Evolution of paradigms in Banking IT

1. 12th RICHMOND FINANCIAL INDUSTRY FORUM Victoria-Jungfrau Grand Hotel, Interlaken 16 – 18 May 2019 12th RICHMOND FINANCIAL INDUSTRY FORUM

2. Evolution of Paradigms in Banking IT Frank Schwab Co Founder, FinTech Forum 12th RICHMOND FINANCIAL INDUSTRY FORUM

3. Payments Lending Assets Banking Services

4. Banking customers

5. The way banking services are delivered What will be different? The way banking services are produced

6. Effective Banking IT evolution is driven by speed usability flexibility costs By means of standardizationautomation www.FrankSchwabSpeaks.com opennessre-use

7. IBM 803 proof machine July 1949 Checks proof machine sort proof sum Source: IBM

8. abc abc sort proof sum First cash machine, Barclays Bank, Enfield Town branch, North London, United Kingdom, 27 June 1967

9. Sources: Google Patents, Wikipedia Bankograph, 1963 Luther George Simjian

10. Interface

11. Source: 123rf.com

12. Workflow example NOS öffnen ► Kunde suchen NOS-Übersicht ► Partner / Adressen ► Anzeigen / Ändern ► Bestätigung ► Änderung der Telefonnummer? ► bestätigen / Ändern ► Ausdruck bestätigen ►zurück zur Übersicht NOS-Übersicht ► Produkt / Ändern ► Einlagen / Termingeldprolongation ► Daten ändern ► bestätigen ► zurück zur Übersicht Einmeldung in KIM ► Starten von KIM ► Anmeldung ► Kunden suchen ► neuen Eintrag wählen ► Daten einpflegen ► Abschluss anlegen ► Daten eingeben ► bestätigen ► zurück zur Übersicht ¨ Customer visits a bank branch ¨ Customer informs about move ¨ Bank employee is informed that a savings plan is due 37 Clicks

13. Workflow 37 Clicks 15 Clicks 5 Clicks

14. Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com Interface Function Account Amount 123456 399.99 Productivity speed automation

15. Text based Static Lack of visual experience Functional

16. Can it be done differently?

17. Highly visual Bold photos Dynamic content Modern design

18. usability

19. speed

20. 2002 2015 ING*DiBa Germany scaled Customers 1.8 Million 8.5 Million Profits -4 Million Euro 1,115 Million Euro Employees 914 3,749 Source: Annual reports ING*DiBa

21. Source: Fidor.com

22. He needs a powerful tool to manage his financial topics. NAME Dave AGE 27 LOCATION Big city INTERNET USAGE • Heavy • Many communities • Social media • Blog JOB SEO specialist INTERESTS • Technology • Trends • Gadgets LIVING Small apartment STATUS Single Product fit: Saving for a project Peer-to-peer loan Emergency loan Budget manager Card Peer-to-peer transfer This guy is very familiar with the digital world: networker, geek, gamer, coder, community user Source: Fidor.com GEEK

23. usability

24. M2M

25. Feb 2019 75 million users 3 million drivers 65 countries 600 cities 15 Million rides daily

26. M2M Payments

27. Quelle: welcomia, 123RF

28. Source: 123rd.com usability speed

29. In the future, paying will no longer be something we do Paying will happen in the background simply invisible

30. Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com Interface Function Account Amount 123456 399.99 Productivity User Machine Level 1 Level 2 Level 3 Level 4 speed automation usability standardization

31. Banking customers

32. New: Machines

33. Services

34. Example: Lending IT system landscape Security Product Pricing Decision Contract Account Customer Contact Recovery Transaction Output Archiving Booking Position Identity Retail Loan Internet CRM Product Pricing Decision Contract Collaterals Account Client Recovery Transaction Output Archiving Booking Position Identity Corporate Loan Branch CRM Security Product Pricing Decision Contract Account Client Contact Recovery Transaction Output Archiving Booking Position Identity Corporate Loan Internet CRM Security Product Pricing Decision Contract Account Customer Dealer Recovery Transaction Output Archiving Booking Position Identity Consumer Loan Extranet CRM Product Pricing Decision Contract Collaterals Account Contact Recovery Transaction Output Archiving Booking Position Identity Customer Retail Mortgage Branch Product Pricing Decision Contract Collaterals Account Customer Recovery Transaction Output Archiving Booking Position Identity Retail Loan Branch CRM And data saved redundantly Products are implemented redundantly and inconsistently across product lines and channels

35. Security Product Pricing Decision Contract Account Customer Contact Recovery Transaction Output Archiving Booking Position Identity Retail Loan Internet CRM Product Pricing Decision Contract Collaterals Account Client Recovery Transaction Output Archiving Booking Position Identity Corporate Loan Branch CRM Security Product Pricing Decision Contract Account Client Contact Recovery Transaction Output Archiving Booking Position Identity Corporate Loan Internet CRM Security Product Pricing Decision Contract Account Customer Dealer Recovery Transaction Output Archiving Booking Position Identity Consumer Loan Extranet CRM Product Pricing Decision Contract Collaterals Account Contact Recovery Transaction Output Archiving Booking Position Identity Customer Retail Mortgage Branch Product Pricing Decision Contract Collaterals Account Customer Recovery Transaction Output Archiving Booking Position Identity Retail Loan Branch CRM High operating costs Slow implementations Difficult to innovate

36. Source: BIAN.org standardization re-use

37. Implementation time reduced by 50% Process costs reduced by 80% speed costs standardization re-use

38. API

39. API = Application Programming Interface A browser is for a person the same as an API for a computer { “headline": “API“, “description“: “In computer programming, an application programming interface (API) is a set of routines, protocols, and tools for building software applications. An API expresses …“ } www.FrankSchwabSpeaks.comSource: Wikipedia.com

40. Source: www.programmableweb.com In 2017, most banking APIs were released Category # APIs Data 256 Financial 249 Analytics 184 Payments 180 Messaging 125 Banking 117 Mobile 112 Cloud 109 eCommerce 104 Security 99 www.FrankSchwabSpeaks.com

41. Fidor Bank sets a global standard for API documentation and API community in the financial service industry www.FrankSchwabSpeaks.com

42. Because of its API infrastructure Fidor Bank could already integrate more than 20 partner into the customer account Crowd finance – SMAVA Crypto currencies - Kraken Precious metals - Goldmoney Crowd finance – kapilendo

43. Global Growth Company 2014 2015

44. APIs enable Re-use of whole business models

45. speed

46. www.FrankSchwabSpeaks.com Integration costs reduced by 95% -95% Traditional IT of banks API Banking IT

47. PSD 2 Access to account

48. Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com Services Application Level 1 Service Level 2 API Level 3 ?re-usestandardization

49. AI^

50. Amelia, Source: IPSoft IT Service Desk Agent SEB Bank 3 weeks 700 employees 4,000 inquiries

51. Source: Amazon

52. Robo Advisory

53. 40 B2C / B2B Robo Advisors in Germany Source: Techfluence, Nov 2017

54. Clear Visual Simple

55. Minimum investment volume Robo 2,500 Traditional Bank 50,000 1.5 0.75 Annual costs Robo Traditional Bank in EUR in % Factor 20 Factor 2

56. Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com Services Application Service API AI ^ Level 1 Level 2 Level 3 Level 4 speed standardizationcosts re-use automation

57. Data

58. Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com Data Flat Level 1 Rational Level 2

59. standardization openness usability flexibility Source: MySQL.com

60. Source: Philipp Hauer’s Blog Object-oriented database models { _id: „4d0ad975bb30“ fName: “Frank“ lName: “Schwab“ bankAccounts: [ {accNo:395382}, {accNo:824432} ], addresses: [ {city:“Berlin“}, {city:“Heidelberg“} ] } frank: Customer fName=Frank lName=Schwab :BankAccount accNo=395382 berlin: Address city=Berlin :BankAccount accNo=824432 leipzeig: Address city=Leipzig standardization Re-use flexibility

61. Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com Data Flat Rational Level 1 Level 2 Object Level 3 Blockchain Level 4 usability re-use openness standardization flexibilty

62. Blockchain Public ledger Public keyPrivate key Transaction signed with private key www.FrankSchwabSpeaks.com

63. De-centralized Each participant has a copy of the public ledger www.FrankSchwabSpeaks.com

64. „Money is central to us. Money and all forms of transferring money are our core business.“ Burkhard Balz Member of the Executive Board of the Deutsche Bundesbank Source: CFS-Conference, 8th May 2019

65. 106% 42% 32% 30%

66. INSTEX

67. Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust Trust

68. Smart Contracts Public ledger Transaction block with condition condition Example Stocks: dividend payment www.FrankSchwabSpeaks.com

69. Trade finance usabilityautomation

70. > 2,000 crypto currencies > 15,000 markets

71. Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com Data Flat Rational Level 1 Level 2 Object Level 3 Blockchain Level 4 usability re-use openness standardization flexibilty

72. Software IP

73. 000100 IDENTIFICATION DIVISION. 000200 PROGRAM-ID. HELLOWORLD. 000300 000400* 000500 ENVIRONMENT DIVISION. 000600 CONFIGURATION SECTION. 000700 SOURCE-COMPUTER. RM-COBOL. 000800 OBJECT-COMPUTER. RM-COBOL. 000900 001000 DATA DIVISION. 001100 FILE SECTION. 001200 100000 PROCEDURE DIVISION. 100100 100200 MAIN-LOGIC SECTION. 100300 BEGIN. 100400 DISPLAY " " LINE 1 POSITION 1 ERASE EOS. 100500 DISPLAY "Hello world!" LINE 15 POSITION 10. 100600 STOP RUN. 100700 MAIN-LOGIC-EXIT. 100800 EXIT. "Hello world!" Only 1% of active code Skilled people retired Takes up to three months to understand code Legacy

74. Re-factor

75. sdfAC_DEFUN([AX_CXX_COMPILE_STDCXX], [dnl m4_if([$1], [11], [], [$1], [14], [], [$1], [17], [m4_fatal([support for C++17 not yet implemented in AX_CXX_COMPILE_STDCXX])], [m4_fatal([invalid first argument `$1' to AX_CXX_COMPILE_STDCXX])])dnl m4_if([$2], [], [], [$2], [ext], [], [$2], [noext], [], [m4_fatal([invalid second argument `$2' to AX_CXX_COMPILE_STDCXX])])dnl m4_if([$3], [], [ax_cxx_compile_cxx$1_required=true], [$3], [mandatory], [ax_cxx_compile_cxx$1_required=true], [$3], [optional], [ax_cxx_compile_cxx$1_required=false], [m4_fatal([invalid third argument `$3' to AX_CXX_COMPILE_STDCXX])]) m4_if([$4], [], [ax_cxx_compile_cxx$1_try_default=true], [$4], [default], [ax_cxx_compile_cxx$1_try_default=true], [$4], [nodefault], [ax_cxx_compile_cxx$1_try_default=false], [m4_fatal([invalid fourth argument `$4' to AX_CXX_COMPILE_STDCXX])]) AC_LANG_PUSH([C++])dnl ac_success=no m4_if([$4], [nodefault], [], [dnl AC_CACHE_CHECK(whether $CXX supports C++$1 features by default, ax_cv_cxx_compile_cxx$1, [AC_COMPILE_IFELSE([AC_LANG_SOURCE([_AX_CXX_COMPILE_STDCXX_te stbody_$1])], [ax_cv_cxx_compile_cxx$1=yes], [ax_cv_cxx_compile_cxx$1=no])]) if test x$ax_cv_cxx_compile_cxx$1 = xyes; then ac_success=yes fi]) 1%

76. flexibility speed

77. speedopenness

78. Source: Jaguar

79. Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com SoftwareIP Self-developed public class Main { public static void main(String[] args) { System.out.println("H ello, World!"); } } Level 1 Vendor packaged Level 2 Open Source Level 3 Open Service 24 Level 4 flexibility standardization openness speed

80. Only develop your own software if you can differentiate yourself in the market and achieve great customer benefit. www.FrankSchwabSpeaks.com

81. Infrastructure

82. IBM Mainframe Sun Server Intel blade Thin clients Fat clients AIX Server Server FarmAny technology of each and every decade

83. Reduce data centre costs by 50%

84. Cost efficient scalable infrastructures Watt per MIPS 1975 1985 1995 2005 2015 101 10-1 10-3 10-5 Source: OurWorldinData.org

85. Possible IT infrastructure savings -80% Traditional Bank IT Cloud Banking Services

86. Fast Flexible Simple APIs

87. Cloud

88. Do not run systems you did not build Gregor Hohpe

89. Cloud Edge IoT

90. Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com Infrastructure Variety Level 1 Industrialised Level 2 Cloud Level 3 Edge Level 4 speed automationcosts openness standardization

91. Organization

92. Security Product Pricing Decision Contract Account Customer Contact Recovery Transaction Output Archiving Booking Position Identity Retail Loan Internet CRM Product Pricing Decision Contract Collaterals Account Client Recovery Transaction Output Archiving Booking Position Identity Corporate Loan Branch CRM Security Product Pricing Decision Contract Account Client Contact Recovery Transaction Output Archiving Booking Position Identity Corporate Loan Internet CRM Security Product Pricing Decision Contract Account Customer Dealer Recovery Transaction Output Archiving Booking Position Identity Consumer Loan Extranet CRM Product Pricing Decision Contract Collaterals Account Contact Recovery Transaction Output Archiving Booking Position Identity Customer Retail Mortgage Branch Product Pricing Decision Contract Collaterals Account Customer Recovery Transaction Output Archiving Booking Position Identity Retail Loan Branch CRM High operating costs Slow implementations Difficult to innovate

93. Traditional banks are organized in hierarchical silos www.FrankSchwabSpeaks.com ITProduct Operations

94. Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com Organisation Hierarchical Level 1 Matrix Level 2 flexibility

95. Requirements Design Traditional Waterfall Model Implementation Test Maintenance

96. Agile development Specs Tasks Daily Deployment 14 Days Release

97. speed

98. DAO

99. DAO Decentralized Autonomous Organization

100. Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com Organisation Hierarchical Matrix Level 1 Level 2 Agile Level 3 Self-organized Level 4 flexibility automationspeed

101. Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com Services Application Service API Interface Function Productivity User Account Amount 123456 399.99 Machine AI ^ IP Self-developed Vendor packaged Open Source Open Service public class Main { public static void main(String[] args) { System.out.println("H ello, World!"); } } 24

102. Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com Organisation Hierarchical Matrix Agile Self-organized Infrastructure Variety Industrialised Cloud Edge Data Flat Rational Object Blockchain

103. New banking built with new technologies Crypto Cloud API AIMobileBlockchain Crowd P2P ^ Open Source TokenWallet ICORobot www.FrankSchwabSpeaks.com

104. All just hype?

105. Since 2010 >100 Billion USD invested Source: CB Insights 2010 1.9 2011 2.5 2012 3.2 2013 4.8 2014 13.3 2015 21.2 2016 23.3 2017 27.4FinTech investments in Billion USD

106. FinTech has left the niche Source: CB Insights 2013 N26 2.5 2011 TransferWise 2 2013 robinhood 4 2006 eToro 9 2012 coinbase 13.3 # Customers in millions

107. R I P Banking and Banking IT as we know it

108. Quo vadis?

109. Payments Credits Assets Banking Services

110. Effective Banking IT evolution is driven by speed usability flexibility costs By means of standardizationautomation www.FrankSchwabSpeaks.com opennessre-use

111. Level 1 Level 2 Level 3 Level 4 Interface Function Productivity User Machine Services Application Service API AI Data Flat Rational Object Blockchain Infrastructure Variety Industrialized Cloud Edge Software IP Self-developed Vendor Package Open Source Open Services Organization Hierarchical Matrix Agile Self-organized Evolution of paradigms in Banking IT www.FrankSchwabSpeaks.com

112. 2030: Banking disrupted New Traditional BankingService Technology NewLegacy Niche Financial infrastructure provider Er Successful disruptors

113. Success = 1% talent + 99 % hard work

114. Frank@FrankSchwab.de