Platform economics and open banking.

Transcription

1 Platform economics and open banking. PSE Acquiring Conference Wednesday, 4 November, 208 Nicholas Heller CEO & Co-Founder, Fractal Labs info@askfractal.com

2 SMART v Platform powering SME banking. Regulated by the FCA Regulatory sandbox Digitising loans for securitisation askfractal.com Authorised Payment Global Distribution Audited Enterprise Institution Partner Grade Technology 2

3 Platform economics win. Apple Amazon Google Morgan Stanley Citigroup Wells Fargo Bank of America Source: Google finance 3

4 Banks are not creating economic profit. Software 2,500 Technology & Hardware 2,000 Pharmaceuticals,500 Aerospace & Defence Media,000 Food Products 500 Gas Utilities 0 Airlines -500 Marine -,000 Banks Electric Utilities Economic profit by sector divided by the number of companies 2 Global top 2595 companies greater than $.5bn 3 Includes 94 banks with revenues greater than $.5bn Oil, Gas & Consumable Fuels Source: McKinsey Strategy Practice and Corporate Performance Analytics Source: McKinsey Strategy Practice and Corporate Performance Analytics 4

5 Origination and sales are ~65% of global banking profits. Balance-sheet provision Global banking revenues and profits by activity, 206 Core banking US $ billions Fee-based businesses,53 Lending () Current/ checking account Deposits Investment banking (2) Transactions/ payments (3) 605 Assets management and insurance (4) Total Revenues Total after-tax profits ROE Loans to retail and corporate clients (overdrafts, specialized finance, credit card, trade loans) 2 Corporate finance, capital markets, securities services 3 Retail and wholesale payments transactions, including cross-border payments and remittances 4 Asset management includes investment and pension products, insurance includes bank-solf only Source: McKinsey Panorama - Global Banking Pools Origination/ sales 2,085 (53 %),87 (47 %) 404 (35 %) 748 (65 %) 4.4 % 20 % 5

6 Fee based businesses to see largest margin reductions. Fee and margin reduction in revolutionary digitization scenario percent 0-3% 0-20% 3-0% 20%+ US UK China Japan EU Dev ing East EU MEA Latam EM Asia Consumer finance Mortgage Checking deposits Term deposits Cash management Corporate lending Payments Payments Wealth Mgmt Asset/ wealth mgmt Retail Corporate Source: McKinsey Panorama - Global Banking Pools 6

7 Banks are drastically cutting costs to reach profitability Cost reduction $ billion 3.2 FTE reduction thousands US 7% UK 2% EU 2% Analysis based on the largest 20 banks per YE assets (US/EU), the top 4 banks according to assets (UK) 2 GBP, euro and JPY converted to USD at current exchange rate (Oct 206) Source: Bank Annual Reports Share of total costs/ FTEs US UK EU % 9% 4% 7

8 Operational efficiency and innovation is the way forward. Unsustainable expansion ( ) Financial crisis ( ) New reality ( ) Average ROE 4.0 % 7.3 % 9.0 % Revenue growth () 6.8 % 3.9 % 5.3 % Loan/ deposit in developed markets 24.6 % 28 % 05.8 % Price/ book value In developed markets Percent of banks trading below book value In developed markets 28.4 % 66.0 % 6.7 % Primary driver of economic growth Volume Risk cost Operational efficiency Revenue before risk cost 2 Fixed conversion rate, $ 206 Source: Thomson Reuters, SNL, McKinsey Panorama - Global Banking Tools Going forward ( ) Entering new non-traditional banking markets/ businesses 8

9 One size fits all is dead. #SMEBankingIsBroken 9

10 SME banking is broken Most banks define SME as the 59% of SME's feel banking services segment - thereby assuming over 5 aren't tailored their needs and over million businesses in the UK have 5% believe the services provided identical needs. are one size fits all.* Business owners feel underserved and undervalued. * 0

11 Most businesses are invisible to banks. Commercial Banks make 85% of The other 75% is left untapped due their revenues from just 25% of to a lack of data, intelligence and their commercial customers.* understanding of SMEs needs. #Shift80:20Thinking * ntial-of-an-sme-and-midcorporate-franchise

12 Data around the UK SME funding gap is getting clearer. 39,000,000,000* 59,000,000,000* UK SME Funding Gap UK SME Funding Gap Access to Finance, House of Commons Report 206 SME Magazine, September 208 * * 2

13 We live in the anticipate my needs era. Relationship Recommendation Managers Engines 800s to Today 990s Next-Best-Action Next-Product-to-Buy 2000s 208 3

14 Customers now expect the Next-Product-to-Buy experience Ongoing Immediate Memorable Personalised Anywhere, Value Fulfilment Experiences Moments Real Time 4

15 Banking must be customer driven. Ecosystem of services Provided by a network of partners Offered via a platform with deep intelligence Fully personalized and always accessible 5

16 Enter, open banking. #PlatformEconomicsWin 6

17 Intelligence is gold. Demographic data Behavioural data Financial data Old world New world Static Identity Dynamic Identity 7

18 Provide intelligence to enable an entirely new customer value exchange. New customer propositions Data intelligence Categorisation, analysis, credit scoring, alerts, nudges and forecasting engine Data Aggregation 8

19 Empower banks to unlock entirely new revenue opportunities from their SME customers. Lending Cash Management Payments Protection 9

20 Next-Product-to-Buy engines can have dramatic results. A 50% increase in new 6 out of 0 customers New SME product sales SME product leads. purchased a new product upwards of 30%. when alerted. Increase overall commercial revenues. McKinsey Insights - October

21 The automation economy is here. Banking has fundamentally changed. 2