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The FinTech “Revolution”

- Implications of fintech developments for banks

Nordic Capital Markets Forum

Helsinki, March 21, 2018

Søren Plesner, CFA, Associate Professor CBS

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“Banking is necessary, banks are not”

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Bill Gates, 1994

”Silicon Valley Is Coming”!

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Jamie Dimon in a Letter to Shareholders:

• "There are hundreds of startups with a lot of brains and money working

on various alternatives to traditional banking"

• "The ones you read about most are in the lending business, whereby the

firms can lend to individuals and small businesses very quickly and —

these entities believe — effectively by using Big Data to enhance credit

underwriting”.

• “They are very good at reducing the 'pain points' in that they can make

loans in minutes, which might take banks weeks. We are going to work

hard to make our services as seamless and competitive as theirs”.

• “And we also are completely comfortable with partnering where it makes

sense."

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Agenda

• What Is FinTech? Formal Definition

• A Brief History of Technological Progress in Financial Services

• Selected FinTech Concepts

• Technology, Regulation and ”Open Banking”

• FinTech – Opportunities and Risks

• From ”Producer Economy” to ”Creator Economy”

• 4 Banking Business Models for the Digital Age

• Regulatory Aspects – Brief Intro to Next Speaker!

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What Is ”FinTech”?

• “Technologically enabled financial innovation that could result in

new business models, applications, processes, or products with an

associated material effect on financial markets and institutions and

the provision of financial services”.

– Financial Stability Board’s (FSB) definition

• “Digital disruption”!

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Accelerating Pace of Technological Progress in Financial Services

7Source: IMF

Accelerating Pace of Technological Progress in Financial Services

8Source: IMF

FinTech Glossary

• API

• Neo-bankes

• AI

• Big data

• Bigtech

• Crowdfunding

• P2P Lending

• Robo-advisors

• Digital currency

• DLT (Blockchain)

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• Smart contracts

• Innovation accelerator

• Innovation hub

• Machine learning (ML)

• Mobile wallets

• Regtech

• Suptech

• AML/CFT

• Regulatory sandbox

Technology + Regulation ”Open Banking”

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Major Technologies Transforming Financial Services

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PSD 2 – 2 New Players in the Financial Landscape

• AISP - ”Account Information Service Provider”

• PISP - “Payment Initiation Service Provider”

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AISP (Account Information Service Provider)

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AIS

P

Before After

PISP (Payment Initiation Service Provider)

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PSIP

Before After

P2P Lending - Examples

• Fidor Bank

• Lending Club

• Zopa

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Lending Club

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Robo-advisors

• Digital interfaces + algorithms + machine learning

• Automated investment advice and portfolio management

• Example: Danske Bank’s ”June”

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FinTech – Opportunities (BIS)

• Financial inclusion.

• Better and more tailored banking services.

• Lower transaction costs and faster banking services.

• Improved and more efficient processes.

• Potential positive impact on financial stability (more fragmented

banking system).

• RegTech: automatization of compliance procedures.

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FinTech – Key Risks (BIS)

• Strategic risks.

• High operational risk (systemic and idiosyncratic dimension).

• Increased difficulties in meeting compliance requirements and

especially AML/CFT obligations.

• Compliance risk with regard to data privacy.

• Outsourcing risks.

• Cyber-risk.

• Liquidity risk and volatile funding.

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From a ”Producer” to a ”Creator” Economy

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”Producer economy” ”Consumer economy” ”Creator economy”

Source: FINTECH Switzerland

Are the Banks Facing their ”Kodak Moment”?

• Earlier examples of ”digital disruption”

– Digital cameras RIP Kodak

– Napster (and later Spotify) RIP CD’s

– Netflix etc. RIP DVD’s

– Uber RIP taxi’s

– AirBnB RIP hotels

– FinTech

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3-8-5Banking?

Four Banking Business Models for the Digital Age

• Do nothing

• Infrastructure provider

• Aggregator

• Thin open platform

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Will benefit from network effects in the ”creator economy”

Outlook: New Initiative from the EU Commission!

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The Commission’s Action Plan to Promote Fintech

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Thank You!

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