Post on 24-Jun-2020
transcript
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)
320151126_Vlerick_FinTech.pptx
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
Source: Roland Berger
Executives of 65 banks from 13 European countries have participated in our retail banking survey, of which 8 in Belgium
420151126_Vlerick_FinTech.pptx
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
Source: Roland Berger
> 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%
520151126_Vlerick_FinTech.pptx
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
Download an ebook from the Amazon webstoreand read it immediately on your e-reader
Open iTunes to preview, buy, and download songs from all genres immediately
Ordered today, in house tomorrow
Zalando, free and fast delivery!
Source: Roland Berger
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
620151126_Vlerick_FinTech.pptx
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
Source: Roland Berger
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
720151126_Vlerick_FinTech.pptx
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
Source: Roland Berger
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")
820151126_Vlerick_FinTech.pptx
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
920151126_Vlerick_FinTech.pptx
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
Source: Roland Berger
1020151126_Vlerick_FinTech.pptx
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
1120151126_Vlerick_FinTech.pptx
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
Source: Expert interviews, Fidor Bank, Roland Berger
Case study: Fidor – Open API
1220151126_Vlerick_FinTech.pptx
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
Source: Expert interviews, Fidor Bank, Roland Berger
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
1320151126_Vlerick_FinTech.pptx
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
1420151126_Vlerick_FinTech.pptx
FinTech are a necessity for Financial Institutions … and vice-versa!
Take-aways and key questions
Source: Roland Berger
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?✓