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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?
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”
What is innovation anyway?
What is innovation anyway?
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
What is innovation anyway?
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