161215 Intro STP Consulting_sent

Business Transformation in the Payments Industry

Discussion materials

December 2016

Payments industry: high growth attracts new market entrants – a challenge for incumbents

– 2 –

Market growth

Global payments growth remains high,

especially in more developing areas

Still high cash usage in some countries

(e.g. AT, DE) creates opportunity for further

growth also in Europe

Top-line growth in payments

remains highly attractive, but

profitability is under pressure

Incumbent players need to

become agile and lean to remain

innovative and competitive

Increasingly strict regulation

European interchange reglation pushing

down profitability

PSD 2

New European Retail Payments Board

Generally high implementation effort

New types of competitors

Paypal in Shops

(see pilots in Germany)

makes POS infrastructure

obsolete

Google and Apple demand

share of profit pool

Fintech players enter into

payments industry with

different business models

and no legacy cost base

New Applications

Contactless and mobile

payments establish new

usage forms (e.g. small

payments)

Big data and analytics

lead to new business

models and revenue

stream opportunities

(loyalty, cross-selling)

Consumer banking and payments are most likely to be disrupted by Fintech players

– 3 –

Source: PwC Global FinTech Survey 2016

Which part of the financial sector is likely to be the most disrupted by FinTech

over the next 5 years?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Consumerbanking

Fundtransfer &payments

Investment& wealth

management

SMEbanking

Brokerageservices

Property& casualityinsurance/

Life insurance

Commercialbanking

Insuranceintermediary

Marketoperators &exchanges

Fundoperators

Investmentbanking

Reinsurance

Banking and capital markets

Asset and wealth management

Insurance/Reinsurance

Fund transfer and payments

Consumer banking and fund

transfers & payments are

likely to be the most disrupted

sectors by 2020

Where are Fintech investments flowing

– 4 –

Source: Various sources (Life.Sreda); ID 412629

Largest Fintech deals worldwide in 2014, by value of investment

(in million U.S. dollars)

250

185

150

130

122

112

110

110

100

100

100

85

80

80

80

Adyen (online payments)

Mozida (mPayments)

Square (mPoS)

Renrendai (P2P lending)

Klarna (online payments)

Borro (personal online lending)

Freedom Financial Network (personal online lending)

Strategic Funding Source (SME lending)

Revel (T-Commerce)

Fenqile (personal online lending)

Qufenqi (personal online lending)

Credit Karma (Scoring)

Powa (mPoS)

SoFi (P2P lending)

Stripe (online payments)

Payments related

Relatively new players gain market shareand close impressive acquiring deals

– 5 –

Source: company websites; internet research

Founded 2005 in Sweden

Klarna let’s any retailer put the equivalent

of Amazon’s “buy with one click” button

on its site

When shopping on a site that uses Klarna,

a customer only has to enter an email

address and a ZIP Code to check out.

Klarna then pays the merchant and collects

the funds within 14 days from the customer

Klarna processed 30% of all online

purchases in Sweden in 2014 and crunched

through $9 billion worth of payments

globally

Valued at over US$2 billion, Klarna

currently counts about 55,000 merchants

in 18 European markets

Founded 2006 in the Netherlands

Ayden sees itself as a “true IT company”

and can handle 250 payment methods

and 187 currencies

It’s pitch centers on the idea that retailers

can get a better understanding of their

customers if both online and in-store

purchases run through the same payments

platform

Ayden’s customers include Facebook,

Netflix, Spotify, Airbnb, and Uber

Adyen doubled its transaction volume in

2014 to $50 billion and is valued at over

US$2 billion

Incumbents have two options to remain competitive

– 6 –

Create a separate innovation unit

or idea incubator, either organically

or through acquisitions / partnerships

with Fintech players

These options are

not necessarily

exclusive and can be

followed in parallel

Adapt the existing organization

to become agile, innovative, and

nimble. Cut legacy cost and focus

on where the business is headed

rather than where it’s coming from

1

2

Innovation requires a different mindset…

– 7 –

From an exploitation mind-set ... ... to an exploration mind-set

Recombine existing resources

Existing ecosystem

Market share battle

Customer insight known

Leverage existing channels

Established business models

Focus on execution/leverage

Short-/mid-term

Existing organization

Generate new opportunities

New ecosystem

Crossing Moore's chasm

Changing customer behavior

Building new channels

New business models

Learning / iterative

Mid-/long-term

New capabilities

?

… and a new way of organizing the business

– 8 –

Industrial Age

Emphasis on

productivity and

efficiency

Bureaucracy

Information Age

Emphasis on

rational analysis

and expertise

Meritocracy

'Agile' Age

Emphasis on

agility, intuition,

and decisiveness

Adhocracy

Source: Julian Birkinshaw (LBS)

An agile culture is focused on actionand experimentation

– 9 –

BureaucracyPosition is privileged

MeriotcracyKnowledge is privileged

AdhocracyAction is privileged

Coordination achieved ...

By Rules

Decision made through ...

Hierarchy

People motivated by ...

Extrinsic Rewards

Coordination achieved ...

Mutual Adjustment

Decision made through ...

Logical Argument

People motivated by ...

Personal Mastery

Coordination achieved ...

Around Opportunity

Decision made through ...

Experimentation

People motivated by ...

Achievement

Source: Julian Birkinshaw (LBS)

How to get there: the four cornerstones of cultural transformation

– 10 –

Source: Lawson and Price 2003; McKinsey

I will shift my mindset and behaviour if…

1 2

34

Transformation

story

Language of

transformation

Rituals to embed

messages

Rewards and

consequences

Management

processes

Structure and

systems

Top team

transformation

Symbolic actions

Influence leaders

Technical and

relational skills

"Field and forum"

training

Refreshing the

talent pool

Understanding

and conviction

"…I know what is

expected of me,

I agree with it, and

it is meaningful"

Reinforcement mechanisms

"…The structures, processes

and systems reinforce the

change in behaviour I am

being asked to make"

Skills required for

change

"…I have the skills,

capabilities and

opportunities to behave

in the new way"

Role-modeling

"…I see leaders, peers

and reports behaving in

the new way"

Challenges cease to be purely technical and become adaptive

– 11 –

Source: Ronald Heifetz and Marty Linsky

Technical Challenges Adaptive Challenges

Solution is known from the start

(predictability)

Focus on technical solutions

(processes)

Solved by experts

(cost and effectiveness)

Solution reveals itself along a process

(flexibility, ambiguity, continuous learning)

Focus on technical solutions as well as

on mindsets and people

Solved by the people involved

(creativity and empowerment)

"Adaptive challenges cannot be met by the application of

routine or technical approaches. Adaptive challenges call for

mobilizing an organization to change its behaviours. Instead of

maintaining norms, leaders have to challenge 'the way we do

business' and help others distinguish immutable values that

must stay from historical practices that must go."

Ron Heifetz

Solving an adaptive challenge requires a shift from a knower to a learner mindset

– 12 –

Knower Learner

"My subjective experience

determines the reality.

It is the objective truth."

Being right

Self-worth is linked

to being right

Certainty (assertiveness)

"My subjective experience

is my own opinion,

not the truth"

Being effective and learning

Self-worth is linked

to being effective

Curiosity and assertiveness

Belief

Values

Attitude

Phases of organizational change

– 13 –

Source: Adapted from "Managing Transitions: Making the Most of Change" by William Bridges (3rd Ed. p5)

William Bridges "Transitions" model

Time

Ending,

Losing,

Letting Go

The

Neutral Zone

The New

Beginning

What does this mean for the individual

– 14 –

Commitment

Resistance Exploration

Denial

Denial

Frustration

Shock

Acceptance

Experimentation

Understanding

Integration

Disorientation

It is the leadership team’s responsibility to embed cultural change

– 15 –

Source: Edgar H. Schein

Primary Embedding Mechanisms Secondary Articulation and

Reinforcement Mechanisms

What leaders pay attention to, measure, and

control on a regular basis. Organization design and structure

How leaders react to critical incidents and

organizational crises. Organizational systems and procedures

Observed criteria by which leaders allocate

scarce resources. Organizational rites and rituals

Deliberate role modeling, teaching, and coaching Design of physical space, facades, and buildings

Observed criteria by which leaders allocate

rewards and status.

Stories, legends, and myths about people and

events.

Observed criteria by which leaders recruit,

select, promote, retire, and excommunicate

organizational members.

Formal statements of organizational philosophy,

values, and creed.

Consultant profile: Stefan Pap

– 16 –

Stefan Pap

Management Consultant since 1999, founded Stefan Pap & Partners in 2008

Background as Project Manager at McKinsey and Deloitte and Executive Director

at Russell Reynolds

Focus on Change Management and Strategy combined with solid finance and

process/IT background, extensive experience in organizational design and

business transformation

MBA from Kellogg, Executive Master in Organizational Psychology from INSEAD,

Executive Coaching courses at the Tavistock Institute for Human Relations

Relevant Projects

Change management and transformation support for a charitable family

foundation with 150 staff in 13 countries. Helped the new CEO and new

management team re-start and structure the faltering transformation process

Reorganization of the 1000 FTE retail and 250 FTE marketing units of a Swiss

telecom operator. Supported the management teams throughout the end-to-end

process on both projects (design to implementation)

Several years worth of experience in the payment cards industry through a num-

ber of engagements ranging from Customer Relationship Management, Loyalty

Management and Data Analytics to business unit strategy and re-organization

We are an independent consulting and project execution firm and advise clients on strategic

business issues such as designing and executing growth strategies, improving operational

performance, reorganizations, and change management

Our clients are privately held and public companies ranging from SMEs to large international

players in service focused industries such as insurance, telecommunications, and travel

We serve our clients either directly or through our partner network of independent consultants

who complement each other with their skills and expertise. This way, we can maintain a lean

structure and yet are still able to scale up resources on short notice

About Stefan Pap & Partners

17

Performance

improvement

Managing

transitions

Strategic

decisions

Business unit or corporate strategy development

Business plan development and review

Strategic due-diligence and M&A support

Digital, Marketing and Customer Relationship Management Strategy

Top-down assessment of savings potentials to set stretched targets

Bottom-up analysis (process and technology assessments, interviews,

workshops) to identify concrete ideas and generate buy-in in the

organization

Program management during implementation

Design and implementation of strategic change programs

Individually designed change workshops

Organizational design

Post-merger integration

Program management of large international initiatives

Service offering

18

Contact details

– 19 –

Stefan Pap

Managing Partner

phone: +41 55 417 46 65

mobile: +41 79 258 6239

e-mail: [email protected]

www.stefanpap.com

Seedammstrasse 3

8808 Pfäffikon, SZ

Switzerland

Zurich

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53

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1L

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Pfäffikon