FinTech revolution Banking as a Service Summit 2018 Jarosław Dąbrowski, DFCM
Agenda 1. World s FinTech Market 2. FinTech market in Europe 3. FinTech market in CEE 4. FinTech market in Poland I. Market overview II. Top companies III. Who invests in FinTechs? IV. Regulatory changes V. Key challenges and perspective of growth 5. Possible paths of development 2
World s FinTech market World s FinTech market is thriving, and its pace of change is constantly increasing. Among the factors influencing this change are the changing role of financing services, growing importance of mobile payments and demographic changes. 82% financial institutions expect to increase FinTech partnerships in the next three to five years 77% expect to adopt blockchain as part of an in production system or process by 2020 88% of them are afraid of loosing business to innovators Total invetment in FinTechs in 2016 was $19.1 billion 30% of big financial institutions are investing in Artificial Intelligence 1/3 of financial services in the world can be taken over by Fintechs Expected ROI on FinTech related projects is 20% globally (the most in Asia 25%) Source: Global fintech report 2017 PWC, statista.com The biggest challenges for FinTechs and financial institutions partnerships are different management and culture and regulatory uncertainty Consumer banking and payments are the most endangered banking areas by Fintechs 54% of financial institutions see data storage, privacy and protection as the main regulatory barrier to innovation 3
FinTech market in Europe - facts More than $8 billion has been invested in European fintech companies since 2010 Digital banking services remain a strategic priority for European banks, with 61% of European banking executives viewing investments in technology as very important Europe is also home to major banks which continue to be active investors in fintech startups globally (eg. Spanish Banco Santander) Differing tax systems within the EU, as well as significant discrepancies between countries in their adoption of financial technologies, provide room for future improvement The digital transformation of European banks continues with banks projected to spend in excess of 62 billion on IT in 2017 Source: European Banking Federation 92% of European banks are investing in blockchain technology and 62% of them in financial services software and regulatory technology 4
FinTech market in CEE market overview CEE FinTech market value is 2.2 EUR b Czech Republic The Czech banking sector can be considered one of the most innovative among all CEE countries Mature market of FinTech startups Austria Traditional financial market Growing number of Fintech solution in the area of Asset management and capital market Slovenia Most established banks in Slovenia are showing signs of technological maturity The inventiveness of Slovenian banks is average 121m 73m 190m 588m 92m 856m 73m 83m Croatia Online banking penetration low, but fast-growing Unique FinTech company has been established in Croatia (Oradian) Poland Poland has become a regional leader in technologically advanced, pioneering solutions in the banking sector Cybersecurity is becoming increasingly important 119m 39m Slovakia The Slovak banking sector is innovative and open to new digital solutions Online lending and P2P model growing in popularity Hungary So far mobile payment apps have not found favor with the Hungarian market OTP is the leader of innovation among banks, but the other ones are lagging Romania Romanian banks are following European trends and deliver a high-quality user experience Several mobile payment applications on the market Bulgaria Low technological maturity of society, low online banking penetration Banks start to implement innovative technologies (such as HCE) Source: Fintech in CEE Deloitte 5
FinTech market in CEE trends In total, the CEE FinTech market is estimated to be worth over 2.2 billion, with the FinTech investment market in the region to grow at 55% annually until 2020. Innovations for the banking sector provide the greatest share of FinTech solutions in all CEE countries. Such solutions are highly developed in virtually all countries (internet and mobile banking, contactless cards, etc.). Insurance and asset management sectors are considered to be far behind, with the focus in the insurance industry being on improving distribution channels (apps, gamification), and launching new services based on telematics. The asset management sector is deemed to be still conservative with most financial institutions using systems provided by traditional vendors Estonia is CEE s near-runaway tech-leader, with the government encouraging or even requiring the digitization of business processes and many aspects of daily interactions with the public sector Poland has been widely considered to be among the frontrunners as a hub of technological innovation Source: Fintech in CEE Deloitte 6
FinTech market in Poland market overview Polish financial sector Banking 38 commercial banks 78% of banked population Top 5 banks represents around 50% of assets in the sector Insurance 59 insurers Banks have a strong role as insurance intermediaries in the life segment Asset management The top five asset management companies accounted for 45% of total sector assets 487 companies (including 57 foreign entities) listed on the Warsaw Stock Exchange Polish FinTech sector Polish FinTech sector value is 856 EUR m, which stands for almost 40% of CEE market value Investments in FinTech in Poland amounts to only 0,005% of GDP (lack of capital is one of the main barrier of growth) Polish society is technologically advanced (relatively high online and mobile banking penetration) Polish banks are among the world technological leaders Polish innovative solution BLIK has already over 2 milion users Development of FinTech solutions in Poland is driven by the customers expectations (31% of banks customers find mobile application and online system on the most important factor in bank choice) Source: Fintech in CEE Deloitte 7
FinTech market in Poland top companies (success cases) Sector: Mobile payments, B2C Founded: 2013 Description: System of innovative mobile payments created by Polski Standard Płatności (which was founded by 6 Polish banks: Alior, Bank Millennium, BZ WBK, ING, mbank and PKO BP). It is the new, secure way to pay in shops, withdraw cash from ATM or make online payments (by generating the unique code). Sector: Digital payments, B2C Founded: 2006 Description: Since 2006, conquering the online payments market not only in Poland but also worldwide. Companies from PayU Group operate in 17 countries on 4 continents, offering over 250 various payment channels transfers online, payment cards, installments, delayed payment, one-click, recurring. Sector: Digital payments, B2B, B2C Founded: 1999 Description: Provides innovative solutions in the area of payment services, finance and insurance. It brings solutions for secure and convenient transactions. Blue Media creates products and services that minimize the hassle of everyday tasks like paying bills, toping up the phone or buying insurance. Sector: Blockchain & cryptocurrencies, B2C Founded: 2015 Description: Billon is a peer-to-peer payment system based on digital cash blockchain solution. As contrasted to widely known bitcoin it is not a currency, but rather cryptocash. The uniqueness of this system lies in the fact that it brings the huge cost advantage of infrastructure based on a distributed blockchain. Sector: Automatic accounting, B2B Founded: 2015 Description: Main product: CashDirector - automated accounting platform, helps SMBs manage cash in the realtime, boosts sales of factoring, loans and payments. Delivered within banking internet platform. Successful unique implementation in mbank (polish 4th biggest bank). Source: Press research 8
FinTech market in Poland who invests in FinTechs? Venture capital funds MCI, founded in 1999, is one of the most dynamic private equity groups in Emerging Europe. Currently, with the use of PE/VC funds, MCI implements early stage, growth stage and expansion/buy-out stage investments. Example investments in Fintechs: Group of venture capital funds dynamically investing in the early stage companies with global ambitions. They are focusing on the solutions from the area of consumer internet, fintech, IoT and hardware. Example investments in Fintechs: Polish investment fund focused on investing in enterprises at an early stage of development (seed, start-up). The Internet, mobile, e-commerce and IT are their fields of interest. They have invested in over 100 projects so far. Example investments in Fintechs: Source: Press research 9
FinTech market in Poland who invests in FinTechs? Public institutions Banks The Polish Development Fund is a group of financial and advisory institutions for entrepreneurs, local governments and private persons investing in sustainable social and economic development of the country. They finance and accelerate the innovative companies from financial Sector. The biggest Polish bank (PKO BP) strategy is to invest in innovative companies. In 2017, it bought ZenCard (platform for loyalty programs). mbank, 4th biggest Polish bank has launched maccelerator, which will invest 50 EUR m in new technologies. The aim of the project is Fintech sector development. The main task of the National Centre for Research and Development is management and execution of strategic research and development programs, which lead directly to the development of innovativeness. Alior Bank has launched program for startups together with Huge Thing accelerator. The best startups will gain financing and will be cooperating with Alior Bank. Source: Press research 10
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 FinTech market in Poland who invests in FinTechs? Warsaw Stock Exchange NewConnect 200 180 160 140 120 100 80 60 40 20 0 120 100 80 60 40 20 0 NC Index WIG 20 mwig 40 WSE The biggest stock exchange in CEE Market capitalization around 1419.2 PLN billion Over 430 companies listed Significant grow of WSE indexes (including WIG20 and mwig40) since Q3 2016 NewConnect is an alternative stock exchange allowing smaller, mostly technological companies to be listed. Exchange is conducted outside the regulated market as an multilateral trading facility 408 companies listed and market capitalization 9.6 PLN billion Source: Stooq 11
FinTech market in Poland regulatory changes EU regulatory changes PSD 2 Should be adopted to Polish law until January 2018 (currently at the stage of legislative work) The PSD2 seeks to standardize and make interoperable card, Internet, and mobile payments. It is expected to accelerate open banking as it will require banks to open up data and transactions to certain new payment market entrants (per the PSD2 XS2A rule). It introduces a new category of entities to the payment market TPP (Thrid Party Provider) MIFID II It will change the European financial market (increase transparency, change the distribution model of investment funds) Legal changes in Poland XII.2016 Financial Supervision Authority announces, that Poland should become the regional hub of financial innovations I.2017 XI.2017 Team of analysts identifies over 100 regulatory barriers of Fintech growth 3 barriers has already disappeared, 58 are in the state of liquidation THE AIM The aim is to change attitude of financial institutions to financial innovations and create friendly legal environment enabling development of Fintechs. Source: Press research 12
FinTech market in Poland key challenges and perspective of growth Key challenges Legal barriers (eg. unclear regulations concerning data protection) Necessary change of, Financial Supervisory Authority attitude to new, innovative companies (currently very conservative) Legal issues Key driving factors Introducing PSD2 EU directive, which will probably have great impact on Fintech sector development Slow change of Financial Supervisory Authority attitude, liquidating legal barriers Cybersecurity: will fintechs, as startups, have enough funds to ensure security of data? Technological issues Great technological maturity of Polish banks (banks are Fintechs themselves) Many unique solutions invented in Poland (eg. BLIK) Increasing venture capital investments in fintechs (currently only 0,0005% of GDP) Polish Fintechs should start to operate globally and avoid the middle income trap Other issues High penetration of online and mobile banking, as well as positive attitude to technology innovation among Polish people Potential od Polish specialists: we are currently the hub of talented IT specialists and technological graduates Source: Fintech w Polsce bariery i szansy rozwoju report 13
What are the possible paths of development? Traditional financial institutions will lose 20% of market share to fintechs According to the first scenario, traditional financial institutions will gradually deepen their cooperation and adapt their services to the changing expectations of clients. However, the reconstruction will be too slow, resulting in the loss of around 20% of market shares to fintechs. Many banks will disappear from the market, others will significantly reduce their role It may happen that the actions taken by the banks will be insufficient and the dynamics of the changes will lead to the disappearance of many of them from the market, while the rest will bring to the role of organizations offering basic financial services such as bills banking, deposits and a narrow range of loans. There will be a symbiosis and cooperation between traditional financial institutions and Fintechs The combined strength of traditional banks and fintechs will lead to the emergence of a new ecosystem of banking services that responds more effectively to customer needs and market challenges. The most possible scenario for Poland Source: Sektor finansowy coraz bardziej fintech - PWC 14
Thank you for your attention Presentation prepared by analytical department of