Innovation in financial services

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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?

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
 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
 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

Innovation in financial services

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