D E L O I T T E C O N S U LT I N G L L P

Oracle Open World

October, 2015

D E L O I T T E C O N S U LT I N G L L P •

Financial Services in an era of Exponential change

Executive Summary

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EXECUTIVE SUMMARY

The Financial Services industry is undergoing a rapid transformation, forcing an entire rethink of existing models

• How will empowered, digitally connected consumers choose you over a myriad of other providers?• How will automation and commoditization of high-value activities and broader accessibility of financial products change the role of traditional

financial institutions?• What relevant partnerships will need to be established to compete effectively?• How will regulatory oversight affect the launch and growth of new business models?• What role will human capital play in the transformed future?• What strategies need to be developed in order to future-proof business models?

Key Questions for the Financial Services Industry

Forces for Change The Game is Changing

Traditional approaches of how:

• You interact with customers

• You operate internally

• You interact with other financial institutions and a broader ecosystem of players…

. . . Need to change in order to:

• Create enduring competitive advantage

• Increase margins and value for investors

Changing Regulatory Strategy and Objectives

• Need for greater capital levels• Increased oversight on data security• Fee caps leading to impact on traditional revenue models• Uncertain response to cryptocurrencies and non- traditional competitors

Transforming Customer Expectations

• Empowerment through digital connectivity• Increased information access and products options• Ability to obtain / share financial advice without intermediaries• Ability to generate funding without intermediaries

Accelerating Technological Advancement

• Broader accessibility of products and services• Automation of once highly manual activities• Increased market transparency and efficiency• Leveled playing field for small and mid-sized firms to compete• Emergence of non-traditional competitors (e.g., Apple, Google)

The industry is being transformed at an exponential rate, opening the door for disruptive innovations to take hold

Time (Years)

Pac

e o

f In

no

vati

on

Where Exponential Technology is headed

Today

Where Exponential Technology is now

TechnologyInnovation

CONTEXT

As the speed of technological change accelerates, the intersection of exponential technology and linear business performance will:

• Change customer expectations

• Change industry economics

• Change the competitive landscape as a whole

What does this ultimately mean for

the business of banking?

Playing to WinMIND-SHIFT

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“Why do Firms exist?” is a question that has been around since 1937:?PLAYING TO WIN

8

Digitization is reducing friction and challenging “the nature of the Firm”…PLAYING TO WIN

Dematerialization

Reduction in technology costs has enabled the growth of digital providers,

including advent of branchless banks

DIGITIZATION

Democratization

Crowdfunding and P2P lending have democratized access to capital

De-monetization

Automated investing services bring low-cost wealth management services

to mass market customers

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…forcing a rethink of the traditional organizationPLAYING TO WIN

The Traditional Enterprise

“Producer” “Agent” “Creator”

Infrastructure Management

Customer Relationship Management

Product Innovation Management

• The only reason these functions with very different economic, competitive and cultural imperatives exist in the same place is because the internal interaction cost is lower than the external one……

• In an era of Digital disruption the historic benefit of scale economies now seems to be a hindrance

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So Leadership need to work out where scope and agility are creating new avenues for growth and where scale is a disadvantage

PLAYING TO WIN

G-SIBs strategically down-sizingFinTech scaling and disrupting industry

economicsUnique avenues for

regional banks

• G-SIBs reshaping their business to counteract regulatory requirements:

−Products: Reducing exposure in non-operating deposits, trade finance etc.

−Businesses: Likely to exit certain sectors (e.g., OTC clearing)

−Clients: Likely to exit low ROE segments (e.g., small business)

• Simplifying operations by eliminating non-performing assets

• Technological change enabling scale (e.g., mobile internet, cloud computing, digital currencies)

• Digitization enabling broader geographic reach than brick and mortar counterparts

• Alternative source of capital enabling scale (e.g., Lending Club, Paypal, Betterment)

• Focus on market ‘niches’ and specific customer needs, enabling agility

• Increased ability to reach mass market (e.g., via automated advice, insights-driven lending)

• Not bounded by legacy infrastructure

What you have

What you know• Strategic agility• Business model

dexterity • Industry• Customers• Region

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⤑Expose leadership to new insights to create a shift in perspective and generate interest in Exponential innovation and transformation

⤑Create an environment for divergent thinking and understanding of Exponential trends

⤑ Identify Exponentials trends relevant to client and sector

⤑ Intense ambition for transformation

⤑Connectivity across the executive team resulting from group and individual processing of Exponentials

⤑Alignment on priority themes relevant to client industry and sector

⤑Clear platform to action

Create a shift in leadership’s mental model to allow for a change in business model

MINDSHIFT

KEY ACTIVITIES OUTCOMES AND DELIVERABLES

Playing to WinFOCUS

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Banks must be explicit about their activity and resources across different ambition levels…PLAYING TO WIN

Average balanced portfolio

70%

ADJACENT

TRANSFORMATIONAL

CORE

20%

10%

RETURN ON INVESTMENT

70%

20%

10%

WH

ERE

TO P

LAY

: N

EW M

AR

KET

S

HOW TO WIN: INNOVATION

Key

Investment Allocation

ROI

ADJACENT: Expanding from existing business into “new to the company” business

TRANSFORMATIONALDeveloping breakthroughs and inventing things for markets that don’t yet exist

COREOptimizing existing products for existing customers

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HOW TO WIN: INNOVATION

WH

ERE

TO P

LAY:

NEW

MA

RK

ETS

⤑Identify disruptive intersections between Exponentials and your sector, including analysis of opportunities and threats at intersections

⤑Develop concept options for 2-3 potential ideas at each disruptive intersection

⤑Test, refine and validate of potential concepts

⤑Define business model change strategy, including clear Where to Play and How to Win choices

⤑Perspective on future market evolution across a range of scenarios

⤑Priority set of potential opportunity spaces and portfolio of potential ideas within spaces

⤑Clear set of strategic Where to Play / How to Win choices

⤑Implications of Desirability, Viability and Feasibility for 2-3 new business concepts

⤑Concept pitches for 1-2 business ideas

Engage in disciplined and structured analysis to determine the right balance for your portfolio

FOCUS

KEY ACTIVITIES OUTCOMES AND DELIVERABLES

Playing to WinEXECUTE

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Banks need to execute on strategy with clear governance and dedicated resources

PLAYING TO WIN

Moving from….

PRODUCTS

SILOS

SEGMENTS

PLATFORMS

ECOSYSTEMS

CLIENT NETWORKS

Moving to….

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⤑Identify key capabilities required, including network and partner assessment (if needed)

⤑Ratify clear governance structure

⤑Develop and validate business case and roadmap for investment

⤑Identify and deploy dedicated resources for implementation and capability development

⤑Prototype, pilot and launch concepts based on market realities

⤑Capability, client network and partner assessment

⤑Clear governance structure and success metrics

⤑Business plan, financial model and scenarios

⤑Operational and roadmap implications

⤑Dedicated resources with appropriate skillsets

⤑Product platform development and implementation; integration with existing product platforms

Execute on strategy with clear governance and dedicated resources

EXECUTE

KEY ACTIVITIES OUTCOMES AND DELIVERABLES

Moving from….

PRODUCTS

SILOS

SEGMENTS

PLATFORMS

ECOSYSTEMS

CLIENT NETWORKS

Moving to….

Closing Thought?