2017 Business Briefing (Financial Segment)

2017 Business Briefing (Financial Segment) December 4, 2017 NTT DATA Corporation Director and Executive Vice President Head of Financial Sector Tooshi Fujiwara © 2017 NTT DATA Corporation New Structure of Financial Segment

XXX Financial Segment Tooshi Fujiwara, Director and Executive Vice President

First Second Third Fourth Business Strategy Financial Sector Financial Sector Financial Sector Financial Sector Department, Financial Segment

Hisashi Masanori Sachihiko Shinichiro Kazuko Matsunaga, Suzuki, Okimura, Miyake, Inamura, Head Head Head Head Head

5 divisions 4 divisions 5 divisions 3 divisions 5 sections

Group Companies in the Financial Segment First Financial Financial Sector First NTT DATA SYSTEM TECHNOLOGIES NTT DATA EMAS NTT DATA BILLING SERVICE NTT DATA been, etc. NTT DATA SOFIA Hangzhou NTT DATA Software DACS NTT DATA FA Insurance Systems, etc.

NTT DATA FRONTIER

Financial Second Sector NTT DATA FINANCIAL CORE NTT DATA NCB NTT DATA FORCE Shanghai NTT DATA Synergy NTT DATA Getronics

Financial Software Sector Fourth XNET NTT DATA Financial Solutions Japan Information Processing JSOL Service, etc.

NTT DATA ABIC

Department Business Strategy NTT DATA INSTITUTE OF NTT DATA CUSTOMER MANAGEMENT CONSULTING SERVICE, etc. Business company Functional company in charge Outsource provider Copyright © 2017 NTT DATA Corporation of some processes 3 INDEX

1. Business Outline 2. Market Environment in the Future 3. Growth Strategy and Initiative Cases

Cautionary Statement Regarding Forward-looking Statements ※Forecast figures in this document are based on current economic and market conditions. As changes in the global economy and information services market are possible, NTT DATA Group cannot guarantee their accuracy. ※Services, products, and other names contained within this handout are trademarks, registered or otherwise, of NTT DATA Corporation or other companies.

Mission of the Providing high-value-added IT services that support Financial Segment financial institutions’ operational efficiency and services

【Net Sales】【Operating Income】

539.0 523.6 518.0

496.2 42.3 44.0 31.9 20.5

FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17 (Forecast) (Forecast)

(Unit: billion yen)

(Unit: billion yen) 600 Cooperative Financial Institutions/ Financial Networks

Bank/Insurance/Securities/Credit/ Financial Infrastructure

400 121.0 120.5 117.8 121.3

200 321.2 327.8 341.0 293.1

0 FY14 FY15 FY16 FY17(Forecast)

Copyright © 2017 NTT DATA Corporation 7 Financial Systems Provided by NTT DATA • Have provided financial services since 1967 (50 years of experience) • Supporting all types of financial institutions including the central bank, commercial banks, cooperative financial institutions, securities companies, insurance companies and credit card companies

Systems of individual financial institutions

Capital Core banking Channel securities system system system

Information International system system

National infrastructure

Copyright © 2017 NTT DATA Corporation 8 NTT DATA’s Share in Core Banking System Market Securing a stable market share in core banking system business for Japanese banks Commercial banks/Japan Post (5) ４０％

Regional banks (105) ３８％

Shinkin Banks (264) ９２％

Credit Union (149) ９５％

Labour Banks (13) １００％

JA Bank (652) １００％

Providing key settlement infrastructure systems surrounding a bank

Domestic exchange system

Zengin BOJ-NET System Switching Hub Bill payment

Payment Integrated collection ATM agent MPN

Bank Card settlement Internet banking

CAFIS ANSER

Card Business company company

Numerous large financial Strong trust relationship platforms to which NTT DATA with clients has been committed in development

Common gateway service for Integrated insurance ATM High quality system companies development

Highly reliable system provision

BOJ-NET BeSTA Facing clients’ issues head-on

Shinkin Bank Joint System

Trend of lending profit margin

Trend of the median of net interest margin of 114 banks as of the fiscal year ending in March (Domestic business division)

※中央値:全データを昇順または降順に並べた場合に、真ん中に位置する値東京商工リサーチ調べ

2009 2010 2011 2012 2013 2014 2015 2016 2017 (Year) *Median: the value in the middle when all data is arranged in ascending or descending order Source: Tokyo Shoko Research

DX (Digital Transformation) will change the society significantly.

DX: Digital Transformation The penetration of IT will change every aspect of people’s lives favorably.

Triggers for digitalization AI Mobile AR/VR Blockchain Cloud IoT BigData 3D Printer ECO Robotics Social Security System Media Direction of people- customer- more innovative streamlined digitalization oriented centric Agile

New services are expected to emerge Sharing Open platform economy C2C platform for product Personal Robot lease development Drone delivery assistant

Copyright © 2017 NTT DATA Corporation 14 Flourishing FinTech As it became easier for FinTech companies with unique ideas to start their businesses, FinTech services are thriving. ・ With rapid advancement of digital technologies, the costs of founding a company to commercialize ideas all over the world have decreased dramatically ・ FSA and FISC are supporting FinTech initiatives, such as by revising the Banking Act (relaxed regulations for banking business)

Rapid advancement of digital technologies Financial How fast can a financial institution incorporate institution the technologies in its business? 1) Surfacing potential issues Big data/ • An era has arrived where financial Cloud institutions incorporate start-ups in IaaS,SaaS,BPaaS Analytics Thriving FinTech their businesses Services Mobile Social IT company/ application media start-up End-user Cyber 2) Innovation of 3) Spread of smartphones / security development technologies tablets • Dramatic decrease in • Improvement of users’ IT literacy commercialization costs • Means of information communication • An era has arrived where everyone shifting to applications can commercialize their ideas • Emergence of the Millennials rapidly

Digitalization of the industry life business and of Digitalization IT with lower with IT itself Digitalization of the “industry as a

whole” is inevitable Provision of financial A trend of non-financial industry （Smartphone native) functions by non-financial players providing financial services leveraging their “touchpoints” and

- companies cost cost (to solve issues/to meet “technological capabilities”

and and needs) Improvement of productivity /

speed Deregulation work style reform (Shift from regulation to market Collaboration, (Decrease of productive-age creation) Erosion population)

Pressure on legacy New collaboration between financial Increased business model to Increased empowerment institutions and other competition change industry players Client (Company/ Collaboration, Millennials New financial paradigm such Consumer) Evolution of financial Erosion (digital utilization) as negative interest rate services policy Alternative financial Digitalization of “clients” (Millennials, smartphone native, and IoT infrastructure function native) Movement accelerating Legend (AI, IoT and blockchain) factor Utilizing the strengths of NTT DATA’s Financial Segment to achieve innovation of the clients together

© 2017 NTT DATA Corporation 17 Direction of Financial Business While maintaining core competencies in existing businesses, combine them with digital technologies to create new businesses and continue growing. Existing business Digital

Business IoT Japan Post BeSTA model reform

ANSER Shinkin Bank Mobile Cloud

JA Bank Labour Bank Social Blockchain

Japanese Bankers Big data Resona Bank Association

Credit Union

Highly reliable system High quality system NTT group’s technological provision development capabilities

Copyright © 2017 NTT DATA Corporation 18 5.各分野の取り組み事例 Case Example:共同センター参加行の状況 Participant Banks of BeSTA*1 Shared Use Center NTT DATA has the biggest market share of approximately 40% in the core banking systems for regional banks and second-tier regional banks. BeSTA*1 NTT DATA’s Regional Bank Integrated Services Center (15 banks) Shared System (MEJAR) (5 banks)

STELLA CUBE (11 banks) Hokkaido Bank

BeSTAcloud (10 banks) (As of October 2017)

In 2016, 12 banks decided to participate in the network or Aomori Bank use BeSTA and 2 banks have started using it. •Banks that have used the service or decided to use the service Akita Bank Tohoku Bank Hokuto Bank Bank of Iwate BeSTA FinTech Lab Kirayaka Bank Shonai Bank Established to define and solve the Sendai Bank Hokuriku Bank Hokuetsu Bank Okinawa Kaiho Bank 77 Bank issues of regional banks through Toyama Bank Ashikaga Bank open innovation Fukuho Bank Fukui Bank Chiba Kogyo Bank San-in Godo Bank Tajima Bank Higashi-Nippon Bank Regional banks’ Nagano Bank Tottori Bank Aozora Bank community Nishi-Nippon City Bank Kyoto Bank Aichi Bank Tokyo Tomin Bank Fukuoka Chuo Bank Oita Bank Senshu Ikeda Bank Yachiyo Bank Saga Kyoei Bank ShinGinko Tokyo Bank of Kanagawa Bank Nagasaki Howa Bank Shikoku Bank Fintech start-up network Minami Nippon Bank of Yokohama Bank Miyazaki Taiyo Bank *1:BeSTA(Banking application engine for STandard Architecture): Banking application developed by NTT DATA that can be applied commonly across various business types Copyright © 2017 NTT DATA Corporation 19 Case5.各分野の取り組み事例 Example: Development of Unification of Shinkin Bankしんきん共同システムにおける共同化の進展 Joint System Since 2015, 5 Shinkin banks have started to use the system. Currently, 243 out of 264 Shinkin banks all over Japan are using the system.

[Shinkin Bank Joint System] A shared general online system that processes core banking operations such as accounting and information processing on a nationwide scale. It Market share in systems for handles deposits of 100 trillion yen or more. Shinkin banks

[Development of the initiative] ・Started to provide a smartphone application “Appli Banking” for Shinkin banks in October 2017. ・9 Shinkin banks are using the application. More than 10 Shinkin banks are considering the introduction. ・Will expand the content of the service and aim to provide it to more than 80 Shinkin banks in 5 years. NTT DATA: 243 Shinkin banks (About 92％)

As of September2017年 30,9 月201730日時点

NTT DATA’s strength

Numerous financial Strong trust relationship NTT group’s digital platforms to which NTT with clients technology capabilities DATA has been committed in development

Common gateway Integrated High quality system service for insurance companies ATM development Highly reliable system provision

BeSTA Facing clients’ BOJ-NET issues head-on

Earn more trust by upgrading financial platforms using digital technologies and working to resolve clients’ issues head-on.

Ⅰ Digitalization of existing business areas

Reduce costs and improve efficiencies of the existing systems using digital technologies

Enhance clients’ engagement Move forward with innovation of with services using digital existing businesses and expansion technologies. into new businesses using digital technologies. Ⅱ Expansion of SoE* Ⅲ Business model reform area through digitalization through digitalization

*SoE: Systems of Engagement Systems to support touch points

Trusted financial IT platformer in the To Be digital era

Combining assets for which NTT DATA can use its strength Basic strategy (clients and services) and digital technologies (Digital with X)

High Strategic Business performer partner reform player Three initiatives to address I. Digitalization of II. Expansion of SoE III. Business model digitalization existing business area through reform through areas digitalization digitalization

Copyright © 2017 NTT DATA Corporation 23 Case Example: Utilization of AI for Loan Screening Ⅰ Digitalization of existing Process business areas Reduce disparities of quality and efficiency in preparing opinion reports in a loan screening process, which are caused by the varied experiences and skills of employees in charge.

Understood and learned the Customer needs intent of past approval requests Application information

Preliminary AI Search for the characteristics by review text or key phrase

Reference Past screening data example The most appropriate (Loan database and past materials) reference example is extracted based on backgrounds and characteristics. Reference Visiting a example customer

Based on the reference example, check on the documents to be requested and interview items completely

Material to be Reference newly Prepare example prepared request for approval Before submitting the requests, cross-check entries with the Reduce the time for reference example to see if any information is missing and preparation of requests reduce the waste of time and labor it would take to go using the reference example through the preparation again. Copyright © 2017 NTT DATA Corporation 24 Case Example: Utilization of AI and Voice Digitalization of existing Ⅰ business areas Recognition Technologies at Call Center Improve efficiency and quality of call center operations by answering support using conversation recognition and AI technologies.

Image of an Call selection operator’s screen mode (switch: ☝ Multiple texts can be ctrl key) selected to search for FAQs

今の住所に変更届を郵送してください ☝ Calls are converted to text and displayed カスタマーセンターの田中でございます on a real-time basis ☝ FAQs can be searched by multiple conditions such as contract details and customer attributes Answer candidates are extracted based ☝ on match rates

FAQs related to the calls are displayed FAQ based on the match rates, suggesting system ☝ answer candidates

今の住所に変更届を郵送してください

Copyright © 2017 NTT DATA Corporation 25 Case Example: MoneyForword API Linkage Expansion of SoE area Ⅱ Service through digitalization Commercialized the first API interface service in Japan connecting Fintech services with Internet banking in April 2016. (Shizuoka Bank is the first user.)

NTT DATA

Financial institution User

Read only API interfaced with MoneyForward and freee through AnserParaSOL

Source: http://www.nttdata.com/jp/ja/news/release/2016/022900.html

Copyright © 2017 NTT DATA Corporation 26 Case Example: Dai-ichi Life’s Application for Expansion of SoE area Ⅱ through digitalization Health Enhancement “Kenko Daiichi” Collaborated with a venture company, won a contract for Dai-ichi Life’s health enhancement program and released an application. Images of the service FaceAI Health age checking Meal calorie checking

Film face image Read the results of health Check the measured Film diet image Check the measured Simulation checkup result result

*The above images of the service are taken from Dai-ichi Life’s news release “Upgrade of the smartphone application “Kenko Daiichi” to meet the needs of a health and long-lived society” dated October 5, 2017. http://www.dai-ichi-life.co.jp/company/news/pdf/2017_037.pdf

Financial services innovation through mobile application Provide customers with new financial experience (BankingExperience). Strengthen the “bond” between customers and financial institutions with full service.

Know See Save Pay

Graphical displays that Easy and instant payment Collective management of Enjoy saving by setting allow users to see the using a smartphone multiple accounts target amount balance instantly camera

Provide a mechanism to hold a variety of seminars and events, conduct demonstration tests of business ideas developed by the Lab and commercialize them with regional banks.

Companies other than financial institutions Characteristics of BeSTA FinTech Lab All financial To be institutions expanded Regional banks Share results of activities horizontally by Community of regional banks leveraging the shared use of BeSTA

Professional of business creation (Having methods of business creation)

FinTech venture network

“From the port of Toyosu” (Toyosu no Minato kara ) Forum activities and global contest Worldwide venture network centered on “From the port of Toyosu”

Held business contests to help create innovation with a triple-win for clients, venture companies, and NTT DATA group in 10 cities worldwide.

[Overview of the contests] [Major themes]

Total number of applications: 204 FinTech, IoT, Digital Archives, big data, blockchain, Al, applications from 21 countries Pitch contests: Held in 10 cities cyber security, virtual/augmented reality, robotics, etc. 3/15/20172017/3/15 Grand Finale Finalists

* The top prize was awarded to a proposal for solving social issues by analyzing public opinions using AI and utilizing a payment system using blockchain technologies.

Started to provide an SoE platform to link financial institutions with Fintech providers in September 2017 in order to achieve open API and open innovation.

Users Financial institutions Cloud service for financial institutions “OpenCanvas” Mega bank -SoE platform that creates new Fintech services-

Individuals Regional bank User identification API Existing function connection Second-tier Cloud platform regional bank

Other industries Companies ・・・ Japan Fintech Overseas Place of co-creation Holding a variety of forums including “From the port of Toyosu”

OpenCanvas A highly reliable and secure cloud service that provides a variety of APIs and API management functions

Copyright © 2017 NTT DATA Corporation 31 Case Example: Initiative of Financial EDI Business model reform Ⅲ through digitalization For instructions of remittance between companies, shift from the existing fixed length to XML–based data exchange format and enable simultaneous transmission of detailed information such as statements.

Electronic Data Remitting (1) Placing order Interchange (2) Receiving order Beneficiary (Trade flow EDI) company company (4) Inspection (3) Delivery

(5) Billing

(6) Fund transfer (7) Payment confirmation Zengin EDI system （ZEDI） ⑥振込XML XML Financial Financial EDI EDI

(8) Payment reconciliation Zengin system Efficiency of reconciliation process Trade flow EDI information can can be improved (automated) with be attached to financial EDI. detailed information attached. Financial institution Financial institution

Linking trade flow information with fund flow information is expected to generate a new added-value solution.

Copyright © 2017 NTT DATA Corporation 32 Case Example: Initiative for Development of Business model reform Ⅲ through digitalization Trade Data Sharing Platform Formed “Consortium to develop a trade data sharing platform using blockchain technology” with 13 major companies from various industries including banking, insurance, integrated logistics, import and export.

Purchasing (notifying) bank (3) Letter of credit Issuing bank

(10) Purchase document

(11) Settlement information (3)Letter

(10) Purchase (2) Letter of document (12) Shipping credit Request document for opening of (4) Insurance

credit application

(5) Insurance Insurance company policy (1) Sales contract (9) Shipping notification Exporter (Seller) Importer (Buyer) Cargo (6) Customs clearance and shipping request Import and export (7) Bill of (13) Bill of Import and export Lading application/permission Lading application/permission

Transportation and customs- Transportation and customs- related company related company Cargo (8) Customs (14) Customs Import and export declaration/permission declaration/permission Import and export authority authority

Customs Customs

Phase 1 (completed) Phase 2 (completed) Phase 3 (Scope of this consortium)

Study on how to address issues across companies and industries through PoC.

Trusted financial IT platformer in the digital era