Digital Banking, Blockchain and the CX FinTech...

Digital Banking, Blockchain and the CX

FinTech Mastery

with Helene Panzarino CXC Oct 24, 2017

Helene Panzarino

• Entrepreneur – Exited and Existing

• Educator – FinTech Masters & Exec Ed

• Investor – in SMEs

• Investment Readiness Consultant

• Business Advisor - to SMEs - Disrupt CX, Yovo

• Author

• Top 10 SME Funding Influencer

3 Oct 2017 HPanzarino

FinTech Mastery & LIBF Partnership

• http://fintechmastery.wixsite.com/fintechmastery

HPanzarino FinTechMastery2017 Confidential

http://fintechmastery.wixsite.com/fintechmastery

4

The Digital Bank, CX & Blockchain

■

Hemingway on Disruption

(1926) The Sun Also Rises, Hemingway creates an apt metaphor for the nature of innovative and disruptive change.

When a character in the novel is asked “How did you go bankrupt?” he replies, “Two ways, gradually, and then suddenly”

Creep to sudden shift…


Digital Transformation is NOT NEW!

1970s cell phones, 1980s internet, 1990s 3G

In the 1990s, music, retailing, photography and video were all

impacted by new entrants who used digital capabilities to change the way

services were delivered and consumed.

In the 2000s, TV, travel and recruitment impacted -

YouTube, online travel sites and job posting boards.

The 2010s – retail experiencing 2nd wave of

digitisation while financial services finally begins to

discover the opportunities and challenges of digitising.


If the rate of change on the outside of an organisation exceeds the rate of change inside, then the end is near…

Jack Welch


Financial Impact of Digital Transformation

Digital transformation occurs significantly faster at a much lower entry cost than transformations of industries in the past. (Oracle)

‘For planes and cars to reach this level took over 60 years. Credit cards took 28 years but more recently, contactless credit cards took only four years to reach 50 million users, while Facebook and Twitter took only three and two years respectively’Brett King in his book, ‘Banking 3.0’, he chooses a level of 50 million users as the definition of a target figure for a market.


Figure 1 – Consoldation of major UK banks 5 and building societies: 1960-2016

1960 1970 1980 1990 2000 2010

Barclays

Martins

Woolwich

Lloyds 1

C&G 2 *

TSB

BOS 3

Halifax*

Leeds*

RBS 5

Provincial 5

Isle of Man

District

Westminster

Lombard

Commercial 7

National

Midland

Abbey 8

Provincial*

Burnley*

Alliance*

Leicester*

Bradford 9 *

Bingley 10 *

Southern 11 *

Northants 12 *

Leics 13 *

Portman*

Derbyshire*

Cheshire*

Dunfermline*

Barclays

Lloyds

RBS

Santander

Nationwide


Evolution of the Digital Bank

• CX vs Product

• Multi-channel, omni-channel and digital banking?

• Business Models?

• Opinion: digital bank, 99% or 1% built?

• Incumbents collaborating with FinTechs?

• Impact of regulation on Digital Banking?

• Future focus for digital?


Digital can be difficult to scale!...but does that matter?

• Speed to market vs awareness in market

• Incumbents - costly legacy issues BUT history and customer depth

• FinTechs lack capital & struggle with Reg/compliance issues unlike

incumbents

• Result - many FinTech firms (and legacy banking organizations) are

pursuing partnerships.

• ‘Co-petitive’ situation

Ultimately, some FinTechs will obtain a banking license, others will partner with larger banks or perhaps later will be acquired by larger financial institutions, while others may do a bit of both.


Lowering the Barriers to Entry for Creating a Bank

• Speed of technological change

• Speed of digital transformation

• Cost of building a bank from scratch

• Interim licensing

• Rates of customer acquisition, Cost of customer acquisition

• Trust in technology

• Usage vs loyalty – the lost expectation of one bank for life

• 48 applications and rising


Enter the Challenger Banks

• Business model similar services to a traditional bank (loans, credit cards,

mortgages)

• Cheaper cost thanks to newer infrastructure and no legacy (IT, branches, etc.)

• PRA and Licensing

• Costs

• Timeline

• Trust

• Scaling

Main Challenge: cost of customer acquisition – is traditional pain point enough to switch?HPanzarino FinTechMastery2017 Confidential

“We're happy being customers' second bank. We don't want to be their primary bank and we don't offer current accounts for this reason…”

The term ‘challenger bank’ does not reflect the breadth of these

banks’ offerings and varied strategies.

Mid-sized full service banks

Challenger Banks – The Fab Four

Specialist banks

Digital only banks Non-bank brands


• Licensed in 2010 – first new high street bank in 150 years

• Bricks and Mortar

• Open 7 days a week

• App

• Current accounts, overdrafts, loans

• Faster Payments system


• Mobile 1st -Beta app in March 2017 - full current account, regular payments and make one-off

payments.

• Regulations and Licensing: Full banking license April 2016

• Finance: Starling has raised £70m to date, led by angel investor

• Business Model: Marketplace - based on PSD2 & open banking - APIs, Overdrafts 15%, MC

Interchange

• Customer Journey & Acquisition: beta invitation, full spectrum of banking products via

platform, raising customer expectations, offer good value and innovative proposition

• Product and Service Releases: real-time payments service, integration with app Moneybox

saving & investing tools, Transferwise for remittances, Flux for digitising receipts, Tail for

cashback.

• Ability to Scale: ability to offer products including savings and consumer creditHPanzarino FinTechMastery2017 Confidential

• Mission: to build ‘the best current account in the world’.

• ’marketplace bank’ solving user problems (current account products, mortgage, rental agreement,

credit card or loan etc.

• Regulations and Licensing: banking license

• Business Model: make money from overdrafts – offered in a clear, transparent way to customers –

soon ATMs, Currently losing £40 per customer per annum

• Customer Journey & Acquisition: a full-stack approach to the technology and a user-friendly, data

driven approach to personal finance..

• Product and Service Releases: Android Pay Top Ups, API update, Machine Learning

• Ability to Scale: potential ability to offer products including savings and a consumer credit

product, respectively


• Digital only

• Licensed in 2015

• Plans current accounts, credit cards, savings and loans

• Plans bricks and mortar call centres

• House of Fraser £36m investment via Chinese investor fell

flat

• Bought Harrods Bank!

Being Civilised

Licensed 2017Using software from

Tusnor

Core banking services, payments, current accounts, deposits,

overdrafts, FX, savings and loans

Branchless – uses network of local

bankers in their local community

Relationships & lower costs


• The US – The ‘Apple of Banking’

• Millennials

• Digital

• Bricks and Mortar

• Products: micro-loans, micro-

investments, cash back

• Free financial education

I Am Bank


• Started in 2009 (subsidiary of German bank)

• Digital

• In-house technology

• Relies heavily on social media

• UK ops in 2016

• Marketplace with Seedrs and Nutmeg July 2017

• Acquired by BPCE, France’s 2nd largest banking group

Title here

•


Neo Banks & their role in Digital Banking• Neo Banks – not actually banks – partner with a traditional bank to provide bank

services - current accounts, debit cards, etc.

• Make money?

• Impact the consumer experience, Internet/mobile bank - offers a different user

experience than a traditional bank – e.g. to forecast cash flows, have a virtual

piggy bank, etc

• Acquisition target for traditional banks

• Should they have their own license?

• Are they sustainable?

• Still relevant?HPanzarino FinTechMastery2017 Confidential

• Launched payments mid-2015 – VC & Crowd

• Mobile money app - prepaid MC debit card, currency exchange and P2P

payments.

• Revenue – MC interchange, biz subs fees , premium services

• Free UK current account - opened in 3 minutes, no proof of address or

credit check

• Supports spending & ATM withdrawals in 90 currencies & sending in 23

currencies from the app

• Most services are free of charge, but recently raised $66m to launch

business bank accounts & phone insurance.

• 660,300+ customers that have made 29.4 million transactions worth

$3.3 billion in total.

• Crypto & Wealth Manager next!

• Customer Journey & Acquisition: Promises small biz owners to set up a full current account and a

Mastercard, in 5 minutes or under.

• Regulations and Licensing: e-money license, not a banking license

• Finance: $16 million of total funding - Passion, Alex Chesteman et al

• Business Model: 20p per bank transfer (in or out) and £1 per ATM withdrawal; integrate with other

FinTechs

• Team: former banker George Bevis

• Product and Service Releases: iOS app, support of direct debits, Xero integration etc.

• Ability to Scale: ability to offer savings and a consumer credit product; further cooperation

with MC


• FCA Regulated - not a bank

• Digital Only (electronic money regs)

• Ex-pats & immigrants

• Open a current account in 3 minutes

• Monthly charge of £4.95

• No credit offering, Low-rate int’l transfers, ATM charges £0.50

• Third party software

• Waitlist of 56,000 customers at launch – now 10s of 1000s

customers

• Not a bank - mobile banking service.

• Spring 2016, aimed at students.

• Raised £1.5 million in Series A round from Austrian early-stage fund

Speedinvest - re-launch for a broader millennial audience

• Prepaid Mastercard account linked to money management app -

track spending, provide insights into where money is going.

• Uses MC GPS for processing and Wirecard for issuing.

• Prepaid debit card (Mastercard) & mobile app in UK and Italy.

• Multi-user spending account, enables & controls flow of money inside

a group of multiple users, e.g. a family or a company.

• Not compete with banks, but will complement their services.

• Seek partnerships & co-branded arrangements with incumbents.

• Own in-house technology, cloud-based.

• GPS is Soldo’s processor and Wirecard is the issuer.

• Holds an electronic money licence and regulated by the FCA.

Digital, Challenger or Neo Banks

MillennialsSocial media integration

Don’t have physical branches

Usually can still use ATM but will that

become obsolete?Cash obsolete?

Can offer higher yields due to lower op cost – enough to make people move?

Data - more than a human manager

could accrue

Launching new digital capability, eg. Digital wallet, money

movement apps

Gamification e.g. managing your

finances


Digital, Challenger or Neo Banks

Built from scratch – digital through & through

Digital core not an add on Mobile first

From the board down and the bottom up

Customer experience is smoother, quicker and uses data better

Make a process fully digital – seamless front and back end, e.g. customer

onboarding, product pricing ,processing of banking transactions/operations

KYC – social media, phone, location

Access – physical vs digital -choice – if I’m looking for a loan online & go to bank, my personalised quote is

ready

Funded by angels and VCs, egMonzo, Tide, etc


License or build?


Figure 12 – Currently, very few consumers are aware of the digital only banks…

Proportion of consumers which are aware of any of the digital only banks – % of respondents (2017)


...and the majority would not consider banking with them in the next three years

Proportion of customers that would consider banking with a digital only bank in the next 3 years – % of respondents (2017)

2%

I already bank with one

Very likely

Fairly likely

Don't know

Not very likely

Not at all likely

Source: YouGov, PwC Strategy & analysis

Differentiate from the other digital players and the high street banks who are

9%

7%

17%

16%

49%

33 YouGov, PwC Strategy& analysis, 2017 HPanzarino FinTechMastery2017 Confidential

FATBAGS: threat or empty barrels?

• Third party players

• Open Banking

• Not banks – will they be?

• Capitalisation vs banks

• To regulate or not to bother – pros and cons

• Trust

• Easy access via technology

• Data

• Should banks worry?

FB, Amazon, Baidu, Tencent, Alibaba, Google


42

What Can

Banks do to

Adapt and

Survive?

How to solve the millennial problem?

71% of Millennials would rather go to the DENTIST than the BANK!


• Go beyond cosmetic changes and become digital natives

• Redefine banking culture & rediscover innovation vs risk mitigation

• Redefine infrastructure

• Make customer experience top priority – transparent & frictionless

• Growth vs profit

• AI, Bots, data – ‘intelligent pushing’ vs ‘dumb pulling’

• Embrace ‘co-petition’ with FinTechs


• Impact of CMA and Treasury Mandate for Open

APIs on both consumer and retail banking by 2018

• Impact of EU GDPR data protection laws on UK banking

• What does PSD2 look like in theory? Practice?

• What are the pros and cons for incumbents and FinTechs?

Open APIs and PSD2


Focus:

• Legacy systems

• Culture

• Finance

• Customer experience

Incumbents in digital


• Investing £1 billion in digital capability between 2015 and 2017, £750 m

already invested in the 3 years prior

• 21,000 ‘digital champions’ - get more from being online

• Dedicated innovation team implementing testing new ideas and concepts

• Ecosystem - partnerships with start-ups, tech businesses & universities

• Accelerator Innovation Labs delivered ~ 50 experiments, many scaled and

launched to 11 million customers

Lloyds in Digital

• 2012 – Pingit contactless money-sending via smartphones

• Focus on consumer lending: e..g.Barclays’ instant lending via mobile, pre-approves

customers using the bank’s data to tailor loans which are then visible on mobile and

obtained within six taps

• Experimenting with AI to enhance consumer experience

• Eagle Labs to give customers and non-customers in local businesses and

communities the opportunity to learn about new technologies and techniques for

the digital age

Barclays

FinTech Focus: Blockchain in the Digital

Banking CXLuke Kovic


• Working as a group create an outline of your version of a Digital

Bank, and choose ONE AREA from KYC, AML, payments etc, using

Blockchain to enhance the customer experience

• Be sure to cover tech, products and services, branding, marketing,

finance and regulations.

• If fund raising, include the amount and uses.

• Present your bank to the group in a maximum of 12 PPT slides or 2

min presentation.

Assignment: Using Blockchain, develop and application for your Digital Bank’s CX (Group)


Pitch Deck Structure

1. Introduction: A couple of lines about who you are and why you’re pitching, with your logo on the page.

2. Problem: What’s the problem you’ve identified?

3. Solution: What’s your solution to the problem?

4. USP (unique selling points): What makes your business unique.

5. What’s your product or service?

6. Traction: Who are your current customers and how are they using your product and service?

7. Market: size, size you can access, characteristics, trend

8. Competition: List and you may also want to create a pictorial representation of the strengths, weaknesses, threats and

opportunities that each competitor represents

9. How your business makes money: what is your revenue model?

10. Team – who’s in the team and what are their roles?

11. Investment required and what it’s for.

12. Contact detailsHPanzarino FinTechMastery2017 Confidential

Thank you

www.fintechmastery.com

Digital Banking, Blockchain and the CX FinTech...

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