Remain Relevant in Consumer Payments: La Competizione Per Il Sistema Dei Pagamenti in Una Cashless Economy

REMAIN RELEVANT IN CONSUMER PAYMENTS: LA COMPETIZIONE PER IL SISTEMA DEI PAGAMENTI IN UNA CASHLESS ECONOMY

SADIBA43

MARCH 2019

© Oliver Wyman PAYMENTS ARE BECOMING THE COMPETING GROUND OF ALL RETAIL BUSINESSES. BANKS MUST EXTEND AND RETHINK THEIR FRONTIERS • Consumer are changing their habits, moving towards an omnichannel buying model • Payments, as they become digital, embed the most important value for retail businesses: customer information • Bigtechs (GAFA, BATX) created a business model centered around satisfying customer needs in an easy and seamless way. Personalization and anticipation of needs are at the heart of their success: access to granular customer data is key for them and digital payments are a core enabler of such strategy • The menace to financial institutions is not only bigtechs but rather the diffusion of their model to traditional players, as most retailers try to emulate their strategy and therefore increase competition on payments, as the gateway to client • In order to protect their core business, banks need to extend the frontiers of their activities to avoid disintermediation and create new value for clients

DISCOVER DISCUSS >75% >700M users of customers use active monthly users internet for browse or combined on WeChat purchase + Weibo

SHARE ENGAGE ~80% Consumer 2X of shoppers give more satisfied on reviews online e-channel vs. offline channels

PURCHASE SELECT >8T RMB >50% of online/ mobile payment of purchase decisions are

Source: Oliver Wyman analysis made online

Consumers path is mix of online and offline. They want to be able to shop Consumers anytime and are busy anywhere Consumers’ habits Consumers evolution taking Omnichannel their car

Proximity stores and Consumers fresh food walking

Hypermarket model

Retail’s Fragmented evolution trade

Pre-industrial Industrial Economic Smartphone and t revolution growth digital disruption

100% Off-line On-line - Off-line

• Experience • Rapidity • Layout • Simplicity • Proximity • Safety • Convenience • Proximity / accessibility • Assortment • Quality / selection

Off-line – On-line 100% On-line

• On-line visibility • Rapidity • Price coherence • Simplicity • Simplicity • Safety • Convenience • Flexibility • Assortment • Quality / selection

© Oliver Wyman 5 PAYMENTS ARE BECOMING THE COMPETING GROUND OF ALL RETAIL BUSINESSES. BANKS MUST EXTEND AND RETHINK THEIR FRONTIERS • Consumer are changing their habits, moving towards an omnichannel buying model • Payments, as they become digital, embed the most important value for retail businesses: customer information • Bigtechs (GAFA, BATX) created a business model centered around satisfying customer needs in an easy and seamless way. Personalization and anticipation of needs are at the heart of their success: access to granular customer data is key for them and digital payments are a core enabler of such strategy • The menace to financial institutions is not only bigtechs but rather the diffusion of their model to traditional players, as most retailers try to emulate their strategy and therefore increase competition on payments, as the gateway to client • In order to protect their core business, banks need to extend the frontiers of their activities to avoid disintermediation and create new value for clients

Enable digital Payment marketing processing

Digital payments

Pre-order Loyalty

Information, Deals and offers reports and receipts

Payments allow these players to generate very frequent interactions with their clients and to collect data which provide them with a « proxy of the client’s life »

© Oliver Wyman 7 PAYMENTS ARE BECOMING THE COMPETING GROUND OF ALL RETAIL BUSINESSES. BANKS MUST EXTEND AND RETHINK THEIR FRONTIERS • Consumer are changing their habits, moving towards an omnichannel buying model • Payments, as they become digital, embed the most important value for retail businesses: customer information • Bigtechs (GAFA, BATX) created a business model centered around satisfying customer needs in an easy and seamless way. Personalization and anticipation of needs are at the heart of their success: access to granular customer data is key for them and digital payments are a core enabler of such strategy • The menace to financial institutions is not only bigtechs but rather the diffusion of their model to traditional players, as most retailers try to emulate their strategy and therefore increase competition on payments, as the gateway to client • In order to protect their core business, banks need to extend the frontiers of their activities to avoid disintermediation and create new value for clients

8:00 Commute 9:00 Personal 11:30 Remote 12:00 Food 13:00 Online shopping finances housekeeping delivery and Bill payments

Use DiDi or Mobike Use LiCaiTong to Use housekeeping Use DianPing and Shop online and to commute to work track personal app (AYiBang) to Meituan to order pay utility bills during finances and clean the house lunch delivery lunch investments

Watch latest TV series on Use WeChat Scan and Schedule doctor’s Look for travel options for Tencent video and listen to Pay in Carrefour Le appointment for son after the next vacation music on QQ Music Marche or JD Daojia for school

Example day for a WeChat for user a day Example groceries

21:00 Entertainment 18:00 Groceries 16:30 Health & well-being 15:00 Vacation planning

Payments for all services and transactions enabled by

Location- Digital Online based payment video Services Personal financial services Fulfilment Browsing & purchase

Demand Payment generation Social & gaming

Logistics O2O platforms Transportation Online platforms Offline retailers

Source: Desktop research, Oliver Wyman analysis © Oliver Wyman 10 Examples of new ecosystems – Alibaba Alibaba has built its ecosystem to capture consumer touchpoints - from knowing the customer, they are able to address all of his spend

E-commerce platforms Ride hailing Online food delivery

Bike sharing Hyper / Supermarkets RETAIL Online map DAY-TO-DAY Department store

Online health Mobile & online payment platform platform PAYMENT WELLBEING & FINANCIAL SERVICES

Cloud computing Fintech product provider

Travel blogging Express delivery SOCIAL LOGISTICS Video streaming Microblogging AND MEDIA English newspaper in Hong Kong Video sharing Logistics for Logistics Info retailers System Finance Lifestyle news site search engine Tech news site

Mapping of GAFAM/BATX’s presence in different industry GAFAM BATX Industries

Phones Aquila Laptops Hardware Tablets Raven = Google Home TVs

Software IT Infrastructure (e.g., Cloud)

Artificial DAMO Microsoft miEcosystem Academy YouTu Xiaoice Mobile Duer AI lab Intelligence assistant Lab Social networks &

messaging Wangxin Wechat QQ Mi Talk Search & advertising Baidu search E-commerce & Takeout Interest Tribe distribution delivery

Mobility Baidu Maps

Entertainment Tencent Games

Health

Amazon Tenpay cash Financial services WeChatPay Baidu Wallet P2P Payments QQ Pay

Core business

Presence of digital players in payments

GAFAM BATX Other players

P2P

P2P FX Payments VAD / E-com

Proximity

Existing offer Presence in Europe Significant volumes (worldwide) Failures encountered

Sources: players' websites, press articles, research articles, Oliver Wyman analysis © Oliver Wyman 13 They also dominate mobile wallets

Number of global users and global transaction volume of mobile payment solutions in 2017

Growth rate of 31 % in transaction 8,400 volume in 2017 8,316 6,006 600 600 520 500 +200% in volume of transactions between 2017 and 400 2018 and 252 MM users n 2018 300 Doubled between 2016 and 2017 200 127 100 54 34 31 24 12 2233 11 36 0 Apple Pay Samsung Google Pay Amazon Pay WeChat Pay Alipay Pay Number of users in M (2017) Transaction volume in $B (2017)

An affiliate of e-commerce giant Alibaba

Payment Wealth Financing Credit Reference Insurance FinTech

Management Detail 520MM $1.7TN 330MM 1.4TN 100MM 257MM 392MM Risk control active users annual Annual active AUM1 annual active annual active annual active and capital payments users RMB users users users operation

PayPal Charles Schwab China Merchants Bank FICO Score U.S. China Life JD Digits 218MM active accounts 10.6MM active 46MM cards in circulation credit accounts 420MM active users $450BN annual payments CITIC Securities 180MM active users 3 monthly payments per 7.3MM active users China Minsheng Bank Ping An account

32MM cards in circulation 131MM active users Benchmark

All part of a broader marketplace and ecosystem

B2B marketplace C2C marketplace B2C marketplace Global e-commerce Ride-sharing Food delivery Music Video Health care

1. For Yu’E Bao Source: Company filings, Bloomberg News: World's Biggest Money-Market Fund Can Grow More, Fitch Says, 8/17/2017

© Oliver Wyman 15 PAYMENTS ARE BECOMING THE COMPETING GROUND OF ALL RETAIL BUSINESSES. BANKS MUST EXTEND AND RETHINK THEIR FRONTIERS • Consumer are changing their habits, moving towards an omnichannel buying model • Payments, as they become digital, embed the most important value for retail businesses: customer information • Bigtechs (GAFA, BATX) created a business model centered around satisfying customer needs in an easy and seamless way. Personalization and anticipation of needs are at the heart of their success: access to granular customer data is key for them and digital payments are a core enabler of such strategy • The menace to financial institutions is not only bigtechs but rather the diffusion of their model to traditional players, as most retailers try to emulate their strategy and therefore increase competition on payments, as the gateway to client • In order to protect their core business, banks need to extend the frontiers of their activities to avoid disintermediation and create new value for clients

Leading market position Outstanding results

#1 in Grocery retail Group Sales 9M18 #1 in Grocery retail e-commerce €4,236 M (+7,0% vs 9M17) #1 in Healthy nutrition #1 in Para-pharmacies

Sonae has built a full ecosystem in a off-line multi-channel world

Source: Sonae web site, Desktop research, Oliver Wyman analysis © Oliver Wyman 17 And has built his own payments platform

A unique loyalty programme with an unrivalled customer database covering 85% of Portuguese household Active loyalty accounts With purchases in the last 12 months = % Largest loyalty programme in Portugal 3.7MM 3.1MM 3.0MM 2.9MM = € 2.8MM 2.4MM

2007 2008 2009 2010 2011 2017 = Key features

~85% household penetration Selected partner brands2 Gas Stations Media Air Transport Fast-food Banking Fast-food ~88% of Sonae MC sales performed using Continente loyalty card

Italian Retail Market Online breakdown by category (B€, 2018)

≈ 15%

4,3 Fashion ≈ 13B€ (32%) (≈ 3,2%)

3,1 Electronics & Media (23%)

1,2 ≈ 417B€ Food & Personal Care (9%) 1,9 Furniture & Appliances (15%)

2,7 Toys, Hobby & DIY Online (21%) Offline 2018

Amazon.it eBay.it Zalando.it Apple.com Privalia.com Mediaworld.it esselungaacasa.it eprice.it yoox.com Amazon.com Wish.com

0 500 1000 1500 2000 2500 E-commerce revenue in million U.S. dollars

Source: Statista Note 1: 2018 Avg USD-EUR exchange rate, source: Statista (ECB)

Il ruolo dei pagamenti • Come sviluppare ulteriormente I pagamenti sono l’enabler l’ambito dei pagamenti? (ormai per definizione) del • Quale valore dei dati da retail moderno cogliere per massimizzare l’impatto sulle vendite?

Il valore dell’analisi dei dati Il retail moderno si sta spostando dal valore della • Quale opportunità di costruire rete al valore dei dati; e’ un centro di eccellenza nella possibile «possedere» il gestione e analisi dei dati? consumatore «possedendo» i suoi dati/ transazioni di acquisto

La necessità di un sistema • Quale opportunità di IT a supporto sviluppare una vera e propria La costruzione di un modello trasformazione digitale? multicanale richiederà uno • Quale impatto e necessità di sforzo significativo in termini di intervento sui sistemi? sistemi e capacità IT – una vera • Quali capacità da sviluppare e propria trasformazione sulle risorse ad alto digitale potenziale? • ….

© Oliver Wyman 21 PAYMENTS ARE BECOMING THE COMPETING GROUND OF ALL RETAIL BUSINESSES. BANKS MUST EXTEND AND RETHINK THEIR FRONTIERS • Consumer are changing their habits, moving towards an omnichannel buying model • Payments, as they become digital, embed the most important value for retail businesses: customer information • Bigtechs (GAFA, BATX) created a business model centered around satisfying customer needs in an easy and seamless way. Personalization and anticipation of needs are at the heart of their success: access to granular customer data is key for them and digital payments are a core enabler of such strategy • The menace to financial institutions is not only bigtechs but rather the diffusion of their model to traditional players, as most retailers try to emulate their strategy and therefore increase competition on payments, as the gateway to client • In order to protect their core business, banks need to extend the frontiers of their activities to avoid disintermediation and create new value for clients

Importance of the impact

Challenging the Loss of market Loss of control on Attack on the stability of existing business share in historical customer relationship the financial system & model and squeezing business lines individual freedom margins

-30% of revenue per 6% ($ 95 bn) 1BN active WeChat users, transaction made via Apple market share in single front end for all digital Pay in France consumer financing activities in China including financial services +280% of yearly within 3 years captured by Ant Financial Apple Pay has become de growth of Apple Pay’s facto the biggest wallet of the revenues transactions in 2016-2018 $ 7.2 bn Western world from insurance in China for Zonghan JV of Amazon now offers SMB Tencent and Alibaba credits in the US and merchants do not dare to refuse

The combination of both: There is no reason why ticking bomb for banks in the same evolution would Customers seem to adopt the the near future in payments not happen in Europe big tech players everywhere

2.Un artiste chinois a exposé dans sa ville natal les données personnelles de 300.000 habitants après les avoir acheté pour cette somme modique 3. Chiffre communiqué par VISA après © Oliver Wyman 23 la panne de juin 2018 Source: voir le document Oliver Wyman de “Contexte Marché”, section “Cartographie des acteurs du numérique” However the financial services industry still has critical assets to both thwart challengers and pursue new sources of value

Trust and security across industries % of respondents that strongly agree

NON-FS FS

Trust I trust my provider to act in my 39% 51% best interest

Amazon: 44%

Security My provider protects my personal 39% 64% information and any other assets in their care

Amazon: 53%

Source: 2017 Oliver Wyman Global Consumer Survey, Oliver Wyman Analysis

To protect the core business as a priority … …and to extend into new into real new areas of activities …in the area of shopping, partnering with merchants

THE BANK AS THE THE AUGMENTED BANK CHAMPION FOR CLIENT « THE SHOPPING PARTNER » INTERACTION AND + Services around shopping like earning & burning loyalty, customized PAYMENTS couponing, to increase the purchasing power of consumers and the business for merchant «UX & PAYMENT »

A banking offering which is truly …in the area of client data, being a partner for their clients covering all financial services THE AUGMENTED BANK digitally while offering a leading edge UX « THE DIGITAL PARTNER» + Services around the management and protection of data, e.g. a Maintaining the control over 95% of + digital vault, eKYC, a “bank connect”, the life coach to secure and payments (“all-in” wallet) accompany the client in its new digital journeys

…supported by lobbying & communication Reinforced communication to the public and the regulator regarding the role of banks in providing POSITIVE economic stability, security and protection of customer data, targeting also consumer associations, LOBBYING merchants ; including also independent impact studies in order to outline the benefits of banks to the whole market

The Oliver Wyman Financial Needs Hexagon % improvement required to generate $1,000 in income FS firms have focused primarily on only 3 of 6 core needs US Mass Market: traditional products have far less impact

GROW Need to grow my savings most optimally GROW | $30 Earned interest or dividends, 3,300% BORROW SAFEGUARD and capital gains Need to obtain funds at Need to protect against the right time and price undesired events BORROW | $6.5 K Interest payments on debt 35%

SAFEGUARD | $3.5 K Insurance premiums 30% EARN TRANSFER Need to optimize Need to easily transfer SPEND | $25 K my earnings funds anytime, Expenditures excluding debt 4% Small percent anywhere and insurance payments improvements SPEND can have a Need to spend more EARN | $33 K sizeable impact wisely Wages after tax 3%

% = Improvement needed Traditional FS needs Non-Traditional FS needs Category | Base amount ($)

Source: US Survey of Consumer Finances by The Federal Reserve, US Bureau of Economic Analysis, Oliver Wyman Analysis

Schematic representation of the inter-connected areas of today’s lives – from a customer perspective

Field of life Adjacent domain

Loyalty/ 4 Couponing IP Wallet ASSET B2C Reimbursement earn & burn corners MANAGE- MENT P2EM Purchasing advice Acceptance/ management of P2M all underlying Address all PURCHASE assets use cases P2P AFTER DEMAND SALES GENERA- Safety and PAYMENT Facilitator security TION (Bank of payment Connect)

Property Electronic CREDIT SCA loan Inclusive signature DIGITAL Financing / offers IDENTITY consumer credit Product DATA Insurance- insurance credit OTHERS VAULT DOMAINS

Digital Insurance/ INSURANCE document data SOCIAL HEALTH ENERGY storage protection