and they are digital natives: a French example is the implementation of a regulatory framework on crowdfunding and governmental research on regulating cryptocurrencies.16

téra- voire de péta-octets est celui du Big Data.

Exception to the banking monopoly: on October 1, 2014,

the decree on crowdfunding15 entered

into force in France.


[17] Les barbares attaquent le financement: https://www.youtube.com/watch?v=25Kj9oCyG00

[18] http://www.inc.com/audacious-companies/issie-lapowsky/square.html

FinTech invades finance

FinTech excels at responding to clients’ true preoccupations

Lulled by routine and little inclined to innovate in a regulated and protected sector, banks have too long neglected their clients and ignored their wishes. Financial Technology companies, or FinTechs, have found very fertile ground in this to take over new functionalities wanted by society.

They are empathetic and attuned to the grassroots and they concentrate on improving the lives of banking and financial service users.

They use innovation to fill in the gaps left by banks, at times going so far as to reinvent their profession.

Another striking fact is that on their staff they all have “digital natives” who have a natural ability to think in terms of permanent interconnectedness, no matter where you are or what you want, and it all happens through a single channel: internet. The use of social media is hardwired into their system. Lastly, these FinTechs are capable of very rapid up-scaling in terms of client adoption, managing large volumes of data (both flow and storage), geographic coverage, as well as in terms of attracting investment.17 They are agile on all these fronts. téra- voire de péta-octets est celui du Big Data.

All business lines are under attack from FinTechs

All finance and retail banking sectors have experienced or are experiencing the arrival of a new FinTech player. Here are a few illustrations:

Means of payment: Concerning payment means, Square provides solutions for SMEs and VSEs which are simple to use and have given many unequipped small businesses access to payment solutions via mobile phones. User fees are transparent and low. Their success in the USA has been impressive.18 Another player, the Paypal competitor Stripe, offers payment means for e-commerce, based on the same business model as Paypal. The difference between the two lies in the fact that Stripe is very easy both to implement and to use.



[19] http://www.journaldunet.com/ebusiness/commerce/john-collison-john-collison-stripe.shtml

[20] http://www.intuit.com/

[21] https://www.ondeck.com/

[22] https://uk.kabbage.com/how-it-works

[23] http://en.wikipedia.org/wiki/Lending_Club

[24] http://en.wikipedia.org/wiki/Kickstarter

[25] Kickstarter: http://www.01net.com/editorial/611612/pres-dun-demi-milliards-de-dollars-mises-sur-kickstarter-en-

2013/#?xtor=EPR-1-[NL-01net-Actus]-20140109

[26] In France: http://financeparticipative.org/barometres/annee-2013/

[27] https://www.personalcapital.com/

[28] https://www.wealthfront.com/

[29] http://finovate.com/2014/01/investing-millennials-help-drive-fivefold-asset-growth-at-wealthfront.html

Stripe provides both a better user experience(UX) for the end client but also a better user experience

for the developers (DX) of the commercial websites whichmust integrate the solution through its API.

Stripe’s solution has rapidly expanded worldwide even though the company is only four years old.19

SME loans: current bank lending practices to small business are ill adapted to today’s economic context.This is why players such as Intuit,20 OnDeck21 and Kabbage22 have overhauled their credit practices,

namely by inventing new scoring models.

They leverage all data made available or exposed by SMEs (mostly through APIs): accounting data, banking transactions, e-commerce trade, and even comments left by clients on their site or in the social media. Based on these data, Kabbage allocates, within the hour, a cash advance ranging from £1000 to £40,000. Following successful deployment in the USA, their solution is coming to Europe via the UK.

Personal loans: another sector that has been mauled by FinTechs. The personal loan crunch created the perfect conditions for crowdsourcing platforms. The strong growth of LendingClub23 and Kickstarter,24 to mention just those in the spotlights, attest to society’s appetite for this form of financing.25,26

Private banking: even the private sector has been hit on its own turf, namely investment advice and asset management. The success of offers such as Personal Capital27 and Wealthfront28 is proof that “moneyed individuals” are willing to entrust their money to non-banking actors. Their common point is a shared view of the digital world, which encompasses the private wealth management sector. Successive announcements by Wealthfront29 on the growth of the assets under their management as well as the large amounts entrusted to them (between $80k and $100k) give an idea of how interested these newly wealthy digital clients are.

In 2014, Wealthfront managed more than

$1.25 bn in assets.


Factoring: a new player has come to France. Finexkap30 has just positioned itself on this very closed market, traditionally restricted to banking, where methods have basically been left untouched for a very long time. This is highly promising because this FinTech will offer an innovative scoring model based on Big Data technologies, which leverage corporate data. Moreover they plan to provide solutions for securitizing receivables, which they will propose to firms wishing to make very short investments. To be continued.

Banking overall: the cherry on top is that some, who were not even bankers initially, have created banks out of thin air, such as Simple,31 Moven,32 and FIDOR Bank.33

They have set new trends in their approach to banking, in keeping with their digital native natures. Several have gone so far as to enter the long and complex tunnel of acquisitions and obtaining a banking license, proof if ever there were any of their motivation.

FinTechs are only interested in the prime cuts of banking

These new players can have it easy because they do not necessarily need to burden themselves with back office management and regulatory constraints; these only apply to firms with banking licenses. The others can concentrate on the front office, where there is the most value to be gained. New banks, such as Simple, can also choose to join forces with partners like Bancorp34 in the USA, who provide them with the precious license and manage their back office. FIDOR Bank in Germany went the whole hog and applied for a license, which they obtained in 2009 after 18 months of procedures.

For the moment, FinTechs are only taking limited market shares from the historic players, i.e. the traditional banks. However, for front runners such as Zopa with crowdsourcing in the UK,35 their progress is off the charts.

If we were to select an image to depict current events, which will probably continue tomorrow, it would be that of a butchered cow. The spine and giblets are the back office (or core banking),36 at once indispensable and regulatory but with low margins; and the rest of the animal divided into cuts representing the “noble” front office, the most profitable (some would say the juiciest) one. Looking on would be the FinTechs licking their chops.

[30] http://www.finexkap.com/

[31] https://www.simple.com/

[32] https://www.moven.com/

[33] https://www.fidor.de/

[34] http://www.thebancorp.com/

[35] http://finovate.com/2014/08/uk-peer-to-peer-lender-zopa-tops-1-billion-mark.html?utm_source=feedblitz&utm_

medium=FeedBlitzEmail&utm_content=646536&utm_campaign=0

[36] CBS (Core Banking System) is software which processes daily banking transactions.

Mid 2014, the oldest European P2P loan platform, Zopa, had

transacted more than £600 million in loans (over $1bn) since its creation in 2005.




[37] Il est nécessaire que la France décide de se passer de son système bancaire» (Arnaud Montebourg) (juin 2014)

[38] http://cestpasmonidee.blogspot.fr/2014/06/donnees-ouvertes-dans-les-banques.html

[39] Les Barbares attaquent le financement : http://www.youtube.com/watch?v=25Kj9oCyG00

[40] http://finovate.com/2014/06/finovate-alums-raise-more-than-600-million-for-second-quarter-in-a-row.html?utm_

source=feedblitz&utm_medium=FeedBlitzEmail&utm_campaign=0&utm_content=646536

[41] http://cestpasmonidee.blogspot.fr/2014/06/osper-la-banque-mobile-des-enfants.html

[42] http://fr.slideshare.net/Ficoba/fidor-tec-sslsh

[43] https://www.personalcapital.com/company

[44] https://www.circle.com/board-of-directors

[45] http://www.compte-nickel.fr/tout-comprendre/decouvrez-le-compte-nickel

FinTech + digital natives: the future of banking innovation is already here!

Governments favor new players

First of all, as mentioned above, legislators in industrialized countries (Europe, France, UK, USA...) are all pushing in this direction. Their goal is to both increase competition by facilitating the arrival of new players in the banking market (traditionally kept close) and to stimulate funding for the real economy.37 The implementation of a regulatory framework on crowdfunding in France, and the UK initiative on open banking data attest to the constant efforts deployed by administrations to foster competition in the banking sector. In the UK, legal requirements favoring competition are still in the early stages; one plan in the works is banking account number portability across banks.38 These examples concretely illustrate a fundamental trend in industrialized countries.

téra- voire de péta-octets est celui du Big Data.

Startup financing is no longer a problem

Second, never has it been so easy nor so cheap to create and finance a startup.39 It is more than likely that other players will be inspired to join in the fun. High levels of funding40 are recurrent, both for new players and for “mature” FinTechs.The latter continue to regularly invest in innovations or to scale up. The sector is dynamic and the potential highly attractive to Venture Capitalists. Some are even tabling the idea that starting a bank is no longer a financially impossible mission. Estimates (giving an order of magnitude) state the figures at $10 million upfront and $5 million in yearly operating costs, as attested by the last fundraising round to create the bank Osper in the UK.41

The cost structure must necessarily be low but indeed the mission is not impossible. FIDOR Bank, created from scratch,42 has a regular staff of only 30 people (for approximately 70,000 clients mid 2014) and recurrent IT costs of only €15 per year per client! In addition, former staff from traditional banking establishments are also entering the fray, and offer increased legitimacy to FinTech launches (Personal Capital,43 Circle,44 Compte Nickel).45


FinTechs are already dreaming up the next step

FinTechs, including those that have been around the longest, are all characterized by constant investments to expand their business model. Yodlee for example has just concluded partnership agreements46 with incubators, giving them access via APIs47 to the account data its platform collects and centrally aggregates.48

Yodlee’s objective is to leverage banking data to get as close as possible to new FinTechs by incubating them with expert help from their engineers.

Another example, Square, is building on its successes to start implementing a new business model: cash advances to SMEs.49 This FinTech, whose corporate mission is to help SMEs/VSEs, is exploring new ways of generating revenue by maximizing the use of their own banking transaction data. They perform a rating score based on payment transactions and use it to offer loans or cash advances to their clients. The client loans are reimbursed through deductions from future payment transactions.

“Digital natives” are the rising generation

Lastly, from a purely demographic standpoint, “digital natives” will naturally have increasing influence in society. To ignore or even neglect them would be sheer folly.The remainder – and conclusion – of this booklet will present key building blocks for initiating the launch of a digital bank.

[46] http://cestpasmonidee.blogspot.fr/2014/05/yodlee-la-conquete-des-startups.html

[47] Wikipedia: “In computer programming, an application programming interface (API) is a set of routines, protocols, and tools

for building software applications.”

[48] The Yodlee platform is used by a large number of personal finance management (PFM) platforms.

[49] http://www.bankinnovation.net/2014/07/square-revenue-monetization-finance-ipo/

In 2013, Yodlee had 45 million users across 150 financial

institutions, of which 7 were among

the 10 top financial institutions in the USA

Pièce derésistance


[50] http://cardlytics.com/

[51] http://cardlinkin.com/cli/la-solution-cardlinkin/

[52] http://blog.octo.com/retour-dexperience-angularjs-d3-js-au-service-de-la-dataviz/

[53] http://en.wikipedia.org/wiki/Hackathon

[54] http://thefinanser.co.uk/fsclub/2014/03/bbvas-amazing-api-challenge.html

The “must do” list for digital banking

Here are a few key technological elements and processes to launch a digital bank, which we deem more than promising, which is to say unavoidable.

Becoming “data driven”

This means putting data at the heart of all considerations because they will be tomorrow’s black gold. Banks have significant amounts of client data, namely through their transactions. The risk for them today is indeed to be replaced on their own turf, in the longer term, by FinTechs doing their job for them. It is FinTechs rather than banks that are currently leveraging banking data, potentially depriving banks of new sources of revenue. The FinTechs have already understood this and systematically maximize the use of such data by favoring investments, which bolster their approach.

The initiatives Square, Kabbage, Yodlee, and Intuit, to mention but a few of those already cited, do this naturally. Among other opportunities the banking sector should take advantage of: stakeholders such as CardLytics50 in the US or Cardlinkin51 in France offer solutions for banks to create client loyalty by sharing anonymized financial transactions with partners (here merchants).

Partners have access to a set of selected and highly qualified prospects, thereby improving targeting in their marketing actions. As for targeted consumers, in return they receive coupons and “special deals” in exchange for their authorization to access their anonymized banking data (in conformity with personal data protections laws). Big Data means tera- or even peta-bytes.

Working with Big Data

Being “data driven” implies investing in data services: cloud storage infrastructure, data access technologies of the type NoSQL and Big Data to manage the large volume and/or heterogeneity of sources, “dataviz” (data visualization) technologies for restitution.52 Furthermore, it is important to rapidly adopt a data-crossing approach, if only for experimental purposes.

The wealth of the user experience will stem primarily from the cross between various sources of income, as attested by the applications imagined during the latest hackathon,53 organized by the Spanish bank BBVA.54



The first prize was awarded to the application Qkly, where the essential function is to help end-users avoid the crowd when organizing their daily shopping. The application gives the opening hours where there are the fewest customers. This contest is proof that it is possible to imagine non-banking applications with added value for the end user based on the analysis of a large volume of payment transactions: 30 million transactions both anonymized and geolocalized for nearly 200,000 stores.

Designing real-time architecture

Furthermore, to meet the requirements of digital users who want “everything, anywhere, anytime”, we believe it is important to invest in technologies that allow immediate interaction. Batch architectures, highly present in banking Information Systems, will entail adjustments or additions.

Integrating social networks

Today social networks are a given for demonstrating commitment to clients (support, advice, open discussions...) and for creating, in fine, value. The initiative by FIDOR Bank and its use of social media for positive branding and in its business strategy are a remarkable demonstration of this. Their original approach has led to client acquisition costs which are among the lowest in the banking sector:55 a mere €25! (to be compared to the $300 it costs a traditional American bank).

Opening up to Open Innovation

Many of the brightest ideas come from without; this is true both for FinTech companies and for society in general. In consequence, to innovate and leverage initiatives stemming from other economic and social stakeholders, it is fundamental to reach out to them through what is known as the Open Innovation process.

[55] http://cestpasmonidee.blogspot.fr/2012/04/fidor-bank-veut-se-faire-des-amis-sur.html

ING considers that Big Data technology is indispensable to its survival

against FinTechs.


Today this term covers a wide array of possibilities for outsourcing and broadening the scope of innovation. Various categories of third parties can be involved: research laboratories, experts, partners, startups, clients... Within a certain perimeter, one can meet the technological requirements for this outreach by using an “Open API” model. This consists in designing and offering services that can be accessed by third parties in self-service mode.

Transparency and outreach create a web of partners interconnected via APIs, this is what Square and Intuit56 in particular have done. Another example of current implementation is the payment API partnership between Uber and Paypal.57,58 Closer to us, the CA Store59 and Axa Banque API60 French initiatives testify to attempts to open up banking information systems to other partners. This outreach is complex to implement, especially for gigantic institutions such as historical banks, which are usually “equipped” with legacy tools lacking in flexibility.It was to meet this demand, which has arisen only recently, that Standard Treasury61 positioned itself with its secure cloud platform. Lastly, from a more forward looking perspective, Open Innovation is also a way to prepare for tomorrow’s trends, especially in the field of the Internet of Things, but that is another story altogether.

Be forward-looking and monitor vigorously

Another principle we find important: to constantly be on the alert, at all times. To do so, it is effective to organize in-house monitoring through curation activities and execution of POCs (Proof of Concept). We could not more earnestly advise you to follow and attend key conferences in all matters FinTech such as Finovate62 and FinDev.63 To go farther, and to bolster Open Innovation, participate in or even organize, alone or with others, FinTech incubation projects (e.g. SandBox64 and the FinTech Startupbootcamp in England)65 as well as

[56] http://techcrunch.com/2013/09/24/intuit-integrates-its-quickbooks-accounting-software-with-squares-point-of-saleproducts-

via-an-api-deal/

[57] http://www.lefigaro.fr/secteur/high-tech/2013/11/19/01007-20131119ARTFIG00202-paypal-simplifie-l-usage-d-uber-leservice-

de-chauffeurs-prives.php

[58] http://venturebeat.com/2013/11/19/uber-is-the-first-company-to-show-how-far-paypals-mobile-sdk-has-come/

[59] https://www.creditagricolestore.fr/

[60] http://cestpasmonidee.blogspot.fr/2012/03/axa-banque-ouvre-les-donnees-aux.html

[61] http://blogs.wsj.com/venturecapital/2014/05/28/standard-treasury-raises-2-7m-to-help-banks-deliver-digital-services/

[62] http://finovate.com/

[63] http://www.prweb.com/releases/2014/05/prweb11867728.htm

[64] http://betaboston.com/innovation-economy/2014/05/27/new-fintech-sandbox-program-will-supply-fuel-for-financial-

startups/

[65] http://www.bankinnovation.net/2014/02/a-new-startup-accelerator-kicks-off-in-london/

The BRE Bank cannibalized itself: in 2012, this Polish bank redesigned its banking website from scratch to put mobile devices at

the core of interactions. A new brand appeared, mBank, which fed off

the BRE Bank until there was nothing left, not

even the website.



competitions of the hackathon type (cf. BBVA).66 It is an excellent way to get in touch with new talent, whether it be technological or human.

However, one must bear in mind that hackathons are only to get started, an inspiration rather than an end point.67,68 One must further be careful not to instrumentalize the practice by turning it into a pure communication stunt. All of these actions are a way to better grasp FinTech firms and the potential they have to create new ways of banking.

Lastly, draw inspiration from your peers and from trailblazers. By way of illustration, here are a few examples of banks that have begun their digital mutation, in-house and externally. They have implemented some of the practices presented above. Let us begin with the pioneers who were instrumental in building digital banks on the basis of an array of components and partners: Simple, FIDOR Bank, Moven.

[66] http://thefinanser.co.uk/fsclub/2014/03/bbvas-amazing-api-challenge.html

[67] http://www.usine-digitale.fr/article/organiser-un-hackathon-pour-l-innovation.N239291

[68] Swift, Saving Hackathons, API Days 2012, https://www.youtube.com/watch?v=XXYoI0UBJio

At the end of 2013, the Spanish bank BBVA organized a hackathon around Big Data APIs exposing over 30 million banking

transactions.

• More than 30 million anonymized banking transactions generated by over 2 million bank cards from more than 200,000 institutions

• 780 developers signed up to participate• In just 2 months, the APIs were used 6.7 million times• 144 apps were developed in 19 countries

Source: http://thefinanser.co.uk/fsclub/2014/03/bbvas-amazing-api-challenge.html


Draw inspiration from the trailblazers

AxaBanque: Soon, the bank designed around functionalities the community wantsAxaBanque: Opening of banking APICrédit Mutuel: Big DataCrédit Agricole: CA Store & APICrédit Agricole: Competitions, incubation (BeMyApp)Fortuneo: Leveraging banking transactions in the form of coupons: smart deals

FIDOR Bank: Uses social media to advertise the bank and create brand loyaltyFIDOR Bank: Provides a money transfer service in BitcoinsCommerzBank: The first FinTech incubator in Germany

BBVA: Labs & Big DataBBVA: Scoring 2.0BBVA: Hackathon challenge APICaixa: Banking services at the heart of Facebook

ING: Leveraging and maximizing client data use through Big Data technologiesING: API opening and hackathon

Wells Fargo: Startup incubatorCapital One: Lab creationsCapital One: User Experience

Barclays: FinTech incubation

Commonwealth Bank of Australia: Creating storage space in the cloud

mBank: Innovative mobile bank, Bank Innovation Awards



[69] http://www.youtube.com/watch?v=nokBj14p4Mc

[70] http://blog.octo.com/minimum-viable-product/

[71] http://blog.octo.com/retour-aux-basiques-quest-ce-que-lux/

[72] http://en.wikipedia.org/wiki/Design_thinking

Digital banking: first steps

Define your mission and build your vision

Our advice is to begin by defining your mission and your vision – your “why”69, if you prefer. Ask yourself what kind of bank you want to be. Concentrate on functionalities, those you wish to put forward, and prioritize them. This allows you to define what your initial actions should be and which clients you should target first. This will provide you with your MVP70 (Minimum Viable Product), which you can then rapidly deploy on the ground in order to make any necessary adjustments to your implementation before enriching it.

Think Experience with a capital “E”!

In our opinion, the most important is to concentrate on each of the stakeholders to optimize the most complete experience. Upstream, the Design Thinking72 approach will help you realize where the true problems lie. By focusing on user experience (UX), you will enrich the financial lives not only of your clients but also of your collaborators. By reaffirming your bank’s culture and global experience, you will be making an inestimable investment.

Define your IT architecture

Armed with your vision and target functionalities, choose which IT architecture(s) you wish to (and can) build on. Define the type of Core Banking System you want as foundation. Depending on your target functionalities, identify all in-house technological and business assets you have at your disposal. For each new function or digital business to be introduced, ask yourself whether you are in a position to implement it in-house or whether you should join forces with a partner who already has a strong base, especially one in a position to meet the fluctuating requirements of digital banking.

1

2

3


Define a roadmap

Then define a macro-roadmap, but don’t overreach, be humble and above all learn from your experiences as you progress towards digital banking. Be ready and eager for hands-on learning (Lean Startup,73 MVP, POC), both in terms of technology and how you leverage it. Constantly doubt yourself and seek to confront your views with reality on the ground, by observing and measuring74 the impacts of your approach. Then make any necessary adjustments, learn, and iterate.

Decide what type of business structures you want to invest in

Lastly, of the essence, ask yourself what form you want your investment to take by examining so-called Open Innovation strategies: do you want to set up a subsidiary or create spin-offs, buy up one or several FinTech firms, or be a FinTech incubator? The equation is far from simple; there is no one right answer. Depending on your human resources, the maturity of your technologies and projected deployment, the maturity and capabilities of the targeted FinTechs, the answers will probably be many and diverse.

However reality is stark,75

“Only 9% of all companies in ‘disrupted’ industries survive. But 100% of that surviving 9% had set up a disrupted (new) business as a totally separate division of the parent company – “no exceptions”. That means a separate location, management, and team – with a significant number of ‘digital native’ recruits and investment... A separate digital company won’t ensure success... It is necessary but not sufficient.” Clark Gilbert, professor at Harvard Business School.

You alone can decide what position is best suited for you.

In sum, we insist, be humble because we are not out of the Dark Ages yet. Keep a pioneering spirit because there are very few complete digital banks; history and groundbreaking are in the making. It’s up to you to be part of it.

[73] http://blog.octo.com/lean-startup/

[74] http://blog.octo.com/les-patterns-des-grands-du-web-lobsession-de-la-mesure/

[75] http://www.huffingtonpost.co.uk/colin-morrison/harvard-professor-shows-traditional-media-how-to-cope-with-thefuture_

b_3514896.html

4

5

“it’s better to own the disruption than to

be eaten by it”

Chris Skinner


If a banker were to ask us: “what happens if I do nothing?”,

we could simply answer: “don’t you worry, someone else will do it

for you...” but we would also add: “...and probably without asking your

permission.”

Digitization is overtaking all sectors, banking will be no exception...

and it will happen with or without the banks. It is to them to decide

to what extent they want to hop on the wagon, bearing in mind

that the train is picking up speed and may soon be out of reach.

Our advice to banks is to take swift action. FinTechs themselves fear

the arrival of new players because, despite their disruptive nature, they

are perfectly aware that change can be swift... they have experienced it

from the inside, in their flesh as some would put it. Leaving them with

a near permanent sense of urgency.

Conclusion



Stephen Périn

Stephen is a manager and consultant within the OCTO Digital Transformation Department. He has been with OCTO since 2009 where he accompanies his clients through their digital transformation. In addition, he directed the in-house collective volume “Les Géants du Web” (Giants of the Web) which explores 21 cultural, architectural and technical patterns. Stephen will soon have 15 years’ experience and in the past has held positions as R&D project manager, ESG/SRI analyst, startup CTO and business creator, in an array of sectors, including finance and non-financial business. He is a regular speaker in France and abroad at conferences and workshops, for businesses, the general public and academics.

The rest of the time you will probably find him comfortably tucking into an Osso Buco or a Tournedos Rossini.

[email protected]+33 (0)6 69 76 83 37@sperin

Sylvain Fagnent Sylvain has been a senior consultant at OCTO for 15 years. His background is in the applied and functional architecture of banking Information Systems in a variety of sectors such as retail, investment and private banking. Since 2007 he has been in charge of OCTO’s in-house training in the banking sector, and has been managing the sector R&D since 2012. From 2010, Sylvain has been a regular contributor to columns on innovation in retail and private banking. In 2014 he joined the OCTO Digital Transformation Department where, among other duties, he is in charge of monitoring the banking sector.

For lunch, he will be satisfying his inner carnivore with a rare sirloin steak.

[email protected]+33 (0)6 03 10 44 11

About us

Authors


“We believe that information technology is a powerful engine for change.

We are fully aware that major breakthroughs are the result of sharing knowledge

and the pleasure of working with others. We are constantly in quest of improvements. THERE IS A BETTER WAY!” OCTO Technology Manifest

Since 1998 we have been helping our clients transform their businesses by focusing on three main areas: technology, methodology and understanding their business challenges.

With OCTO they find partner teams who are passionate about maximizing technology and leveraging creativity to rapidly turn their ideas into value: Attijari, AXA, B2Winc, BNP Paribas, Bouygues Telecom, Canalplus, Cdiscount, Cloudwatt, Corsair, Crédit Agricole, Gefco, Macif, FranceTV Numérique, ING, La Poste, Meetic, Orange, RFF, SFR, Société Générale Direct, Texa, Viadeo, Voyages-SNCF, BforBank, etc.

OCTO is an international group with three subsidiaries: Morocco, Switzerland and Brazil. We were awarded first prize in the Great Place to Work® contest for businesses with fewer than 500 employees for the three consecutive years between 2011 and 2013.

OCTO Technology

www.octo.com – blog.octo.com

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