Keynote speaker Innopay presentation at MeetFinTech Day on May 26th - Payments

Tomorrow’s transactionstoday

Forcedmarriage,romancestilltobediscoveredFinTech and Banks

May2016Shikko Nijland

2 Banksand FinTech – Forced marriage, romancestill to be discovered?Innopay.May2016.©InnopayBV.Allrightsreserved.

• Innopay:Innovationexpertsindi• >30consultants• HQ:Amsterdam,newoffice inFrankfurt• ThreePractices:Payments,DigitalIdentity,e-Business• Services:Strategy,Co-creation,Transformation• MemberofEBA,EPCAandECP• FoundingmemberofHollandFinTech


FinTech and Banks:forcedmarriage?

@startupfestEU,crazydudefromInnopayclaims:FinTechs needbank’scollaboration,otherwisetheywillnotsurvive:D:D:D


May2016Shikko Nijland

@startupfestEU,crazydudefromInnopayclaims:FinTechs needbank’scollaboration,otherwisetheywillnotsurvive:D:D:D


BanksandFinTech:aforcedmarriageofconvenience?

Services/FinTech spaceInfrastructure

SEPA

Processing:ACH,Visanet,Banknet

Settlement:RealTimeGrossSettlement

Instruments:SCT,SDD,Cards

e.g.Browser e.g.Webshop

Payer

account

Beneficiary

account

Onlinebanking Routingservice

OnlinePaymentProvider (PSP)

Information FundsSource: Innopayanalysis,EuroBankingAssociation(EBA)

CUSTOMER MERCHANT

CREDITORBANKDEBTORBANK

1 1

2 Regulatedfinancialinstitutionsmoreoptimisedforregulatorycompliance,securityandresilience,addingtrust,reach and scalability

Lessexposedtotheonerousrequirementsandcomplianceobligations,addingexcellentserviceshavingfitwithcustomerneeds,intuitiveUI andseamlessUX

=Bank&FinTechchemistry

TRADITIONALFOURCORNERPAYMENTSMODEL BANKS VSFINTECHCAPABILITIES

INSTANT PAYMENTS

2

Source:Innopayanalysis


Puttingpaymentsinabroadercontext:threekeychangedriversinfinancialservices

1.CUSTOMERBEHAVIOUR 2.FINTECH&COMPETITION

Newplayerscapturingmarketsharedrivenbytechnologicalinnovation

Seamlesspaymentsanytime,anywhere,anydevice

3.EUROPEANREGULATION

Regulatoryreformsdisruptingtraditionalvaluechain

(PSD2,IFR,GDPR, AML4,eIDAS)



Devices

Context

Custom

erJo

urne

ys

Orientation Selection Transaction Delivery CustomercareCommerce

Bank

ing

Onboarding Usage CustomercareSelectionOrientation

OnlinePOS On-the-go

Customersexpectdigitalservicesanytime,anywhereonanydevice..



..andwishtointegratepaymentsseamlesslyintheirday-to-daylife

Instantavailabilityofinformationand

funds

Mobile initiation

Simpleandeasy Omni-channel,oneexperience

Reconciliationandbenchmarking

Integratingvariouspaymentmethods

Safe&secure,robustandnofraud

Accessalwaysandeverywhere


10 Banksand FinTech – Forced marriage,romancestill to be discovered?Innopay.May2016.©InnopayBV.Allrightsreserved.

Technologicaldevelopmentaredrivingchangeinseveralsectors

• Mobilewallets• Digitalcurrency

Payments

• Automatedinvestments

• Robo advice

WealthMgmt &savings

• P2Plending• Crowd-funding

Lending&capitalraising

• Useofsensors• Newriskpools

Insurance

Changingecosystems(APIs, opensource)

Enhanceddatahandlingmethods(bigdataanalysis,machinelearning)

Portalaggregation

Distributedanddecentralizedledgers(Blockchain)

Newmethods forsecurity(Identification, authentication,tokenandcredentialmgmt)

Movetowardsthecloud

Sectortranscendingtrends

Source:Innopayanalysis,DNB (2015)


…butnotalltechnologies areasrelevant:impactvspriority

High

Medium

Low

Impa

ctonIndu

stry

Priorityinthenext3yearsHighMediumLow

Instantpayments

Onlinepayments

Digitalwallets

Contactlesscards

NFC

Bank2corporateconnectivity

Cybersecurity

HCE

E-invoicing

Biometricsinauthentication

E-Identity

TokenizationCloudPaymentservices

mPOS

Distributedledgers

P2Pmobilemoneytransfers

API-ification

Machinelearning

Virtualaccounts

Supply ChainFinance

Willbecomemainstream

fast

“Highimpact”driversare(potential)game

changers

Bigdata

Source:Innopayanalysis,Accenture (Nov2015)


FrontOffice(distribution) BackOffice(manufacturing) Market(processing)

infrastructure

Investing/Wealthmgt

Personalsavings

Payments

Lending

Capitalraising

Incumbent’suniversalbankingmodel:offerfullrangeoffinancialproductsandservices‘end-to-end’

Customertypes Servicecategory

CONSUMER

BUSINESS


…isunderattackofspecialisedFinTechs:competitiononisolatedproductsandservices

Customertypes FrontOffice(distribution) BackOffice(manufacturing) Market(processing)

infrastructure

Investing/Wealthmgt

Personalsavings

Payments

Lending

Capitalraising

Independent UXlayer,digitalfront-end

API-drivenmiddle- andbackoffice

Electrificationofmarketinfrastructures

Independent, digitalfrontend,middleandbackoffice

Servicecategory

CONSUMER

BUSINESS


Deathbyathousandcutforbanks?Let’sexploreFinTech-Bankrelationship

Source:CBinsights


Traditionally,bankswerethedominantfinancialservicesprovider…

ADDRESSABLEMARKET1:FINANCIAL SERVICES

Traditionalbankservices

Traditionalbanks2

1Addressablemarket:potentialconsumerandprofessionalclientsforincumbentbanks2Traditionalbank:establishedplayerinthemarket

BANK



…butnowmanyFinTechs emergeseekingtodisintermediatebanksortakeheadsoncompetition

ADDRESSABLEMARKET1:FINANCIAL SERVICES MODEL FINTECH MODELDESCRIPTION EXAMPLE

DISINTER-MEDIATION

Competeand/orcooperatewithtraditionalplayers.Dependonrelationwithincumbenttoofferservice

DIRECTCOMPETITION

Compete withincumbents, offersimilarserviceasincumbents, oftenstartviamarket‘long tail’(whichistypically un-/underaddressed)

Traditionalbankservices

Traditionalbanks2

DISINTER-MEDIATION

DIRECTCOMPETITION

BANK

1 2


1

2



…however,notallFinTechs aimto‘disrupt’banks,ascollaborationcouldbemorebeneficialinparticularsituations

ADDRESSABLEMARKET1:FINANCIAL SERVICES MODEL FINTECHMODELDESCRIPTION EXAMPLE

DISINTER-MEDIATION

Competeand/orcooperatewithtraditionalplayers.Dependonrelationwithincumbenttoofferservice

DIRECTCOMPETITION

Compete withincumbents, offersimilarserviceasincumbents, oftenstartviamarket‘long tail’(whichistypically un-/underaddressed)

SUPPLIERTO

Support incumbents (andother serviceproviders) incompetingthroughloweroperationalcostsand/ornewproduct/service capabilities

COMPLEMENTS

Newplayerswithnewapplicationswhichrepresentvaluetocustomers(butthatdonotimpacttraditionalplayersyet).Potentialareasforproductexpansion&revenuegrowth.

Traditionalbankservices Adjacentfinancialservices

Traditionalbanks2

COMPLEMENTS

SUPPLIERTO

BANK

3

4

1

2

3

4

DISINTER-MEDIATION

DIRECTCOMPETITION

1 2




FinTech investmentsareincreasingeachyear,mostactivityinpayments

0

2

4

6

8

10

12

14

2008 2009 2010 2011 2012 2013 2014

United States Europe Asia-Pacific Other

9% 7% 14% 13% 14% 12%9% 9%

11% 9% 9% 10%13% 16%

10% 9% 12% 14%

17% 18%22% 24% 18% 21%

53% 50% 43% 45% 47% 44%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013

Capitalmarkets Personalfinance mgmt

Dataanalytics Bankingandcorporate finance

Payments

$billion

GLOBALFINTECHINVESTMENTS GLOBALFINTECHDEALSBYCATEGORY

Source:McKinsey&Company


…butonlyfewFinTech start-ups areabletobecomescale-ups

Source:Statistic Brain, Jan2016

PERCENTAGEOFSTART-UPSOPERATINGACROSSINDUSTRIES

Acrossindustries,50%ofthestart-upsfailedtoremaininoperationafter4years

PERCENTAGEFAILEDTOSURVIVEAFTER4YEARSPERSECTOR

42%ofthestart-upswithinFinance,InsuranceandRealEstatesectorfailedtosurviveafter4years

0%10%20%30%40%50%60%70%80%

1 2 3 4 5 6 7 8 9 10Year

Percentsurvived

42%

44%

44%

45%

46%

49%

51%

53%

53%

55%

63%

Finance,InsuranceandRealEstate

EducationandHealth

Agriculture

Services

Wholesale

Mining

Manufacturing

Construction

Retail

Transportation,CommunicationandUtilities

Information

PercentFailedtoOperateAfter4years

50%


ThemainreasonsFinTechs failisoveralllackofreach,trustandscalability

FINTECHSBANKS

WehaveReach,Trust and

Scalability!

WehaveAgility,UIand

UX!



Fiveupcoming‘regulations’:we’llfocusonPSD2anditsimpactonpayments



NewmodelemergingunderPSD2providingthirdpartyaccesstoaccount(XS2A),therebydisruptingexistingvaluechains

Payer

account

Beneficiary

account

TRADITIONALFOURCORNERMODEL

DEBTORBANK CREDITORBANK

Information Funds

CUSTOMER MERCHANT

SCT,SDD,Cards

ACH,Visanet,Banknet

RealTimeGrossSettlement

Instruments

Processing

Settlement

SEPA

e.g.Browser

Onlinebanking

e.g.Webshop

Routingservice

Onlinepymntprovider

Services

Infrastructure

Payer

account

Beneficiary

account

EMERGINGXS2AMODELUNDERPSD2

AS-PSP CREDITORBANK

Information Funds

CONSUMER MERCHANT

SCT,SDD,Cards

ACH,Visanet,Banknet

RealTimeGrossSettlement

Instruments

Processing

Settlement

SEPA

e.g.Browser

Standardisedinterface(‘API’)1 Routingservice

Onlinepymntprovider

ServicesInfrastructure

PaymentInitiationServices(PIS)

Account InformationServices(AIS)

e.g.Webshop

• CHALLENGESCUSTOMERRELATION• ADDSTOCOMPETITION INACQUIRINGBUSINESS• REDISTRIBUTION OFMSC

• CHALLENGESCUSTOMERRELATION• MONETISEACCESSTODATA

1Thereseems to be industry consensusthat ApplicationProgrammingInterfaces(APIs)provide for acost effective,easyand securemeansofenabling XS2A.Final decision subjectto EBARegulatory TechnicalStandardsSource:Innopayanalysis


Twonewregulatedrolesthatwillshakeuptheexistingpaymentlandscape:paymentinitiation serviceprovider(PISP)

1.PAYMENT INTIATIONSERVICEPROVIDERS

Customer initiates payment (SCT, SEPA Credit Transfer) directlyvia PISP (and not via AS-PSP). PISP forwards instruction to AS-PSP and communicates result to customer andmerchant

CUSTOMER MERCHANT

AS-PSP

3

2

1

PISP

Paymentscheme

EXAMPLESERVICESPROVIDINGSIMILARFUNCTIONALITY

Source:Innopayanalysis1Thereseems to be industry consensusthat ApplicationProgrammingInterfaces(APIs)provide for acost effective,easyand securemeansofenabling XS2A.Final decision subjectto EBARTS

ExistingflowFutureflow(API)

API


Twonewregulatedrolesthatwillshakeuptheexistingpaymentlandscape:accountinformationserviceprovider(AISP)

2.ACCOUNT INFORMATIONSERVICEPROVIDERS

TheAISPpresentsaggregatedviewontransactionsandbalancesfrommultipleaccountsheldatmultiplebanks

AS-PSP AS-PSP AS-PSP

1

Displayedcountries areindicative

AISP

CUSTOMER

EXAMPLESERVICESPROVIDINGSIMILARFUNCTIONALITY

2

Source:Innopayanalysis1Thereseems to be industry consensusthat ApplicationProgrammingInterfaces(APIs)provide for acost effective,easyand securemeansofenabling XS2A.Final decision subjectto EBARTS

ExistingflowFutureflow(API)

API API API


Today’sinteractionwithone’sbankaccountsislimitedtoexclusive,bank-ownedchannels…

Bankaccount

Internetbankingandmobileapp

Customers

Bankdomain

PRE PSD2XS2AERA



…PSD2XS2AwillprovidecustomersmoredigitaloptionstointeractwiththeirbankaccountsthroughTPPs…

Bankaccount


Customers Customers

TPP1

Bankdomain Bankdomain

PRE PSD2XS2AERA (POST-)PSD2XS2AERA

PaymentaccountBankaccount


XS2A(‘API’)2

1Includesboth PISPand AISP2Thereseems to be industry consensusthat ApplicationProgrammingInterfaces(APIs)provide for acost effective,easyand securemeansofenabling XS2A.Final decision subjectto EBARTSSource:Innopayanalysis


…potentiallycausingfragmentationinservicesasmanyTPPswillseektomonetise accountaccess…

Bankaccount


Customers Customers

TPP

Bankdomain Bankdomain

PRE PSD2XS2AERA (POST-)PSD2XS2AERA

Paymentaccount

EntranceofTPPs(incumbents,FinTech,bigtech)

Bankaccount


XS2A(‘API’)



…withnot onlyfinancialplayersenteringthemarket:serviceproviderscomefromdifferentbackgrounds

Data/creditreference

ThirdpartyIdentity

Invoicing

Remittance&FX

Banks

ERPs

Lending&Finance

Merchants

PaymentPlatform

Peer2Peer

OnlineBanking&e-payments

Deferredpayments

E-Wallets

CollectingPSPs

SEPAe-mandates CashManagement

Multi-banking

OnlineBanking&Cards

NON-EXHAUSTIVE



OpportunityforbanksandFinTechs tocollaboratebeyondregulatoryPSD2push:leveragingthevalueofOpenAPIs

Source:Innopayanalysis,EuroBankingAssociation

ON

OptionalPaymentAPIs Optionalnon-paymentAPIs

‘RegulatedPIS/AIS’

PSD2XS2A

ExampleAPIs

PSD2XS2A• SCTinitiation• Transactiondetails&balance• Confirmationavailabilityoffunds

Additional PIS• Paymentguarantee• ‘Real-time’payment• Refund/refuse services• Conditionalpayments• Disputeresolvingservices

Additional AIS• Intradaybankstatement• PaymentStatusReport• E-Mandatemanagement

DIGITALIDENTITY• Authentication• Onlinecontracting• Age verification• Attributeprovisioning


SomebanksarealreadyexperimentingwithOpenAPIsandFinTechs

EXAMPLES


1.CUSTOMERBEHAVIOUR 2.FinTech &COMPETITION






WhatistheultimaterelationshipstatusforFinTechs andbanks?


1.BanksareincreasinglyactinglikeFinTechs andhavedeeppockets

BANKSORGANISEFORCONSTANTCHANGE• Fromcost/marginorientedstructuretocustomer

focusedculture

• Bankshavethe(financial)resourcestomakethetransition

• Implementationofagileoperatingmodeltospeed-updecisionmakingandtime-to-marketfornewservices

• DevelopmentofOpenAPIoffering/community

• Set-upofinnovationcentersincludinghackathons,incubators

• Banksinposition todecideonengagementwithFinTechs (ignore,collaborate,compete,acquire)

PicturefromMoney20/20presentationRalfHamers (ING)



2.SinglelifeofFinTechs canbedifficult,despiteagility&technologyadvantages

CHALLENGESOFFINTECHS

• FinTech seekworlddominance

• Costsof‘surviving’andscaling-upisalwayshigherthanexpected

• Incumbentshavemassivescaleadvantages

• Customersandtheirloyaltyisdifficulttoobtain

• Fragmentationofservicesincreasescompetition



3.BenefitsofBank- FinTech marriagemayoutweighthepro’sofstayingsingle

AS WITHMOSTMARRIAGESITCOMESWITHCHALLENGES...

Preservingacquiredcompany’sagility,cultureandinnovation,whilemarryingittothecontrolsand

assetsofthebank

BANK – FINTECHMARRIAGE

‘Fintegration’unlocksforbothFinTechs andbanksoptimalusageofrespectiveassets



WelookforwardtoitContactus Shikko Nijland

Managing Partner

[email protected]

+31653741465

Keynote speaker Innopay presentation at MeetFinTech Day on May 26th - Payments

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Transcript of Keynote speaker Innopay presentation at MeetFinTech Day on May 26th - Payments