financial services digital disruption – trends & innovations

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Financial Services Trends & Innovations: the Digital Disruption Schieber Research | April 2016

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Financial Services Trends &

Innovations: the Digital Disruption

Schieber Research | April 2016

Introduction

• This presentation examines trends and innovations in financial services (focusing on

banking, insurance, credit cards). It is the 2nd report in the series, with the 1st published in

2014.

• The presentation is based upon the Schieber Research Disruption Model which

examines the following elements:

Consumer demand

• unmet / new needs created by macro changes

Market trends

• rate of innovation adoption

Trend setters

new & promising start up companies

affecting the industry

Best in class

• competitors ahead of the curve

Disruption Model (1): Consumer Demand

• The following Consumer Mega-Trends are affecting the current

state of financial services:

– Collaboration economy – driven by social media

– On the go behavior – driven by intensive lifestyles and the rise of

mobile technology

– Convenience seeking – driven by connectivity (“the internet of

things” and wearable technology)

Consumer demand

•unmet / new needs created

by macro changes

Consumer | Mobile Penetration Data

• Global Mobile penetration continues to

rise, giving birth to more on the go mobile

financial solutions

Ericsson 2015

the Discover card

offers a mobile app

enabling to freeze

your account using

Freeze itSM, an on/off

switch that lets you

freeze your account in

seconds to prevent

new purchases, cash

advances and

balances transfers if

you misplace your

card.

Consumer | Social Penetration

GlobalWebIndex & Statista, 2015

• Time spent on social networking by internet users worldwide is on the rise,

causing more sharing and peer to peer behaviors resulting in the

“collaboration economy”

Consumer | IoT & Wearables

• Internet of Things continues to grow, including Wearables.

Ericsson 2015; IDC 2015

Visa is expanding its Visa Ready program to include Internet of Things (IoT) companies, such as

manufacturers of wearables, automobiles, appliances, public transportation services, clothing and almost

any other connected device

Consumer | Wearables

• According to research from Intelligent Environments

(October 2015), nearly half of 18-30 year-olds have used a

smartwatch to deal with money matters in the UK

Nationwide strategically focuses on

delivering value to customers through

digital innovation, with its Innovation Lab

projects harnessing emerging

technologies including next generation

biometrics, wearables, future payments,

artificial intelligence and beacons. The

company’s N.Band successful trial

allowed customers to make contactless

payments using a wristband for any

transaction under 20 GBPNatWest bank - Apple Watch

Disruption Model (2): Market Trends

• To respond to the aforementioned needs and behaviors, the market is

undergoing a shift towards digital financial services.

• Online banking adoption rates still haven’t reached 50% in the EU, but

in some countries, as well as in the USA, penetration surpassed 50%.

• We expect Mobile financial services to grow at a faster rate, due to the

increase in solutions offered through mobile devices as well as

younger demographics demand for ultra-convenient solutions.

Market trends

•rate of innovation

adoption

Market Trends | Rate of Disruption

• The World Economic Forum has identified

11 clusters of innovation exerting

pressure on traditional business models

• According to the WEF report, the most

imminent effects of disruption will be felt

in the banking sector; however, the

greatest impact of disruption is likely to be

felt in the insurance sector

Source: WEF, “the Future of Financial Services”, http://www 3fdp.secivres_laicnanif_fo__erutuf_ehT_FEW/scod/gro.murofew.

Market Trends | Rate of Disruption

• Citi believes that personal loans

are the closest and biggest threat

in terms of disruption by new

entrants, followed by digital

payments. The company believes

that the mortgage market is more

resilient to disruption.

However, in our opinion, mortgage is set for disruption, being a

complicated and stressful – yet rather common – task. For

example, Rocket Mortgage by Quicken Loans claims that it has

reinvented the mortgage process to put the power in the hands of

the consumers.

Market Trends | Digital Banking Adoption

55.1%

46%

USA EU

Digital Banking Penetration, 2015, % of adult population

• Perhaps surprisingly, Statista data demonstrates that digital banking penetration has not yet reached 50% of adult population in the EU, while in the US penetration stands on 55.1%.

• Schieber Research expects digital banking adoption rates to rise, with 39% of 18 – 34 year olds in the US saying that they would consider switching to a bank with no physical branches (a purely digital bank), compared to 29% of 35 – 55 year olds and 16% of 55+ (source: Accenture).

• The growth will be driven from mobile banking adoption, due to the rise in on-the-go activity, affecting payment and insurance transactions. Already, the main reason for using mobile banking among millennials in the US is convenience and time saving.

• According to a new report commissioned by Fiserv, the number of UK mobile banking users is set to almost double from 17.8 million to 32.6 million by 2020.

Market Trends | Mobile Banking Adoption

• In the UK, 27% of people used mobile banking in 2014, compared to only 10% in 2011 (source:

Accenture).

37%

49%

44%

41%

44%

40%

41%

35%

37%

33%

26%

25%

23%

38%

56%

50%

48%

48%

43%

42%

38%

37%

34%

34%

27%

22%

17%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Europe

Turkey

Netherlands

Poland

Spain

Austria

Luxembourg

United Kingdom

Italy

Germany

Czech Republic

Belgium

France

Romania

Share of respondents

2013 2014

Market Trends | Fintech Adoption

• According to Ernst & Young

(2015), Fintech adoption is

the highest in Hong Kong

(29% of digitally active

people have used at least 2

fintech services in the last 6

months), followed by the US

(17% of consumers).

Market Trends | Personalization

• The accumulation of data from digital transaction creates new

opportunities for segmentation, and consumers will increasingly

demand personalized offers from their financial service providers.

According to Lloyds Bank, online

users typically make 10% to 15%

more contact with the bank than

face-to-face users, so they

represent a great opportunity for

banks, data and sales wise. By

analyzing the spend patterns of

customers, Lloyds is able to

provide users with better offers.

Disruption Model (3): Trend Setters

• Fintech companies are offering new ways of responding to consumer

needs.

• While existing competitors need to adopt more slowly, developing

channel after channel, start ups are concentrating on entirely digital

solutions, thus designing cutting-edge solutions which in turn, create

new consumer expectations.

Trend setters

new & promising start up

companies

Schieber Research separates between “tech based financial services”

(those relying specifically on digital channels and would not have existed

without use of technology), and “digitally adapted financial services”

(those which utilize channels / capabilities which are not digital in

addition to adapting to the digital age).

Trend Setters | The Disruptors

• According to research by Citi, investments in financial technology have grown exponentially

in the past 5 years, rising from $1.8 billion in 2010 to $19 billion in 2015 — with over 70% of

this investment focusing on the "last mile" of user experience in the consumer space.

• The majority of this investment has also been concentrated in the payments area and this is

where banks are seeing the most competition with new entrants.

Trend Setters | The Disruptors

• According to Statista, Fintech segment

transaction value (for Digital Payments,

Business Finance and Consumer

Finance) will reach USD 2.8 trillion in

2016, mostly due to digital payments

transaction value (USD 2.57 trillion) and

experience 19.6% CAGR between 2016

– 2020 to USD 5.7 trillion in 2020.

BI Intelligence – major companies in the Fintech

sector by segment

Trend Setters | The Disruptors

• Table by CBInsights: Top Fintech “Unicorns” (worth over $ 1 billion), ranked by value

Trend Setters | Comparison & Management Sites

• Complex insurance products

and services are being

disentangled by 3rd party

websites. Therefore,

navigating between different

companies’ solutions will

become easier, and we expect

that companies will build

specialties for specific market

segments rather than a “one

size fits all” attitude.

• Websites such as mint.com enable consumers to manage

their accounts online

• In 2010 Google added a price comparison tool to its

search engine – Google Compare. The platform was

discontinued in March 2016.

Trend Setters | Peer-To-Peer Lending

• The term “peer–to–peer lending” has its origins in the facilitation of unsecured personal lending between individuals (rather than a company) via digital tools.

• P2P lending are a major industry, still far from reaching its full potential: Lending Club’s IPO filing cites the size of the consumer credit market at $3.2 trillion, yet most of the market concentrates on US citizens and on specific segments.

• For that reason, traditional competitors have been responding via partnering / acquiring / investing in competitors. For example, BBVA, Credit Suisse and JP Morgan, have directly invested in Prosper while Silicon Valley Bank and Norwest Venture Partners (Wells Fargo) have invested in Lending Club. JP Morgan partnered with OnDeck Capital, and Goldman Sachs is building a new lending unit, which has been dubbed “Mosaic”.

• The leading competitors are Lending Club (estimate $ 8 billion in loans in 2015) and Prosper ($ 3.7 billion in loans in 2015 with revenues of $ 200 million).

Trend Setters | Peer-To-Peer Lending

• Competitors such as SoFi and OnDeck are targeting new segments, further contributing to

the overall market growth. For example, SoFi is now the student largest provider of student

loan refinancing.

• According to Bain, 2016, competitors such as WeChat, PayPal and Square now offer digital

messaging or payment platforms onto which they have added short-term finance.

Trend Setters | Peer-To-Peer Lending

• Some companies have identified the problem of low credit score, or the lack of credit score,

offering “potential based” loans.

Upstart: “Founded by

ex-Googlers—fair and

fast personal loans”

Trend Setters | HR and Finance Websites

• Fintech competitors have recently entered the

field of small business financial management,

replacing services outsourced to HR and CPAs

personnel.

Gusto offers an app for small businesses,

with services like automatic tax filings &

digital paystubs, as well as workers’

compensation.

Abacus provides a way for businesses to reimburse their

employees for company expenses, reconcile corporate

cards, and implement expense policy

Trend Setters | Mobile Only Banks

• Atom Bank will be the UK's first mobile-only bank and it claims to make banking easier and

more intuitive by offering all of its services through a smartphone app.

Disruption Model (4): Best in Class

Established competitors, as well as emerging competitors, use a mix of

strategies to maintain competitive advantage in the financial services

field, including adoption of new technologies (using enabling start ups),

innovation labs (to provide access to trend setting technologies) and

M&As (of disruptive start ups).

Best in class

•competitors ahead of the

curve

Best in Class | Company Strategies

Main strategies in the financial sector:

Google Ventures (GV) is Google’s

investment arm, through which the

company has been investing in

Fintech startups.

Adoption of new technology

Innovation labs and accelerators

Fintech start up acquisitions

Spain's BBVA acquired online bank

Simple in 2014 for $ 117 million.

Amazon Payments has 23 million active

users today, compared to PayPal’s 179

million active users. Now, Amazon is

looking for acquisitions.

Apple Pay is the mobile

payment / digital wallet service

by Apple.

Best in Class | Social Adaptation

• Facebook enables people to

send and receive money on its

Messenger chat app.

PayKey is an enabler for industry

competitors, connecting banks to

social media for secure everyday

activities.

NIC Bank Group has announced that it will be the

first bank in Kenya to launch an innovative social

media banking platform, dubbed "NIC KONNECT

Best in Class | Social Adaptation

• Bank of America has

implemented Real-Time

person-to-person (P2P)

transactions.

• Aviva partnered with an

independent review company, to

collect, collate and publish

insurance product reviews from

Aviva customers.

Best in Class | Mobile Adaptation

• American Express offers Touch ID Log in for

new card members.

In North America, MasterCard began

to roll out “Selfie pay” - Biometric

corporate card program.

Best in Class | Mobile Adaptation

• The main challenge in mobile financial

services is keeping them simple and

intuitive, as financial services can be

complex.

The Citibank tablet app replaces lists of

transactions with interactive financial graphs to

make the most of the device’s capabilities.

Best in Class | Hyper Convenience

• American Express offers Amex

express check out (an alternative to

PayPal) – “a fast, secure way through

which U.S. cardmembers can check

out quickly online by using their

AmericanExpress.com login”• In Kyiv, passengers of the Kyiv

metro can pay fares using their

MasterCard contactless cards or

devices while passing through

the turnstile.

Remember – How to Utilize Digital for Growth

• Financial Services brands must provide the following advantages in order to

attract new clients and cross-sell new services to new clients:

– Building Trust through: Personal connection (utilizing social platforms),

content ownership / expertise (utilizing blogs, micro sites etc.) and targeting

niches, through transparency.

– Offering Convenience. On time / on place (utilizing mobile devices). Self

service (utilizing mobile, online and tablet).

– Providing Personalization. Online / mobile customizable tools, device-

specific presentation (such as tablets).

– Offering Simplicity. The industry is perceived as complicated and

confusing. Digital channels are enabling new strategies such as

gamification and simple analysis tools.

Source: Schieber Research & Carmelon, Digital-Inspired Trends &

Innovations in Financial Services, 2014

Time to Personalize

• Our 2014 report found that convenience, as well as simplicity, were the key growth drivers for the industry, in terms of customer benefit: time saving, schlepping-free transactions, etc.; next in line were money saving and personalization. And indeed, key competitors focused on delivering more convenience through omni-channel tools, with a specific focus on mobile devices.

• This report identifies personalization as the key driver for today’s companies, as a result of the use of Big Data, the rise of Internet of Things (including wearable devices, smart homes and smart cars); and the growing competition from new industry disruptors, forcing companies to a deeper understanding of micro-clusters needs, or a “mix and match” between products and services.

• We expect that in 2016 – 2017 more competitors in the banking, payment and insurance will focus on micro-segments, followed by an entirely personalized offer.

Thank You!

The research was conducted by:

Hamutal Schieber

Schieber Research | Market Research & Competitive Intelligence

www.researchci.com | [email protected]

Executive Summary. For the full research - please contact

Carmelon Digital Marketing

http://www.carmelon-digital.com