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2019 outlook : 3 key trends that will impact digital-first banking

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Today’s banking industry has moved beyond a ‘digital technology on the side’ way of thinking. The world’s leading financial service providers are mobilizing their entire organizations on a journey to become digital to the core: truly digital-first.

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2019 outlook : 3 key trends that will impact digital-first banking

  1. 1. Backbase Webinar Digital-First Banking Key Trends That Will Impact Digital-First Banking Jouk Pleiter & Tim Rutten || Twitter @backbase
  2. 2. Regulated Industry
  3. 3. By Popular Demand
  4. 4. Little Girls Grow Up
  5. 5. Software is Eating the World - The Rise of Digital Platforms Platform Business (scalable) Traditional Business (asset heavy)
  6. 6. Digital Disruption - Software is Eating the World 10 years 10 years 10 years
  7. 7. Digital Disruption - Serious Impact Market share Time Incumbent business models New Digital Business models Incumbent business models are threatened
  8. 8. Digital Transformation - Where are we with Banking? Market share Time Incumbent business models New Digital Business models Incumbent business models are threatened Banking Today?
  9. 9. From 2018 Banking Today Digital (on the side) Connect 2018 - How do we become a Digital First Bank? To 2025 Mission: Digital First Bank Explore
  10. 10. Customer Experience Business Model Execution Speed Digital First Mission
  11. 11. Customer Experience Business Model Execution Speed Digital First Mission
  12. 12. Digital First Business Models
  13. 13. We’re in the Fourth Industrial Revolution Steam 1700s Electricity 1800s Computing 1900s Digital Today
  14. 14. Size of Assets Eco-System Mixed PlatformTraditional
  15. 15. 4,000,000 350,000/year $0/room 850,000 25,000/year $210,000/room # Rooms Openings per Year Cost per Room Platform Business: Global Roll-out at Low Cost 2017 Annual Report Hilton / 2018 AirBnB Data Facts
  16. 16. Platform Business: Global Roll-out at Low Cost Digital Platforms (Scalable) Traditional Business (Asset-Heavy)
  17. 17. Platform Business: Global Roll-out at Low Cost Traditional Business Linear Growth Exponential Growth Digital Platform
  18. 18. Scaling: Platform Business vs Linear Business Profit ($) Quantity of Supply Total Addressable Market
  19. 19. Digital Transformation - Building new Business Models Market share Time Building New Digital Business models
  20. 20. Let’s get some inspiration from the best
  21. 21. 9,99 per Month
  22. 22. 7,99 per Month
  23. 23. Neo Banks: Value Aggregation Partners Payments Insurance Lending Savings Wealth Partners Pensions Real estate investing Insurance Line of credit Wealth Mortgages Payments
  24. 24. 7,99 per Month 9,90 per Month
  25. 25. Scaling: Value Aggregation at Speed Feb 2016 International transfers Transferwise Feb 2016 Investment funds Dimensional Fund Advisors May 2017 Term deposits WeltSparen Jun 2017 Insurance Clark Dec 2017 Consumer credits Younited Credit Savings accounts Raisin Personal loans Lending Works Mar 2017 Pensions Pension Bee May 2017 Travel Insurance Thomas Cook Jan 2018 Mobile Insurance Alianz Oct 2017
  26. 26. Personal Loans Credit Cards Mortgage Auto Life Health OtherOtherSavings Wealth Mgmt Checking Payments Borrow Save Protect Spend Offered by GS Potentially offered or attributed by GS Scaling: Value Aggregation at Speed
  27. 27. Scaling: Goldman Sachs Marcus 986528148 Number of months to $1B in total personal loans issued Marcus by Goldman Sachs vs. select lending platforms
  28. 28. Scaling: Goldman Sachs Marcus Progress since launch (2016) ~2mm Customers $4bn + Loans Originated $29bn + Deposits
  29. 29. Digital First Business Models: Key Ingredients Value Aggregation ScalingAsset-light
  30. 30. It’s all about reaching Break-Even
  31. 31. and after that Scaling
  32. 32. Experiment with New Business Models
  33. 33. Let’s get some inspiration from the best
  34. 34. “World’s Best Digital Bank” (Euromoney 2018)
  35. 35. “The best way to fight disruption is to pre-empt it and disrupt ourselves” Piyush Gupta - CEO DBS
  36. 36. From 2018 Banking Today Digital (on the side) Connect 2018 - How do we become a Digital First Bank? To 2025 Mission: Digital First Bank
  37. 37. Game Plan 1 Digital Front-End Digital Banking InterfaceCore Systems Game Plan 2 Greenfield BankNew Digital BankLean Core Game Plan 3 Value AggregatorLean Value Aggregator FinTech Providers FinTech Providers Other Industries Customer Digital FirstFinTech Providers Other Industries Game Plan 4 Digital Transformation Reduce Core Backbase: Business Model Agility
  38. 38. Digital-First Value Drivers
  39. 39. DBS: Superior Returns from Digital 2017 Profit and Loss (S$bn) Customers (m) Income Costs Profit before allowances Key Indicators Income per Customer (s$’000) Cost-income Ratio (%) Return on Equity (%) T 3.6 2.0 1.1 0.9 T 0.6 55 19 D 2.3 3.1 1.1 2.0 D 1.3 34 27 Total 5.9 5.1 2.2 2.9 T 0.9 43 24 Digital is material 39% of customers contribute 60% of income and 68% of profit before allowances Digital is more valuable 2X income per customer 20pp lower CIR 8pp higher ROE
  40. 40. Digital-First Revenue Drivers Lowering Costs Increasing Revenue Costs Costs to Serve Income per Customer
  41. 41. DBS: Digital Customers - Lower Acquisition Costs DBS Investor Report November 2017 -43% Traditional Digital Consumer Banking -54% Traditional Digital SME Banking
  42. 42. DBS: Digital Customers - Higher Engagement Online Offline Traditional Digital 16X DBS Investor Report November 2017 Consumer Banking Traditional Digital 6X SME Banking
  43. 43. DBS: Digital Customers - Higher Income Income per Customer Consumer Banking (2017) 1.6x 2.6x 3.4x 2.2x 1.5x Other lending Credit Cards Mortgages Wealth Deposits 2x DBS Investor Report November 2017 Traditional Digital
  44. 44. DBS: Digital Customers - Higher Income Income per Customer SME / Corporate Banking (2017) DBS Investor Report November 2017 3.6x 2.3x 3.2x 1.4x Treasury Trade Finance Cash Management Loans Traditional Digital 2x
  45. 45. Traditional Digital Higher Income / Customer Higher Profit / Customer Higher Cost-to-serve (absolute) Profit Costs Revenue DBS: Digital Customers - Higher Income & Lower Cost
  46. 46. DBS: Low Cost/Income Ratio 45% 2015 43% 2017 <40 % Aspiration Singapore / Hong Kong India, Indonesia, … 30% DBS Investor Report November 2017
  47. 47. Digital-First Making the Leap
  48. 48. Market share Time Incumbent Business Models New Digital Business Models Digital Transformation - Crossing the Chasm Crossing the Chasm
  49. 49. Game Plan 1 Digital Front-End Digital Banking InterfaceCore Systems Game Plan 2 Greenfield BankNew Digital BankLean Core Game Plan 3 Value AggregatorLean Value Aggregator FinTech Providers FinTech Providers Other Industries Customer Digital FirstFinTech Providers Other Industries Game Plan 4 Digital Transformation Reduce Core Backbase: Business Model Agility
  50. 50. Digital-First Revenue Drivers Lowering Costs Increasing Revenue Costs Costs to Serve Income per Customer
  51. 51. It’s all about eliminating Friction Customer Needs & Business Goals
  52. 52. Where we need to be moving... Business Goals Customer Needs Connected Experiences 10X Better 2X Income
  53. 53. Where to Start?
  54. 54. Priority Matrix: How to Create Value Effort Value High Low Low High ~ ~
  55. 55. Effort Value High Low Low High Priority Matrix: How to Create Value
  56. 56. Committed Product Plan (6 months) Sprint Planning: How to Create Value Fast Track With Backbase Roadmap (0 - 24 months)
  57. 57. Backbase Digital EcosystemDigitalBanking Identity&Entitlements ProcessOrchestration MachineLearning Digital Experience Connected Experiences Cloud Core Ingredients Banking Systems FinTech Providers Other Industries Backbase: Industrialized Platform
  58. 58. Design Sprint PROTOTYPING Building Minimal Viable Product Running the Pilot EXPERIMENTS Pivot/Persevere? DEFINE EMPATHIZE LAUNCH Roll-out and Scale Up BUILD LEARN MEASURE Product Market Fit Business Model Fit LEARN MEASURE BUILD
  59. 59. Key Takeaway
  60. 60. Digital First Business Models: Key Ingredients Value Aggregation ScalingAsset-light
  61. 61. Becoming Digital First: Key Ingredients Business Model Agility / Scalability Industrialized Platform Focus on Business and Customer Value
  62. 62. Business Goals Customer Needs Connected Experiences 10X Better 2X Income Our Growth Path Together: Let’s Create Value
  63. 63. Thank you
  64. 64. Backbase Webinar Digital-First Banking Key Trends That Will Impact Digital-First Banking Jouk Pleiter & Tim Rutten || Twitter @backbase

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