Disruption Ahead Financial Services in Asia Webinar · Disruption Ahead Financial Services in Asia Webinar Author: Innosight Subject: Disruption Ahead Financial Services in Asia Webinar

© Copyright 2013 Innosight LLC © Copyright 2015 Innosight LLC

Disruption Ahead: Financial Services in Asia

June 4th 2015

Annabel Tio Jenny Chung

© Copyright 2015 Innosight LLC 2

About Innosight

80 colleagues across the United States, Europe, and Asia united in the mission of helping leaders see what’s next and be what’s next

BUILD INNOVATION CAPABILITIES

ACCELERATE NEW GROWTH

OPPORTUNITIES

CREATE GROWTH STRATEGIES

Founded by Harvard Business

School Professor Clay

Christensen

Awarded the Number 1

Management Thinker in the

World in 2011 and 2013

(Thinkers50)

HOW DO I ENSURE MY ORGANIZATION

CONTINUES TO ACHIEVE ITS GROWTH GOALS

in an ambiguous and changing

environment?

HOW DO I BUILD THE ORGANIZATIONAL

CAPABILITIES required to making innovation

repeatable and sustainable?

HOW DO I SPOT, SEIZE AND SCALE

OPPORTUNITIES to create new growth

businesses?


It begins with a young entrepreneur starting an online shop on Taobao…

Peng, 2004 Taobao, 2004


Share of assets with Alipay

Savings

~2013

Taobao Payment

~2004

Loan

~2010

Bill Payment

~2008

Progressively, Alipay becomes his main financial provider

© Copyright 2015 Innosight LLC

5

For a long time, banks did not see Alipay as a threat

Our online

banking

business will

benefit

~150 million registered users

This is too

small to be

worried about



Alipay still

needs us…

>300 million registered users

…Or perhaps

they don’t

Savings

~2013

Taobao Payment

~2004

Loan

~2010

Bill Payment

~2008


Now Chinese banks are moving into e-commerce, but it may be too little, too late…

We have to keep

customers on our platform,

otherwise the space that

we occupy in the value chain and the service

chain will be squeezed

narrower and narrower

We have made lots of

attempts to capture some of

this market, but in the end all

the data about our clients and

their transactional behavior

was in the hands of third parties - Executive, China Construction Bank


7

Large financial institutions around the world are now well aware of disruptive risks

"In the next five years, our industry is going

to go through cataclysmic disruption, and within the next decade, I strongly believe

there will be banks that will make the

transition, and banks that will die." - Piyush Gupta, DBS CEO, May 2015

“Silicon Valley is coming. There are hundreds of

startups with a lot of brains and money working

on various alternatives to traditional banking.” - James Dimon, JP Morgan Chase’s CEO,

Chairman, and President


8

But with so much going on, identifying the most disruptive entrants is challenging

Tech giants

Many different players

Retail chains

Mobile operators

Online payment platforms

Startups

Diverse market

contexts

Shopper / merchant behaviors Regulation

Credit card penetration

Bank penetration


9

Our objectives for this webinar

• Share a framework for identifying disruption in financial services

• Summarize key disruptive threats and discuss how traditional

financial institutions should respond







Successful disruption typically starts small and gradually moves upmarket

Performance

Time

Alipay

Banks

E-commerce

payment only

Bill payment

(Trustworthiness)

Loans

Savings

2003 2014

1. Capturing the right foothold

2. Capturing adjacencies through

improved performance


12

Capturing the right foothold help new entrants gain market traction quickly without causing backlashes from incumbents

Disruptive players typically enter

the market by…

Examples

NFC Wallet P2P Lending Alipay

1. solving a strong pain point

?

? 2. with a unique & superior solution

? 3. for a segment that is not profitable for

incumbents


So which new players seems to have captured or have good potential to capture a disruptive foothold in Asia?

Strong pain point

Unique & superior

solution

Not profitable to

incumbents

Micro Finance (e.g. Kiva)

Mobile Money (e.g. Smart Money)

Bitcoin Remittance(e.g. Rebit) ?

Online payment plaform (e.g. Alipay)

Mobile credit card processor (e.g. Square)

?

Crowdfunding (e.g. AngelList)

P2P lending (e.g. SocietyOne)

P2P international transfer (e.g. TransferWise)

? ?

NFC mobile wallet (e.g. Apply Pay, Google Wallet)

? ? ?

Robo-advisor (e.g. Wealthfront) ? ? ?

Emerging markets focused

Developed markets focused


14

Not all of these players will manage to move into mainstream and disrupt financial institutions

Performance

Time

New Entrant

Financial Institutions

(Trustworthiness)

Trust needs to increase in order to:

- Get a greater share of pocket

- Serve larger-value, more mission-critical transactions

New players have a good chance of causing

disruption beyond the foothold if…

4. Their unique advantages extend to adjacent markets

5. Performance gaps in adjacencies are

expected to narrow


Why some Fintech companies may find it tough to sustain disruption at a larger scale

Unique Advantages Performance Gaps

Bitcoin Money

Transfer (e.g.

Bitpay, Rebit)

• User anonymity

• Fast transaction speed

• Cost advantage?

• Security

• User analytics

Are there adjacencies that value

these attributes? Are these

advantages sustainable?

Can the requirements by

adjacencies (e.g. mass

consumers, enterprises) be met?

Mobile Credit

Card

Processor (e.g.

Square,

QianDaiPay)

• Merchant relationships

• Low upfront cost

• Reliability

• Scalability







Based on these 5 patterns, we have identified three biggest disrupting risks faced by financial institutions in Asia

Market New entrant Risk for financial institutions

Early-stage emerging markets (e.g. Philippines, Indonesia)

Mobile money (e.g. Smart Money, GCash)

Missed opportunity in capturing today’s unbanked population and their future

financial needs

Late-stage

emerging markets (e.g. China, Thailand)

Online / mobile

payment platform (e.g. Alipay, WePay, Paysbuy)

Loss of control over customer and

transaction data; potentially relegate to back-end infrastructure provision role

Developed markets (e.g. Singapore, Australia)

P2P lenders (e.g. SocietyOne, WeLend)

De-bundling and market share loss in key parts of their business (e.g. loans, brokerage) due to disintermediation


Traditional FIs have responded to disruptive threats by working with Fintech, but they are not alone

FinTech Incubator,

venture fund, partnership, acquisition, launch own

Financial Institutions

Credit cards processors (e.g. Visa,

MC, Amex)

Telco (e.g. SingTel, SK Telecom)

VC (e.g. 500 Startups,

Accel Partners)

Tech (e.g. Intel,

Google, Tencents)

- Commercial Banks- Investment banks- Insurance companies- Brokerages- Investment companies- Non-bank financing companies

- Money transfer operators


19

Coping with disruption requires FIs to transform the core while building the new

Core

Business

Play Today’s Game Differently

New

Business

Play a New Game


Building the new: How BPI built a mobile-based bank

5 branches 2,500 partner outlets


21

Transforming the core: From digital as a channel to digital as a solution to adjacent customer problems


Disruptive risks Risk for financial institutions

Missed opportunity in capturing today’s unbanked population and their future financial needs

New Growth: Design and launch a fundamentally cheaper and more accessible business model as a separate venture with careful sharing of resources with the core

Loss of control over customer and transaction data; potentially relegate to back-end infrastructure provision role

Core: Develop new customer-facing tools for solving adjacent financial-related issues; build capabilities in data analytics and user experience design

De-bundling and market share loss in

key parts of their business (e.g. loans, brokerage) due to disintermediation.

New Growth: Acquire / set up separate

operations to address underserved segments (e.g. micro businesses) with careful sharing of resources with the core

To stay relevant in the face of disruption, FIs will need to pursue a combination of core and new growth efforts


U S A • S i n g a p o r e • S w i t z e r l a n d

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Disruption Ahead Financial Services in Asia Webinar · Disruption Ahead Financial Services in Asia Webinar Author: Innosight Subject: Disruption Ahead Financial Services in Asia Webinar