Keynote speaker Innopay presentation at MeetFinTech Day on May 26th - Payments

transcript

Tomorrow’s transactionstoday

Forcedmarriage,romancestilltobediscoveredFinTech and Banks

May2016Shikko Nijland

2 Banksand FinTech – Forced marriage, romancestill to be discovered?Innopay.May2016.©InnopayBV.Allrightsreserved.

• Innopay:Innovationexpertsindi• >30consultants• HQ:Amsterdam,newoffice inFrankfurt• ThreePractices:Payments,DigitalIdentity,e-Business• Services:Strategy,Co-creation,Transformation• MemberofEBA,EPCAandECP• FoundingmemberofHollandFinTech

FinTech and Banks:forcedmarriage?

@startupfestEU,crazydudefromInnopayclaims:FinTechs needbank’scollaboration,otherwisetheywillnotsurvive:D:D:D

May2016Shikko Nijland

@startupfestEU,crazydudefromInnopayclaims:FinTechs needbank’scollaboration,otherwisetheywillnotsurvive:D:D:D

BanksandFinTech:aforcedmarriageofconvenience?

Services/FinTech spaceInfrastructure

Processing:ACH,Visanet,Banknet

Settlement:RealTimeGrossSettlement

Instruments:SCT,SDD,Cards

e.g.Browser e.g.Webshop

account

Beneficiary

account

Onlinebanking Routingservice

OnlinePaymentProvider (PSP)

Information FundsSource: Innopayanalysis,EuroBankingAssociation(EBA)

CUSTOMER MERCHANT

CREDITORBANKDEBTORBANK

2 Regulatedfinancialinstitutionsmoreoptimisedforregulatorycompliance,securityandresilience,addingtrust,reach and scalability

Lessexposedtotheonerousrequirementsandcomplianceobligations,addingexcellentserviceshavingfitwithcustomerneeds,intuitiveUI andseamlessUX

=Bank&FinTechchemistry

TRADITIONALFOURCORNERPAYMENTSMODEL BANKS VSFINTECHCAPABILITIES

INSTANT PAYMENTS

Source:Innopayanalysis

Puttingpaymentsinabroadercontext:threekeychangedriversinfinancialservices

1.CUSTOMERBEHAVIOUR 2.FINTECH&COMPETITION

Newplayerscapturingmarketsharedrivenbytechnologicalinnovation

Seamlesspaymentsanytime,anywhere,anydevice

3.EUROPEANREGULATION

Regulatoryreformsdisruptingtraditionalvaluechain

(PSD2,IFR,GDPR, AML4,eIDAS)

Devices

Context

Custom

Orientation Selection Transaction Delivery CustomercareCommerce

Onboarding Usage CustomercareSelectionOrientation

OnlinePOS On-the-go

Customersexpectdigitalservicesanytime,anywhereonanydevice..

..andwishtointegratepaymentsseamlesslyintheirday-to-daylife

Instantavailabilityofinformationand

Mobile initiation

Simpleandeasy Omni-channel,oneexperience

Reconciliationandbenchmarking

Integratingvariouspaymentmethods

Safe&secure,robustandnofraud

Accessalwaysandeverywhere

10 Banksand FinTech – Forced marriage,romancestill to be discovered?Innopay.May2016.©InnopayBV.Allrightsreserved.

Technologicaldevelopmentaredrivingchangeinseveralsectors

• Mobilewallets• Digitalcurrency

Payments

• Automatedinvestments

• Robo advice

WealthMgmt &savings

• P2Plending• Crowd-funding

Lending&capitalraising

• Useofsensors• Newriskpools

Insurance

Changingecosystems(APIs, opensource)

Enhanceddatahandlingmethods(bigdataanalysis,machinelearning)

Portalaggregation

Distributedanddecentralizedledgers(Blockchain)

Newmethods forsecurity(Identification, authentication,tokenandcredentialmgmt)

Movetowardsthecloud

Sectortranscendingtrends

Source:Innopayanalysis,DNB (2015)

…butnotalltechnologies areasrelevant:impactvspriority

Medium

ctonIndu

Priorityinthenext3yearsHighMediumLow

Instantpayments

Onlinepayments

Digitalwallets

Contactlesscards

Bank2corporateconnectivity

Cybersecurity

E-invoicing

Biometricsinauthentication

E-Identity

TokenizationCloudPaymentservices

Distributedledgers

P2Pmobilemoneytransfers

API-ification

Machinelearning

Virtualaccounts

Supply ChainFinance

Willbecomemainstream

“Highimpact”driversare(potential)game

changers

Bigdata

Source:Innopayanalysis,Accenture (Nov2015)

FrontOffice(distribution) BackOffice(manufacturing) Market(processing)

infrastructure

Investing/Wealthmgt

Personalsavings

Payments

Lending

Capitalraising

Incumbent’suniversalbankingmodel:offerfullrangeoffinancialproductsandservices‘end-to-end’

Customertypes Servicecategory

CONSUMER

BUSINESS

…isunderattackofspecialisedFinTechs:competitiononisolatedproductsandservices

Customertypes FrontOffice(distribution) BackOffice(manufacturing) Market(processing)

infrastructure

Investing/Wealthmgt

Personalsavings

Payments

Lending

Capitalraising

Independent UXlayer,digitalfront-end

API-drivenmiddle- andbackoffice

Electrificationofmarketinfrastructures

Independent, digitalfrontend,middleandbackoffice

Servicecategory

CONSUMER

BUSINESS

Deathbyathousandcutforbanks?Let’sexploreFinTech-Bankrelationship

Source:CBinsights

Traditionally,bankswerethedominantfinancialservicesprovider…

ADDRESSABLEMARKET1:FINANCIAL SERVICES

Traditionalbankservices

Traditionalbanks2

1Addressablemarket:potentialconsumerandprofessionalclientsforincumbentbanks2Traditionalbank:establishedplayerinthemarket

…butnowmanyFinTechs emergeseekingtodisintermediatebanksortakeheadsoncompetition

ADDRESSABLEMARKET1:FINANCIAL SERVICES MODEL FINTECH MODELDESCRIPTION EXAMPLE

DISINTER-MEDIATION

Competeand/orcooperatewithtraditionalplayers.Dependonrelationwithincumbenttoofferservice

DIRECTCOMPETITION

Compete withincumbents, offersimilarserviceasincumbents, oftenstartviamarket‘long tail’(whichistypically un-/underaddressed)

Traditionalbankservices

Traditionalbanks2

DISINTER-MEDIATION

DIRECTCOMPETITION

…however,notallFinTechs aimto‘disrupt’banks,ascollaborationcouldbemorebeneficialinparticularsituations

ADDRESSABLEMARKET1:FINANCIAL SERVICES MODEL FINTECHMODELDESCRIPTION EXAMPLE

DISINTER-MEDIATION

Competeand/orcooperatewithtraditionalplayers.Dependonrelationwithincumbenttoofferservice

DIRECTCOMPETITION

Compete withincumbents, offersimilarserviceasincumbents, oftenstartviamarket‘long tail’(whichistypically un-/underaddressed)

SUPPLIERTO

Support incumbents (andother serviceproviders) incompetingthroughloweroperationalcostsand/ornewproduct/service capabilities

COMPLEMENTS

Newplayerswithnewapplicationswhichrepresentvaluetocustomers(butthatdonotimpacttraditionalplayersyet).Potentialareasforproductexpansion&revenuegrowth.

Traditionalbankservices Adjacentfinancialservices

Traditionalbanks2

COMPLEMENTS

SUPPLIERTO

DISINTER-MEDIATION

DIRECTCOMPETITION

FinTech investmentsareincreasingeachyear,mostactivityinpayments

2008 2009 2010 2011 2012 2013 2014

United States Europe Asia-Pacific Other

9% 7% 14% 13% 14% 12%9% 9%

11% 9% 9% 10%13% 16%

10% 9% 12% 14%

17% 18%22% 24% 18% 21%

53% 50% 43% 45% 47% 44%

2008 2009 2010 2011 2012 2013

Capitalmarkets Personalfinance mgmt

Dataanalytics Bankingandcorporate finance

Payments

$billion

GLOBALFINTECHINVESTMENTS GLOBALFINTECHDEALSBYCATEGORY

Source:McKinsey&Company

…butonlyfewFinTech start-ups areabletobecomescale-ups

Source:Statistic Brain, Jan2016

PERCENTAGEOFSTART-UPSOPERATINGACROSSINDUSTRIES

Acrossindustries,50%ofthestart-upsfailedtoremaininoperationafter4years

PERCENTAGEFAILEDTOSURVIVEAFTER4YEARSPERSECTOR

42%ofthestart-upswithinFinance,InsuranceandRealEstatesectorfailedtosurviveafter4years

0%10%20%30%40%50%60%70%80%

1 2 3 4 5 6 7 8 9 10Year

Percentsurvived

Finance,InsuranceandRealEstate

EducationandHealth

Agriculture

Services

Wholesale

Mining

Manufacturing

Construction

Retail

Transportation,CommunicationandUtilities

Information

PercentFailedtoOperateAfter4years

ThemainreasonsFinTechs failisoveralllackofreach,trustandscalability

FINTECHSBANKS

WehaveReach,Trust and

Scalability!

WehaveAgility,UIand

Fiveupcoming‘regulations’:we’llfocusonPSD2anditsimpactonpayments

NewmodelemergingunderPSD2providingthirdpartyaccesstoaccount(XS2A),therebydisruptingexistingvaluechains

account

Beneficiary

account

TRADITIONALFOURCORNERMODEL

DEBTORBANK CREDITORBANK

Information Funds

CUSTOMER MERCHANT

SCT,SDD,Cards

ACH,Visanet,Banknet

RealTimeGrossSettlement

Instruments

Processing

Settlement

e.g.Browser

Onlinebanking

e.g.Webshop

Routingservice

Onlinepymntprovider

Services

Infrastructure

account

Beneficiary

account

EMERGINGXS2AMODELUNDERPSD2

AS-PSP CREDITORBANK

Information Funds

CONSUMER MERCHANT

SCT,SDD,Cards

ACH,Visanet,Banknet

RealTimeGrossSettlement

Instruments

Processing

Settlement

e.g.Browser

Standardisedinterface(‘API’)1 Routingservice

Onlinepymntprovider

ServicesInfrastructure

PaymentInitiationServices(PIS)

Account InformationServices(AIS)

e.g.Webshop

• CHALLENGESCUSTOMERRELATION• ADDSTOCOMPETITION INACQUIRINGBUSINESS• REDISTRIBUTION OFMSC

• CHALLENGESCUSTOMERRELATION• MONETISEACCESSTODATA

1Thereseems to be industry consensusthat ApplicationProgrammingInterfaces(APIs)provide for acost effective,easyand securemeansofenabling XS2A.Final decision subjectto EBARegulatory TechnicalStandardsSource:Innopayanalysis

Twonewregulatedrolesthatwillshakeuptheexistingpaymentlandscape:paymentinitiation serviceprovider(PISP)

1.PAYMENT INTIATIONSERVICEPROVIDERS

Customer initiates payment (SCT, SEPA Credit Transfer) directlyvia PISP (and not via AS-PSP). PISP forwards instruction to AS-PSP and communicates result to customer andmerchant

CUSTOMER MERCHANT

AS-PSP

Paymentscheme

EXAMPLESERVICESPROVIDINGSIMILARFUNCTIONALITY

Source:Innopayanalysis1Thereseems to be industry consensusthat ApplicationProgrammingInterfaces(APIs)provide for acost effective,easyand securemeansofenabling XS2A.Final decision subjectto EBARTS

ExistingflowFutureflow(API)

Twonewregulatedrolesthatwillshakeuptheexistingpaymentlandscape:accountinformationserviceprovider(AISP)

2.ACCOUNT INFORMATIONSERVICEPROVIDERS

TheAISPpresentsaggregatedviewontransactionsandbalancesfrommultipleaccountsheldatmultiplebanks

AS-PSP AS-PSP AS-PSP

Displayedcountries areindicative

CUSTOMER

EXAMPLESERVICESPROVIDINGSIMILARFUNCTIONALITY

Source:Innopayanalysis1Thereseems to be industry consensusthat ApplicationProgrammingInterfaces(APIs)provide for acost effective,easyand securemeansofenabling XS2A.Final decision subjectto EBARTS

ExistingflowFutureflow(API)

API API API

Today’sinteractionwithone’sbankaccountsislimitedtoexclusive,bank-ownedchannels…

Bankaccount

Internetbankingandmobileapp

Customers

Bankdomain

PRE PSD2XS2AERA

…PSD2XS2AwillprovidecustomersmoredigitaloptionstointeractwiththeirbankaccountsthroughTPPs…

Bankaccount

Customers Customers

Bankdomain Bankdomain

PRE PSD2XS2AERA (POST-)PSD2XS2AERA

PaymentaccountBankaccount

XS2A(‘API’)2

1Includesboth PISPand AISP2Thereseems to be industry consensusthat ApplicationProgrammingInterfaces(APIs)provide for acost effective,easyand securemeansofenabling XS2A.Final decision subjectto EBARTSSource:Innopayanalysis

…potentiallycausingfragmentationinservicesasmanyTPPswillseektomonetise accountaccess…

Bankaccount

Customers Customers

Bankdomain Bankdomain

PRE PSD2XS2AERA (POST-)PSD2XS2AERA

Paymentaccount

EntranceofTPPs(incumbents,FinTech,bigtech)

Bankaccount

XS2A(‘API’)

…withnot onlyfinancialplayersenteringthemarket:serviceproviderscomefromdifferentbackgrounds

Data/creditreference

ThirdpartyIdentity

Invoicing

Remittance&FX

Lending&Finance

Merchants

PaymentPlatform

Peer2Peer

OnlineBanking&e-payments

Deferredpayments

E-Wallets

CollectingPSPs

SEPAe-mandates CashManagement

Multi-banking

OnlineBanking&Cards

NON-EXHAUSTIVE

OpportunityforbanksandFinTechs tocollaboratebeyondregulatoryPSD2push:leveragingthevalueofOpenAPIs

Source:Innopayanalysis,EuroBankingAssociation

OptionalPaymentAPIs Optionalnon-paymentAPIs

‘RegulatedPIS/AIS’

PSD2XS2A

ExampleAPIs

PSD2XS2A• SCTinitiation• Transactiondetails&balance• Confirmationavailabilityoffunds

Additional PIS• Paymentguarantee• ‘Real-time’payment• Refund/refuse services• Conditionalpayments• Disputeresolvingservices

Additional AIS• Intradaybankstatement• PaymentStatusReport• E-Mandatemanagement

DIGITALIDENTITY• Authentication• Onlinecontracting• Age verification• Attributeprovisioning

SomebanksarealreadyexperimentingwithOpenAPIsandFinTechs

EXAMPLES

1.CUSTOMERBEHAVIOUR 2.FinTech &COMPETITION

WhatistheultimaterelationshipstatusforFinTechs andbanks?

1.BanksareincreasinglyactinglikeFinTechs andhavedeeppockets

BANKSORGANISEFORCONSTANTCHANGE• Fromcost/marginorientedstructuretocustomer

focusedculture

• Bankshavethe(financial)resourcestomakethetransition

• Implementationofagileoperatingmodeltospeed-updecisionmakingandtime-to-marketfornewservices

• DevelopmentofOpenAPIoffering/community

• Set-upofinnovationcentersincludinghackathons,incubators

• Banksinposition todecideonengagementwithFinTechs (ignore,collaborate,compete,acquire)

PicturefromMoney20/20presentationRalfHamers (ING)

2.SinglelifeofFinTechs canbedifficult,despiteagility&technologyadvantages

CHALLENGESOFFINTECHS

• FinTech seekworlddominance

• Costsof‘surviving’andscaling-upisalwayshigherthanexpected

• Incumbentshavemassivescaleadvantages

• Customersandtheirloyaltyisdifficulttoobtain

• Fragmentationofservicesincreasescompetition

3.BenefitsofBank- FinTech marriagemayoutweighthepro’sofstayingsingle

AS WITHMOSTMARRIAGESITCOMESWITHCHALLENGES...

Preservingacquiredcompany’sagility,cultureandinnovation,whilemarryingittothecontrolsand

assetsofthebank

BANK – FINTECHMARRIAGE

‘Fintegration’unlocksforbothFinTechs andbanksoptimalusageofrespectiveassets

WelookforwardtoitContactus Shikko Nijland

Managing Partner

Shikko.@innopay.com

+31653741465