The Future Of Financial Services - World Economic Forum
The Future of Financial ServicesHow disruptive innovations are reshaping the way financialservices are structured, provisioned and consumedAn Industry Project of the Financial Services Community Prepared in collaboration with DeloitteFinal Report June 2015
ForwardConsistent with the World Economic Forum’s mission of applying a multi-stakeholder approachto address issues of global impact, the creation of this report involved extensive outreach anddialogue with the financial services community, innovation community, academia and a largenumber of financial technology startups. The dialogue included numerous interviews andinteractive sessions to discuss the insights and opportunities for collaborative action.Sincere thanks are extended to the industry experts and emerging disruptors who contributedtheir unique insights to this report. In particular, the members of the Project’s SteeringCommittee and Working Group, who are introduced in the following pages, played an invaluablerole as experts and patient mentors.We are also very grateful for the generous commitment and support to Deloitte Consulting LLPin the U.S., an entity within the Deloitte1 network, in its capacity as the official professionalservices advisor to the World Economic Forum for this project.ContactFor feedback or questions, pleasecontact:1 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of memberfirms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as“Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and itsmember firms.R. Jesse McWaters, Lead Authorjesse.mcwaters@weforum.org 1 (212) 703-6633This report contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities(collectively, the “Deloitte network”) is, by means of this report, rendering professional advice or services. No entity in the Deloitte network shall beresponsible for any loss whatsoever sustained by any person who relies on this report.1
Table of ContentsAcknowledgements . . Executive Summary . Reading Guide . Detailed Research Modules .Payments:4102427How will customer needs and behaviours change in an increasingly cashless payments landscape?.2843How will the evolution of decentralised or non‐traditional payment schemes change the role of traditional financial institutions? . Insurance:How will disaggregating forces across the value chain transform the insurance industry? .58How will an ever more connected world impact the value delivered by insurance providers? . 72Deposits and Lending:How will emerging alternative models of lending change the market dynamics of traditional lenders? . 86What will be the future role of financial institutions in response to continually shifting customer preferences? . 100Capital Raising:How will the evolution of distributed capital raising impact the role of traditional intermediaries? . 112Investment Management:How will the empowerment of individuals through automated systems and social networks transform the business of investment management?. 127How will the externalisation of key processes transform the financial ecosystem? . 139Market ProvisioningHow will smarter and faster machines transform capital markets? . 153What impact will better connected buyers and sellers have on capital markets? . 163Contact Details. . 1782
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AcknowledgementsMembers of the Steering GroupThe following senior leaders of global financial institutions have provided guidance, oversight and thought leadership to the “Disruptive Innovation in Financial Services”project as its Steering Group:Oliver BussmanJohn FlintJoanna RotenbergChief Information Officer,UBS AGChief Executive Officer, Retail Bankingand Wealth Management,HSBCChief Marketing Officer and Head ofStrategy, BMO Financial GroupAnn CairnsJason HarrisNeeraj SahaiPresident, International Markets,MasterCardChief Executive Officer, InternationalProperty and Casualty, XL GroupPresident,Standard & Poor’sDavid CraigMichael HarteWilliam SheedyPresident, Financial and Risk,Thomson ReutersChief Technology Officer,BarclaysGlobal Executive, Corporate Strategy,M&A, Government Relations, VisaFred CrawfordRob HeyvaertLance UgglaChief Executive Officer,Alix PartnersCorporate Executive Vice President,FISChief Executive Officer,Markit GroupStephen CrossDavid PuthDieter WemmerChief Executive Officer, Aon GRIPSolutions, AonChief Executive Officer,CLS GroupMember of the Board of Management,Finance, Controlling, Risk (CFO),Allianz SEAnna EwingHenry RitchotteExecutive Vice President, GlobalTechnology Solutions, NASDAQChief Operating Officer,Deutsche Bank4
AcknowledgementsMembers of the Working GroupThe project team would also like to acknowledge the following executives of global financial institutions who helped define the project framework and shape strategicanalyses as its Working Group:Rachel BaleRobert HedgesNicolas de SkowronskiVP Mobile Converged Payments,MasterCard WorldwideManaging Director,AlixPartnersChief of Staff,Bank Julius BaerTom BrownNeil MummJohn SmithPartner,Paul HastingsVP Corporate Strategy,VisaIT Director, Group Head Office,Prudential PLCFrancis BouchardMatthew LevinHuw Van SteenisGroup Head of Government and IndustryAffairs, ZurichEVP and Head of Global Strategy,AonHead of Financial Services Research,Morgan StanleyFabrizio CampelliVictor MatarranzAndrew TarverHead of Group Strategy,Deutsche BankDirector of Strategy & Chief of Staff tothe CEO, SantanderHead of UK Operations,FIS / CapcoEricson ChanMax NeukirchenColin TeichholtzChief Information Officer Hong Kong andGreater China, Standard CharteredHead of Strategy,JP Morgan ChasePartner & Co-Head of Fixed IncomeTrading, Pine River CapitalRobert CoppolaChristine O’ConnellFabien VandenreydtChief Technology Officer of S&P CapitalIQ and S&P Dow Jones, McGraw HillGlobal Head of Strategy & BusinessDevelopment, Thomson ReutersHead of Markets Management, Innotribe& the SWIFT Institute, SWIFTChristof EdelKosta PericDerek WhiteGlobal Head of Trading Strategy &Business Development, ThomsonReutersDeputy Director Financial Services forthe Poor, Bill and Melinda GatesFoundationChief Design & Digital Officer,BarclaysJohn EdgeRobert PalatnickChairman,Digital Stored Value AssociationManaging Director and Chief TechnologyArchitect, DTCCIgnacio A. GoicoecheaPeter RutlandHead of IT and Operations,BanorteSenior Managing Director,CVC Capital PartnersRob Galaski (Project Advisor)Deloitte Canada5
AcknowledgementsList of innovators and subject matter experts (1 / 2)In addition, the project team expresses its gratitude to the following innovators and subject matter experts who contributed their valuable perspectives through interviewsand workshops (in alphabetical order):Asheesh AdvaniJeremy AllaireGiles AndrewsRadhika AngaraYoni AssiaJolyon BarkerAlex BatlinInga BealeNick BeecroftEric BenazehSarah BillerStephen BingleDave BirchJosh BottomleyCatherine BrownChris BryckiOlaf Carlson WeeUlf CarlssonBhaskar ChakravortiJames ChappellGongpil ChoiJonathan CoblentzClaire CockertonCharlotte CowellEugene DanilkisBruce DavisThomas DelucaMarten Den HaringSamir DesaiMaciej DolinskiMatt DooleyPaul DrakeLeigh DrogenAron DuttaGrechen EffgenJohn FawcettCEO, CovestorCo-Founder & CEO, CircleCo-Founder & CEO, ZopaChief Marketing Officer, FastacashCEO, eToroDeloitte UKGroup CTO, Applied Innovation and Market Research, UBSCEO, Lloyd’sEmerging Risks and Research Manager, Lloyds of LondonDirector, International Development, MenigaPresident, Capital Market ExchangeBusiness Development Asia, Smart EngineDirector, Consult HyperionGlobal Head of Digital, HSBCGroup Strategy Director, Lloyd’sCEO, StockspotHead of Risk, CoinbaseGeneral Manager, North Asia & Japan, NasdaqSenior Associate Dean, The Fletcher School of Law and Diplomacy,Tufts UniversityCTO, Digital ShadowsSenior Advisor, Korea Institute of FinanceCFO, Progresso FinanceroCEO / Founding Director, Innovate FinanceHead of Product, Wealth Management, MetLifeCEO, MambuJoint Managing Director, Abundance GenerationCEO, Advanced Merchant PaymentChief Economist and Product Officer, Digital Reasoning SystemsCo-Founder & CEO, Funding CircleCEO & Founder, Friendly ScoreManaging Director, Connected Thinking AsiaManaging Director, Strategy & Business Development, Standard &Poor’sCEO, EstimizeHead of Strategy for Financial Markets, CiscoHead of Business Development, ZipcarCEO, QuantopianLin FengClare Flynn LevyCEO, Deal GlobeFounder & CEO, Essentia AnalyticsDave GirouardFounder & CEO, UpstartColin GleesonDeloitte UKMatthew GoldmanCEO, WallabyRussell GouldProduct Manager, Mobile Wallet Solutions, VodafoneIan GreenCo-Founder & CEO, eCo FinancialJulia GrovesChair, UKFCASarah HabberfieldDeutsche BankWilliam Harris Jr.CEO, Personal CapitalJilliene HelmanCEO, Realty MogulDylan HigginsCEO, Kopo KopoDorothy HilleniusDirector Group Strategy, INGReid HoffmanInnnovator, Investor and AuthorBrian HongManaging Director, Financial Services, CVC Capital PartnersKaori IidaSenior Editor, Economic News Division, NHKBert Jan Van EssenManagng Director & Co-Founder, Dragon WealthPaul JungSony KapoorVice-President, Head of Emerging Products and Innovation, North Asia, VisaInc.Managing Director, Re-DefineBrad KatsuyamaCEO, IEXTom KeeneAnchor & Editor-at-Large, BloombergJames KennedyCTO, Asia Pacific, UBSDamian KimmelmanDavid KirkpatrickCEO, DueDilFounder & CEO, TechonomyAndy KooperFounder & CEO, LeapfrogInvestmentsChristian LanngCEO, TradeshiftFrancine LacquaAnchor & Editor-at-Large, BloombergRenaud LaplancheCEO, Lending ClubChris LarsenCEO, RippleMichael LavenCEO, Currency CloudGerard LemosChairman, UK Payments CouncilMax LevchinFounder, AffirmMichael LiCEO, CTQuanSandra LinhanCEO, LarkNektarios LioliosManaging Director, Startupbootcamp FintechKen LoCo-Founder & CEO, ANX6
AcknowledgementsList of innovators and subject matter experts (2 / 2)In addition, the project team expresses its gratitude to the following innovators and subject matter experts who contributed their valuable perspectives through interviewsand workshops (in alphabetical order):Bo LuJeff LynnJohn MacdonaldKevin MakPaul MakinDemetrios MarantisEmmanuel MarotKevin MartinMike MassaroMike MathiasSteve MendelDouglas MerrillLiao MinRory MoloneyDaniel NadlerMas NakachiMike NaughtonChristian NentwichZhu NingMichael NugentStephen PairKyung Yang ParkKitty ParryLoren PastoreAndy PattonLeslie PayneSandy PengAnthony PereiraClaudine PerletJonas PielaBasil QunibiSimon RedfernJosh ReichSelma RibicaChristoph RiecheAntonia RofaghaCEO, Future AdvisorCEO, SeedrsDirector, Risk Analytics & Customer Solutions, IBMManaging Director, IronFly TechnologiesHead of Mobile Money, Consult HyperionHead, International Policy and Regulatory Affairs, SquareCo-Founder & President, Lending RobotHead of Retail Banking and Wealth Management, Asia Pacific, HSBCCEO, peerTransferDeloitte ChinaCo-Founder & CEO, Bought by ManyFounder & CEO, Zest FinanceDirector-General, Shanghai Office, China Banking RegulatoryCommissionCEO, Aon Global Risk Consulting, AonCEO, KenshoCEO, Open GammaManaging Director of Asia for Strategic Customers & Solutions,Thomson ReutersCEO, DuCoDeputy Director and Professor of Finance, Shanghai AdvancedInstitute of FinanceCEO, BisonCEO, bitpayCEO, UbiPayCEO, TemplarsBusiness Development Manager, UpSlideVP, EMEA International Business Development, AMEXDirector of Public Affairs, LendupCEO, UCANFounder & CEO, PercentileHead of COO Office, AllianzFounder, AvubaCEO, NovusCEO, Open Bank ProjectCEO, SimplePrincipal Product Development Manager, Mobile Payments, VodafoneCo-Founder & CEO, iwocaCommunications Manager, TransferwiseYin RongDeputy Director, IT, Bank of ChinaJeff RosenbergerVP, Research & Customer Development, WealthfrontKevin SaraChairman, Batan LimitedArjan SchutteManaging Partner, Core Innovation CapitalVasuki ShastryGroup Head of Public Affairs, Standard CharteredHyunwook ShinCEO, PopfundingBarry ShrierFounder & CEO, LiquityBarry SilbertFounder, Second MarketBrian SinFormer Head of Innovation, CignaGurjeet SinghCEO, AyasdiBalvinder SinghCEO, TootPaySiddarth SinghHead of Programme, Pivotal InnovationsMaria SitRegional Managing Director, Asia, Health WallacePaul SondereggerBig Data Strategist, OracleStan StalnakerCEO, Hub CultureJeff StewartCEO, LenddoRon SuberCEO, ProsperStu TalyorCo-Founder & CEO, AlgomiMatin TamiziCo-Founder & CEO, Balanced PaymentsDonald TangCEO, China, D.E. Shaw & Co. LPSpiros TheodossiouVP Product Strategy, SkrillJames TicknerVP, Corporate Solutions, NasdaqDon TrottaGlobal Head of Banking, SAPEric Van der KleijHead, Level39Mark WalesDeloitte ChinaKaren WebsterManaging Director, Market Platform DynamicsKarsten WenzlaffLeader, German Crowdfunding NetworkDarren WestlakeCEO, CrowdcubePaul WilkinsChairman & CEO, Marsh (MMCo), Hong Kong SARJeremy WilsonVice Chairman, Corporate Banking, BarclaysAndrew WhiteCEO, FundAppsEdan YagoCEO, EpiphyteRoger YingCo-Founder & CEO, PandaiJoyce ZhangVP, Oriental PatronGiuseppe ZoccoCo-Founder, Index Ventures7
AcknowledgementsProject Team and Additional ThanksProject TeamAdditional ThanksThe “Disruptive Innovation in Financial Services” project team includes the followingindividualsIn addition, the project team expresses its gratitude to the following individuals for theircontribution and support throughout the project (in alphabetical order):World Economic Forum Project TeamGiancarlo Bruno, Senior Director, Head of Financial Services IndustryAbel Lee, Director, Insurance and Asset Management IndustryMatthew Blake, Director, Banking and Capital Markets IndustryJesse McWaters, Project Manager, Disruptive Innovation in Financial Services – Report EditorMika CiotolaFrank OberholznerMaja SchwobProfessional Services Support From DeloitteRob Galaski, Deloitte CanadaHwan Kim, Deloitte CanadaEva-Maria ThurnhoferJoerg WeydanzMarket Color (Digital Production)The Value Web (Event Facilitation)Level 39 (Location Services)8
Executive Summary9
The mandate of this project was to explore the transformative potential of newentrants and innovations on business models in financial servicesProject ContextWe set out to address three major problems that have prevented a comprehensive understanding of the state of disruptive innovation in the industry: There is no common taxonomy or understanding of which innovations are the most relevant There is no clear understanding of the evolutionary path of emerging innovations The implications of those evolutions on incumbent business models are unclear, creating significant uncertainty for traditional players as they strive toreact to growing competitive pressuresProject ApproachWe structured our research around three main questions, each requiring distinct actions:1Which emerging innovations are the most impactful and relevant to the financial services industry?Action: We identified 11 key clusters of innovations based on how they impact the core functions of financial services2How will these innovations impact the ways in which financial services are structured, provisioned and consumed in the future?Action: We considered a range of scenarios for the degree and nature of impact each cluster of innovation could have3What would be the implications of these changes on customers, financial institutions, and the overall financial services industry?Action: We analysed the implications of each scenario on customers, incumbent institutions and the overall financial services ecosystem10
Over 15 months of research we engaged with industry leaders and innovatorsthrough interviews and multi-stakeholder workshopsInnovatorsIndustry Leaders Oversight, guidance and thought leadership from 16 C-suite executivesand 25 strategy officers of global financial institutions In-person and phone interviews with 100 innovative new entrantsand subject matter expertsGlobal Workshops Facilitated six multi-stakeholder workshops at global financial hubs with 300 total participants includingindustry leaders, innovators, subject matter experts, and regulatorsHong Kong SAR4 Sep. 14Tianjin, China11 Sep. 14Boston, USA30 Sep. 14New York, USA21-22 Oct. 14London, UK2 Dec. 14Davos, Switzerland21 Jan. 1511
The outcome of this work is the first consolidated taxonomy for disruptiveinnovation in financial servicesResearch FrameworkWe have structured our framework against sixfunctions of financial services and eleven clustersof innovation.Functions of Financial ServicesEven in an environment of rapid change to thedesign, delivery and providers of financial services,the core needs those services fulfill remain thesame. We have identified six core functions thatcomprise financial services : Payments Insurance MarketProvisioning Deposits &Lending InvestmentManagement CapitalRaisingClusters of InnovationWe have identified 11 clusters of innovation exertingpressure on traditional business models12
We have synthesised six high level insights on innovation in financial servicesKey Research Findings1Innovation in financial services is deliberate and predictable; incumbent players are most likely to be attackedwhere the greatest sources of customer friction meet the largest profit pools2Innovations are having the greatest impact where they employ business models that are platform based, dataintensive, and capital light3The most imminent effects of disruption will be felt in the banking sector; however, the greatest impact of disruptionis likely to be felt in the insurance sector4Incumbent institutions will employ parallel strategies; aggressively competing with new entrants while alsoleveraging legacy assets to provide those same new entrants with infrastructure and access to services5Collaboration between regulators, incumbents and new entrants will be required to understand how new innovationsalter the risk profile of the industry – positively and negatively6Disruption will not be a one-time event, rather a continuous pressure to innovate that will shape customerbehaviours, business models, and the long-term structure of the financial services industry13
In the following pages, we have summarised our insights by function and clusterInsight Summary – Reading GuideThis section provides a summary of our findings, divided by function and clusters within the functions. For each cluster of innovation we have definedthe major disruptive trends, summarized the impact, and examined key imp
The Future of Financial Services How disruptive innovations are reshaping the way financial services are structured, provisioned and consumed An Industry Project of the Financial Services Community Prepa
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