The document discusses disruption in the financial services industry. It argues that three forces are contributing to the disintegration of the traditional financial sector: 1) financial fragmentation driven by digitalization, which separates customer experiences into modular components; 2) disruptive innovation, which uses new technologies to fundamentally alter industry structures; and 3) hyper-competition, which creates constant disruption. It explores how digitalization has fragmented traditional banking models and created opportunities for more modular innovation. It also discusses how disruptive innovation, like peer-to-peer lending services, can challenge incumbents by initially targeting underserved customer segments. Banks will need to both collaborate with fintechs and embrace disruption themselves to compete in this changing landscape.

1. Beyond Banking
New Business Models for the Digital Era
June 2018

2. June 2018 2
Unlocking a New Era for Banks & Financial Services
Section I: Welcome to the Future
Highlighting the unrelenting & unprecedented disruption in the financial
services industry. We consider how the competitive landscape is shifting and
how banks are embracing FinTechs by playing to their strengths.
Section II: The Disintegration of Finance
Exploring the disintegration of the financial industry and the unyielding
forces of disruptive innovation and hyper-competition that are fragmenting
the traditional value chain – and creating opportunity.
Section III: Re-Defining the Banking Model
Exploring a comprehensive re-design of the traditional banking model to
chart a path forward in a digital future. We leverage the crumbling effect of
digital pressures on vertically integration and highlight three refreshed
models enabling banks to compete in a landscape of constant disruption.
The banking and financial services industry is undergoing a
period of unprecedented disruption, which is re-shaping the
competitive landscape.
Criterium Group believes we’re experiencing a fundamental
change in how people manage, save and spend their money –
which means banks and credit unions will need to re-imagine
how they deliver value to customers and members.
We’re experiencing a disintegration of the financial industry. But
disruption is exciting, not scary. As our relationship with money
evolves, there are endless opportunities to delight customers and
deliver value. However, competing in a digital age takes a
completely different approach.
Criterium Group has considered the changing landscape from a
competitive, financial, technological and operational perspective
to re-design the traditional banking business model to win in a
digital world.

3. Section One:
Welcome to the Future

4. Unrelenting & Unprecedented Disruption: The New Normal
June 2018 4
Competitive disruption, financial challenges & operational pressures: banks and credit unions are feeling the heat from all angles.
The ‘status quo’ is officially dead and banks need to re-imagine how they add value for customers.
• Constant disruption from FinTechs,
technology giants & other non-
traditional competitors
• Digital transformations are
changing customer expectations for
intuitive, seamless and customized
experiences
• Immense regulatory burden with
increasingly strict capital & liquidity
requirements
• High-cost legacy systems and
infrastructure
• Low interest rates and economic
growth
• Shrinking margins from increased
competition
• Responding to the upgrade of
payments infrastructure in many
jurisdictions, including Canada
• Constantly evolving technology that
needs to integrate with stubbornly
inflexible legacy systems
Operational

5. The Competitive Landscape is Shifting
June 2018 5
We’re in a period of unprecedented
innovation, which is re-shaping the
competitive landscape. Banks must
compete with FinTechs and
traditional financial services players,
digital companies and platform
entities like Apple, Google and
Amazon.
Unencumbered by legacy systems
and structures – FinTechs can move
faster and are better at leveraging
data analytics and integrating with
innovative platforms.
• Google, Apple, Facebook, Amazon and Alibaba (collectively known as GAFAA) are leveraging
highly responsive and personalized platforms, data capabilities and global reach to attract people
to banking alternatives
• Connecting value chains of multiple sectors create intuitive “ecosystems” - platforms become the
touchpoint and own the customer relationship
• Nearly 75% of U.S. millennials would be more excited about new financial services from Google,
Amazon, PayPal or Square than from their banks2
FinTech
Digital
Banking
Platforms1 Danske Bank: MobileLife, Open Banking
2 McKinsey Annual Global Banking Review, 2017
3 Forbes: Banking’s Paypal Nightmare a Customer’s Dream
4Economist: China’s Digital Payments Giants Keeps Bank Chiefs Up at Night
FinTechs remove “friction” (through driving out costs) from the customer experience in specific
components of the value chain (e.g.,. peer-to-peer lending)
Example: Paypal3
• Paypal’s extensive reach positions it to be an enormous threat; with 17 million merchants worldwide
Paypal receives fee income from Uber, Netflix, Pinterest, Airbnb and Facebook Messenger
Example: Ant Financial4
• The most valuable Fintech firm ($100+ billion) has 520 million customers in China and 112 million abroad
• Ant Financial taps into China’s internet-payments market ($11 trillion) with a direct-to-customer model
Example: Danske Bank1
Banks around the world are embarking on digital transformations that leverage technology and data
to completely re-imagine the customer experience
• Established MobileLife, an independent unit that only focuses on customer needs
• Leverages a start-up mentality to quickly launch new products; recipient of many innovation awards
• Only 40% staff have a banking background; they follow a different governance model
• Embraced open banking in the UK – allows third-party providers to access customer data and initiate
payments on their behalf

6. Don’t Compete; Collaborate: How Banks are Embracing FinTech
June 2018 6
KPMG Pulse of FinTech Report 2017
PwC Global FinTech Report 2017
PwC Global FinTech Report 2017
FinTech continues to
disrupt traditional
financial services;
however, incumbents are
embracing the change
Investments in FinTech have grown
exponentially - reaching US$31 billion in 2017
and bringing total global investment to US$122
billion over the past three years
Banks are ramping up investments in innovative
and digital technology – over 75% of financial
institutions have reported an increase in internal
efforts to innovate
More than 50% of banks report they are actively
searching for acquisitions, partnerships, and
accelerators to access exciting technology
More than 80% of incumbents expect to
increase FinTech partnerships within the next
five years, with high expectations - projecting an
annual ROI of 20% for FinTech related projects
The digital revolution and FinTech are fundamentally changing the financial services
industry, and banks are trying to embrace the change. The exact future state is difficult to
predict, and will constantly change. To win, banks must be able to rapidly adopt new
innovations as they happen.

7. Playing to our Strengths: Banks vs. FinTechs
June 2018 7
EY 2016 Consumer Banking Survey
Banks and FinTechs have different strengths – and weaknesses.
Both need to become strong collaborators, or neither will realize the full value of innovation.
• High level of trust – over 95% of customers trust banks to keep
money safe
• Access to valuable customer data
• Strong subject matter expertise and access to talent
• Navigating complex regulatory environments
• Access to capital
• Legacy systems and vast size make innovation difficult for incumbents
• Often driven by short-term performance measures, like quarterly results
• Nimble, focused efforts on specific components of the banking sector
• Excel at removing “friction” between customers and banks
• Strong understanding of the customer journey
• Unburdened by legacy systems
• Inability to clearly articulate value proposition
• Inability to achieve scale by connecting with customers
• Inability to meet complex regulatory requirements
• Underestimating integration challenges and/or costs
Banks
FinTech
Strengths Weaknesses
Strengths Weaknesses

8. Section Two:
The Disintegration of Finance

9. Introducing the Disintegration of Finance
June 2018 9
There are three core elements contributing to the overall disintegration of the financial sector. These forces are shaping
the banking models of the future, and inform the overall approach to collaborating with FinTechs.
The fragmenting effect of digitalization on financial services1
• Digitalization fragments the “polish” from production to the customer;
essentially, dissolving the customer experience into components that can be
individually disrupted
• This drives innovation as the fundamental competitive differentiator
The disruptive innovation and technological practices that
fundamentally alter the structure of an industry
2
Hyper-competition which creates an industry dynamic of
constant disruption
3
2. DISRUPTIVE
INNOVATION
3. HYPER-
COMPETITION
Disintegration
of Finance
1. FINANCIAL
FRAGMENTATION
Three forces are disintegrating the financial sector:

10. Element #1 – Financial Fragmentation
June 2018 10
For decades, firms have “won” by building strong positions and
defending them. They have entrenched themselves in specific product and
geographical markets and operated within a business model where the
competitor with the largest market share enjoys the best economies of
scale and scope, and therefore, the highest profit.
The Old
In banking, geographic proximity has been the historic driver of customer reach and
profitability. The number of physical branches and front offices has dictated how many
customers can be reached. Customers were unlikely to change banks or insurance providers –
it was difficult, and they went with whatever company was closest. Market share and profits
have been generally stable, driven by sustained competitive advantage. Banks and insurance
delivered essentially the same services, but incrementally better.
The New
The world has changed. Enter, digitalization. In the digital era, business models will rise and
fall at tremendous speed. Continuous disruption is the new normal, and firms will either
disrupt or be disrupted.
Why is this happening?
Digital products and services consist of layers of modules that, together, form the user
experience and enable functionality. For example – the smartphone:
1. At the device layer, we have handsets with the screen, camera, fingerprint scanner,
security measures. Each of these is a module, on which layers can be added.
2. At the network layer, we have the operating system of the phone (like the Android system
or Apple's iOS) that provides the basic operation functionality
3. At the service layer, we have apps – games, social media, banking apps
4. At the content layer, we have individual articles on our news apps, or the messages we
send through Facebook
Together, these layers make up a digital stack - a structured collection of different modules in
different layers, which are:
• loosely connected through standardized interfaces, often through Application
Programming Interfaces (APIs)
• loosely connected to a defined interface which allows digital stacks to be customized, and
easily changed
• able to change one module without having to change all the related elements.
• able to create innovations by connecting different modules to each other in new ways.
For example, a banking app that uses the camera to scan invoices, or the fingerprint scanner
to log-in or send payments. These are simply re-combinations of the digital stack.
The fragmented nature of the digital stack fosters rapid change and innovation. The digital
stack was designed with innovation in mind; the “physical world” (like a classic banking
system) was not.
McKinsey Overhauling Banks IT Systems
Oracle the Future of Retail Banking – Legacy IT Transformation
All banking technology is built on a
basic technology stack. A simplified
stack has four layers or modules:
Content
Service
Network
Device1
2
3
4

11. Element #1 – Financial Fragmentation
June 2018 11
Legacy Banking Systems Compromise Performance
With many of the legacy banking systems dating back to the 1970s, banks are burdened with aging systems that hinder performance and hamper
technological innovation. Core Banking Systems sustain the software and infrastructure necessary to carry out day-to-day operations, and to link
systems to customers. Furthermore, these systems serve as the launchpad for IT capabilities and growth. This reality presents a complex challenge, as
many of these underperforming and antiquated legacy systems barely deliver on current tasks, with a dismal outlook on their ability to capitalize on
future technological advancements.
1McKinsey Overhauling Banks IT Systems 2TechCrunch Ant Financial
These banking systems have been tightly integrated and controlled. Back-office systems and the front-office systems are interconnected, making it hard to innovate. To adopt
even the most basic change, everything must be changed simultaneously in a coordinated and synchronized way. By design, digitalization fragments these tightly integrated
stacks into layers with modules that can be easily innovated without considering the whole or having to manage the cascading effects in the system. Modules can be
combined in new and creative ways.
Legacy systems can be leveraged for global expansion by FinTechs. Ant Financial is seeking to acquire local firms abroad with legacy systems, like MoneyGram, to gain access
to licenses and pre-existing client base; although regulatory uncertainties have stymied this strategy thus far.2
Legacy banking systems essentially have three layers:
1. Product or service layer, the layer that most banking legacy systems are focused upon includes products such as accounts,
mortgages, lines of credit and credit cards. Rapid development and delivery of new banking products and services is becoming
business critical as a means of profitable growth for retail banks, however aging IT systems make enabling such products too complex.
2. Distribution layer, back-end legacy IT systems where customer data is secured and stored. Data is accessed by customer service
representatives, and in some circumstances via apps.
3. Consumption layer, the customer-facing interface that traditionally consisted of customer service representatives and ATMs and has
now grown to include online banking, phone services, and mobile apps, yet customer demand is significantly outpacing the flexible
consumption offerings which banks provide.

12. Responding to the Fragmentation of Finance
June 2018 12
Banks become a driver of change, rather than a victim of change through collaborating
with FinTechs and other non-traditional service providers.
Banks must retire legacy systems and reimagine their business model beyond that of a
product-based approach
The banking industry must now compete on innovation; start-ups can innovate faster, more
frequently and more creatively than a few old and rigid bankers
Financial firms need to modify the DNA of the company to compete in new ways with
thousands of start-ups and Google, Amazon and Facebook, rather than compete on fortified
positions and market stability
“And this is where it’s so important […] that you
either disrupt or you get disrupted. Probably 40
percent of enterprise customers around the
world will not exist in a meaningful way ten
years from now.”
John Chambers, Cisco Executive Chairman
Cisco is known for opportunistically acquiring technologies rather than
building in-house. Since the 1980s, Cisco has completed over 200
acquisitions. The majority have offered only moderate advancement;
however, 10% have been instrumental in catching technology
transitions. This relentless pursuit for innovation is how banks and
insurance companies need to act to survive in the digital era.
TheStreet Cisco CEO: Here is Our Acquisition Strategy
Banks that choose to embrace innovation will compete across a variety of elements;
collaborating with adjacent business models will consistently expand their capabilities to
enhance their customers’ lives

13. In the 1990s, Clayton Christensen wrote the book called
The Innovator's Dilemma that argued decision-making
and resource allocation processes are both key to
success and reject disruptive technologies:
“Successful companies want their resources
to be focused on activities that address
customers’ needs, that promise higher profits,
that are technologically feasible, and that
help them play in substantial markets. Yet, to
expect the processes that accomplish those
things also to do something like nurturing
disruptive technologies – to focus resources
on proposals that customers reject, that offer
lower profit, that underperform existing
technologies and can only be sold in
insignificant markets– is akin to flapping
one’s arms with wings strapped to them in an
attempt to fly. Such expectations involve
fighting some fundamental tendencies about
the way successful organizations work and
about how their performance is evaluated.”
Element #2: Disruptive Innovation
June 2018 13
No one wants to be disrupted; everyone wants to do
the disrupting. Being the disruptor will lead to glory,
and profits; being disrupted can mean death.
But what is disruptive innovation?
An incumbent or market leader is typically focused on
the established high-end of the market, which is often
associated with higher profitability, and tends to ignore
simple, low-cost solutions. Small companies enter the
market, and provide a simple, low-cost solution to the
underserved customer base. These can be improved
faster than incumbents’ products, until the new
innovations become attractive to the high-end market.
Incumbents often have the talent and resources to
innovate, and they do create new products. However,
they fail to value new innovations properly because
they attempt to apply them to their existing customers
and product architectures. They don’t hit the required
hurdle rates, or the new market is viewed as too small
to significantly add to the bottom line.
There are elements of disruptive innovation in the
FinTech revolution. Examples include peer-to-peer
(P2P) lending services in Asia, or mobile payment
solutions in Africa like M-Pesa that allow the
“unbanked” to make purchases through their
cellphone account.
Mobile money services are an effective gateway for
financial inclusion among this demographic, which has
traditionally been underserved; it is estimated this
could evolve into a US$3 trillion payments volume
opportunity.
However, FinTech is not solely driven by low-cost
innovation. Start-ups are leveraging data analytics and
technology to challenge the entire status quo of the
industry. The challenge for incumbents is to spot
disruption, and have the ability to quickly adapt.
Spotting Disruption
It is not easy to spot disruption. But all disruptive
innovations have one thing in common - they
leveraged yesterday’s success as a basis to define new
ways of doing business. No single technology will
disrupt the financial services industry.
Some disruptive examples are:
• Mobile payments that use advanced technologies
and smartphones
• P2P lending using digital networks and new risk
estimation algorithms
• On-demand car insurance that leverages improved
connectivity and geographical tracking
PwC Global FinTech Report 2017
Orbis Research: Next Generation Mobile Payments Market: Smartphones, Wearables and Implantable Technology 2018-2023

14. Element #2: Disruptive Innovation
June 2018 14
Phase II: Selection
But, is it here to stay? Many innovations are heralded as
disruptive, only to fade away once the novelty wears off
or the niche market is saturated, without broadening
adoption to the masses. To gain traction, the innovation
must perform just as well as (or stronger than) existing
alternatives, and then evolve faster.
Mobile payments are in the selection phase now. To date,
mobile payments have not necessarily proven to be much
better or cheaper than credit cards – in fact, most
leverage the existing credit card systems. We need to
consider how quickly the alternatives are developing.
Customers’ use of cash and credit cards has changed
significantly over the past 10 years. Assuming mobile
payments will continue to deliver safe and secure
transactions, there is a case to be made for cost
reduction. Digital beats physical when it comes to cost,
and mobile payments would also piggyback on
developments in smartphones and digital networks.
What happens next? A few options will rise to the top as
the dominating alternatives – much like Apple iOS and
Google Android. Over time, quality will increase, cost will
decrease, and capabilities will adapt as customers start to
use such payment options for much larger purchases like
buying a car.
Phase III: Stability
It is highly unlikely that mobile payments will completely
replace cash, credit cards, and even checks. Not all
disruptive innovation completely replaces what came
before. If mobile payments enter the stability phase, it
does not mean that what already exists gets completely
rejected. Credit cards only partially disrupted cash; TV did
not replace radio. This creates a significant burden for
financial institutions. Maintaining legacy services while
adding new, disruptive products is difficult and expensive.
PwC Global FinTech Report 2017
Orbis Research: Next Generation Mobile Payments Market: Smartphones, Wearables and Implantable Technology 2018-2023
Disruptive innovations tend to develop over a three-stage cycle:
1. Initiation 2. Selection 3. Stability
Disruptive Innovation
Phase I: Initiation
This is characterized by uncertainty. Many versions of the
technology exist and many players are involved; they are
all targeting a niche market. It is typically chaotic, and it is
exceedingly difficult to predict which one of the many
versions of a product will dominate in the end. “Cheap,
but good” is a difficult mark to hit.
Payments are a good example. Mobile payments
originally began as SMS payments, which were admittedly
a poor product. However, this evolved over time, and
became the foundation for services like Apple Pay and
Google Pay. Today, mobile payments represent a $600
billion global market. Banks are creating their own
solutions (like CitiPay), and retailers are creating their own
systems – Starbucks and Wal-Mart are outperforming
Apple and Google in this space. Leveraging security
measures like fingerprint scanning continues to make this
an easier option.

15. Responding to Disruptive Innovation
June 2018 15
Spotting future innovations that will disrupt finance is difficult – no one has a crystal ball, and
changes come rapidly. Applying the following screens gives the best chance of success:
Assess
the advancement in
digital technology that
might enable
disruption
1
Explore
the many ideas and
concepts that seek to
create true innovation
2
Identify
which one will develop
the fastest (which may
not necessarily be the
best at this stage)
3
Follow
the fastest innovations
to understand
whether the target is
market segmentation
or full replacement
4
Banks need to make some decisions. If an innovation
is segmenting the market, the bank must decide if it
wants to be a part of that new niche market. If it
looks like a full replacement is on the horizon, the
bank must develop a strategy to protect its market
share.
An early, and constant, assessment of the landscape
is critical. When the winner is obvious, it is too late.
Banks must assess a broad range of solutions and
explore and cultivate potential solutions further to
identify the “best fit” – from there, banks must follow
these innovations.
To remain competitive financial institutions must imbue a culture of curiosity and innovation, and continuously seek out
opportunities in emerging technologies. Successful incumbents will develop a process to identify and adopt disruptive innovations
based on data and strategic focus.

16. Element #3: Hyper-Competition
June 2018 16
“I love change, I can’t get enough of it! I eat change for
breakfast, lunch and dinner.” – said no one, ever.
In the digital age, speed is the name of the game. Incumbent banks need to be ready
to seize opportunities when they emerge.
Renowned strategist Richard D'Aveni characterizes fast-moving industries as ‘hyper-
competitive’ – rapid and dynamic, characterized by unsustainable advantages. The
finance industry has been quite opposite. However, changing factors like technology
advancements or regulation changes propel stable industries into rapid periods of
change and hyper-competition.
One may think finance is in the awkward transition from one stable state to another;
however, this view is limiting. Once an industry undergoes a digital transformation,
the ‘new normal’ is not stable - normal is now a state of hyper-competition and
constant disruption. For example, the transition to mobile payments is not a steady
state endeavor and banking will constantly face new disruptions: blockchain, machine
learning, artificial intelligence, quantum computing, wearable technology.
Historically, banks have created sustained competitive advantage and defended it for
decades; this view needs to go out the window – hyper-competition will not allow it.
Banks need to accept that competitive advantages will now be short-lived.
These ‘transient advantages’ may generate high returns in the short-term; however,
they are hard to defend because they are typically technology-based. As soon as new
technology emerges, there is room for others to define a new transient advantage. In
the future, sources of banking revenue will change over time as consumer knowledge
and preferences shift. Banks will sustain short-term advantages in terms of customer
data and infrastructure, but no long-term right to exist without converting these
strengths into services that solve emerging digital frustrations.
Banks are narrowing this technology gap through partnerships and integration with
nimble FinTechs; such key emerging technologies enable convergence, with 30% of
large financial institutions investing in artificial intelligence and 77% expecting to
adopt blockchain as part of a system or process by 2020.
A transient strategy focuses on cultivating the next opportunity, as even the current
advantage has peaked. The only way to compete in a hypercompetitive industry is to
move beyond sporadic innovation to create an organization that cultivates an
advantage pipeline, while continuously retiring dated assets and capitalizing upon
advantages:
Accenture The Future of FinTech and Banking: Digitally disrupted or reimagined?
PwC Global FinTech Report 2017
1 2 3
advantage
pipeline
continuous
retiring of assets
advantages

17. FinTechs vs. TechFins
June 2018 17
Financially-focused platforms that employ new
technologies or programs to support existing banking
and financial service functions. Broadly encompassing
innovations in the area of finance, retail banking,
cryptocurrency, lending and beyond.
Technology-forward platforms leveraging
technological advancements to solve and
revolutionize current financial problems and provide
financial services. New entrants into the financial
sector are chiefly made up of technology and e-
Commerce giants, with largely non-financial customer
bases.
TechFins FinTechs
The increasing overlap between finance and emerging technologies is driven by technological innovations and prompted by
customer desires. From this industry focus on data and technology first and finance second , the term “TechFin” was born.
Financial institutions
are moving toward
technology, and
technology firms are
moving toward
finance

18. Responding to Hyper-Competition
June 2018 18
A FinTech strategy cannot focus on
safeguarding against disruption; it needs to
create the next disruption.
Banks searching for the financial technology that will revitalize legacy systems and propel
technological capacity to meet current trends will be disappointed, as no such all-encompassing
solution exists. Instead, banks must base their competitive advantages on the strength of their
advantage pipeline, and on their proprietary ability to assess, explore, identify and follow new
technologies to create new capabilities in their business.
Maintaining a competitive advantage will be a continuous process of sourcing and replacing
emerging technologies within their portfolio as they become available and retiring those which
the market has not selected. More than defending a longstanding advantage, banks must
welcome the practice of cultivating transient advantages, and being consistently hungry for new
gamechangers. Moreover, financial institutions will be required to address slow capacity for
change and restructure legacy processes to enable decision-makers to act once potential
transient advantages are identified, to seize opportunities in the rapidly-evolving FinTech space.
Key
Takeaways:
Develop an underlying advantage
pipeline
Continuously source and replace
emerging technologies
Develop a mindset of continuous
innovation to cultivate ‘transient
advantages’
Shorten prolonged decision-making
processes to seize opportunities

19. Section Three:
Re-Defining the Banking Model

20. Banks Face a Structural Shift to Stacks as Value Chains Disintegrate
June 2018 20
Source: BCG Analysis
Vertically integrated banks, with organizational units
dedicated to each step of the value chain, compete
against one another
Individual business models evolve as value chains break
up. Integrated business models are increasingly
challenged.
Competition
The 1990s: Value Chains The Future: Stacks
Competition
Competition
Competition
At every stage of the value chain banks are being disrupted; banks feel the pressure of continuous competition at
each business unit layer, not just as a vertically-integrated whole.

21. Breaking the Chains: Vertical Integration Crumbles Under
Digital Pressures
June 2018 21
Historically, banks won by mastering the end-to-end value chain – strength in some areas compensated for
weaknesses in others. In a “stacked” reality, incumbents are attacked by new entrants at every layer. Banks
must critically assess their capabilities and strengths across these layers and determine a competitive response.
Competitive advantage used to come from low
transaction costs due to economies of scale,
achieved through vertical integration, and
controlled access to data
Cloud computing, advanced data analytics
revolutionized economies of scale
Digital transformations in other industries and the
rise of platform companies have changed
customer expectations; customers want an
intuitive, customized, seamless experience
BANKS HAVE THREE OPTIONS:
1. Be excellent at all
layers
2. Limit focus to
layers in which a
competitive
advantage already
exists
3. Win in layers of
strength, and partner
with the winners in
the layers where the
bank is weak

22. From Vertical Integration to Horizontal Landscape
June 2018 22
Production
(Banking Incumbents)
Distribution
Create financial products and services for specific
customer segments, including other banks
› Threat of new entrants is relatively low
› Producers require a banking license and
are subject to complex regulatory
requirements
› Opening banking initiatives do not focus
on reducing the barriers to entry for
producers
› Access to existing infrastructure (i.e. core
banking systems and payments infrastructure)
is a competitive advantage
Key success factors:
› Achieving economies of scale to cover high
fixed costs
› Access to best-in-class technologies
› Ability to incorporate advanced analytics, AI
and machine learning, to gain efficiencies
Provide products and services through managed
channels to deliver an excellent customer experience
› Threat of new entrants is high
› Goal of open banking is to reduce the
barrier to entry for distributors
› Established trusted relationships with existing
customers give banks a competitive
advantage
› Distributors may have diluted relationship with
customers
› Ability to constantly adjust product and service
offering through rapid adoption and
integration of new partners
Key success factors:
› Achieving economies of scale; distributors with
access to a large network will gain competitive
advantage and improved costs
› Ability to deploy advanced analytics and AI to
delight customers and provide a customized,
intuitive experience
Open banking (and initiatives like payments
modernization) separates banking into
distinct components: production and
distribution. Banks have been distributors
for a long time through credit cards, mutual
funds, and other financial products. The new
novelty is that banks could focus extensively
on distribution as the main business model.
Owning and managing the customer relationship is
the largest driver of profitability for banks. The
“distribution” side of banking (activities linked with
origination and sales) contributes about 65% of profits,
with an ROE of 20%; core “production” activities
(financing and lending) deliver an ROE of less than 5%2
The In-Between
1McKinsey: Remaking the Bank for an Ecosystem World
2Accenture: Beyond Digital: How Can Banks Meet Customer Demands 3Accenture: FinTech and the Evolving Strategy

23. Examples of Producers and Distributors
June 2018 23
Most traditional banks are both
producers and distributors. Back
offices produce banking products, like
loans, wealth management solutions,
and mortgages. These products are
distributed through customer-facing
channels, like physical branches, online
banking or mobile apps.
In France, Crédit Agricole allows third-parties to build
distribution services on top of its new banking platform
- essentially crowdsourcing ideas for innovative banking
applications from customers and supporting their
developers to bring these ideas to completion14. Other
banks have followed - institutions from Goldman Sachs
to BBVA are releasing proprietary code and launching
competitions encouraging software developers to build
new platforms and apps to create a stronger service
offering.
Saxo Bank is a good example of a producer. Saxo Bank
is a financial trading platform that enables trades in
thousands of financial instruments on a multitude of
exchanges. Historically, Saxo Bank connected trading
products to customers through its own distribution
channels, including its SaxoTraderGo app. Now, Saxo
Bank increasingly connects its trading platform to
customers through partners – banks and brokers, family
offices, fund managers, professional traders and money
managers, private banks and other service providers.
Saxo Bank expects that more than 50% of all trades will
be generated by partners soon.
A strong example is Leveris, an Irish FinTech that has
built a full-stack, standalone core banking and lending
platform that delivers a cloud-based, quick-to-market
solution for traditional banks, challenger banks and
consumer brands. Leveris is not encumbered by issues
that arise with migrating a legacy core banking system
to the cloud; its platform is built specifically for modern
cloud-based infrastructure. The modular, ‘marketplace’
approach enables Leveris’ clients to partner with leading
market innovators, as they come.
Another way in which banks are becoming distributors is
through the licensing of small business loan platforms,
such as in the deal between Santander UK bank and the
Kabbage platform. Santander has licensed Kabbage to
power automated lending services to SMEs; this
relationship enables Santander to accelerate the
underwriting process for businesses looking for loans up
to 100,000 GBP online – also reducing time required to
process requests to as little as 24 hours15.
14 American Banker: Open API for Bank
15 KPMG Forging the Future Global Report 2017
Producer Distributor

24. Banking Business Models: Re-Defined for a Digital Future
June 2018 24
The business model will drive
your FinTech strategy.
Banks have four options:
Stay with a traditional, vertically-integrated
integrator model that acts as both producer
and distributor (the “do nothing” approach)
Focus on production
Adapted from Ben Robinson (Temanos)
Profitability
Scope of Activity
Producer
Distributor
Integrator / Traditional
Banking
Platform
Focus on distribution
Transform to a platform model

25. Banking Models Re-Defined: Producer
June 2018 25
Producers focus on establishing
economies of scale through providing
back-end services to distributors.
Rather than providing services to address a single
customer problem or augment an area of the banking
business, producers develop a suite of “managed
solutions” that span from payments processing to
product servicing, settlement and reporting. Producers
are connected via an extensive network or value web to
end clients and third-party providers. Through this
model, producers can host FinTechs and act as a
consolidator of services. Producers leverage insights
and management of channel relationships; they service
a broad range of clients by carrying a full product suite
and utilizing white-label solutions.
API LAYER
Settlement Reporting
Payments
Processing
Products
Servicing
Hosting
Infrastructure
Adapted from Ben Robinson (Temanos)

26. Banking Models Re-Defined: Distributor
June 2018 26
Success as a distributor depends on
rapidly identifying, evaluating,
adopting and integrating innovation
from third-parties. This can take a few
forms:
› Enabling “plug & play” relationships with
service providers
› Forming strategic partnerships, in which there
are shared risk and rewards
› Acquiring third-party innovations or
technologies to establish a competitive
advantage
As distributors, a bank leverages its existing customer
relationships and re-position itself as a trusted advisor.
The goal is to gain a larger share of an individuals’ wealth,
which is necessary to mitigate the high customer
acquisition and ‘Know Your Customer’ (KYC) costs.
The bank acts as a concierge, bringing aboard new
technologies to offer enhanced service offerings based on
a deep understanding of customer needs. Banks expand
beyond transactional advisory services to strengthen
customer relationships. An example is providing a suite of
value-added service offerings like partnerships with real
estate agents, corporate finance advisors, insurance
companies and philanthropy experts. This leverages
existing service elements; for example, credit card
companies offering exclusive concert experiences or
special rates for products, like flights, cars or vacations.
Operational Tactics
This business model must be strongly endorsed by
executive leadership. Defined accountabilities and
decision-making authorities are critical, as these
supporting processes underpin the innovation sourcing
role of the distributor.
From a compliance standpoint, clear guidelines and back-
end documentation should expedite decision cycles and
ensure regulatory requirements are satisfied. The reliance
on connections to third-parties mean distributors must
have robust and responsive risk management and security
practices.
Non-
Financial
Products
Fintech
Products
Banks
Distributors
API Layer
Open Product Catalogue
Decision Engine, CRM
Engagement (Gamification, PFM, etc.)
Digital Channels
Data
Customers
IF
Adapted from Ben Robinson (Temanos)

27. Banking Models Re-Defined: Platform
June 2018 27
PLATFORM
LEVERS
CURRENT STATE BANKING-AS-A-PLATFORM (BAAP)
BANK PLATFORM PARTNERS
SCOPE OF FIRM Firm does everything Focused only on core activities
Partners perform broad array of
complementary activities
PRODUCT Owns 100% of product stack Own core product stack
Partners develop and offer ancillary
products
SERVICE Owns 100% of product stack Own core product stack
Partners develop and offer ancillary
services
IP/DATA No sharing Information is shared Information is shared
TECHNOLOGY
Not modular, not opened, not open
source, not open standards,
sometimes proprietary, silo based
Modular tech, open source and open
standards use, API, interface
openness
Interoperability between partner
interfaces and bank’s interfaces is key
RELATIONS
WITH PARTNERS
Embryonic
Based on collaborative-competitive
continuum
Collaboration with some partners,
competition with others
HR/ORG CHART Company-centric
Articulated difference between focus
on core, and focus on
platform/partners
Bank develops ability to “speak” same
language as partners
The Platform model offers a wide
variety of technology solutions and
capabilities to customers through rapid
time-to-market development of
proprietary technology, or aggressively
sourcing third-party products and
partnerships.
The platform is vertically integrated, with banks taking
advantage of strong customer service capabilities but
strategically outsourcing activities and product lines that
could be delivered more profitably by other providers or
“platform partners”. The platform model addresses client
needs by consistently keeping its innovation pipeline full,
based on insights and abreast of new trends. The platform
product suite is valued by customers and providers for
performance and quality - tailored to customer needs.
Table adapted from The Financial Brand

28. Bringing it all Together
June 2018 28
Banks continue in customer-facing role by rapidly adopting
innovation and passing efficiencies on to customers
BANKS HAVE FOUR OPTIONS:
To create value in the digital era, banks must collaborate with TechFins and FinTechs in a way that complements
their business model and strategy, whether that be as a distributor, producer, integrator or platform.
Accenture: FinTech and the Evolving Landscape
Banks relinquish some activities but retain end-to-end
value chain activities by offering open and safe services
integrated with customer solutions
Banks make a drastic shift away from customer relevant
activities; creating value by operating as a highly regulated
core, integrating complex supply chain and service providers
Status Quo; Banks continue as integrators in highly
customer relevant role, yet with decreased ability to
compete on innovation
Banks must develop a FinTech strategy that
delivers the corporate go-to market strategy &
reinforces the supporting structures & processes.
Integrator / Traditional Banking
Platform
Producer
Distributor

29. What’s Next: The Future State of Banking
June 2018 29
Banks should focus on moving toward
“Ambient Banking” or
Banking-as-a-Lifestyle by way of first
being a Banking-as-a-Service provider.
The current stage of innovation we are entering
in the financial services industry is only one
phase of evolution, and even our current reality is
poised to change in the near-distant future.
Banks must strategically look to the future to
determine how our short-term transition will
enable a long-term transformation.
There is no rest for the innovative as
the banking industry continues to
experience widespread disruption
and changing customer preferences.
Everest Group Future of Banking – “Experience First”: Banking ITO Annual Report 2017

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