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Disruption Ahead: Financial Services in Asia
June 4th 2015
Annabel Tio Jenny Chung
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About Innosight
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CAPABILITIES required to making innovation
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businesses?
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It begins with a young entrepreneur starting an online shop on Taobao…
Peng, 2004 Taobao, 2004
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Share of assets with Alipay
Savings
~2013
Taobao Payment
~2004
Loan
~2010
Bill Payment
~2008
Progressively, Alipay becomes his main financial provider
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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
~3 million registered users
~300 million registered users
Alipay still
needs us…
>300 million registered users
…Or perhaps
they don’t
Savings
~2013
Taobao Payment
~2004
Loan
~2010
Bill Payment
~2008
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Building the new: How BPI built a mobile-based bank
5 branches 2,500 partner outlets
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Transforming the core: From digital as a channel to digital as a solution to adjacent customer problems
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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
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