Digital transformation strategies in finance

1. From Value Chain to Value Network:
Possible Digital Transformation Scenario
for the Financial Industry
Public
Tarmo Ploom
November 10, 2015

2. November 10, 2015Tarmo Ploom/15-010878 2
Key Messages
Not the regulatory challenge but the technology
challenge is the main challenge for financial institutions
Banks should focus on their core competencies –
handling relationships with customers and on
optimizing their business processes for digital business
Banks can replace big parts of their existing
IT–landscapes with Services provided by new FinTech
entrants
Banks and Web Service providers can leverage
financial industry messaging standards to simplify
integration

3. November 10, 2015Tarmo Ploom/15-010878 3
Agenda
Regulatory challenge
The technology mega tornado
Emergence of Fintech
Dimensions of digital business
Strategy for digital operational excellence
From value chain to value network
Current state – Combined Domain Model at Credit Suisse
Current state – BPM at Credit Suisse
Overview industry messaging standards
Possible future state – Combined Domain Model at Credit Suisse
Transformation – application of managed evolution
Conclusion

4. November 10, 2015Tarmo Ploom/15-010878 4
Regulatory Challenge
Dodd–Frank Wall Street Reform and Consumer
Protection Act (DFA)
European Markets and Infrastructure Regulation (EMIR)
Alternative Investment Fund Managers Directive (AIFMD)
UCITS V
Market Abuse Directive (MAD)
Markets in Financial Instruments Directive (MiFID II)
US Dodd–Frank Act Volcker Rule
UK banking reform
Foreign Account Tax Compliance Act (FATCA)
OECD's Common Reporting Standard for the Automatic
Exchange of Financial Information (CRS)
UK Crown Dependencies and Overseas Territories
(UKCD and OT) Regulations
Basel III
Capital Requirements Directive (CRD) IV
…

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The Technology Mega Tornado
Cloud
– Elastic storage
– Elastic compute power
Mobile
– Accessibility
Analytics
– Big data
– Machine learning
– Recommender systems
Social
– Social network analysis
– Social marketing

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Emergence of Fintech
Digital currency payments – Circle
Peer to peer payments – Facebook payments
Foreign exchange – TransferWise
Risk calculation – Riskmetrics
Fixed income derivatives – TreasuryView
Portfolio management – TrueWealth
Portfolio valuation – Markit
Settlements – Blockchain
Peer to peer lending – Bondora
Croudfunding – Kickstarter
Credit Scoring – Big Data Scoring

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MillionUSD
Numberofdeals
Growth of FinTech Investments
$13.7 bn
Funding in last year
150
Avg Deals per Quarter
+45.83%
YoY Funding Growth
$1.31 bn
Avg Funding per Quarter
+16.41%
YoY Deal Growth
Q1’15
Biggest Quarter
(nr of deals)
821
Deals in last year
Q2’14
Biggest Quarter ($ Funding)
https://www.cbinsights.com/industry?sector=281&setup=2&public_list

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Dimensions of Digital Business
Forrester: The future of business is digital, March 2014.
Digitize end-to-end
customer experience
Digitize products and
services as part of the
value ecosystem
Create trusted
machines
Digital customer experience
Source enhanced
operational capabilities
within a dynamic
ecosystem
Drive rapid customer-
centric innovation
Digitize for agility over
efficiency
Digital operational excellence
Enterprise
Customer

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Strategy for Digital Operational Excellence
New entrants don’t have
– Client contacts
– Banking license
– Don’t know end to end business
processes of banking
New entrants focus usually on a very small
and detailed business process which
could be exposed as a web service
Instead of competing with new entrants
collaborate and integrate them into banking
business processes using web services

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From Value Chain to Value Network
Firm Infrastructure
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
and Sales
Service
Primary Activities
Support
Activities
Procurement
Technology Development
Human Resource Management

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Current State – Combined Domain Model at Credit Suisse
Business Partner Applications Financial Market InformationEnterprise Content Management
Communication and Access
5: Communications & Collaboration
Street Side Interfaces
Accounting
Control
Financial
Accounting
Regulatory,Risk
andLiquidity
6:Accounting,ControllingandReporting
Wealth Management
and Advisory
2: Finance, Investment
and Sales
Credits and
Syndication
Trading
3: Trading and Markets
Order and Trade
Management
Product Control
Payments
4: Cash and Asset
Operations
Settlement and
Clearing
Single Accounts
Corporate Actions
Custody
CustomerandPartnerCustomerRelationship
Management
1:PartnersandPersons
7: Enterprise Common Services
Logistics Basic Facilities
V 0.96 2008/12/10

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Current State – BPM at Credit Suisse
200 level 0 business processes
ca 800 level 1 business processes
ca 3000 level 2 business processes
> 10 000 level 3 business processes
> 30 000 level 4 business processes
Level 0
Level 1
Level 2
Level 3
Level 4

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Overview Financial Industry Messaging Standards
Financial industry messaging standards
– ISO 20022
– FIX/FixML
– FpML
– XBRL
– BIAN
Together these standards offer ca 7 500 unique
attributes
Overall banking needs ca 11 000 unique attributes.
Financial industry messaging standards cover already
ca 70% of unique attribute need in financial industry.

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Possible Future State – Combined Domain Model
at Credit Suisse
Business Partner Applications Financial Market InformationEnterprise Content Management
Communication and Access
5: Communications & Collaboration
Street Side Interfaces
Accounting
Control
Financial
Accounting
Regulatory,Risk
andLiquidity
6:Accounting,ControllingandReporting
2: Finance, Investment
and Sales
Payments
4: Cash and Asset
Operations
Settlement
and Clearing
Single Accounts
Corporate
Actions
Custody
CustomerandPartnerCustomerRelationship
Management
1:PartnersandPersons
7: Enterprise Common Services
Logistics Basic Facilities
V 0.96 2008/12/10
IFX FIX, FPML, ISO 20022
FPML
Trading
3: Trading and Markets
Order and Trade
Management
Product
Control
FIX, FPML
FIX
FIX, FPML
Wealth Management
and Advisory
Credits and
Syndication
RI-XML
ISO 20022
XBRLXBRL
HR-XML
BIAN
Reuters
ISO 20022
ISO 20022
ISO 20022
ISO 20022

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Transformation – Application of Managed Evolution
Define/optimize
Transfer
Deploy
Monitor
Continuous
Improvement
Business Process
Analysis
Business Process
Modeling
Business Process
Enactment
Business Process
Monitoring

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Conclusion
Focus on digital operational excellence can
rescue financial industry from technology mega
tornado
Industry messaging standards can be a mean
to carry out semantic integration of FinTech
Web Services
Core competence of banks becomes relationship
management and business process management
Managed evolution can be used as an approach
to transform current banks to digital banks

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Questions?