1. www.ariv.al
American market is on
the way to the next wave
of digital banks.
The way we bank is changing:
www.ariv.alwww.sreda.vc

2. What are the biggest
threats facing US banks?
“Just 1 in 4 Americans
trust their bank”
Gallup poll “Many people said they would
trust Amazon to manage their
money as they would trust
a traditional bank”
Bain & Co. report
“62% of millennials in North
America use products from
fintech companies”
World Retail Banking Report
“42% of millennials want to
manage their bank relationship
exclusively online”
The 2016 Millennial Money
Mindset Report by iQuantifi
Carlos Torres Vila,
CEO at BBVA
“The real value of money has
changed, while the banking
business model has not”
“Of the people who switched
banks in 2016, 11% chose an
online or virtual bank”
Accenture Consulting,
the North America Consumer
Digital Banking Survey
“tech companies could wipe
out as much as 60 percent
of profits on some of banks'
financial products”
McKinsey
“55% of small, community
and regional [American] bank
executives had not set up any
meetings or presentations
with potential fintech partners”
“Until banks start rethinking
that basic premise, they’ll
continue to iterate on their
current business model while
customers pass them by”
“Any industry that lacks
competition will begin
to stagnate”
“Business models of
traditional banks are
increasingly comping
under pressure”
“The bigger effect from
the fintech revolution
will be to force flabby
incumbents to cut costs
and improve the quality
of their service. That will
change finance as
profoundly as any
regulator has. ”
“A lot of the startups
choose one very thin
slice of what a bank
does. But there’s
just so many of them
that they encompass
everything we do.
In every little slice,
you have like 10
companies that just
do it better. They do
it cheaper and they
do it with better
value for the
customer.”
“Never mind if fintech
fails to take over the
world, or even the
current account:
its emergence is
changing the face
of finance. “
“Banks’
innovation
labs haven’t
necessarily
been
successful.
Most of
the cool
new
products
and truly
disruptive
technology
still comes
out of
fintech
firms.”
“fintech firms are growing
fast by questioning status
quo of the very traditional
and highly regulated industry”
“these [banks’ innovation labs and] corporate startup programs are
driven by either hope, fear or a herd effect. Traditional banks battling
against digital disruption openly admit that they're willing to try just
about anything to help them win and retain customers.”
“The fintech firms are not
about to kill off traditional
banks. Nonetheless, the fintech
revolution will reshape
finance — and improve it”
“the banking industry
in the U.S. continues
to lag other regions
of the world in the
development of meaningful
digital innovation”
“Ask what’s wrong with America’s
banks, and you’re likely to
hear that they’re just too
complicated, too opaque”
“40% of financial services
executives are worried that
their firm and industry is at
risk of major disruption in the
next decade”
Venture Beat's survey
Big Data Business Impact
“Only about 1% of North
American [traditional]
consumer banking revenue
has moved to new digital
models”
02

3. According to a recent Bain & Co. report 1
, almost as many people said they would trust Amazon to
manage their money as they would trust a traditional bank. This is likely why an Amazon-branded
checking account may have banks worried. For years, security and trust have been the banking
industry's selling points for the services they offer, and now that's being threatened.
Banks' problem is much bigger than whether or not Amazon becomes more of a threat in financial
services or not. While it’s intriguing to think about how Amazon might change the banking industry,
the news feels more like window dressing to cover the fact that there is a larger disruption affecting
banks today: The real value of money has changed, while the banking business model has not. 2
In
other words, customers want to use their money to pay for everything from groceries to rent — and
they want to do it quickly and easily. But in order for banks to make money, they have to hold onto
that money.
Since the days of the stagecoach, people have paid a bank a fee to safely store and transport their
cash. As consumers became more uncomfortable with fees over the years, banks have tried to add
value to what they are paying for by opening branches and offering ATMs, money market accounts
and free checking. These days, they offer digital banking. These services, while valuable to the
consumer, are ancillary to a bank’s core value proposition: holding your money. However, that core
value proposition is not nearly as important as it used to be. Today, the real value of money is based
on what it can do. And if people no longer need banks to hold their money, the business model is
fatally flawed. Banks should plan for an overhaul on the value their industry provides to
customers.
To be fair, banks are paying attention. Some have made significant investments into their mobile
banking apps and have begun to leverage new technology to help customers invest and manage
their money. For instance, Bank of America created erica, an AI-fueled chatbot that will help
customers identify ways they can save money or pay bills easier. Ally Bank launched Ally Skill on
Amazon’s voice-activated devices so that account holders can ask Alexa what their balance is and
easily transfer funds between accounts. And yet, there is still a fundamental flaw: These innovations
are built upon the ancillary services banks have always provided around their core value
proposition of holding people’s money. In other words, for you to experience a bank’s innovations,
you have to have your money in said bank. Until banks start rethinking that basic premise, they’ll
continue to iterate on their current business model while customers pass them by. Banks need to
figure out how to translate the trust they’ve earned over decades into something valuable outside of
holding money. The sooner financial institutions can get out of their comfort zones, the sooner
everyone can start planning for a very real and very different future.
The top 3 challenges facing banks and financial institutions:
1. Not making enough money. Despite all of the headlines about banking profitability,
banks and financial institutions still are not making enough return on investment, or the
return on equity, that shareholders require.
2. Consumer expectations. These days it’s all about the customer experience, and many
banks are feeling pressure because they are not delivering the level of service that
consumers are demanding, especially in regards to technology.
3. Increasing competition from financial technology companies. Financial technology
(FinTech) companies are usually start-up companies based on using software to provide
financial services. The increasing popularity of FinTech companies is disrupting the way
traditional banking has been done. This creates a big challenge for traditional banks
because they are not able to adjust quickly to the changes – not just in technology, but also
in operations, culture, and other facets of the industry.
What Are the Biggest Threats Facing US Banks
and Credit Unions?
03
1 http://www.bain.com/publications/articles/bankings-amazon-moment.aspx
2 https://www.americanbanker.com/opinion/amazon-is-the-least-of-bankings-problems
3 http://www.the-future-of-commerce.com/2017/07/21/challenges-facing-banking-industry

4. JPMorgan Chase & Co and Bank of America Corp have said recently they will build branches as they
spread into more cities.4
Bank of America is expanding this year into Pittsburgh. JPMorgan intends to
add as many as 400 branches over five years as it moves into cities such as Boston and Washington,
D.C. More U.S. customers might be willing to open primary accounts online if traditional banks
were able to better show that they can handle problems remotely. But some banks still will not
even change a home address for a customer without a personal visit.
What do financial executives say are their biggest threats, challenges and opportunities? An annual
study 5
from Computer Services Inc. (CSI) examines the priorities, initiatives and areas of focus that
will define the strategies for community-based institutions in the coming year. The report includes
survey data and industry-specific analysis on the issues commanding attention from banks and credit
unions.
Looking at the top three challenges cited by financial institutions, it seems they will be busy focusing
on little more than internal issues — compliance, security and the bottom line — leaving little room
for new customer-facing initiatives that could improve the experience. How can banks and credit
unions innovate, develop new products and build out their digital capabilities when they have to
expend so much of their time, energy and resources just treading water?
The average consumer has little to no trust in their bank, they just use the cheapest option they can
find. Combine that with a total lack of competition at the top-level of the industry and what you're
left with is an industry in desperate need of change. People don't trust banks:6
Just 1 in 4 Americans
trust their bank according to the most recent Gallup poll. While that is a bit higher than it was during
the 2008 crisis, the number is still at a historical low. That mistrust shines brightest when you
examine alternative currencies.
The way we bank is changing: If you're a millennial, chances are you already do the majority of your
banking online. Basically, if you're under 30 chances are you visit your branch as little as possible. It's
not just the youth though, people of all ages are becoming increasingly comfortable with using an
app or website to handle all of their banking needs, not just the simple stuff. Accenture Consulting
released the North America Consumer Digital Banking Survey last year. It showed that of the people
who switched banks in 2016, 11% chose an online or virtual bank.
A large part of the operating expenses traditional banks face is the upkeep of their
brick-and-mortar locations. Completely branchless banks might have a smaller market to work with
at the moment, but the savings made on physical locations can translate directly into R&D on new
services that will further cement their place in the banking industry.
Banks are still getting bigger: We all know by now that one of the leading factors that caused the ‘08
financial crisis was a lack of competition and regulation in the financial services industry. Years of
consolidation and "shotgun mergers" led to a group of "too big to fail" banks - and the real loser
was the American people. Currently, the six largest banks in the US control 70% of the country's
assets. That would be a 40% increase in control over the past decade despite an actual asset growth
of just 8%. The idea of competition amongst the largest banks is a sham, their rates are virtually
identical, they just offer their "sales" at different times.
Any industry that lacks competition will begin to stagnate and lose the motivation that drives
innovation. The major banks are long overdue for some serious competition. According to Venture
Beat's new survey, Big Data Business Impact: Achieving Business Results Through Innovation And
Disruption, 40% of financial services executives are worried that their firm and industry is at risk
of major disruption in the next decade. The way we bank is changing, but the banks themselves are
sticking to old habits wherever they can.
Despite increased investment, the banking industry in the U.S. continues to lag other regions of
the world in the development of meaningful digital innovation.7
This impacts customer
experience, cost structures, as well as revenue opportunities. Historically, the banking industry in the
U.S. has been slow to innovate compared to other industries. Over the years, multiple global trade
organizations like EFMA and BAI have sponsored innovation competitions. With very few exceptions,
banks from the US have been absent from the winners’ circle and even when they do win, it is usually
for improvements to traditional distribution networks or completely new banking organizations like
Simple, Moven or BankMobile. Conspicuously absent are the big five banking organizations in most
cases.
04
4 https://www.reuters.com/article/us-usa-banks-branches/americans-prefer-bank-branches-over-mobile-apps-for-opening-new-accounts-idUSKCN1G52DN
5 https://thefinancialbrand.com/56872/banking-strategy-threats-priorities
6 https://www.inc.com/james-paine/why-the-banking-industry-is-ripe-for-disruption.html
7 https://thefinancialbrand.com/65069/america-us-banking-digital-innovation-trends/

5. Some non-U.S. institutions are recognized regularly for their efforts, with select regions being
hotbeds for new ideas and innovation. Regions with ‘newer’ financial economies seem to be
over-represented, with firms like CaixaBank, DenizBank, Fidor Bank, Idea Bank, mBank, and Nedbank
being consistent winners. Soon, fintech firms outside the U.S., such as Atom, Monzo, Starling and
N26 will also take the stage. Outside the awards designation, there is some innovation occurring in
the U.S., but the majority appears to come from U.S. organizations with overseas ownership (BBVA
and Santander), smaller digital banking organizations (Simple, Moven and Bank Mobile) and U.S.
based fintech firms.
So why is it that in the USA, where more banks and some of the largest banks in the world exist, is
true innovation so difficult to find? “Many U.S. banks are so invested in their legacy business models
that it makes it very hard to undertake truly disruptive innovation projects,” says JP Nicols, Managing
Director of FinTech Forge. “Banks in emerging markets have to be innovative to reach their
customers, many of whom don’t have access to the broad range of choices that Americans have.”
Bradley Leimer, former head of fintech strategy and innovation at Santander US says: “While there are
many reasons US banks are innovation laggards, I think legacy technology, regulation, compliance,
and risk aversion have to top the list of reasons why we’re not seeing more movement.”
In contrast to the other regions, the main barrier to innovation for the Americas seems to be
culture rather than IT systems or lack of funding. “Innovation is simply not in the DNA of most
bankers,” explains Nicols. “They’ve been trained throughout their whole career to identify and avoid
risks, and innovation is about taking small risks and failing fast and cheaply and learning from those
mistakes to get to the right answer quickly.” Nicols continues, “Another challenge is analysis paralysis.
Most banks have too many silos with conflicting agendas, and that makes it hard to actually put new
ideas into action. Consequently, those few innovators who do exist in banks find themselves
surrounded by the ‘business prevention department’.” Chris Skinner adds, “Lethargy and lack of
competitiveness plagues the majority of the banking industry. Lethargy embraces everything from
‘oh, the regulators won’t allow it’ to ‘if ain’t broke, don’t fix it’ to ‘but the legacy, the legacy, the
legacy’. There is more perceived risk in changing what is already in place than the risk surrounding
doing nothing at most organizations.”
One banker admitted, “Our innovation lab looks great for the investor public, but in reality, the best
ideas are coming from the front line and from our test branches. The digital banking areas of the
bank think completely different than the legacy banking departments and even the innovation lab …
they get ideas to the consumer faster.”
05
Summary–Key areas for development in a traditional retail bank
Key Areas for Retail
Banks
(Development
areas)
! "
$%
Mobile and Digital
- Digital customers are already there
- Technology is accessible to all
- Focus is to attract new young generation
Value Added Services (New revenues)
Services based on customer behavior:
- prior to payment transaction (predictive)
- at the moment of transaction (instant)
- after payment transaction
P&L – Internal Processes
- Operational excellence and digitalization
- Cost reduction and optimization
- Areas of synergy
Data monetization & analytics
Data-rich solutions:
- Dynamic business steering
- Behavior-driven marketing
- Data-rich consumer and enterprise applications
New Business Models
- Partnering with Big-tech?
- Partnering with Schemes?
- Partnering with Fin-Tech?
- Joint venture with GP
&

6. Most importantly, the biggest adjustment that will be needed in the U.S. is a much stronger culture of
innovation and acceptance of tolerable risk. If the U.S. banking organizations continue to be
complacent, eventually the digital consumer will notice that the grass is truly greener across the
street and they will switch providers.
Why can’t banks and credit unions master innovation?8
Financial institutions have a few strikes
against them. For starters, the culture of banking isn’t conducive to new ideas. The second reason
financial services institutions struggle with innovation is a serious lack of talent. Banks and credit
unions aren’t just competing amongst themselves for employees who have the drive and technical
skills to be innovation engineers; they are competing against big tech and fintech firms. Most folks
gravitate towards a sexy option like Amazon before they even consider working for a financial
institution, even one with a household name like Bank of America, HSBC or Goldman Sachs. Banks
and credit unions — with their risk averse cultures, aging technology, stodgy brands and bureaucratic
hierarchies — simply aren’t attractive landing pads for top talent. The embedded hierarchy is not only
distasteful to young technology talent, but it also hampers innovation. In a typical bank or credit
union culture, ideas come from the top and flow downward, and not vice versa. Not only are
financial institutions missing out on some really good ideas, but their employees become frustrated
and send their resume over to Amazon.
Even though most banks and credit unions are far from cutting edge, they still believe that they are
innovators. A scant 2.8% of financial institutions in the PYMNTS.com survey said they have not
focused on innovation in the past three years. More than one-third (37.9%) say that they generally roll
out new products before others. But some financial institutions are pretty adroit innovators. They
generate ideas quickly and then they test them out in a timely fashion. Others seem to be operating
in dog years. Futurion asked bankers how long a “typical” large scale innovation effort takes — from
ideation to roll out—and the average was 21.5 months — just slightly under two years. The longest? At
these banks and credit unions, today’s great idea won’t see the light of day until 2023.
Ask what’s wrong with America’s banks9
, and you’re likely to hear that they’re just too complicated,
too opaque. And so we get calls for banks to simplify their operations—to go back to what’s often
called “plain vanilla” banking—and to disclose more about what they’re doing. This quest for
simplicity and transparency is understandable in a world of collateralized-debt obligations and
endlessly proliferating derivatives. Only about 1% of North American consumer banking revenue has
moved to new digital models10
(in China, the picture is very different: internet giants have moved into
financial services and gained considerable market share in e-commerce and third-party payments).
06
8 https://thefinancialbrand.com/70631/innovation-ideas-banking-culture-trends
9 https://www.newyorker.com/news/daily-comment/the-real-problem-with-the-big-banks
10 https://www.weforum.org/agenda/2016/04/what-does-the-rise-of-fintech-mean-for-banking
Overall trend
In order to achieve leading positions on the market, banks should shift a strategy from
«competitive with Fintech» to «collaborate with Fintech»
Increasing customer requirements for banking services along with growing pressure from
the Fintech startups will shift bank’s strategy to «if you can’t beat them, join them» approach.
Collaborative Fintech investments
vs Competitive Fintech investments ($ Bln)
The expectations of clients are higher than ever,
and are broadly consistent across various
sectors and contexts
Efficient. Users want processes to be streamlined and
cohesive, with key functions ‘bundled’ for user
convenience.
Real-time. The trajectory of digitalization has led to
near-instant transactions and up-to-the-second visibility
over cash-flows.
Integrated and flexible. Users expect a one-stop portal
with seamless reconciliation across their user profiles.
Accessible. Users expect channel convergence and access
to services on multiple devices through a user-friendly and
instinctive interface.
Individualized and contextually relevant. Users expect
advisory services, information and suggestions reflecting
their transaction and activity history and other user-specific
data.
1 2
71% 56%
29%
2014
Collaborative
Competetive
0.0
4.0
8.0
12.0
16.0
20.0
2015
44%
+15%

7. Online banks seem to have it all:11
relatively high interest rates, stellar customer service, low fees, and
the added bonus of 24/7 access to your finances with the click of a button. Online banks are
friendlier to smaller depositors because they typically require lower monthly balances. Online banks
typically have better interest rates than traditional banks because they don't need to take any funds to
operate brick-and-mortar buildings. If you like to deal with the people managing your money via
email or over the phone, go digital.
The opportunity for fintech companies to disrupt traditional financial institutions is best observed
today in millennials' habits.12
Millennials have a clear preference for accomplishing tasks through
digital applications and services — something fintech companies are better at providing than banks in
terms of speed and personalization. Already, 62% of millennials in North America use products
from fintech companies, according to the 2016 World Retail Banking Report. The 2016 Millennial
Money Mindset Report, released by iQuantifi, reported that nearly 42 percent of millennials want to
manage their bank relationship exclusively online. More disturbing, Gen Y customers are far less loyal
to their banks: only 45% of North American millennials said they plan to stick with their current bank.
While banks have steadily built up their online and mobile channels — in part to appeal to millennials
— the products and services they offer in those channels are built on top of legacy systems and
fail to provide the level of speed and personalization millennials expect.
Smaller traditional firms find themselves struggling against new online banks too.13
Wall Street
institutions' adoption of online financial services products outpaced regional and community banks
for years. Smaller banks have limited access to pioneering entrepreneurs.
US small town banks are prodding regulators to get tough on “fintech” companies14
, in a move that
betrays traditional lenders’ fears of the young upstarts taking their business. In a no-holds-barred
letter to bank regulators, Independent Community Bankers of America, a trade group for more than
6,000 small banks, raised questions over the solidity of some fintech businesses and called for them
to be fully regulated. Finance is where they built their careers. Now some of banking’s former stars
are pouring millions of dollars — and in some cases staking their careers — into new technologies
that are shaking up everything from lending to payments to investing.
A whopping 55 percent of small, community and regional bank executives had not set up any
meetings or presentations with potential fintech partners, despite aspiring to do so. Economic
growth and predictions regarding the Federal Reserve's upcoming decisions on interest rates will be
felt acutely by smaller firms in the industry. Because smaller banks focus more on interest-sensitive
products such as mortgages, prolonged low rates by the Fed will hurt them disproportionately. Banks
face shifting consumer tastes, and may be compelled to act quickly. In the years after the global
financial crisis smaller banks were brokering mergers just to survive. From 2008 until early March, the
number of FDIC-backed banks in the U.S. plummeted 25 percent. Time is not on their side. Part of
regional and community banks' motivation to take on new online initiatives is also owed to a growing
number of online-only competitors relying on new technology to cut out overhead legacy costs
banks still face.
07
11 http://www.businessinsider.com/online-bank-vs-traditional-banks-2013-5
12 https://www.americanbanker.com/opinion/fintech-has-forced-banks-hand-on-blockchain-ai-adoption
13 https://www.cnbc.com/2016/03/09/community-banks-clamor-for-fintech-partners.html
14 http://www.ft.com/intl/cms/s/0/518095b8-2adc-11e6-bf8d-26294ad519fc.html#axzz4AnfOy97L
APAC
South Korea permits for
banks to invest in Fintechs
Current financial laws indicate that financial
institutions are allowed to buy stakes only from
companies in the same business sector. The FSC
have included fintech companies in the scope of the
financial industry.
#banks #2016
SouthKorea
MAS establishes
a dedicated Fintech Office
MAS and the National Research Foundation opened
a dedicated FinTech Office to serve as a one-stop
virtual entity for all FinTech matters and to promote
Singapore as a FinTech hub.
#opportunity
Singapore
MAS established
a regulatory sandbox.
To allow more flexible application of the
regulations, while maintaining safeguards to protect
consumers and the wider financial system.
Singapore
Financial Sector Technology
& Innovation scheme
MAS committed $225M ($166.48M USD) under the
“FSTI” scheme to provide support for the creation of
a vibrant ecosystem for innovation.
Singapore
6 P2P Lending Licenses
Granted in Malaysia
Six P2P lending licenses were granted in Malaysia
recently, making them the first authorized platforms
in the ASEAN region.
#p2p lending #license #2016
SouthKoreaMalaysia
Korea has launched
a platform for banks
The platform allows financial institutions to build
services that automatically populate financial
information for new customers.
#banking #2016
HongKong
Hong Kong to launch
banking fintech 'sandbox'
HongKong
Hong Kong establishes
a Facilitation Office
HK Monetary Authority established the FinTech
Facilitation Office to facilitate the healthy
development of the FinTech ecosystem in Hong
Kong and to promote Hong Kong as a FinTech hub
in Asia.
#opportunity #2016
P2P Firms Regulation
in Indonesia
The draft regulation proposed that a Fintech
company is required to have Rp. 2 billion in working
capital and is required to show Rp. 2.5 billion
applying for a business license.
To help maintain Hong Kong's competitiveness as
a financial hub by supporting the development of
fintech in the banking sector
Indonesia
Malaysia issues the Fintech
Regulatory Sandbox
To experiment with FinTech solutions in a live
controlled environment which is accompanied by
the appropriate safeguards
#opportunity
Malaysia
Establishing an infrastructure
Source:Fintechranking.com

8. Generally, all large banks are prone to make fuss over themselves at the start and then barely
provide any information on their activities. American and European players are still on a previous
stage of market “probation” and strategy formation – they launch accelerators (“too many innovation
labs – too few innovations”15
) and hackathons and partner with others. Asian banks are more of
announcing their grandiose plans, then implementing them – even Australian and African banks
seem to be more pragmatic in comparison.
Banks’ area of interest is currently very limited. Most of deals and internal activities are focused on
investments (online trading, robo-advisory, wealth management, PFM/PFP) and online lending. In
mobile remittances and e-wallets/e-banking their activities are more restrained. Many segments and
niches haven’t been exploited yet. Big potential lies in banks’ “openness” to collaboration with
startups from any area, ability to engage with them vie open APIs and bank-as-a-service platforms.
15 http://fintechnews.sg/4766/fintech/dances-with-drums-by-fintech-hubs-and-banks
~30% banks
invested via their own
venture instruments
– VCs, accelerators, incubators
Banks are getting more and more active in FinTech
Barclays, Goldman, CITI, Santander and BBVA are leading the show
Major Bank Investments to VC-backed Fintech Companies
-2015 -2016
more companies
funded by banks
in 2016
+60%
Top South-Asian banks are starting to follow
Chinese/HK/Japanese/Korean megabanks
with playing active role in FinTech: DBS, OCBC, UOB, Siam Commer-
cial Bank, Mandiri, RHB, MayBank, CIMB, KasikornBank and others
laucnehd a bunch of initiatives related to fintech
Leaders are
mainly from developed
fintech regions
US, UK, Europe.
Note/source:Source:Mattermark,
Life.SREDAVCanalysis,Crunchb
23
15
13
8
3 3 3 3 3
2 2
1 1 1 1 1 1 1
17
9
7
6
4
6 6
5 5 5
4 4 4 4 4
3 3 3
2
1 1
2
1 1 1 1
2
Barclays
GoldmanSachs
CitiGroup
Santander
BBVA
WellsFargo
Commerzbank
MorganStanley
HSBC
CreditSuisse
BNPParibas
MitsubishiUFJ
Mizuho
JPMorgan
CapitalOne
China
DevelopmentBank
UBS
Sberbank
China
ConstructionBank
CreditAgricole
SocieteGenerale
ICICI
SiamCommercialBank
OCBC
MandiriBank
Last year was marked by an active “flirting” of traditional banks with fintech. American (Goldman
Sachs, Bank of America, JP Morgan, Wells Fargo, BNY Mellon, First National Bank) and European
(Unicredit, Barclays, HSBC, BBVA, Deutsche bank, BNP Paribas, Societe Generale, ABN Amro,
IdeaBank, ING, Nordea) banks were more proactive in their work with fintech, than Asian (DBS,
OCBC, UOB, Mandiri, Maybank, China Bank Savings, Mizuho, Siam Commercial Bank, KBank, BBL,
State Bank of India, Airtel bank), Australian (ANZ, KIWI) and African (Africa's First National bank) banks.
Middle East banks are currently just eyeing the industry and have not been seen acting.
08
«Uber moment» for financial industry

9. Traditional banks across the world finally realized the upcoming big changes in the whole financial
and banking industry and are clearly getting more and more active in the fintech space. Partnerships
and product integrations, accelerators and innovative labs, direct investments and venture debts,
corporate VCs and fund-of-fund investments—banks started to use all available mechanisms in order
not to lose in the digital war with the new hungry players.
Business models of traditional banks are increasingly comping under pressure. There are more
than 5000 fintech startups in the world now16
. Fintech, the home of the fabled unicorn, is hot. There
are now about 50 fintech-unicorns in the wild. Along with many established players becoming larger,
new startups are launched monthly, if not weekly.17
While some have expanded quickly, others have
taken longer to evolve. This staggering growth is a reflection of the hype around fintech, where a
plethora of startups are using technology to compete against or collaborate with established
financial players.
09
16 http://www.disruptivefinance.co.uk/?p=354
17 http://www.bloomberg.com/news/articles/2015-12-17/banks-cozy-up-to-online-lending-upstarts
18 http://www.economist.com/news/leaders/21650546-wave-startups-changing-financefor-better-fintech-revolution
The magical combination of geeks in T-shirts and venture capital that has disrupted other industries
has put financial services in its sights.18
From payments to wealth management, from peer-to-peer
lending to crowdfunding, a new generation of startups is taking aim at the heart of the industry—and
a pot of revenues that Goldman Sachs estimates is worth $4.7 trillion. Like other disrupters from
Silicon Valley, “fintech” firms are growing fast by questioning status quo of the very traditional
and highly regulated industry.
The fintech firms are not about to kill off traditional banks. Nonetheless, the fintech revolution
will reshape finance—and improve it—in three fundamental ways. First, the fintech disrupters will
cut costs and improve the quality of financial services. Second, the insurgents have clever new ways
of assessing and innovating around risks. Third, the fintech newcomers will create a more diverse,
and hence stable, credit landscape.
If fintech platforms were ever to become the main sources of capital for households and firms, the
established industry would be transformed into something akin to “narrow banking”. Traditional banks
would take deposits and hold only safe, liquid assets, while fintech platforms would match borrowers
and savers. Economies would operate with much less leverage than today. But long before then,
upstarts will force banks to accept lower margins. Conventional lenders will charge more for the
services that the newcomers cannot easily replicate, including the payments infrastructure and the
provision of an insured current account. The bigger effect from the fintech revolution will be to
force flabby incumbents to cut costs and improve the quality of their service. That will change
finance as profoundly as any regulator has.
EMEA
UK sets out open banking API
framework
Aimed for the creation of an open banking standard
that makes it easy to share and use financial data,
arguing that the move would improve choice for
customers, promote competition;
#regulation #bank #UK
OpenBanking
The cohort of the regulatory
sandbox closed
69 firms from a diverse range of sectors,
geographies and sizes have been accepted. 24
applications met the sandbox eligibility criteria and
were accepted to develop towards testing
#regulation #opportunities #UK
Sandbox
A specially created
“Fintech” licence
Plans to encourage crowdfunding and the market
testing of new technologies. FinTech firms, with a
minimum of $300k in capital, are allowed to accept
funds from clients, up to $99m, which remain
outside the depositor protection scheme and are
not subject to the same regulations, auditing and the
capital requirements applied to banks.
#Implementation #Switzerland #EU #2016
Banking
Standardized mobile and
internet payments (PSD2) in EU
PSD2 enables bank customers, both consumers and
businesses, to use third-party providers to manage
their finances. In the near future, customers may be
using Facebook or Google to pay bills, making P2P
transfers and analyse spending, while still having
money safely placed in current bank account.
#Announcement #Payments #Global #2017
Payments
Solvency II is a programme
for insurance regime
It introduced a new, harmonised EU-wide insurance
regulatory regime. The Solvency II programme is
divided into three areas, known as pillars: Financial
Requirements (Capital Requirement and etc),
Governance & Supervision (Own Risk & Solvency
Assessment) and Reporting & Disclosure (Insurers
required to publish details of the risks facing them).
#Implementation #Insurance #EU #2016
Insurance
Controlling & Regulation
Source:Fintechranking.com
Introducing a European
Standard for e-Invoicing
The European Commission announced the
e-invoicing directive require all 28 EU member
states to use specific e-invoicing standards for all
B2G e-invoices by November 27, 2018. Europe’s
current e-invoicing adoption rate of 24 percent is
expected to rise to 95 percent by 2024 and accrue
savings of approximately 64.5 billion euros ($72
billion) per year for businesses.
#Announcement #e-invoicing #EU #2018
e-Invoicing

10. Most fintechers do not feel half as warmly towards their incumbent rivals. One dismisses them as “the
Kodaks of the 21st century”, another as “financial vacuum-tube makers in the age of the transistor”.
They see banks as tomorrow’s telephone copper wires, vestiges of an earlier age, and believe that in
essence banks cannot adapt. “How often have you seen an incumbent really reinvent themselves?” a
startup founder asks. The best thing anyone can say about banks is that they will always be around.
“People like to whine about them but they will never leave,” says Neil Rimer of Index Ventures, a
fintech investor.
Bankers are well aware of this. They are keeping a close eye on how their products compare with
those of the newcomers, and many of them understand their limitations when it comes to
innovating. “If you want to come up with a new product in a bank, any one of 50 people internally
can shoot it down. If you’re a startup, you can go visit 50 venture capitalists and you only need one of
them to give it a green light,” says Tonny Thierry Andersen, head of retail at Danske Bank.
Even so, the startup ethos is changing the way bankers think about their profession. One common
refrain among incumbents is that they need to become less product-focused and more
customer-focused, which is true but easier said than done. They also note that customers value
transparency. And all of this requires new business models. Never mind if fintech fails to take over
the world, or even the current account: its emergence is changing the face of finance.
Almost 1000 distinct venture capital investors have participated in the fintech feeding frenzy that has
gripped the financial services sector over the past three years.19
It is no secret, that innovation
momentum is not spread equally around the world. There are certainly well-known hubs where
innovative solutions are being born the most and find their way up. Barriers to innovation across the
world are coming down. Some of the reasons for that are related to the nature of technological
innovation itself, which is quickly adoptable. APIs offered by fintechs can allow businesses to jump to
another level of efficiency and experience relatively easily. Moreover, since technological
advancements allow companies to operate globally even while being physically located in one
country, it increases competition for local companies that did not achieve that stage of technological
improvement. However, the concept is true for a startup that has already reached a certain level and
has resources and network to go borderless. For those who seek to fly or fail quickly, there are certain
places in the world that will foster the process.
It would almost be a crime to not mention the Asian region as emerging in the outstanding speed
innovation hub. China, India, Singapore and Hong Kong are fueling Asian fintech and emerging as
significant competition globally. Many big banks, which are embracing tech to reduce costs and
attract new kinds of customers, look at startups as future partners or acquisition targets, rather than
as lucrative investments. Barclays, Wells Fargo, and Bank of America host or sponsor finance-tech
accelerators, awarding cash and guidance in exchange for a small stake in the companies and an
ongoing relationship. Banks may be feeling a newfound sense of urgency.
10
19 http://www.finextra.com/news/fullstory.aspx?newsitemid=28274
USA
In May, the third and final
part of the 2012 JOBS Act,
Regulation Crowdfunding,
went into effect
Regulation Crowdfunding allows any American
startup or small business to raise up to $1 million
from friends, family, and followers on debt and
equity crowdfunding platforms registered with the
Securities & Exchange Commission (SEC).
During the course of the year:
21 debt and equity crowdfunding platforms
were launched and one, Ufunding Portal, shut
down by the SEC because it seemed to be
missing some of the statutory requirements
required of a funding portal.
Investors committed $19 million to the 186
campaigns and transfered $17.9 million to the 79
funded campaigns.
Over 21,000 individual investments were
recorded for 2016. The average investment was
$833, and the average number of investors in a
funded campaign was 331
The average valuation for a funded campaign
was $5.3 million.
#crowdinvesting #results #USA #2016
Crowdfunding
Financial technology
start-ups to get a license
to bank
The Office of the Comptroller of the Currency are
planning to create a new type of banking license (for
example, trust banks and credit card banks) that will
allow upstart financial technology companies to
expand more quickly across the country. A special
purpose national bank must conduct at least one of
the following functions: fiduciary activities, receiving
deposits or lending money.
The licenses from the Office of the Comptroller of
the Currency, which oversees many national banks,
will be available to companies like Square and
Lending Club that accept deposits, facilitate
electronic payments or lend money.
Many technology firms have been pushing for some
sort of new regulatory system that would allow
them to cut through the patchwork of state and
federal laws that govern financial activities and make
it hard to expand nationally.
The OCC acknowledged that Fintech companies’
business models vary widely and that therefore each
application should be reviewed individually.
#p2p #license #USA #2016
Banking
Shaping certain sectors
Source: Fintechranking.com

11. According to a report by McKinsey, tech companies could wipe out as much as 60 percent of
profits on some of banks' financial products. That would come from a mix of decreasing margins
and increasing competition. Banks are already seeing a drop in margins, the report said. Truly, if
traditional banks don’t reinvent their own business models then other players will do it for them, and
it will not be pretty.
Why big banks won’t be able to join the fintech boom? Corporate investors participated in 1 in 4 U.S.
fintech deals, according to a joint report by KPMG and CB Insights. "While corporate investors will
likely continue to invest in fintech in order to drive their own internal innovation and ability to
compete with non-traditional market entrants, some institutional investors may shift away from
fintech investing in the short term due to lower perceived rates of return," the report said. According
to a recent report from Accenture, big banks should view fintech startups as enablers rather than
competitors.20
Accenture encouraged banks to strategically integrate these fintech start-ups into
their current frameworks. As a result, banks will be in a better position to compete in the
ever-evolving finance industry. Banks that are still futilely providing platform services, instead of
sourcing them from the better and more efficient providers, will struggle to compete in the long run.
Perhaps slightly late in the day, the major banks have woken up to that threat, and have started to
respond, either trying to create their own platforms, or else partner with one of the fast-growing new
challengers.21
The existing players are too big, too burdened down by costs, have operated in an
over-regulated market for too long, and are unlikely to pick the winners anyway. In reality, the major
banks are in more trouble than either they or their investors yet realize. It is not hard to see why so
many entrepreneurs and venture capitalists are rushing into the space.
The internet is very good at ripping out the middlemen, and there is probably no industry with more
of those, and better paid ones, than finance. When your industry is being turned upside down, it
makes sense to try to invest in the future. And yet it is going to be far harder than it looks – for three
reasons:
1. First, the traditional banks are weighed down by down by huge costs accumulated over
decades. All those branches on the High Street are horribly expensive compared to running
a simple website. They have tens of thousands of staff, and even bigger pension funds, and
layers of management that were built up in a different era.
2. Second, banking has for a long time been so heavily regulated that it is virtually an
oligopoly.
3. Third, the weight of history is against them. All the evidence of industrial innovation
suggests that legacy companies can virtually never transform themselves. Railway
companies didn’t make successful cars. Film companies didn’t create the giants of the TV
industry. It wasn’t the established electronics manufacturers that thrived in personal
computers. The real disruptors are always new companies. They start with a clean slate,
and a new way of thinking, and that is a big advantage.
McKinsey wrote:22
“Here's how banks should respond.” “Fintech companies are undoubtedly having a
moment.” “We believe the attackers best positioned to create this kind of impact will be distinguished
by the following six markers”: 1, Advantaged modes of customer acquisition; 2, Step-function
reduction in the cost to serve; 3, Innovative uses of data; 4, Segment-specific propositions; 5,
Leveraging existing infrastructure; 6, Managing risk and regulatory stakeholders.
When it comes to the battle for top young talent, Silicon Valley is shaping the conversation.
Bright-eyed business school grads are increasingly looking to build careers as entrepreneurs, rather
than on Wall Street — and investment banks are sitting up and paying attention.
Long seen as a highly technical, highly regulated industry dominated by giant banks that resist
disruption - other than the occasional global meltdown - finance is now riding an entrepreneurial
wave. Demand for upstarts' services is strong, piqued by widespread frustration with big banks;
supply is growing, fueled in part by financial types itching to do something other than toil inside
those same megacorporations. And low interest rates have made capital, the raw material for many
money-related startups, cheap and plentiful. In some respects fintech is being revolutionized by
entrepreneurs for entrepreneurs. The future of financial industry is here: are you ready?
11
20 https://e27.co/banks-react-fintech-revolution-accenture-report-20160509/
21 http://www.telegraph.co.uk/business/2016/04/18/why-big-banks-wont-be-able-to-join-the-fintech-boom
22 https://www.mckinsey.it/idee/cutting-through-the-noise-around-financial-technology

12. So Many Bank Innovation Labs, So Little Innovation
These days most banks seem to have an innovation lab, accelerator or a venture capital fund to
encourage tech experimentation.23
But these corporate startup programs are driven by either
hope, fear or a herd effect. That is, if their banking competitors have a vehicle to promote
innovation, they need one too. Traditional banks battling against digital disruption openly admit
that they're willing to try just about anything to help them win and retain customers. They've
heard the fairy-tale success stories of accelerators, both those that are started by incumbents or that
launch independently.
The success of a standalone accelerator like Y Combinator is in part because it has funded more than
500 startups since 2005. By comparison, the innovation labs at some of the biggest banks house no
more than a handful of startups at any given time. The energy and expense required to run a
full-scale startup program are difficult to justify for most banks, especially if the outcomes are so
uncertain. This struggle will ultimately cause banks to abandon their innovation labs.
As Saul Kaplan wrote,24
“Innovation labs will launch with lofty rhetoric from CEOs about
transformation and thinking out-of-the-box. But as soon as line executives and business unit leaders
get control of the lab’s agenda, it is destined to produce only tweaks. This shouldn’t be a surprise.”
Nine reasons why corporate innovation labs produce only tweaks:
1. Innovation lab mandates aren’t clear. Incremental versus transformational innovation
require very different organizational approaches and support.
2. CEOs must own the transformational agenda. Instead they cede authority to line
executives who are accountable for the performance of today’s business model.
3. Innovation labs overemphasize the production of a better mousetrap, as opposed to a
better business model. Potential innovation projects that may cannibalize current business
are taken off the table, severely limiting the innovation lab’s scope.
4. Requiring a financial forecast for an innovation project—before exploring it in the real
world—only works for tweaks, never for transformation.
5. Corporate innovation labs see emerging technologies through the lens of today’s
business model, as opposed to a catalyst for an entirely new model.
6. Corporate innovation labs have difficulty shifting their perspective to see opportunities
through the lens of customer experience and jobs-to-be-done.
7. Corporate venture funds are not innovation labs. They may provide startup capital to
entrepreneurs, but withhold the company’s most important assets: scalable capabilities and
market access.
8. Innovation labs aren’t organized as a connected adjacency to the core, a sandbox where
capabilities can be combined and recombined, to change how customer value is created,
delivered and captured.
9. Companies lack the talent systems to develop future leaders with experience working
both in the core and in the innovation lab.
At least two dozen accelerators and incubators have been launched in the past two years by banks
looking to identify and co-opt future disruptors and engage with innovative startups.25
The energy
and expense entailed in running a full-scale accelerator programme is misplaced. "A fully fledged,
multi-startup incubator is expensive to run. The cost of searching, selecting, and providing seed
investment for startups could easily reach $1 million a year. And yet many incubators aren’t focused
enough on customer problems and business objectives to deliver return on that investment."
BBVA, one of the 50 biggest banks in the world, knows it’s facing a potentially devastating
upheaval — technological “disruption.” “What’s happening is the way we relate to our customers is
changing, it’s changing very fast, and it’s happening because of the innovation technology allows
and the way people embrace it,” CEO Carlos Torres Vila told.26
Consumers are reinventing the way
they interact with banks thanks to the smartphone. And a surge of new fintech — financial
technology — startups are making use of cloud computing, APIs, and other technology advances
that reduce costs to offer leaner and meaner services to consumers. Torres Vila has seen the changes
in the industry first hand. He was head of BBVA’s digital banking operations prior to being appointed
CEO. He says: “A lot of the startups choose one very thin slice of what a bank does. But there’s
just so many of them that they encompass everything we do. In every little slice, you have like 10
companies that just do it better. They do it cheaper and they do it with better value for the
customer.”
23 http://www.americanbanker.com/bankthink/bank-fintech-accelerators-are-destined-to-die-1079063-1.html
24 https://www.linkedin.com/pulse/so-many-corporate-innovation-labs-little-saul-kaplan
25 https://www.finextra.com/newsarticle/28323/financial-accelerators-to-wind-down-as-digital-ecosystem-evolves---forrester/startups
26 http://www.businessinsider.com/bbva-ceo-carlos-torres-vila-embracing-fintech-2016-4/#.VxvG-kyLS70
12

13. 13
Bank venture arms, despite the clout they carry by having the brand of a major global bank in their
name, are often hamstrung by the complexities of being part of such an institution. Those
complexities include the bureaucracy of any large organization, the limits put in place by regulation
and the trepidation entrepreneurs may have about pairing with an incumbent they are looking to
displace. "This makes us a much more attractive investor," said Jay Reinemann, a managing partner of
Propel, who also co-managed BBVA Ventures. Indeed, some startups are worried about becoming
intertwined with a bank, said Oliwia Berdak, a senior analyst at Forrester Research. Some startups see
having big banks invest in them as limiting other investments in future. They worry "no one will touch
them" if they are seen as associated with a bank, said Berdak. "Most startups are really worried about
independence".
Innovation labs in the banking industry have been trending for at least five years, and their numbers
are growing. According to Capgemini, 87% of financial services firms say they either have an
innovation lab or have at least carved out some real estate for innovations. This represents a 27%
increase in the number of innovation centers in the past year. But are innovation labs falling out of
favor? Some bankers aren’t convinced that these innovation labs pay off. Perhaps they are just flashy
PR stunts intended to generate some positive buzz about dull companies often seen as “stuck in the
mud”? Even those banks and credits unions that have opened — and spent lots of money on —
innovation labs haven’t necessarily been successful. Most of the cool new products and truly
disruptive technology still comes out of fintech firms.
There are so many innovation labs and too few innovations. I regularly meet with bankers worldwide
and the first phrase I hear from those who decided to invest in fintech (there are few of them so far,
and we should be grateful to them) is, "We want to invest only in those startups that will be synergic
with our current business." In other words, "we want to invest only in those alternative energy sectors
that would keep oil prices high and our oil business profitable." Ok. There is a huge difference
between Simple mobile bank and even the world's cutest mobile bank, which you may open only
after you visit the banking branch and sign all documents. I will not list here all accelerators and
hackathons built by banks recently, simply because they failed to create even a single star and
generated no deals or following rounds.
Clayton M. Christensen in The Innovator's Dilemma and other authors addressing the development
of large and successful corporations able to innovate (read, for example, Jony Ive on Apple by
Leander Kahney), note: first, you have to separate the team that makes a new business for you, their
office and KPIs form your core business. Then join your old business (if able to integrate) to the new
one, no other way round.
Banking models
There are 8 independent strategies that banks undertake and developing
towards working with digital units
Just a front-end, based on
existing core. No own license
Core banking products offered
to businesses, fintechs, telcos.
No B2C.
Banks open APIs
for 3rd
party developers,
in order to focus
only on core products
Front-ends with own modern core
banking, own products and license
Independent bank with own modern core,
products are own and 3rd
party provided
Banks develop new digital brands with new modern core
and develop products together with 3rd
parties
Banks develop new front-end
solution on existing core
and own products
Banks develop new digital brands
with new modern core and own products
Independent
digital
bank-platform
Digital
bank-platform
subsidiary
Independent
digital
subsidiary
Open API
marketplaces
Bank
-as-a-service
Neobanks
linked
with banks
Independent
digital bank
Neo /
Challenger
banks

14. 14
The same is true for fintech hubs worldwide. In fact, their developers prove to be "advocates of
traditional banks", rather than those of "fintech startups". In other words, their KPIs are not focused on
bringing about more new startups and making them more and more successful, they are aimed at
preventing them from causing a disturbance (God forbid!) to peace and success of existing banks. I
should say, banks set up no startups and make no investments in them (historically). Startups are,
therefore, put in some kinds of "cages" to have their digital revolution under control and prevent
them from disturbing the "big guys". Putting aside the number of released articles, set-up hackathons,
accelerators and bonuses, only the UK can boast any real achievements. Historically, the USA can
too. For example, neo- and challenger banks existed previously only in US, and have got second
wind and a new growth phase with the support of the British regulator.
Many countries have joined the rush for fintech development this year, in Europe (France,
Switzerland, Austria, Sweden, Denmark, etc.), Asia (Singapore, Hong Kong, South Korea, Japan,
Thailand, India and Taiwan), Australia and Canada; the only question is: where are simplified licenses
for fintech startups to give them an opportunity to operate without banks? Where are hundreds of
transactions and dozens outputs? I don't mean articles and accelerators here, I mean real business,
where is it? In fact, the explosive growth in Asia accounts for only a few China's giants, take them
away and there is no growth in Asia. It is impossible to build fintech in a single country, as all
entrepreneurs may live any place, they move around easily and intend to build international
businesses, rather than local ones. Expansion to Asia, Africa and Middle East is curbed by the fact that
they have no BaaS-platforms and banks have no open APIs.27
On the contrary, we can take as an example two countries that do not hold so many fintech
conferences, awards, hackathons, and accelerators, but are much more successful in fintech
achievements – these are India and Sweden.
Let's start with opportunities for independent existence of fintech companies. Two years ago, India
following the UK example launched new licenses for digital banks, which allow new players to exist
independently of traditional banks.28
Several others have chosen a way of creating “sandboxes”. But
“you can't put a wild thing in a sandbox” – this is not the solution. The play in “friendship with
fintechs” clearly shows who “advocates for banks” and who really wants to change something. As
Ricky Knox, founder and CEO of UK-based neobank Tandem, said to me: “If you want to create
sandboxes – maybe it will be better to work in a kindergarten?”
27 http://www.forbes.com/sites/vladislavsolodkiy/2016/08/03/what-asian-banks-can-learn-from-amazon-about-working-for-fintech
28 https://www.bloomberg.com/news/articles/2015-09-09/it-s-like-paypal-but-pays-interest-and-india-s-banks-are-afraid
What have banks been doing
in the space of Open Banking?
Most Recent examples Case
Banks are getting ready towards new API-powered emerging business models
BBVA – API Market
This Spanish bank has grabbed
the bull by the horns and
exposed a range of APIs
to approved developers
well ahead of the regulatory
timescales in their home market.
Customer profile data
Key account data
Money transfer services
Aggregated card purchase data
Pre-approved loans
Launched a financial API market
to fuel innovative 3rd
party businesses
Exploring collaboration with a number
of innovative start-ups through API sharing
Shares variety of APIs from bank to help
developers create real world innovations
The first UK bank to satisfy the requirements
for publishing APIs for public, launched a portal
in 2016
Has 4 APIs open to developers on Dev Exchange,
including rewards, credit card offers, and a security API
The first traditional bank to release a public API
offering, 84 apps built by 3rd
party developers
Test-drive its API at a three-day hackathon in Berlin
with 750 applicants and 70 participants
The first bank in SEA to launch an open Application
Programming Interface (API) platform with 4 APIs
APIs are available for:

15. The second ground for comparison is the presence of BaaS-platforms and open APIs. Integration
with a bank is a nightmare in most countries (in contrast to the US and the UK). Meanwhile, the Indian
government has rapidly implemented a unique project “India.Stack”, which allows29
startups to
launch faster, cheaper and more efficiently than before (the platform’s single drawback it that it
doesn’t let you scale to other markets).
Next is the availability of capital. Indian Prime Minister Narendra Modi launched30
a number of
initiatives to support the country’s startups, including USD1,5B fund and a string of tax breaks for
both the companies and VCs too.
In the fourth place is the influence of fintech on shaping a cashless society. One can talk about
innovation, give hugs, kisses and awards: but look how effectively Sweden is struggling with cash.31
The Swedish Government has started32
to gradually prohibit cash, thus, stimulating the development
of fintech startups in turn.
There is a lot of hype around fintech, but also a lot of rubbish33
. In this situation, some countries (or
territories) can successfully take into account the mistakes of some countries and achievements of
the others and quickly become the new real fintech hubs, instead of PR-hubs.
Only one year ago, Asian fintech was twice smaller than the US and 2016 became the first year when
the US lost its dominant global leadership34
in the fintech. Maybe, because of central banks of Asia
became the most active regulators in the fintech space globally: Singapore, Hong Kong, India, China,
Malaysia, South Korea, Japan launched dozens of useful initiatives (licenses, guidelines, sandboxes,
incentives, etc.) to help fintech industry to mature within the regulated environment.
15
29 https://yourstory.com/2016/07/india-stack
30 http://in.reuters.com/article/india-tech-idINKCN0UU0PZ
31 http://www.newyorker.com/magazine/2016/10/10/imagining-a-cashless-world
32 https://www.fastcoexist.com/3052540/will-sweden-be-the-first-country-to-get-rid-of-cash
33 https://e27.co/bullshit-people-dont-go-deep-fintech-still-make-loud-titles-big-numbers-around-life-sredas-vladislav-solodkiy-20160823/
34 https://thenextweb.com/guests/investments-fintech-industry-not-grown
The US fintech market is quite mature and regulated, however several initiatives happen there as
well, mainly aimed on shaping certain sectors within an industry (for example, crowdfunding).
However the UK and Europe regulators are still the benchmark for the whole world: Open Banking
Standard, PSD2, new fintech licenses for neobanks are the most notable regulation changes in the
global fintech industry.
1. 3. 4. 5. 6. 7. 8.2.
Banks’ Approach to work with Financial technologies
What do banks make of all this activity around Fintech?
Banks are deploying a range of strategies – from strategic transformation
and industry collaboration to “if you can’t beat them, join them” approaches.
Internal / Deep
Maturity of Ideas
Complexity
Impact
Creating an internal
product roadmap
Internal R&D
Internal / Deep
Maturity of Ideas
Complexity
Impact
Acquisition of
developed companies
with existing business
M&A
Internal / Deep
Maturity of Ideas
Complexity
Impact
Partnership with focus
in additional revenues
for business unit
Partnership
Internal / Deep
Maturity of Ideas
Complexity
Impact
Support and
cooperation
with startups in early
stages
Accelerate
/ Incubate
Internal / Deep
Maturity of Ideas
Complexity
Impact
Equity investments to
assess and access new
growth opportunities
Investments
Internal / Deep
Maturity of Ideas
Complexity
Impact
Banks open their APIs
for third-party players
FinTechs
Bank-as-
a-Service
Internal / Deep
Maturity of Ideas
Complexity
Impact
Internal
innovation unit
with organizational
decoupling
Hub / Lab
Internal / Deep
Maturity of Ideas
Complexity
Impact
Launching banking
offerings under
separate brand
Transforming

16. How Traditional Players Could React to Innovations
Most fintechs do not feel half as warmly towards their incumbent rivals. One dismisses them as “the
Kodaks of the 21st century”, another as “financial vacuum-tube makers in the age of the transistor”.
They see banks as tomorrow’s telephone copper wires, vestiges of an earlier age, and believe that in
essence banks cannot adapt. “How often have you seen an incumbent really reinvent themselves?” a
startup founder asks. The best thing anyone can say about banks is that they will always be around.
“People like to whine about them but they will never leave.”
But the weight of history is against them. All the evidence of industrial innovation suggests that
legacy companies can virtually never transform themselves. Railway companies didn’t make
successful cars. Film companies didn’t create the giants of the TV industry. It wasn’t the established
electronics manufacturers that thrived in personal computers. The real disruptors are always new
companies. They start with a clean slate, and a new way of thinking, and that is a big advantage.
1. “This ‘telephone’ has too many shortcomings to be seriously considered as a means of
communication. The device is inherently of no value to us.” Western Union internal memo
dated 1876.35
2. “I do not believe the introduction of motor-cars will ever affect the riding of horses” Mr.
Scott-Montague, MP, in the United Kingdom in 1903.36
3. “The wireless music box has no imaginable commercial value. Who would pay for a
message sent to nobody in particular?” David Sarnoff’s Associates rejecting a proposal for
investment in the radio in the 1920s.
4. “Who the hell wants to hear actors talk?” H.M. Warner (Warner Brothers) before rejecting
a proposal for movies with sound in 1927.
5. “This is typical Berlin hot air. The product is worthless.” Letter sent by Heinrich Dreser,
head of Bayer’s Pharmacological Institute, rejecting Felix Hoffmann’s invention of aspirin. At
that point, Bayer was standing by its ‘star’ painkiller diacetylmorphine. This alternative drug
reportedly made factory workers feel animated and ‘heroic’, which is why Bayer decided to
aptly name it ‘heroin’. Later on, due to its ‘funny’ side effects, it was decided to take heroin
off the market. Bayer’s chairman eventually intervened to overrule Dreser’s decision and
accept aspirin as Bayer’s main painkiller. More than 10 billion tablets of aspirin are
swallowed annually.
6. “Who the hell wants to copy a document on plain paper???!!!” Rejection letter in 1940 to
Chester Carlson, inventor of the XEROX machine. In fact, over 20 companies rejected his
“useless” idea between 1939 and 1944. Even the National Inventors Council dismissed it.
Today, the Rank Xerox Corporation has an annual revenue in the range of one billion
dollars.
7. “The concept is interesting and well-formed, but in order to earn better than a ‘C,’ the
idea must be feasible.” A Yale university professor in response to Fred Smith’s paper
proposing reliable overnight delivery service. Smith went on to found FedEx.
8. “There is no reason anyone would want a computer in their home.” Ken Olsen
(President, Chairman, and founder of Digital Equipment Corp) in 1977.
9. “So we went to Atari and said, ‘Hey, we’ve got this amazing thing, even built with some of
your parts, and what do you think about funding us? Or we’ll give it to you. We just want to
do it. Pay our salary, we’ll come work for you.’ And they said, ‘No.’ So then we went to
Hewlett-Packard, and they said, ‘Hey we don’t need you. You haven’t got through college
yet.” Apple Computer Inc. founder Steve Jobs on attempts to get Atari and HP interested in
his and Steve Wozniak’s personal computer.
10. Bitcoin is a fraud that will ultimately blow up, according37
to JP Morgan boss Jamie
Dimon, who said the digital currency was only fit for use by drug dealers, murderers and
people living in places such as North Korea. Dimon says 'stupid' bitcoin investors will pay
the price.38
Speaking at a conference in New York, the boss of America’s biggest bank said
he would fire “in a second” anyone at the investment bank found to be trading in bitcoin.
“For two reasons: it’s against our rules, and they’re stupid. And both are dangerous.” “The
currency isn’t going to work. You can’t have a business where people can invent a currency
out of thin air and think that people who are buying it are really smart.” “If you were in
Venezuela or Ecuador or North Korea or a bunch of parts like that, or if you were a drug
dealer, a murderer, stuff like that, you are better off doing it in bitcoin than US dollars”. “So
there may be a market for that, but it would be a limited market.” "It's worse than tulip bulbs.
35 http://www.rinkworks.com/said/predictions.shtml
36 http://innovationexcellence.com/blog/2016/12/19/10-great-ideas-that-were-originally-rejected/
37 https://www.theguardian.com/technology/2017/sep/13/bitcoin-fraud-jp-morgan-cryptocurrency-drug-dealers
38 https://www.bloomberg.com/news/videos/2017-10-13/dimon-stupid-bitcoin-investors-will-pay-price-video
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17. Investment banking giant Goldman Sachs has cited its connection to cryptocurrencies and
blockchain as a potential business risk, public records show.40
According to the Feb. 26 filing, which
constitutes its annual report for the fiscal year 2017, Goldman believes that it might be impacted
because of its work with clients and the companies it has invested in. The company wrote: "We may
be, or may become, exposed to risks related to distributed ledger technology through our facilitation
of clients' activities involving financial products linked to distributed ledger technology, such as
blockchain or cryptocurrencies, our investments in companies that seek to develop platforms based
on distributed ledger technology, and the use of distributed ledger technology by third-party
vendors, clients, counterparties, clearing houses and other financial intermediaries."
Bank of America has cited cryptocurrency as a material risk to its business, too.41
The technology
could hamper the second-largest U.S. bank's ability to comply with anti-money-laundering
regulations, pose a competitive threat and force the company to spend more money to keep up with
the times, the bank said in its annual filing with the Securities and Exchange Commission.
"Cryptocurrency" is mentioned three times in the annual report, all in the section on risk factors. Yet
perhaps more notable is the acknowledgement that cryptocurrency poses competitive risks to the
bank. In a passage about new competitors in the financial services industry, Bank of America
expressed caution about how client preferences could lead them to use products like
cryptocurrencies - for which, as it stands, the bank does not offer any support. Bank of America
notes in the filing: "Clients may choose to conduct business with other market participants who
engage in business or offer products in areas we deem speculative or risky, such as
cryptocurrencies." Indeed, the mention of cryptocurrency as an outside risk is taken one step further,
with Bank of America stating that rising adoption would result in it having to dedicate more resources
- that is, spending money - to stay competitive. "The widespread adoption of new technologies,
including internet services, cryptocurrencies and payment systems, could require substantial
expenditures to modify or adapt our existing products and services," the bank said.
It won't end well. Someone is going to get killed," Dimon said39
at a banking industry
conference organized by Barclays. "Currencies have legal support. It will blow up." Bitcoin
fell to its session lows after Dimon's comments: bitcoin traded at $4,106.23, down 2
percent. (Earlier, Dimon warned about further declines in trading revenue for the banking
giant. Dimon said third-quarter trading revenue will drop about 20 percent on a
year-over-year basis. Dimon also said the bank may not give intra-quarter guidance in the
future. JPMorgan's stock fell off its session highs on the comments.)
Global financial services company JPMorgan Chase has become42
the latest bank to label the rise of
cryptocurrencies as a threat to its business. In its annual 10-K filing with the U.S. Securities and
Exchange Commission, the bank noted the potential impact that cryptocurrencies could have on
payment processing under its "risk factors" section, saying the institution could be disrupted by the
still nascent technology. The bank wrote: "Furthermore, both financial institutions and their
non-banking competitors face the risk that payment processing and other services could be
disrupted by technologies, such as cryptocurrencies, that require no intermediation. New
technologies have required and could require JPMorgan Chase to spend more to modify or adapt its
products to attract and retain clients and customers or to match products and services offered by its
competitors, including technology companies."
39 https://www.cnbc.com/2017/09/12/jpmorgan-ceo-jamie-dimon-raises-flag-on-trading-revenue-sees-20-percent-fall-for-the-third-quarter.html
40 https://www.coindesk.com/goldman-sachs-latest-bank-label-crypto-business-risk
41 https://www.coindesk.com/bank-of-america-cryptocurrency-risk-factor-annual-report-10-k
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