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Disruption in the banking industry: Fintech

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The perspective of Fintech executives.

In June of 2015, The Economist Intelligence Unit (sponsored by HP) conducted in-depth surveys of over 100 global bankers and Fintech executives on the future of retail banking. This is what we found.

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Disruption in the banking industry: Fintech

  1. 1. But this creates a dilemma for the Fintech entrepreneur Fintech is serious, well-funded, and coming fast -target for venture capital in 2014. • Targeting all banking products • Expected to gain traction in 3-4 years $25 billion in investment And what do banks see as the greatest advantages of Fintech? In fact, when you compare the weaknesses of Fintech with the strengths of banks, one sees a lot more mutual interest than head-to-head competition. $12.1 $4.0 $2.5$2.2$1.8 2009 2010 2011 2012 2013 2014 $1.9 Banks and Fintech: Complement each other in their strengths and weaknesses There is acceptance on both sides that the best route forward is not head-to-head competition – but instead partnership and collaboration. Banks who would partner/acquire Fintech 45% 53%Fintech executives who believe banks should partner or acquire Why are banks finding it difficult to meet the Fintech challenge? The perspective of Fintech executives Disruption in the banking industry In June of 2015, The Economist Intelligence Unit (sponsored by HP) conducted in-depth surveys of over 100 global bankers and Fintech executives on the future of retail banking. This is what we found. Fintech threatens to disrupt the entire industry – how will banking be transformed? 70% 83% 66% 81% 82% 80% 80% Limited line of products Full line of banking products Lack of investment capital Deep financial pockets Lack of experience in risk management Effective risk management programs Existing customer base Lack of customer trust Reputation for trust and stability Inexperience with regulation Experience with regulators Need to build customer base Where banks believe they are weak Where Fintech believes it is strong 79% 80% 74% 79% 75% 2013 to 2014 Venture funding 300% believe banks will be strongest players or share the market believe banks will become “minor players” 95% 5% The Fintech firms that succeed will be the ones that partner well – and their natural partners are the banks. Fintech firms do not foresee banks being “Ubered” or “Amazoned” – they see banks as continuing to be the strongest players in this market. What do banks perceive as their weaknesses as they face the digital future? Banks admit that they are having trouble facing the Fintech challenge on their own: Capacity to innovate Technology expertise Agility and speed to market Scalable, flexible technology Absence of legacy systems 51% 48% 46% 35% 35% Lack digital strategy Culture not suited to rapid change Constrained by legacy technologies Lack of agility/slow to market Recruiting/retaining tech talent 49% 38% 33% 35% 35% Over 4,000 firms vying for success – a crowded market Funding that demands success in just a few years Banking culture – risk averse culture makes it difficult to develop and execute vision Concerns about security risks Unable to attract the right people Lack of agility. Slow to market Technological expertise and agility Entrepreneurial cultures Flexible technology Banks are not going to be Ubered or Amazoned. Instead, their path will be to combine forces with Fintech through acquisitions or partnerships. Some thoughts on “Fintegration”: Include IT in due diligence and integration planning Ring fence the new culture Make regulatory integration an early priority Make data security an early priority Data integration Integration of enterprise infrastructures Combining a bank and Fintech is at its heart combining two technologies - start early with a tech-driven roadmap to the end state. Keep the innovation of Fintech alive within a risk-conscious banking environment. The exception is regulation – it is mandatory to bring the acquired entity under the bank’s regulatory standards and systems. Security is top-of-mind for both parties, and for good reason. Bring the combined entity up to the higher security standard of the two. Create a data integration plan, with early priority on creating one customer. Flexible cloud systems should help. Once these priorities have been met, the process of integrating the two infrastructures – data centers, data networks, network and application architecture, etc – begins. 1 2 3 4 5 6 Sponsored by

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