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Financial Services Digital Disruption – Trends & Innovations

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This presentation examines trends and innovations in financial services (focusing on banking, insurance, credit cards).
In the last few years, the financial services industry has undergone a digital evolution. Now, it is time for a digital revolution, due to growing disruptive "Fintech" start ups and their innovative models.

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Financial Services Digital Disruption – Trends & Innovations

  1. 1. Financial Services Trends & Innovations: the Digital Disruption Schieber Research | April 2016
  2. 2. Introduction • This presentation examines trends and innovations in financial services (focusing on banking, insurance, credit cards). It is the 2nd report in the series, with the 1st published in 2014. • The presentation is based upon the Schieber Research Disruption Model which examines the following elements: Consumer demand • unmet / new needs created by macro changes Market trends • rate of innovation adoption Trend setters new & promising start up companies affecting the industry Best in class • competitors ahead of the curve
  3. 3. Disruption Model (1): Consumer Demand • The following Consumer Mega-Trends are affecting the current state of financial services: – Collaboration economy – driven by social media – On the go behavior – driven by intensive lifestyles and the rise of mobile technology – Convenience seeking – driven by connectivity (“the internet of things” and wearable technology) Consumer demand •unmet / new needs created by macro changes
  4. 4. Consumer | Mobile Penetration Data • Global Mobile penetration continues to rise, giving birth to more on the go mobile financial solutions Ericsson 2015 the Discover card offers a mobile app enabling to freeze your account using Freeze itSM, an on/off switch that lets you freeze your account in seconds to prevent new purchases, cash advances and balances transfers if you misplace your card.
  5. 5. Consumer | Social Penetration GlobalWebIndex & Statista, 2015 • Time spent on social networking by internet users worldwide is on the rise, causing more sharing and peer to peer behaviors resulting in the “collaboration economy”
  6. 6. Consumer | IoT & Wearables • Internet of Things continues to grow, including Wearables. Ericsson 2015; IDC 2015 Visa is expanding its Visa Ready program to include Internet of Things (IoT) companies, such as manufacturers of wearables, automobiles, appliances, public transportation services, clothing and almost any other connected device
  7. 7. Consumer | Wearables • According to research from Intelligent Environments (October 2015), nearly half of 18-30 year-olds have used a smartwatch to deal with money matters in the UK Nationwide strategically focuses on delivering value to customers through digital innovation, with its Innovation Lab projects harnessing emerging technologies including next generation biometrics, wearables, future payments, artificial intelligence and beacons. The company’s N.Band successful trial allowed customers to make contactless payments using a wristband for any transaction under 20 GBP NatWest bank - Apple Watch
  8. 8. Disruption Model (2): Market Trends • To respond to the aforementioned needs and behaviors, the market is undergoing a shift towards digital financial services. • Online banking adoption rates still haven’t reached 50% in the EU, but in some countries, as well as in the USA, penetration surpassed 50%. • We expect Mobile financial services to grow at a faster rate, due to the increase in solutions offered through mobile devices as well as younger demographics demand for ultra-convenient solutions. Market trends •rate of innovation adoption
  9. 9. Market Trends | Rate of Disruption • The World Economic Forum has identified 11 clusters of innovation exerting pressure on traditional business models • According to the WEF report, the most imminent effects of disruption will be felt in the banking sector; however, the greatest impact of disruption is likely to be felt in the insurance sector Source: WEF, “the Future of Financial Services”, http://www 3fdp.secivres_laicnanif_fo__erutuf_ehT_FEW/scod/gro.murofew.
  10. 10. Market Trends | Rate of Disruption • Citi believes that personal loans are the closest and biggest threat in terms of disruption by new entrants, followed by digital payments. The company believes that the mortgage market is more resilient to disruption. However, in our opinion, mortgage is set for disruption, being a complicated and stressful – yet rather common – task. For example, Rocket Mortgage by Quicken Loans claims that it has reinvented the mortgage process to put the power in the hands of the consumers.
  11. 11. Market Trends | Digital Banking Adoption 55.1% 46% USA EU Digital Banking Penetration, 2015, % of adult population • Perhaps surprisingly, Statista data demonstrates that digital banking penetration has not yet reached 50% of adult population in the EU, while in the US penetration stands on 55.1%. • Schieber Research expects digital banking adoption rates to rise, with 39% of 18 – 34 year olds in the US saying that they would consider switching to a bank with no physical branches (a purely digital bank), compared to 29% of 35 – 55 year olds and 16% of 55+ (source: Accenture). • The growth will be driven from mobile banking adoption, due to the rise in on-the-go activity, affecting payment and insurance transactions. Already, the main reason for using mobile banking among millennials in the US is convenience and time saving. • According to a new report commissioned by Fiserv, the number of UK mobile banking users is set to almost double from 17.8 million to 32.6 million by 2020.
  12. 12. Market Trends | Mobile Banking Adoption • In the UK, 27% of people used mobile banking in 2014, compared to only 10% in 2011 (source: Accenture). 37% 49% 44% 41% 44% 40% 41% 35% 37% 33% 26% 25% 23% 38% 56% 50% 48% 48% 43% 42% 38% 37% 34% 34% 27% 22% 17% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Europe Turkey Netherlands Poland Spain Austria Luxembourg United Kingdom Italy Germany Czech Republic Belgium France Romania Share of respondents 2013 2014
  13. 13. Market Trends | Fintech Adoption • According to Ernst & Young (2015), Fintech adoption is the highest in Hong Kong (29% of digitally active people have used at least 2 fintech services in the last 6 months), followed by the US (17% of consumers).
  14. 14. Market Trends | Personalization • The accumulation of data from digital transaction creates new opportunities for segmentation, and consumers will increasingly demand personalized offers from their financial service providers. According to Lloyds Bank, online users typically make 10% to 15% more contact with the bank than face-to-face users, so they represent a great opportunity for banks, data and sales wise. By analyzing the spend patterns of customers, Lloyds is able to provide users with better offers.
  15. 15. Disruption Model (3): Trend Setters • Fintech companies are offering new ways of responding to consumer needs. • While existing competitors need to adopt more slowly, developing channel after channel, start ups are concentrating on entirely digital solutions, thus designing cutting-edge solutions which in turn, create new consumer expectations. Trend setters new & promising start up companies Schieber Research separates between “tech based financial services” (those relying specifically on digital channels and would not have existed without use of technology), and “digitally adapted financial services” (those which utilize channels / capabilities which are not digital in addition to adapting to the digital age).
  16. 16. Trend Setters | The Disruptors • According to research by Citi, investments in financial technology have grown exponentially in the past 5 years, rising from $1.8 billion in 2010 to $19 billion in 2015 — with over 70% of this investment focusing on the "last mile" of user experience in the consumer space. • The majority of this investment has also been concentrated in the payments area and this is where banks are seeing the most competition with new entrants.
  17. 17. Trend Setters | The Disruptors • According to Statista, Fintech segment transaction value (for Digital Payments, Business Finance and Consumer Finance) will reach USD 2.8 trillion in 2016, mostly due to digital payments transaction value (USD 2.57 trillion) and experience 19.6% CAGR between 2016 – 2020 to USD 5.7 trillion in 2020. BI Intelligence – major companies in the Fintech sector by segment
  18. 18. Trend Setters | The Disruptors • Table by CBInsights: Top Fintech “Unicorns” (worth over $ 1 billion), ranked by value
  19. 19. Trend Setters | Comparison & Management Sites • Complex insurance products and services are being disentangled by 3rd party websites. Therefore, navigating between different companies’ solutions will become easier, and we expect that companies will build specialties for specific market segments rather than a “one size fits all” attitude. • Websites such as enable consumers to manage their accounts online • In 2010 Google added a price comparison tool to its search engine – Google Compare. The platform was discontinued in March 2016.
  20. 20. Trend Setters | Peer-To-Peer Lending • The term “peer–to–peer lending” has its origins in the facilitation of unsecured personal lending between individuals (rather than a company) via digital tools. • P2P lending are a major industry, still far from reaching its full potential: Lending Club’s IPO filing cites the size of the consumer credit market at $3.2 trillion, yet most of the market concentrates on US citizens and on specific segments. • For that reason, traditional competitors have been responding via partnering / acquiring / investing in competitors. For example, BBVA, Credit Suisse and JP Morgan, have directly invested in Prosper while Silicon Valley Bank and Norwest Venture Partners (Wells Fargo) have invested in Lending Club. JP Morgan partnered with OnDeck Capital, and Goldman Sachs is building a new lending unit, which has been dubbed “Mosaic”. • The leading competitors are Lending Club (estimate $ 8 billion in loans in 2015) and Prosper ($ 3.7 billion in loans in 2015 with revenues of $ 200 million).
  21. 21. Trend Setters | Peer-To-Peer Lending • Competitors such as SoFi and OnDeck are targeting new segments, further contributing to the overall market growth. For example, SoFi is now the student largest provider of student loan refinancing. • According to Bain, 2016, competitors such as WeChat, PayPal and Square now offer digital messaging or payment platforms onto which they have added short-term finance.
  22. 22. Trend Setters | Peer-To-Peer Lending • Some companies have identified the problem of low credit score, or the lack of credit score, offering “potential based” loans. Upstart: “Founded by ex-Googlers—fair and fast personal loans”
  23. 23. Trend Setters | HR and Finance Websites • Fintech competitors have recently entered the field of small business financial management, replacing services outsourced to HR and CPAs personnel. Gusto offers an app for small businesses, with services like automatic tax filings & digital paystubs, as well as workers’ compensation. Abacus provides a way for businesses to reimburse their employees for company expenses, reconcile corporate cards, and implement expense policy
  24. 24. Trend Setters | Mobile Only Banks • Atom Bank will be the UK's first mobile-only bank and it claims to make banking easier and more intuitive by offering all of its services through a smartphone app.
  25. 25. Disruption Model (4): Best in Class Established competitors, as well as emerging competitors, use a mix of strategies to maintain competitive advantage in the financial services field, including adoption of new technologies (using enabling start ups), innovation labs (to provide access to trend setting technologies) and M&As (of disruptive start ups). Best in class •competitors ahead of the curve
  26. 26. Best in Class | Company Strategies Main strategies in the financial sector: Google Ventures (GV) is Google’s investment arm, through which the company has been investing in Fintech startups. Adoption of new technology Innovation labs and accelerators Fintech start up acquisitions Spain's BBVA acquired online bank Simple in 2014 for $ 117 million. Amazon Payments has 23 million active users today, compared to PayPal’s 179 million active users. Now, Amazon is looking for acquisitions. Apple Pay is the mobile payment / digital wallet service by Apple.
  27. 27. Best in Class | Social Adaptation • Facebook enables people to send and receive money on its Messenger chat app. PayKey is an enabler for industry competitors, connecting banks to social media for secure everyday activities. NIC Bank Group has announced that it will be the first bank in Kenya to launch an innovative social media banking platform, dubbed "NIC KONNECT
  28. 28. Best in Class | Social Adaptation • Bank of America has implemented Real-Time person-to-person (P2P) transactions. • Aviva partnered with an independent review company, to collect, collate and publish insurance product reviews from Aviva customers.
  29. 29. Best in Class | Mobile Adaptation • American Express offers Touch ID Log in for new card members. In North America, MasterCard began to roll out “Selfie pay” - Biometric corporate card program.
  30. 30. Best in Class | Mobile Adaptation • The main challenge in mobile financial services is keeping them simple and intuitive, as financial services can be complex. The Citibank tablet app replaces lists of transactions with interactive financial graphs to make the most of the device’s capabilities.
  31. 31. Best in Class | Hyper Convenience • American Express offers Amex express check out (an alternative to PayPal) – “a fast, secure way through which U.S. cardmembers can check out quickly online by using their login” • In Kyiv, passengers of the Kyiv metro can pay fares using their MasterCard contactless cards or devices while passing through the turnstile.
  32. 32. Remember – How to Utilize Digital for Growth • Financial Services brands must provide the following advantages in order to attract new clients and cross-sell new services to new clients: – Building Trust through: Personal connection (utilizing social platforms), content ownership / expertise (utilizing blogs, micro sites etc.) and targeting niches, through transparency. – Offering Convenience. On time / on place (utilizing mobile devices). Self service (utilizing mobile, online and tablet). – Providing Personalization. Online / mobile customizable tools, device- specific presentation (such as tablets). – Offering Simplicity. The industry is perceived as complicated and confusing. Digital channels are enabling new strategies such as gamification and simple analysis tools. Source: Schieber Research & Carmelon, Digital-Inspired Trends & Innovations in Financial Services, 2014
  33. 33. Time to Personalize • Our 2014 report found that convenience, as well as simplicity, were the key growth drivers for the industry, in terms of customer benefit: time saving, schlepping-free transactions, etc.; next in line were money saving and personalization. And indeed, key competitors focused on delivering more convenience through omni-channel tools, with a specific focus on mobile devices. • This report identifies personalization as the key driver for today’s companies, as a result of the use of Big Data, the rise of Internet of Things (including wearable devices, smart homes and smart cars); and the growing competition from new industry disruptors, forcing companies to a deeper understanding of micro-clusters needs, or a “mix and match” between products and services. • We expect that in 2016 – 2017 more competitors in the banking, payment and insurance will focus on micro-segments, followed by an entirely personalized offer.
  34. 34. Thank You! The research was conducted by: Hamutal Schieber Schieber Research | Market Research & Competitive Intelligence | Executive Summary. For the full research - please contact Carmelon Digital Marketing