Exponential Performance In a Millennial, Mobile and Programmatic World Contents

Foreword 04 1.0: Thriving in an exponential financial services world 06 1.1: From the branch to the back pocket – the Telstra Millennials, Mobiles and Money Index (3MI™) 06 1.2: Transforming from legacy to peak profit performance – the Exponential Organisation 11 1.3: Making enterprises programmable – software-controlled, data-driven automation 18 2.0: Country analysis 20 2.1: Methodology – the Telstra Millennials, Mobiles and Money Index (3MI™) 20 2.2: Country insights and analysis 22 2.2.1: Australia – Telstra 3MI™ 22 2.2.2: China – Telstra 3MI™ 24 2.2.3: Hong Kong – Telstra 3MI™ 26 2.2.4: Indonesia – Telstra 3MI™ 28 2.2.5: New Zealand – Telstra 3MI™ 30 2.2.6: Singapore – Telstra 3MI™ 32 2.2.7: United Kingdom – Telstra 3MI™ 34 2.2.8: United State of America – Telstra 3MI™ 36 3.0: Transforming to an exponential business model 38 3.1: Global studies – Exponential Organisations and exponential fintechs 40 3.2: Exponential – traditional financial services institutions versus pure play online/mobile banks/fintechs 43 4.0: Programmatic technology for exponential performance 46 4.1: Technology investment models 46 4.2: Enterprise technologies driving exponential ecosystems 49 4.3: Customer interaction technologies 58 5.0: Conclusion 62 6.0: About the author 65 7.0: Acknowledgements 66 8.0: Notes and references 68

02 03 Foreword

Rocky Scopelliti Global Industry Executive – Financial Services Telstra

Welcome to an ‘exponential’ Whilst we can no longer reliably The three important questions In this report, we review the effects financial services world predict how financial services will be we address in this report are: of this ‘exponential’ world, where structured, provisioned and consumed digital transformation will provide 1. How do Millennials and mobile Over the past ten years, I’ve been in the long run (nor the entities that will organisations with the ability to technologies collectively influence privileged to research the spectacular provide them), we can consider how to harness a new economic physics. exponential growth? We present impact of technological innovation, adapt. Digital transformation, therefore, The analysis challenges our linear- the results from an eight-country investment, growth and the resulting is the genesis of this report. based assumptions relating to growth, study of 27,000 consumers disruptions to the financial services investment and performance as we In last year’s Millennials, Mobiles and (including 8,000+ Millennials) industry, which can only be described witness the reprogramming of the Money report2, we detailed how the using the Millennials, Mobiles and as ‘exponential’. industry for an exponential financial three ‘M’ forces are reshaping the Money Index (3MI™)3 developed services world. Throughout this report, we define an financial services industry and how by Telstra. Millennials and their Exponential Organisation as one whose platform-based, data-intensive and use of mobile technologies have The insights presented in this report impact (or output) is disproportionally capital-light business models would undoubtedly become lead indicators were only made possible through the large – at least ten times larger than have the greatest disruptive impact. of performance and the Telstra 3MI™ generous participation of the financial its peers because of the use of new In response to those forces, we also enables us to analyse the competitive services industry, the contributions organisational techniques that leverage detailed our vision for a ‘distributed, dynamics of institutions as of our research partners and the 1 accelerating technologies . These software-controlled, autonomous they prepare for the battle for many wonderful people I interviewed; accelerating technologies create a and real-time digital financial customer relationships. I am sincerely grateful to all. new economic physics, enabling the services world’. marginal cost of both supply and 2. How do legacy business models While we encourage you to peruse our demand to reduce to virtually zero. For this report, the twelfth in my need to transform to perform in detailed examination of the specific thought-leadership series, we expand an exponential world, and what are actions institutions can take, we also The accelerants of this new exponential on those topics. Importantly, we’ve also the inflection points that will drive welcome the opportunity to provide environment that organisations developed some unique behavioural these transformations? We consider you and your management team with either commence in, or adapt to, economics and digital technology the business and operating models an in-depth briefing on what these have included the convergence of: research methodologies that have of financial institutions and share insights mean for your institution’s • digital technologies that are allowed us to discover fascinating new insights from 77 institutions studied transformation. At the end of this information-enabling financial insights into how financial institutions across eleven countries. We also document, we’ve provided a list of services to deliver disruptive new can transform digitally to compete and present the results of a global survey contact numbers you may find valuable. win in this new ‘exponential’ world. of 164 financial services executives growth opportunities (both economic Please also visit: We share the results of the inaugural using the Exponential Quotient and social), and www.telstra.com/3MI Millennials, Mobiles and Money Index Methodology developed by the for further information. • behavioural dynamics associated (3MI™) with you too. Singularity University4. This enables with demographic change, specifically us to identify inflection points and Millennials (18-34 years), who are locate gaps that must be addressed now the largest demographic group. when transforming to an exponential As consumers, workforces, investors business model. and policy makers, they experience the world in a different way to 3. What technologies enable an past generations. institution’s transformation for exponential performance? Here we consider the impact of an exponential environment on investment models, the ‘platformification’ of institutions, enterprise technologies and customer interaction technologies. These include programmable infrastructure, processes and intelligence.

04 05 1.0: Thriving in an exponential financial services world

Exponential Banking at BBVA Banking that draws upon exponential technologies to exponentially expand the area of contact with our customers and information about them; banking that multiplies both the variety and the quality of the services we offer; and, in sum, exponentially expands our business on a global scale5.

1.1: From the branch to the back pocket – the Telstra Millennials, Mobiles and Money Index (3MI™)

In this report, we look at the value and In a Millennial-led, mobile-first world, 1.1.1: International comparison The adoption of a mobile-first attitude On the other end of the scale, Asia- Whilst no countries studied are in this mobile banking usage of Millennials we can now assess an institution’s – Telstra 3MI™ by Millennial consumers has not only Pacific countries such as New Zealand, quadrant (due to averaging), some (18 to 34 years) and how well- or not performance based on its capacity increased digital engagement with Australia and Hong Kong have a lower individual institutions from Australia, well-positioned institutions are to to attract Millennials (Millennial Transformed quadrant. Relative to their main banks, but also contributed proportion of Millennials in their China, Indonesia, Singapore, the UK capture exponential growth as this penetration), their ability to engage global averages, this quadrant reflects to the success and evolution of digital population (20 per cent, 26 per cent and the US are positioned here. Players generation becomes the main source them through mobile devices (mobile a higher proportion of Millennials in payments specialists such as Alipay and 28 per cent respectively). When it in this quadrant are exposed to those of industry profit. Population growth banking usage) and, importantly, how a country’s population and the higher and Tenpay. comes to smartphone-based digital in the Digitised and Transformed and economic development has created much Millennials are investing in that degree to which the population engages engagement, Hong Kong Millennials are quadrants. The quadrant title implies Digitised quadrant. Relative to global a consumer group who, in terms of relationship, defined as total balance institutions using mobile channels. least engaged (61 per cent), followed that remaining within this quadrant averages, this quadrant reflects a lower both number and purchasing power, value of deposits and lending (average by those in New Zealand (66 per cent), is a non-sustainable position, and Of the countries examined, Indonesia proportion of Millennials in a country’s are unlike any other in history. wallet size). These metrics make up the Singapore (67 per cent), Australia that a transition will be imperative. and China have the largest proportion population, but a higher degree to which Telstra Millennials, Mobiles and Money (68 per cent) and the UK at (69 per cent) From a banking perspective, this is of Millennials in their populations, the population engages institutions Index (3MI™). We’ve created the Telstra (see Figure 1). critically important as it is in early life (54 per cent and 39 per cent respectively). using mobile channels. 3MI™ to enable us to observe, over the stages that consumers take out most Meanwhile the US, Chinese and Transitioning quadrant. Relative to course of time, how well institutions The US clearly leads the way among of their financial services products Indonesian Millennials mostly engage global averages, this quadrant reflects are transforming their businesses and the nations studied when it comes (including savings accounts, credit with their main bank monthly (the bank a higher proportion of Millennials models in response to these converging to mobile digital usage at 78 per cent cards, personal loans, mortgages Millennials consider to be their main in a country’s population and a disruptive trends. The quadrant (see Figure 1). and investments). This study will delve financial institution) via smartphone, lower-than-average degree to which labels describe the positioning and into each individual market – Australia, with 78 per cent, 75 per cent and Legacy quadrant. Relative to global that population engages institutions transformation pathways of institutions New Zealand, the UK, the US, China, 72 per cent of Millennials respectively averages, this quadrant reflects a lower using mobile channels. to position for exponential performance. Hong Kong, Indonesia and Singapore (see Figure 1). proportion of Millennials in a country’s In addition, we’ll examine case studies (see Section 2). population, and a lower degree to which of financial institutions that have the population engages institutions successfully targeted the lucrative using mobile channels. Millennial segment in each respective country.

06 07 > Figure 1: International comparison across Telstra 3MI™ > Figure 3: Smartphone penetration among mobile phone holders – total population and Millennials

85% 100% 99% 99% 100% 98% 97% 98% 97% 96% 97% 97% 96% Digitised Transformed 93% US, 90% 80% US$96k Indonesia, 86% 85% 82% US$47k 80% UK, 80% US$82k China, 75% Australia, 70% US$70k US$55k 60% 70% 50% Singapore, US$82k 65% 40%

Hong Kong, Size of bubble 30% 60% US$115k represents average size Mobile banking usage New of Millennial wallet 20% Zealand, 55% US$67k 10% Legacy Transitioning 0% 50% China Singapore Indonesia Hong Kong UK Australia US New Zealand 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% Millennials Total population Millennials in population

Data source: RFi Group Research 2016 Data source: RFi Group Research 2016

When it comes to digital engagement, US$8.8 billion – the largest investment markets is US$73,498. Typically, wallet Inflection point: The US, China and Indonesia share a higher proportion of Millennials and higher rates of mobile banking Chinese consumers are the most likely share of fintech globally8. In terms of size is larger in developed economies meaning they are likely to ride the exponential growth curve sooner than other markets. to engage with their main bank via a frequency of engagement, however, US such as Hong Kong (US$135,233 for all This further highlights the significant opportunities that institutions in Australia, New Zealand, Hong Kong, Singapore and smartphone, with 80 per cent of adults Millennials outperform other markets, adults and US$115,088 for Millennials) the UK have to shift from the Legacy quadrant. This can be done by further digitising their business models to increase and 88 per cent of Millennials doing with 78 per cent banking via smartphone and the US (US$87,890 among adults 6 mobile channel consumption, thus increasing the penetration of services among Millennials as they become the dominant so . China is positioned as a leader in at least once a month (using either and US$95,809 among Millennials), proportion of each respective population. the digital financial space, as it is in the browser or app). Chinese and Indonesian while less-developed and emerging digital retail space, with 47 per cent of Millennials follow closely at 75 per cent markets such as Indonesia (US$46,721 all global digital retail sales happening and 72 per cent respectively (see Figure 1). for all adults and US$46,823 for in China7. The mobile-first attitude Millennials) and China (US$52,640 of Chinese consumers has not only 1.1.3: Average wallet size for all adults and US$55,404 for 1.1.2: Mobile device penetration 96 per cent among Millennials) and users have access to a smartphone. increased digital engagement with their To help compare total wallet size Millennials) have the smallest wallets. lowest in the US (74 per cent for In Asia, particularly, over 95 per cent As Figure 2 shows, mobile penetration main banks, but also contributes to the among the eight markets studied, local The Millennial segment average wallet Millennials and 76 per cent for all of urban adult mobile users use is highest in Australia (91 per cent success of innovative digital payments currency values have been converted size has already overtaken that of adults). Across all the markets, smartphones – and the proportion is across the adult population and specialists such as Alipay and Tenpay to US dollar (US$) values using market the adult average in the US, UK, China at least four in five of those mobile even higher for Millennials (see Figure 3). and a broader appetite for fintech. exchange rates9. The average wallet and Indonesia (see Figure 4). For the 12 months to June 2016, Chinese size among Millennials across the eight fintech investment skyrocketed to > Figure 2: Mobile phone penetration among total population and Millennials

100% 96% > Figure 4: Average wallet size (US$) – total population and Millennials 91% 91% 89% 90% 87% 88% 86% 88% 84% 84% 82% $140,000 79% 80% 80% 78% 76% 74% $120,000 70%

60% $100,000

50% $80,000

40% $60,000

30% $40,000 20% $20,000 10% $0 0% Hong Kong US UK Singapore Australia New China Indonesia International Australia New China Indonesia Singapore UK Hong Kong US Zealand average Zealand Millennials Total population Millennials Total population

Data source: RFi Group Research 2016 Data source: RFi Group Research 2016

08 09 1.2: Transforming from legacy to peak profit performance – the Exponential Organisation

“If you haven’t transitioned into an Exponential Organisation, it will not only seem as though your competition is racing away from you, but also, like Kodak, that you are sliding backwards at breakneck speed into oblivion.” Samil Ismail – Singularity University

Across all countries studied, we found average size of wallet now exceeds all The significant proportionate share In this section, we will explore the basic An Exponential Organisation These accelerating technologies enable that the proportionate representation other demographic groups (making of wallet Millennials hold in China and business models, industry revenue and is one whose impact (or output) is the marginal cost of both supply and of Millennials in a population and the them a highly desirable demographic) Indonesia reflects the high proportion profit, and operating models of traditional disproportionally large: at least ten demand to reduce to virtually zero. proportion of wallet value they hold are while in Singapore, Millennials’ average of Millennials in those countries. institutions, and draw insights from times larger than its peers because This is a key factor in the multiplying broadly correlated – except in the UK wallet share is significantly less than challenger banks and fintechs to better of the use of new organisational effect of exponential growth versus and Singapore. In the UK, Millennials’ other demographic groups (see Figure 5). understand the economic transformation techniques that leverage linear growth referred to by Kurzweil required for exponential performance. accelerating technologies10. as the Law of Accelerating Returns Throughout this report, we use (LOAR)11 (see Figure 6). the following definition for an > Figure 5: Proportion of Millennials in population versus proportion of wallet value held by Millennials Exponential Organisation:

100% 90% Figure 6: Exponential/linear growth 80% 49% 46% 48% 70% 61% 61% 69% 69% 69% 68% 68% 72% 74% 71% 74% 75% 78% 80% 60% 85% Exponential

50%

40%

30% Disruption 51% 54% 52% 20% 39% 39% 31% 31% 31% 32% 32% 28% 26% 29% 26% 25% 10% 22% 20% Growh 15% Linear 0% Value Value Value Value Value Value Value Value Value Population Population Population Population Population Population Population Population Population

Hong Kong US UK Singapore Australia New Zealand China Indonesia International average

Millennials Other demographics Time

Data source: RFi Group Research 2016

The behavioural economics of have overtaken Baby Boomers (53-71 Their impact as customers, Inflection point: Millennials have grown their average wallet size and, over time, will increasingly outgrow the average Millennials and their unquenchable years) as the largest demographic employees, investors and policy consumer wallet size of other demographic groups. In the case of the US, UK, China and Indonesia, they have already thirst for digital experiences helps group and have emerged as the makers will only increase from this exceeded this inflection point. to explain exponential growth through number-one source of global income, point on exponentially12. disruptive innovation. Millennials spending and wealth creation.

See Section 2 for the country analysis that includes the Telstra 3MI™ performance of main financial institutions.

10 11 > Figure 7: Global banking revenues and profits by activity (US$B) 1.2.1: Business model – revenue and industry profit Balance-sheet Origination/sales % of ntech As information asymmetry in financial provision concentration 2015 services dramatically diminishes, the traditional fee – and margin-based business model from the provision Lending 1,239 301 24% of transaction, risk management, Core investment and financing services – banking Checking/savings 526 131 15% will change dramatically. According to McKinsey, 59 per cent of industry Deposits 174 44 0% profit is derived from origination, sales and distribution activities that generate a high ROE (22 per cent), with Investment banking 136 214 2% the provision of credit only generating Fee-based 6 per cent. Unsurprisingly, the large Payments 0 483 43% business profit pools from these activities have attracted the greatest concentration Insurance and wealth management 0 577 13% of fintech investment, with payments attracting 43 per cent and lending 24 per cent of investment13. McKinsey Total revenues 2,075 (54%) 1,750 (46%) further predict that by 2025, between Total after-tax prots 436 (41%) 621 (59%) 10 and 40 per cent of revenues in major retail banking businesses and ROE 6% 22% between 20 and 60 per cent of profits credit customer in consumer finance will be at risk from disintermediation disintermediation disruption (see Figure 7). Data source: McKinsey 2015 Older demographic groups are the main source of industry profit today. For example, in the US, more than 60 per cent of revenue is generated from those aged 50 years and older, > Figure 8: Exponential demographic profitability peak growth and customer value is estimated to peak at 58 years old14 but this is

about to change. A card portfolio Millennials become Millennials become the Millennials become the Millennials will no longer profitability growth model developed the majority of the Peak majority of both Peak and majority of both Legacy be the majority of the Legacy by TSYS for financial institutions15 Pro
ts in 2022. Legacy Pro
t groups in 2028. Pro
t groups in 2046. Pro
t groups by 2055. shows that Millennials are now the only demographic on an exponential 60% profitability trajectory. Millennials are predicted to overtake baby boomers 50% in 2022 and Generation X in 2028, becoming the most profitable customer 40% demographic to financial institutions when the older Millennials reach 30% 58 years of age (see Figure 8). 20% population combined population 10% % of Peak and Legacy Pro
ts

0% 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

Generation ? (future) Generation Z Millennials Generation X Baby boomers

Data source: TSYS 2016

Inflection point: From 2028, financial institutions will heavily rely on Millennials as a main source of profit for an 18-year period (2028-2046) and it won’t be until 2030 that we see the next exponential profitability trajectory, resulting from the rise of Generation Z (see Figure 8).

12 13 1.2.2: Business models gaps Their study of the Fortune 100 in mobile bank/fintech) scored their 1.2.3: Operating model efficiency Maintaining infrastructure and When it comes to efficiency, the eleven 2015 using the Exponential Quotient organisations at an average of 48/84 regulatory compliance represents a most efficient banks in 2016 were between the traditional and Digitisation will transform the revealed that none of eighteen financial (see Figure 9). These results are quite significant proportion of investment reported to be from China (see Table the new breeds economics of legacy business models institutions in the Fortune 100, scored consistent with the findings of the expenditure for institutions. PWC 1). Based on this, the Chinese banks in several ways. Firstly, automation The average lifespan of Fortune 500 55/84 or more, indicating a significant Singularity University study in Figure reported that in the first half of 2016, are the only traditional institutions will reduce the operating costs of companies reportedly decreased transformation journey ahead for these 30 – where traditional institutions in the 51 per cent of the investment spend performing at the operational efficiency major functions such as distribution. from 60 years in the 1920s to 15 years leading financial services institutions Fortune 100 scored an average of 39/84 by the major Australian banks were reported for challenger banks or According to McKinsey, distribution today. Forty per cent of the Fortune (see Figure 30). Conversely, in a separate (see Figure 9). for these items and they predict these fintechs. For comparison, OneSavings costs (branch network, contact centre, 500 are predicted not to survive the Singularity University study of the will continue to factor significantly Bank (OSB) reported a cost-to-income 16 When it comes to pure play online/ fulfilment) typically represent 40–60 next 10 years . Leveraging exponential Top 100 Exponential Organisations, into prioritisation of investment. PWC (CTI) of 26 per cent in 2015, with ATOM mobile bank/neo-bank/fintech, our per cent of total costs in retail and technologies to transform and compete nine organisations were fintechs and further highlight the labour intensity of Bank reporting under 30 per cent20. results paint a very different picture. commercial banking18, so the impact against new breeds of organisations all scored between 62/84 and 73/83 the current operating model, with staff Respondents ranked those organisations of automation is potentially enormous. (including fintechs), has become a (see Figure 30). compensation reportedly 56 per cent at an average of 64/84 – well above the Secondly, well-executed digitisation survival imperative. of total operating expenses19. With permission from the Singularity 55/84 threshold (see Figure 9). Again, of customer interactions can help Research by the Singularity University University, we used the Exponential these results were consistent with the traditional institutions retain their vast 17 on exponential technologies identified Quotient diagnostic tool in an online fintechs in the Top 100 Exponential Millennial customer bases, reducing eleven common attributes that could study of 164 financial services Organisations study (see Figure 30), leakage of profit to newer entrants. be leveraged to achieve exponential executives across eleven countries which reported those organisations growth (see Table 3). Often organisations between January and March 2017. scoring an average of 67/84. only require four of these attributes We sought to understand the degree to achieve the 10 x baseline threshold. to which executives thought their > Table 1: Best cost-to-income ratios of top 50 banks worldwide An Exponential Quotient was created institutions were exponential-ready based on these attributes to rate and the perceived readiness gap Cost-to-income Cost-to-income World rank Bank Country organisations. Those with quotient between traditional institutions and ratio rank ratio (per cent) scores above 55 out of 84 were fintechs. Executives from traditional 1 29 Shanghai Pudong Development Bank China 26.44 classified as Exponential Organisations. institutions (excluding pure play online/ 2 32 Industrial Bank China 28.42

3 2 China Construction Bank China 29.83

4 1 ICBC China 30.40 > Figure 9: Exponential Quotient score – financial services industry study 5 27 China Merchants Bank China 31.47

6 46 China Everbright Bank China 32.40 70 Average ntech Top 100 EXO score (67/84) 7 30 China CITIC Bank China 33.00 60 Exponential Quotient score threshold (55/84) 8 33 China Minisheng Bank China 35.38 50 Average FSI EXO score (ex-ntech) (48/84) 9 13 Bank of Communications China 35.78 40 Average FSI Fortune 100 EXO score (39/84)

4 10 4 Bank of China China 36.15 30 6 3 5 8 6 49 4 4 4 11 5 Agricultural Bank of China China 38.12 1 4

20 4 12 50 Commonwealth Bank of Australia Australia 39.78 10 13 49 ANZ Banking Group Australia 39.88 Exponential quotient score quotient Exponential 0 14 16 Banco Santander Spain 41.85

15 45 National Australia Bank Australia 47.11

16 24 Lloyds Banking Group UK 48.44 mutual banks neo-bank, ntech Investment banks 17 34 ING Bank Netherlands 50.66 payment processors payment General P&C insurers 18 43 Scotiabank Canada 51.78 Retail commercial banks 19 28 BBVA Spain 51.97 Pure play online, mobile bank, Service providers, e.g. schemes, Credit unions, building societies, 20 38 Intesa Sanpaolo Italy 52.96 Life insurers and wealth management

Data source: Telstra Research 2017 Data source: www.thebankerdatabase.com

Underutilisation of new technologies banks underperformed with a reported The picture for credit unions and mutual Inflection point: A significant quotient gap of up to 36 per cent in exponential performance-readiness has opened up and failure to embrace digital in global average CTI of 64 per cent in banks in Australia was even starker, between pure play online/mobile bank/neo-bank/fintech and traditional institutions. operating models were among the 2016. Interestingly, APAC institutions with an average CTI for 2016 reported reasons capital markets and investment performed best at 49 per cent21. to be 74.8 per cent22.

14 15 > Figure 10: Operating expense – per cent of outstanding loans 1.2.4: Mobile digital Digital transformation attracts • range of touchpoints, Inflection point: Direct banks and transformation – competing increasing levels of investment and, 5-7 digital attackers enjoy substantial • enrolment and login, in the experience economy as we saw in the previous section, cost advantages over traditional institutions vary widely in their • account information, players to the order of 67 per cent “The only source of competitive transformation maturity. Millennials • transactional functionality, for operating expenses and 98 live in a mobile, digital-first world. 23 advantage is the one that can Digital bank’s per cent on customer acquisition But when it comes to mobile banking • service features, cost advantage (see Figures 10 and 11). Many survive technology-fuelled applications, apps aren’t apps. 3-5 • cross-channel guidance, and -67% fintech lenders may have a disruption: an obsession Forrester24 conducted a major global 400-point cost advantage over with customer experience.” study of 46 large retail banks • marketing and sales. banks because they have little offering mobile banking services and to no physical distribution costs. Harley Manning – constructed a composite measure While Forrester reported an average This enables pure play online/ functionality score of 65 (out of 100), ~2 Forrester Research of functionality by analysing: mobile bank/neo-bank/fintech the huge variation in mobile functionality businesses to pass significant is immediately apparent in Figure 12. benefits on to consumers, including lower costs and shorter time to process loan applications. > Figure 12: Mobile banking functionality benchmark score 201625

Traditional1 Direct banks2 Digital attacker3 Westpac 1 Traditional banks: based on sample of top 500 banks’ data from Reuters. See Section 3 for more analysis on Bank of America 2 Direct banks: ING DiBa, Activo, Checbaca, AirBank, mBank, Zuno (2014). 3 Lending Club First Quarter 2016 Results. transforming to an exponential-centric Wells Fargo Source: Annual reports, press searches, McKinsey & Company analysis business model. Lloyds Bank CBA Data source: McKinsey 2016 NAB Chase Barclays Bank ICBC > Figure 11: Customer acquisition cost China Merchant Bank Citibank NatWest $ per customer DBS 300 Santander HSBC Bank of China OCBC Agricultural Bank of China China Construction Bank Digital bank’s Nationwide cost advantage ANZ -98% UOB 110 40 45 50 55 60 65 70 75 80 85 90 95 100 Functionality score

Data source: Forrester 2016

5 The barriers to digital transformation See Section 3 for more detail on are clear. According to a study by Inflection point: In a mobile, transforming to an exponential Traditional1 Direct banks2 Digital attacker3 EFMA and Infosys, a legacy technology digital-first world, a small group of business model. Australian, US and UK institutions 1 Foundation Capital, 2014; Lending club based on St. Louis Fed, Federal Reserve. environment (50 per cent), lack of 2 Based on expert interviews. unified vision for digital across the have out performed their peers by 3 On Deck, company presentation May 2015. investing to substantially improve Source: Annual reports, press searches, McKinsey & Company analysis organisation (44 per cent), lack of skills and expertise (38 per cent) transactional features, functionality and lack of budget(s) (31 per cent) and service sets. These efforts Data source: McKinsey 2016 were reported as the top inhibitors are characterised by the adoption to digital transformation for financial of a test-and-learn approach to institutions. Importantly, the study functionality and an agile approach found that 20 per cent of banks are to development. Westpac, a major launching, or considering launching, Australian institution, was ranked a parallel digital bank to support their #1 for 2016 (see Figure 12). digital transformation strategy26.

16 17 1.3: Making enterprises programmable – software-controlled, data-driven automation

A new generation of organisations • Programmable infrastructure, which Additionally, a new set of customer is emerging. They are growing can be orchestrated in near real-time interaction technologies is emerging > Figure 13: Vision for a distributed, software-controlled, data-driven, autonomous, exponentially by efficiently connecting by software to minimize costs and in the form of intelligent personal real-time, programmable financial services enterprise supply to demand – and they are to dynamically support changes in assistants, smart chatbots and natural- doing so with a near-zero marginal demand or supply, language voice interfaces. These cost. They also have delivery models potentially offer institutions a holy grail: • Programmable process, which avoids that are massively scalable, and they experiences that customers find both Third-party data Programmable Banking functions Articial intelligence or removes the cost and friction and services intelligence on demand on-demand are connecting to that demand with satisfying and engaging, and delivery associated with a huge range of manual compelling, engaging and ultimately models that companies find affordable, Continuous: Transactions Behavourial and semi-manual processes, and Operation analytics analytics sticky user experiences. scalable and through which they Market analytics Cognitive Customer analytics Financing • Programmable intelligence, which can differentiate themselves. These services To paraphrase Tom Goodwin, Uber, Product analytics was enabled by commoditised high- technologies are new and immature, Risk Natural language Facebook, Alibaba and Airbnb don’t management services performance big data and analytics but user adoption is growing rapidly. Tablet hold, create or own the services they Investment Machine-learning platforms allowing evidence-based services create27: The equivalent for this industry Ultimately, however, the technologies decision-making at speed and scale. Online therefore is: are not a sustainable differentiator. The API gateway Machine learning is drastically reducing APIs APIs APIs same technologies can be accessed by the manual effort required to develop Mobile start-ups and incumbents, by fintechs ‘[Exponential], the world’s new analytical models and insights. and traditional institutions and by linear In-network Programmable largest financial services APIs intelligent software-dened APIs Chatbot By utilising these key elements, growth companies and exponentials. security network real-time Intelligent Intelligent company, holds/creates/owns organisations can become, in effect, One major hazard for traditional orchestration Voice “programmable enterprises”. They organisations is that their technology Robotic no [______?]’. process APIs APIs

can use analytics to remove costs investment models are simply not automation Platform-as-a-service Digital Intelligent and friction from almost every aspect designed to cope with exponential virtual This is a story waiting to be told. Legacy systems Programmable Data services on demand assistant of their operation. Programmable technologies. These processes need to and processes infrastructure Enterprise systems, on demand Next Companies achieve these three enterprises can also easily conduct evolve or institutions will be outflanked Security and Operational data big thing! mainframes, etc. validation outcomes by making infrastructure, product and market experiments and by companies who have the capacity to services CRM ERP Product and processes and intelligent systems immediately make evidence-based out-scale institutions before the threat Identity market data elastic to meet demand and by (often automated) decisions based is even recognised. Emails, spreadsheets, reports, documents Blockchain Customer making them programmable – thereby on the results of those experiments. distributed context data While the world's next largest financial ledger bringing much of the business into Further, they can personalise service services company remains to be Data-scrubbing the domain of software-controlled, delivery because personalisation is much Customer transformed or created, based on and matching experience data data-driven automation. The three key cheaper in software. Programmable End-to-end security monitoring and management the exponential business models of elements include: enterprises can also scale – massively disruptors in other industries, we – because all aspects of production can assume it will likely become a Continuous incremental demand-driven investment model happen in direct, real – or near real-time programmable enterprise. Our vision response to demand. Data source: Telstra Research 2017 for what this enterprise will be, and how it will operate, is based on four key principles and illustrated in Figure 6. See Section 4 for more analysis on programmatic technology for exponential performance.

18 19 2.0: Country analysis

“Over the next 15 years we will see the Millennial segment become the most profitable demographic group for banks around the world. However, Millennials are driving interactions and demanding engagement in a manner never before seen in financial services and it is therefore critical that any financial services organisation that wants to succeed in the long term, acts to align itself from a customer engagement perspective with what will shortly become the norm.” Alan Shields, Managing Director – Consulting, RFi Group

In this section, we use the Telstra 3MI™ to review institutions and their performance across eight countries.

2.1: Methodology – the Telstra Millennials, Mobiles and Money Index (3MI™)

The data reported in this section they held with financial institutions, was collected from more than 27,000 the value of these product holdings consumer research interviews, and how they conduct their banking conducted in eight markets through activities. Data for China and Indonesia 2016. The sample included over was largely obtained from urban 8,000 Millennials (18-34). Interviews populations. In addition to the were conducted online and required consumer study, 77 financial interviewees to note the products institutions were also analysed.

20 21 > Figure 15: Main bank market share of Millennials in Australia

40% 2.2: Country insights and analysis 36%

(all data presented as an average) 30%

20% 2.2.1: Australia – Telstra 3MI™ As in many of the markets in this study, proportions among the countries studied. 14% 12% Australian financial services providers Yet Australian institutions are well 11% 9% have become increasingly focused aware of this segment’s potential 10% on Millennials. 4% 4% and there are numerous examples 3% 3% 3% of products and services that 1% Millennials currently represent 0% 26 per cent of the total adult population target Millennials. CBA ANZ NAB Westpac ING Direct St. George Suncorp Bankwest Bendigo Bank BOQ Other Bank and Adelaide Bank in Australia, one of the lowest Data source: RFi Group Research 2016

2.2.1.1: Mobile banking 2.2.1.2: Wallet size > Figure 14: Comparison of main Australian banks across Telstra 3MI™ 2.2.1.3: Case study – ANZ penetration Australians take out a significant As we see in Figure 2 and 3, mobile proportion of their first banking There are many examples of 85% phone penetration in Australia is products between the ages of 18 to 34 institutions targeting Australian Digitised Transformed high (91 per cent of adults) as is years and for this reason, Millennials Millennials. For example, through smartphone penetration (85 per have significant ‘banking wallets’. student-centric products such 80% Suncorp We define wallet size as the sum as traveller-focused credit cards Bank, cent of mobile users). In contrast, US$61k 96 per cent of Millennials have mobile of deposits and loan holdings with a and referral incentives of as particular institution. As we can see much as AU$75 (offered to both Westpac, phones and 93 per cent of these use 75% NAB, US$71k the referring customer and the US$70k smartphones. While only 53 per cent from Figure 1, on average, Australian Millennials have US$70,026 in deposit referred individual). Bankwest, of all consumers with smartphones US$134k CBA, ING Direct, access banking services via and lending balances. This makes 70% US$63k US$113k A relatively recent addition is ANZ’s smartphone, 68 per cent of Australian them a very attractive proposition 'Job-ready' package29, which targets Millennials access their main bank for banking players. young adults about to enter the St. George, ANZ, 65% through mobile banking at least US$40k US$68k In Figure 14, ING Direct (US$112,542) workforce. The package includes: Mobile banking usage Size of bubble monthly28. This is by no means the represents average size and Bankwest (US$133,603) stand of Millennial wallet highest mobile banking penetration • a transactional or salary account, out as having comparatively large 60% in the study, but it does highlight which is fee-free for those Millennial wallet size. Both banks have the difference in digital engagement depositing more than $2,000 per traditionally targeted online savers between the Millennial population and month (AU$2 per month if not), Legacy Transitioning and have brands that resonate among 55% the average Australian adult. 15% 20% 25% 30% 35% 40% 45% first homebuyers – positioning them • a superannuation account, into Today, ANZ has a comparatively low perfectly to target Millennials looking which a customer can nominate Millennials in nancial institution proportion of customers engaging via to purchase property and take out to have their compulsory mobile (see Figure 14). This may change loans. Westpac, National Australia superannuation contributions paid, Data source: RFi Group Research 2016 soon as ANZ is the first of the major Bank and other major institutions are • a fee-free savings account paying Australian banks to launch Apple Pay. clustered around the national average. a three-month bonus interest of Although Apple Pay is distinct from 1.45 per cent on top of the ongoing As Figure 14 shows, the banks with CBA is particularly noteworthy as it mobile banking, it may drive overall rate (1.30 per cent as at January the largest proportions of Millennials has long targeted a younger segment mobile app usage among 2017), and among their main bank customers (i.e. in the Australian market with products Millennial customers. Millennials who consider a bank to be including Youthsaver accounts and the • mobile banking app access. their main financial institution) are ING Dollarmites Club, which are aimed at With ANZ positioned in the Direct and the Commonwealth Bank school children. CBA currently has a Transitioning quadrant, this package, of Australia (CBA) – with 39 per cent main bank share of 36 per cent among along with the launch of Apple Pay in and 34 per cent respectively. They are Millennials, well ahead of its largest 2016, positions ANZ well to target the positioned in the Transformed quadrant competitor ANZ on 14 per cent (see mobile-savvy Millennial segment. together with NAB and Suncorp. Figure 15). RFi Group research shows that brand preference for ANZ among Millennials stood at 24 per cent in November – second in the market – which is consistent with ANZ having the second-highest market share of Millennials. These statistics suggest that ANZ is set to do well at acquiring Millennial customers in 2017.

22 23 2.2.2: China – Telstra 3MI™ Of those countries examined in this adult population, at 39 per cent, 2.2.2.1: Mobile banking penetration In Figure 16 we see that, among the 2.2.2.2: Wallet size study, China has the second-highest trailing only Indonesia (see Figure 1). major Chinese banks, Ping An Bank, The rate of mobile phone penetration The Millennial wallet size at CMB proportion of Millennials among its Bank of Communications and CMB have in China is high – 88 per cent of urban (US$89,609) is substantially larger than the highest proportions of Millennial Chinese consumers own a mobile the average across the Chinese majors customers regularly engaging through phone, and 98 per cent of these have (US$55,404) – a likely contributing the mobile banking channel. On the smartphones (see Figures 2 and 3). factor to CMB’s high level of digital other hand, ICBC sees the lowest The pervasive use of smartphones is engagement. Bank of China (BOC) and proportion of mobile engagement a strong foundation to promote mobile Shanghai Pudong Development Bank among this segment (68 per cent). > Figure 16: Comparison of main Chinese banks across Telstra 3MI™ banking. Urban Chinese consumers (SPDB) and Agricultural Bank of China CMB has leveraged its strong have indeed taken heed, with 80 per (ABC) trail CMB by some distance, with technology capabilities to prioritise cent of urban Chinese adults having average Millennial wallets sitting just 100% mobile and online banking and to Digitised Transformed used mobile banking to conduct day- over US$55,000, or about the national provide a seamless digital channel to-day banking activities in the past average (see Figure 16). 95% experience. CMB has also created a 12 months32. Eighty-eight per cent of closed-loop banking ecosystem, which Ping Chinese Millennials use smartphones 90% An Bank, encourages customer engagement by Bank of China US$28k and three in four Chinese Millennials Communications, providing lifestyle and entertainment Merchants US$54k regularly bank with their main bank Bank (CMB), information through rewards and 85% via smartphones. Despite one of US$90k promotions with integrated payment the highest levels of smartphone capabilities so that customers can 80% ownership and a high level of regular Bank of China, take advantage of these offers. US$64k mobile banking behaviour in this study, 75% there is still a marked difference in the Shanghai Pudong Agricultural Bank of China (ABC), behaviour of Millennials compared Mobile banking usage Development Bank US$55k 70% (SPD Bank), Size of bubble with the average Chinese adult. ICBC, US$63k represents average size US$51k of Millennial wallet 65% China Construction Bank (CCB), Legacy US$40k Transitioning 60% 2.2.2.3: Case study – CMB • pay utility bills and credit card bills, 20% 25% 30% 35% 40% 45% 50% 55% Many banks in the Chinese market • apply for loans, offer card propositions targeting the Millennials in nancial institution • check transaction records, Millennial segment. Major banks offer cards providing discounts on travel- • make peer-to-peer (P2P) transfers, Data source: RFi Group Research 2016 related expenses, discounts on dining • search for the nearest branch, experiences, rewards for shopping as well as the number of people online and a choice of attractive waiting in line, While Ping An Bank shows the highest China Merchants Bank (CMB) has long respectively, versus market averages card designs, as well as student- proportion (49 per cent) of Millennials been an innovator of digital banking of nine and nine. Despite not holding centric products such as tuition fee • answer queries via an automated 30 among its main bank customers, in China. According to RFi Group data a market-leading share of main bank cashback and discounts on study customer service robot, and the proportion of Millennials in the it consistently performs well in terms relationships among Millennials programs. Aside from bank offerings, • order and pay for a taxi. customer base of most major Chinese of advocacy for its internet banking (11 per cent), it has led the way in numerous digital wallet players in banks sits at around 40 per cent. and mobile banking offerings, with offering features desired by Millennials, the market look to target the many The integration of multiple banking 31 Net Promoter Scores of 13 and 18 such as WeChat Bank (see Figure 17). digitally engaged Millennials. and non-banking features in CMB’s mobile banking offering, and its As mentioned earlier, CMB leads the ongoing strategy for improvement, market and has pioneered innovative will continue to strengthen its functions including the integration > Figure 17: Main bank market share of Millennials in China position with the lucrative of ‘WeChat Bank’ in 2013 to improve Millennial segment. the customer experience of its mobile 30% proposition. Other banks such as ICBC, Agricultural Bank of China and 21% China Construction Bank have since 20% 17% 15% 14% followed suit. With WeChat Wallet 11% integration, users can use their 9% 10% smartphone to: 5% 3% 2% 2% 2%

0% ICBC Bank Other (PSBC) Bank of Bank (CCB) (SPD Bank) (SPD China CITIC Bank (CMB) Ping An Bank Bank of China Bank of China of China (ABC) Postal Savings Communications China Merchants China Shanghai Pudong Shanghai AgriculturalBank Development Bank Development China Construction China

Data source: RFi Group Research 2016

24 25 2.2.3: Hong Kong – Telstra 3MI™ Hong Kong has the smallest proportion 2.2.3.1: Mobile banking penetration Millennial customers of international 2.2.3.2: Wallet size (29 per cent) of Millennial adults among banks Citibank and Standard Chartered Eighty per cent of the adult population Millennial adults in Hong Kong hold on the Asian countries in this study are most likely to be mobile banking on in Hong Kong has access to a mobile average a US$115,088 wallet size – the (see Figure 1). a regular basis (81 per cent and 73 per phone, compared with 79 per cent of largest among the countries studied cent respectively). In a market where Millennials. Smartphone penetration is (see Figure 1). Standard Chartered online and mobile banking culture high, with almost all Millennials studied Millennial customers hold the largest is less developed, both institutions signalling that they hold a smartphone average wallet (US$194,243) followed provide customers with user-friendly capable of mobile banking (see Figures by Citibank customers (US$136,007). experiences and easy access to > Figure 18: Comparison of main Hong Kong banks across Telstra 3MI™ 2 and 3). While 76 per cent of Millennials While, as mentioned previously, Hang account information via their mobile bank with their mobiles and 61 per Seng enjoys the highest proportion of banking apps. Citibank, for example, cent do so at least monthly, this is the Millennials within its customer base, 90% enables its mobile app users to view a lowest level of Millennial digital banking these Millennials hold the smallest Digitised Transformed snapshot of all their accounts (such as engagement across the eight countries average wallet size (US$94,002 below 85% savings balance and credit card spend). Citibank, studied (see Figures 18). the national average) (see Figure 18). 80% US$136k

75% Standard Chartered, US$194k 2.2.3.3: Case study Standard Chartered also offers 70% Breeze Home, an app for customers Hang – Standard Chartered Seng Bank, looking to enter the property market, 65% US$94k Banks in Hong Kong endeavour to which includes: Bank of China, attract Millennials through attractive 60% US$114k card and deposit propositions • ability to search properties listed Mobile banking usage aimed at the student demographic. for sale in Hong Kong, Size of bubble 55% represents average size These include discounts or cashback • a customisable borrowing profile, of Millennial wallet HSBC, rebates on dining, entertainment to help identify properties that meet 50% US$96k and online shopping experiences, their requirements, Legacy Transitioning as well as discounts and instalment 45% plans on tertiary-related fees. • a mortgage calculator, to estimate 20% 25% 30% 35% 40% 45% Additionally, Hong Kong has digital monthly repayments based on their Millennials in nancial institution wallets and payments offerings such borrowing capacity, and as O!ePay, TNG, Alipay, and Tap & Go, • a calendar function that offers which are more likely to appeal to Data source: RFi Group Research 2016 tips and informs users about key digitally savvy Millennials than the milestones or events throughout average consumer. the home-buying process. Hang Seng Bank and Citibank have credit card offerings for university support university projects, and Standard Chartered promotes digital With multiple mobile banking the highest proportion of Millennials students. The card offers students activities for alumni and students. engagement through user-friendly solutions, including Standard in their main bank customer base (37 and alumni of leading universities internet banking and mobile banking By focusing on students and alumni, Chartered Mobile, Breeze Home and per cent and 35 per cent respectively), and colleges exclusive features such offerings. This includes the ability to: Hang Seng Bank engages the younger Breeze Trade, Standard Chartered is while HSBC has the lowest (see Figure as interest-free instalment payment generation and creates an incentive for • access all the banking services well placed to actively target digitally 18). It is noteworthy that Hang Seng plans for tuition fees and discounts for them to continue with the bank as their in a mobile banking app, using engaged customers in Hong Kong, Bank has a long-term strategy targeting campus facilities. The bank donates financial needs mature. fingerprint authentication, particularly Millennials. Standard Millennials. One example is its exclusive a proportion of total card spend to Chartered currently holds seven • view balances and transaction per cent market share of main bank history on a single platform, relationships in the Millennial space • personalise the viewing settings (see Figure 19). > Figure 19: Main bank market share of Millennials in Hong Kong of accounts, • make payment transfers, and 40% • buy and sell currencies. 33%

30% 25% 22% 20%

10% 7% 5% 3% 2% 1% 1% 0% 0% 0% HSBC BOC Hang Seng Standard Citibank BEA NCB Chong Hing Dah Sing DBS Other Bank Chartered Bank Bank

Data source: RFi Group Research 2016

26 27 2.2.4: Indonesia – Telstra 3MI™ Millennials as a group make up studied, and suggests that mobile 2.2.4.1: Mobile banking penetration BCA, CIMB Niaga and Bank Mandiri 2.2.4.2: Wallet size 54 per cent of Indonesia’s urban banking and digital solutions are have the highest proportions of Mobile phone penetration among urban As with most markets, the foundation adult population, which is the highest especially relevant in this market Millennials using mobile banking to adults in Indonesia sits around the of many Indonesian adult banking proportion among the countries (see Figure 1). engage with their main bank, while BNI international average for this study, wallets will be laid during the 18 to 34 has the lowest (see Figure 20). Going with 86 per cent of adults owning a year old period, making this a critical forward, BCA may further reinforce personal mobile phone, of whom 97 stage for consumers and banks alike. its position as a Millennial leader in per cent have smartphones. Millennial Urban Indonesian Millennials average the digital space, with strong internet mobile penetration is marginally lower US$46,823 in deposits and loans banking, mobile banking and digital > Figure 20: Comparison of main Indonesian banks across Telstra 3MI™ at 84 per cent (see Figures 2 and 3). with their banks – the lowest dollar wallet offerings. Similarly, Bank Mandiri Levels of digital engagement among value across the countries studied is driving engagement through its digital Millennials (81 per cent accessing (see Figure 1). 85% wallet – Mandiri e-cash. This is available Digitised Transformed mobile banking with their main bank to all mobile phone owners and allows BNI has the most invested Millennial in the past year) and average adults 33 for payments online, payments in-store, customer base with an average wallet 80% BCA, (79 per cent) are similar . CIMB Niaga, cash withdrawals and transfers. size of US$81,810, some 75 per cent US$38k US$72k larger than the average Millennial wallet. The other standout is CIMB 75% Bank Mandiri, Niaga, (US$72,000). On the other US$20k hand, Millennial customers of the

70% state-owned Bank Mandiri, are the least affluent, holding on average of just US$20,273 (see Figure 20). 65% Size of bubble Bank BRI, represents average size Mobile banking usage US$38k of Millennial wallet BNI, US$82k 60% 2.2.4.3: Case study – BCA • see friends who also use Sakuku, Indonesian institutions have • withdraw cash without a card Legacy Transitioning 55% developed several products aimed at BCA ATMs, to attract the Millennial market, 45% 50% 55% 60% 65% 70% • make mobile top-ups, for example current and savings Millennials in nancial institution accounts with shopping perks and • make money transfers and carry unique card designs. Bank Danamon out balance enquiries, Data source: RFi Group Research 2016 has partnered with Manchester • split bills between Sakuku users, United to create a sports-branded and card. Other examples include new Figure 20 shows that state-owned Bank deposit account products, such as and all groups (Figure 21). BCA’s reach digital wallets, more contactless • pay no monthly administration fee. card and sticker payments options, Negara Indonesia (BNI) has the largest BNI Tapma. This acts as both a payment across all age groups suggests it BCA also engages with Millennials via e-commerce payment solutions and proportion of Millennials among its card and student identity card on has a broad customer acquisition a strong social media presence on one-stop branches in popular retail main bank customer base (62 per cent). campus. Bank Central Asia (BCA), strategy, which may contribute to major social media platforms such locations offering self-service and Although positioned in the Transitioning the third-largest bank in Indonesia the comparatively small proportion as Facebook, Twitter, Instagram, automated technologies. quadrant, one way BNI is reaching by total assets, enjoys the largest of Millennials in its customer base. YouTube and Indonesian online this younger segment is by partnering market share of main bank relationships Digital wallets are becoming harder forums all popular with Indonesian with local universities to offer tailored across both Millennials (40 per cent) to differentiate, with many offering Millennials. For example, BCA allows similar functions. Apart from its prospective and existing customers mobile app (m-BCA), BCA offers an to communicate with BCA in their own electronic wallet – Sakuku – that it time via Facebook Messenger and > Figure 21: Main bank market share of Millennials in Indonesia seeks to differentiate by offering other social messaging platforms. the ability to:

40% 40%

30%

20% 20%

12% 11% 10% 10%

3% 2% 1% 1% 1% 1% 0% BCA Bank Bank BNI CIMB Bank Bank BTN BII Bank Other Mandiri BRI Niaga Danamon Muamalat Permata

Data source: RFi Group Research 2016

28 29 2.2.5: New Zealand – Telstra 3MI™ Of the countries studied, New Zealand 2.2.5.1: Mobile banking penetration Comparing the five major banks, 2.2.5.2: Wallet size sees the smallest proportion of ASB sees the highest level of digital The level of mobile phone ownership One noticeable feature in Figure Millennials among its adult population engagement among Millennials (76 per in New Zealand is comparable to 22 is the average wallet size for at less than 20 per cent (see Figure 1). cent), while BNZ, ANZ and Kiwibank are neighbouring Australia at 91 per cent. ANZ Millennial customers which, evenly placed in engaging two in three However, unlike most other markets at US$98,234 is a whopping $31,000 of their Millennial customer base via studied, there is significant disparity above the US$67,083 national the mobile banking channel. Westpac in smartphone ownership between average for Millennials (see Figure noticeably trails its competitors at ™ Millennials (96 per cent) and the general 1). On the other side of the spectrum, > Figure 22: Comparison of main New Zealand banks across Telstra 3MI 54 per cent (see Figure 22). ASB has adult population (80 per cent) (see Westpac Millennials hold the smallest been proactive in engaging customers Figures 2 and 3). The ubiquitous use average wallet size (US$44,106). 85% through social media platforms. For of smartphones among the younger State-owned Kiwibank sees a slightly Digitised Transformed example, in 2014 it launched ‘Like Loan’, generation, and the fact that two in larger US$49,157 wallet, with its core which combined both social media 80% three Millennials regularly use mobile deposits, home loans and KiwiSaver and TV commercials to drive customer banking to engage with their main bank scheme, traditionally attracting ASB, engagement. Applicants who met ASB’s US$62k exemplifies the importance of delivering less affluent, more price-focused 75% lending criteria and entered the draw quality digital banking experiences. consumers. Since its launch in 2002, had the opportunity to win a fixed term BNZ, Kiwibank has been awarded ‘Most US$65k home loan rate, with a discount rate 70% price-competitive bank’ and ‘First determined by the number of Facebook Home Buyer Bank of the Year Award’ Kiwibank, ‘likes’ collected. US$50k 65% ANZ, by comparison site CANSTAR on US$98k numerous occasions.

Size of bubble Mobile banking usage 60% represents average size of Millennial wallet

55% Westpac, 2.2.5.3: Case study – Kiwibank • access to specialised offers through US$44k the ORM service, Legacy Transitioning The principal Millennial-focused 50% products from New Zealand banks • ability to link to smartwatches, 10% 15% 20% 25% 30% are saving accounts for students, • ability to view balances without graduates and young people Millennials in nancial institution logging in, entering the workforce. The student propositions focus on low or no fees, • ability to register for internet Data source: RFi Group Research 2016 interest-free overdrafts and bonus banking entirely through the interest to help Millennials save. In mobile app, addition, several banks offer student • ability to view all product accounts The proportion of Millennials with each per cent) (see Figure 22). A potential New Zealand to offer internet banking, and graduate credit and debit cards through the app, and of the major New Zealand financial for ASB’s higher Millennial population mobile banking, the ability to stop with no annual fees. institutions is fairly consistent, ranging is its long-held reputation for banking paper statements and the ability to • ability to view, authorise or cancel Kiwibank has seen success targeting from ASB (26 per cent) to Westpac (17 innovation. ASB was the first bank in make P2P payments via Facebook. upcoming payments including Millennials with innovative apps and batch payments. social media campaigns. Kiwibank has continually sought to improve the As mobile banking apps continue customer experience of its mobile to integrate with other channels, > Figure 23: Main bank market share of Millennials in New Zealand app through regular updates, such Millennials will likely look to do more as the release of its in-app Online banking through mobile. While only 34 40% Relationship Manager (ORM) access six per cent of current Millennial service. Kiwibank’s mobile app offers: personal loan holders would likely apply for a future loan via mobile, 29% • one-button access to an ORM who 30% this proportion is above the average, will reply within 24 hours or organise 24% suggesting the appetite for using an appointment with someone mobile applications for less complex 20% who may be able to help; this ORM 16% products may increase in the future. 15% becomes the single point of contact 12% for future enquiries, 10%

1% 1% 2% 0% ANZ ASB Westpac Kiwibank BNZ TSB Bank The Co-operative Other Bank

Data source: RFi Group Research 2016

30 31 2.2.6: Singapore – Telstra 3MI™ In Singapore, almost 31 per cent of outperform the national average in 2.2.6.1: Mobile banking penetration Despite having the largest proportion 2.2.6.2: Wallet size adults are Millennials – about the terms of regular mobile banking usage of Millennials within its customer base, Singapore has one of the highest On average, Singaporean Millennials average for the countries studied or the proportion of Millennials in their OCBC does not enjoy the highest level levels of mobile phone penetration have a wallet size of US$81,868 (see (see Figure 1). Interestingly, unlike any customer base. This explains the fact of Millennial digital engagement. UOB among the markets studied (84 per Figure 1). Among the major banks, other country in this study, none of the that no major bank is ranked in the claims that honour, with 73 per cent, cent of adults) and high (97 per cent) OCBC captures the largest average major banks in Singapore significantly Transformed quadrant (see Figure 24). followed by DBS, with 69 per cent (see smartphone penetration (see Figures 2 Millennial wallet (US$107,424) – over 30 Figure 24). UOB was an earlier adopter and 3). Mobile phone ownership among per cent larger than that of the average of daily mobile banking app usage, Millennials is even higher at 88 per cent, Millennial in Singapore. In contrast, launching the UOB Mighty app to both almost all of which are smartphones. POSB, with a tradition of offering ™ existing and non-UOB customers in > Figure 24: Comparison of main Singapore banks across Telstra 3MI Among the Asian markets in this study, low-cost banking services for the less 2015. The app provides contactless Singapore sees comparatively low affluent, captures the smallest wallet payments capability and daily 80% levels of mobile banking usage with size (US$36,959) (see Figure 24). discounts on categories such as dining. Digitised Transformed only 65 per cent35 of adult consumers UOB also offers the YOLO Credit Card, indicating that they use mobile banking. which is candidly aimed at Millennials, The proportion naturally rises among 75% offering priority access to bars and Size of bubble Millennials, with 77 per cent using clubs as well as other entertainment UOB, represents average size mobile banking and 67 per cent doing US$97k of Millennial wallet and dining offers. so regularly (see Figure 1). 70% DBS, US$79k

2.2.6.3: Case study – OCBC FRANK by OCBC offers: 65% POSB, OCBC, US$37k US$107k Singaporean Millennials are targeted • a savings account with bonus Mobile banking usage with a variety of financial offerings saving rates, ranging from contactless payments 60% • a ‘Young Investors’ program for students and Millennial-targeted designed to equip younger credit cards. Credit cards are the customers with investment Legacy Transitioning primary Millennial product, with 55% knowledge through workshops. differentiation largely in the form This also includes a trading 20% 25% 30% 35% 40% 45% of cashbacks and discount deals. account to help customers Millennials in nancial institution FRANK, launched by OCBC in 2011, embark on share trading, is a standout. This is a multifaceted • FRANK ‘stores’, rather than Data source: RFi Group Research 2016 program that aims to educate branches. These are located in students at university about malls and schools and have staff financial services, and to win over who teach students about financial Among the four major financial (41 per cent) compared with its customers early in their lifecycle products and services and an institutions in Singapore, OCBC has nearest competitor POSB (31 per cent) – i.e. while studying or just entering environment that encourages the highest proportion of Millennials (see Figure 24). the workforce. At the time, it offered visitors to ask questions about a new way to bank, with FRANK financial services, concept stores offering a shopping- style experience that encouraged • debit cards with 120 unique card > Figure 25: Main bank market share of Millennials in Singapore browsing and touching. Its flagship designs, and debit card offers over 100 different • credit cards with discounts and bold card designs and customers cash back for online shopping and 40% can change designs at any time for entertainment activities, such as a small fee. The introduction of such at bars and cafes. 32% a targeted offering undoubtedly 30% 26% 26% contributed to OCBC’s strong position The financial education program, with Millennials. OCBC now currently combined with OCBC’s early adoption

20% holds 26 per cent market share of new technology (e.g. first Asian of main bank relationships for bank to enable secure payments Millennials, trailing only POSB through Apple’s Siri and iMessage), 10% 9% at 32 per cent (see Figure 25). has resulted in OCBC being popular among Millennials. 3% 2% 1% 1% 1% 0% 0% 0% POSB OCBC DBS UOB Standard Citibank Maybank Bank of HSBC CIMB Other Chartered China

Data source: RFi Group Research 2016

32 33 2.2.7: United Kingdom – Telstra 3MI™ In the United Kingdom (UK), 31 per cent international average of 32 per cent 2.2.7.1: Mobile banking penetration month (see Figure 26). In contrast, 2.2.7.2: Wallet size of the adult population falls into the (see Figure 1). Nationwide has the smallest proportion Overall, 82 per cent of adult The average wallet size for Millennials Millennial segment, slightly below the of Millennials regularly engaging via consumers reported owning a mobile in the UK is US$81,990 (see Figure mobile banking, despite the bank phone, with 86 per cent of these 1). Both HSBC and Barclays Bank offering a financial education program using smartphones. Millennials Millennials capture larger than average through social media platforms. The are marginally less likely to have a wallet size – in the case of HSBC by program, ‘Money Stuff’, is delivered personal mobile phone (78 per cent), more than US$20,000. It is noteworthy through platforms like You Tube and ™ but almost all (97 per cent) of those that HSBC and Barclays Bank both offer > Figure 26: Comparison of main United Kingdom banks across Telstra 3MI Tumblr and provides tips on money use a smartphone (see Figures 2 and wealth management services in the management for younger people. One 3). The starkest difference between UK UK and hence are likely to attract more 90% possible reason for low engagement Millennials and the average adult is in affluent customers. Comparatively, Digitised Transformed is the functionality of the Nationwide digital engagement, with 78 per cent Millennial customers of Lloyds Banks 85% banking app. A common complaint of Millennials banking with their mobile and Santander hold smaller average cited in customer reviews37 is that users compared with just 52 per cent for the wallets (US$33,417 and US$34,717 can only pay existing payees through 80% average adult. Moreover, 69 per cent respectively see Figure 26). the app – a transfer to a new payee NatWest, of UK Millennials access their main US$71k requires logging into the online banking 75% Barclays bank via smartphone, compared with Lloyds Bank, 36 portal. In comparison, Barclays Bank Santander, Bank, US$85k 45 per cent of the adult population . US$35k US$33k markets its mobile app with the ability 70% The UK market demonstrates the most to ‘make payments to both new and marked behavioural difference between 38 Halifax, existing payees . Nationwide has also 65% Royal Bank Millennials and the average adult. US$38k HSBC, of Scotland, gone against the high street banking US$107k Size of bubble Mobile banking usage US$45k norm by reinvesting £500 million into its represents average size Millennial customers with NatWest and 60% 39 of Millennial wallet Barclays Bank are the most likely to branch network , stressing its belief Nationwide, engage with their main bank via mobile that face-to-face interaction is still US$44k 55% banking – over 70 per cent do so each relevant and valuable, despite the rise Legacy Transitioning of digital banking. 50%

20% 25% 30% 35% 40% 45% 50% Millennials in nancial institution 2.2.7.3: Case study – B • the ability to sort transactions into categories for easy access The major UK banks offer numerous Data source: RFi Group Research 2016 and tracking. They can further be products targeting Millennials, with used in an overall budget, showing most high street banks offering how much has been spent in each student credit cards and savings As Figure 26 shows, Barclays Bank has for Millennials (16 per cent) (see Figure category and how much is left for accounts with features including the largest proportion of Millennials 27). In contrast, only 24 per cent of the remainder of the month, and among its customer base (42 per cent) RBS customers are Millennials. cash back and discounts with • no monthly account fees, with and the largest main bank market share popular retail brands. Other notable trends are the rise of several digital the checking account earning 0.25 challenger banks and an increase per cent p.a up to £2,000 and the in the number of banking apps with savings account earning 0.75 budgetary and spending controls per cent p.a. > Figure 27: Main bank market share of Millennials in the United Kingdom from fintechs. B also has a feature called In partnership, Clydesdale Bank and ‘Projections’, which predicts if you are 40% Yorkshire Bank created a mobile-only going to overspend on your monthly bank called B. B offers a combined budget and warns you in advance checking account, savings account so that you can adjust accordingly. 30% and budgetary app. App features Similarly, its ‘Good to Go’ feature tells include: you if you are in a good position to 20% indulge and spend on extra treats. 16% • separate ‘saving pots’ to track

13% 13% 12% progress towards various The budgetary control and complete 10% 10% saving goals, account management from one app 10% 9% 8% places B at the forefront of simplified • suggestions on how to reach goals, 3% 3% 3% banking. In addition, B works with such as how to adjust payments Apple Pay to allow for in-app and 0% to reach a target, Barclays Halifax Lloyds Bank NatWest HSBC Santander Nationwide TSB Bank Bank of Royal Bank Other in-store payments, resulting in a Bank Scotland of Scotland more complete digital mobile offering. Data source: RFi Group Research 2016

34 35 2.2.8: United States – Telstra 3MI™ In the US, Millennials make up 31 per 2.2.8.1: Mobile banking penetration banking disparity in the study40. 2.2.8.2: Wallet size cent of the adult population, marginally Moreover, 78 per cent of Millennials The US has the lowest level of mobile The average wallet size for American below the average across this study regularly perform banking activities via phone penetration across all eight Millennials is US$95,809 (see Figure 1). (see Figure 1). smartphone – the highest proportion markets covered in this study, with Citibank captures the Millennials with among the countries studied (see Figure 76 per cent of adults owning a personal the largest average wallet value – a 28). USAA has the highest proportion of mobile phone and only 74 per cent startling US$193,608, more than double Millennials regularly banking via mobile of Millennials. Despite the marginally the US Millennial average. Capital One (93 per cent) (see Figure 28). > Figure 28: Comparison of main United States of America banks across Telstra 3MI™ low level of mobile phone ownership, (US$179,892) and Bank of America Millennials are almost universally likely USAA regularly updates its online (US$158,726) follow closely behind. to have a smartphone (97 per cent) banking, for example by introducing Eva, Citibank has traditionally targeted 100% Digitised Transformed compared with 82 per cent of adult a virtual assistant. USAA will continue more affluent customers, with one mobile phone owners (see Figures to push this frontier and look to become in three Citibank Millennials holding a a ‘digital-first bank’41 – a particularly 42 95% 2 and 3). property mortgage . At the other end USAA, important strategy as a large part of of the spectrum, younger generation Just over one in two US adults bank US$83k its customer base are members of the Wells Fargo customers hold the lowest with their main bank via mobile military and their families, who find it average wallet size of US$54,023 90% Size of bubble phone, compared with 86 per cent represents average size difficult to visit branches. (see Figure 28). Capital One, of Millennial wallet Citibank, of Millennials – the greatest digital US$180k US$194k 85% Bank of America, Wells Fargo, US$159k US$54k 80% 2.2.8.3: Case study – Citibank • improved search capabilities,

Mobile banking usage allowing users to search through JPMorgan Financial institutions in the US target Chase, the last 150 banks or credit card US$89k Millennials through student credit transactions, and 75% cards, digital banks, digital wallets, financial education websites and • the ability to make cheque deposits Legacy Transitioning P2P payment apps. However, in without going into a branch. Users 70% doing so they are playing catch-up simple take photos of both the front 25% 30% 35% 40% 45% 50% 55% 60% with fintechs that have already seen and back of the cheque and the Millennials in nancial institution success with similar offerings. cheque is automatically credited to the users account. Citibank recognises the need to stay Data source: RFi Group Research 2016 abreast of the fintech revolution, Aside from upgrades to the standard forming ‘Citi Fintech’ in November Citibank Mobile experience, the first 2015 and hiring a team of employees product from Citibank Fintech was Among all institutions in all countries of Millennials as their main bank comparatively smaller proportion of with experience in tech companies a new mobile experience for US retail studied, the US has the highest customers than their competitors in Millennials in their customer base, both such as Amazon and PayPal. One of customers that gives them access concentration of major banks in the USA (51 per cent and 50 per cent Wells Fargo and JPMorgan Chase hold the objectives of this new group has to wealth management services the Transformed quadrant and respectively). However, fewer than one in top-three market share positions when been to upgrade Citibank's mobile through a single digital platform. none in the Legacy and Digitalised three main bank customers of JPMorgan it comes to main bank relationships app, to make it simple and easy to This provides customers with the quadrants. Citibank and Capital One Chase and Wells Fargo are Millennials among Millennials (12 per cent and navigate and to offer features that ability to buy and sell funds and have a marginally higher proportion (see Figure 28). Despite having a 9 per cent respectively see Figure 29). will put it at the forefront of the equities, and to make real-time competition. The current Citibank trades. One of the other innovative app offers: features includes the ability to log in via Touch ID or voice to transfer • the ability to see a quick overview > Figure 29: Main bank market share of Millennials in the United States of America funds between international Citibank of account balances or 15 most accounts. A click-to-call button recent transactions without signing allows customers to immediately 40% in to the app – a feature called 37% reach relationship managers, Citibank Mobile ‘Snapshot’, financial advisers or a 24-hour • the ability to customise service centre43. The integration of 30% notifications and alerts when a broad range of banking activities transactions are made, through a single channel is a 20% convenience that will help Citibank 20% keep its customers digitally engaged. 12% 10% 9% 5% 5% 4% 3% 2% 2% 2% 0% Bank of Wells Fargo JPMorgan Citibank USAA Capital One PNC Bank SunTrust Regions TD Bank Other America & Company Chase & Co. Banks Financial Corporation

Data source: RFi Group Research 2016

36 37 3.0: Transforming to an exponential business model

“You can just look around and all sorts of parts of the industries that we’re in – whether it is lending or payment systems – you can see that the legacy business model is not going to work. It’s actually > Table 2: Disruptive innovation in financial services got to evolve. If we don’t innovate successfully, we’re toast.”44 Functions Innovations, disruptions and the prize Ian Narev – Chief Executive Officer, Commonwealth Bank of Australia Cashless world Emerging payment rails

Payments Mobile Streamlined Integrated Next-gen Cryptographic P2P Mobile payments payments billing security protocols transfers money The future performance (and perhaps Millennials, Mobiles and Money – The big data, Internet of Things (IoT), 45 survival) of many institutions may be Forces Reinventing Financial Services , blockchain, automation and Application The prize Minimised friction and cost; increased speed and transparency; and greater access to valuable customer data based on their capacity to transform and illustrated the pressure points and Programming Interfaces (API) are their business models and cultures to the prize(s) on offer in key disruption information-enabling financial services Smarter, faster machines New market platforms operate in an increasingly exponential areas and innovation clusters (see – propelling innovation clusters onto disruptive world. We painted a picture Table 2). Many of the technologies in exponential trajectories. We discuss Market Machine Funds/ Private Commodities provisioning AI/machine Fixed P.E./ of this world in our last report, Table 2 such as atificial intelligence, these in more detail in Section 4. accessible Big data funds of company and learning income VC shares data funds shares derivatives

The prize Increased speed, efficiency and accessibility; greater sophistication and competition; more quantifiable and comparable metrics

Empowered investors Process externalisation

Investment Automated Retail management Social advice and wealth algorithmic Advanced Natural Process Capability trading management trading analytics language as a service sharing

The prize Better access to mass-affluent and mass-market customers; transparency and cost-effectiveness; personalisation and convenience

Insurance disaggregation Connected insurance

Insurance Disaggregated Sharing Self-driving Third-party Smarter, Internet Standardised Wearables distribution economy cars capital cheaper sensors of Things (IoT) platforms

The prize More accurate, iterative risk profiles; personalised and event protection; broader cost-effective eco systems for healthier, happier clients

Alternative lending Shifting customer preferences Deposits and lending Lean, automated Alternative Virtual Banking as Evolution of mobile P2P processes adjudication banking 2.0 platform API banking

The prize Competitive, customised services; new alliances/partnerships; simplification and growth; potentially stronger customer relationships

38 39 3.1: Global studies – Exponential Organisations and exponential fintechs

Research on Exponential Organisations start-ups worldwide over six years. Their research noted, however, Their 2015 study of the Fortune 100 gap illustrates the significant and technologies46 conducted by Ismail, It identified eleven common internal that for Exponential Organisations used the Exponential Quotient and transformation journey ahead for Malone & Van Geest and published by and external characteristics and to achieve the 10x growth baseline was ratified by academic researchers leading financial services institutions, the Singularity University included a attributes they leveraged to achieve threshold, they often only need four at Hult Business School. It revealed while also illustrating the competitive study of the top 100 fastest-growing exponential growth (see Table 3). or more of the eleven attributes in that all eighteen financial institutions advantage currently held by fintechs. Table 3 to succeed. To determine where in the Fortune 100 at that time scored an organisation is positioned and its well below the 55/84 threshold. In a pathway to becoming an Exponential separate study using the Exponential > Table 3: Exponential Organisations – characteristics and attributes Organisation, these researchers Quotient to analyse the Top 100 created an ‘Exponential Quotient’ based Exponential Organisations, the same on the characteristics and attributes researchers found that nine out of Characteristic/attribute Description outlined in Table 3. Organisations with the 100 organisations were fintechs scores above 55/84 were deemed to and they scored between 62-73/84 Massive transformational Nature and focus of an organisation’s purpose or mission (e.g. higher, big aspirational purpose) be Exponential Organisations. (see Figure 30). This astonishing purpose

External

Staff on demand Extent to which an organisation utilises full-time employees versus on-demand contractors and external resources > Figure 30: Exponential Organisations – Fortune 100 and Top 100 Exponential Organisations to perform business functions (e.g. diversity, agility, quality of highly skilled labour and intellectual capital)

Exponential quotient score Community and crowd Extent to which an organisation manages and interacts with its community (e.g. leveraging ideas, loyalty, insight from inside and outside an institution’s ecosystem such as users, customers, partners) 30 40 50 60 70 80 0 Indiegogo Data and algorithms Extent to which an organisation utilises algorithms and machine learning to make meaningful decisions (e.g. data analysis, machine learning shared throughout ecosystem) 10 Kiva.org State Farm Kickstarter All State 20 Leveraged assets Extent to which an organisation utilises rented assets versus owned assets (e.g. renting, sharing or leveraging Amercian Express assets and business functions) 30 Peerby Engagement Extent to which an organisation actively converts the general public into its community (e.g. using gamification, Wells Fargo New York Life Insurance 40 incentive competitions, loyalty programs) Goldman Sachs Prudential

Internal 50 Liberty Mutual Holding Company Square Citigroup 60 Interfaces and Extent to which an organisation utilises specialised processes to manage output of externalities (e.g. filtering scalable processes and matching processes, automation, scalability and replicability) American International Group Coinbase

Fortune Ranking 100 Massachusetts Mutual Life Nationwide Mutual Insurance 70 Transferwise Metlife Ranking Exponential100 Experimentation Extent to which an organisation optimises processes through experimentation and its tolerance of failure and Freddie Mac and risk-taking encouragement of risk-taking (e.g. lean start-up methodology, sandbox experimentation) 80 Morgan Stanley Lending Club Fannie Mae Stripe Bank of America Real-time dashboards Extent to which an organisation utilises metrics to track performance, product innovation and staff performance JP Morgan Chase & Co 90 (e.g. lean start-up analytics, objectives and key results, real-time) 100 Autonomy and Extent to which an organisation operates with hierarchical structures and how authority/decision-making occurs decentralisation (e.g. small, multi-disciplinary, self-organising teams, decentralised decision-making)

Social technologies Extent to which knowledge sharing occurs throughout an organisation and its ecosystem utilising collaboration Key insight: The data from these studies reveals the correlation between an organisation's Exponential Quotient score technologies (e.g. basic email through to federated social technologies throughout business units, customers, partners) and its ranking in either of the Top 100s (Fortune and Exponential) – the higher the Exponential Score, the higher they rank in the Top 100. The studies highlight the significant gap and competitive advantage in readiness between traditional institutions and new-breed fintech entrants who begin life with exponential-ready business models.

40 41 3.2: Exponential – traditional financial services institutions versus pure play online/mobile banks/fintechs

We used the Exponential Quotient In Figure 31, we’ve listed the 93 per cent of executives believe this diagnostic tool in an online study of characteristics/attributes from area will have the highest impact in 164 financial services executives Table 3 according to those that have relation to innovation/disruption over across eleven countries, carried out the largest relative gap between the coming three years (see Figure 32). between January and March 2017. traditional financial institutions and Cloud, automation, experimentation We sought to understand the degree pure play online/mobile banks/fintechs and social technologies are where the to which executives thought their responses. The areas of least difference two groups part ways. It’s clear these institutions were exponential-ready and are in data and algorithms, reflecting are part of the operating DNA of the the perceived readiness gap between the significant investments made by new breeds in a way they are not for traditional institutions and fintechs. traditional institutions in this area. traditional institutions today. That investment reflects the fact that

> Figure 31: EXO attribute gap traditional institutions vs pure play online/mobile banks/fintech (max = 10)

Data and Algorithms

Community and Crowd

Information and Social Engagement

Interface and Scalable Processes

Real-time Dashboards

Engagement (Community and Crowd)

Social Technologies

Experiementation and Risk Management

Autonomy and Decentralisation

Human Resources and Asset Management

0 1 2 3 4 5 6 7 8 9 10

Pure play online/mobile banks/ntechs Traditional institutions

Data source: Telstra Research 2017

42 43 > Figure 32: Exponential technologies ranked by highest expected > Table 4: Exponential business model transformation areas innovation/disruptive impact in the next three years (per cent) Traditional business model exponential insight Exponential centric transformation area

Big data, Analytics, Algorithms Labour: Most (67 per cent) report using full-time employees in non-mission critical areas • Greater use of on-demand staff to augment versus on-demand contractors mission-critical areas (e.g. operations)

Cyber security Agility: Only 8 per cent reported emphasizing agility – not even mission-critical functions • Create agility through outsourcing mission-critical are outsourced as variable costs rather than fixed costs functions as variable costs (e.g. IT Services) Application Programming Interface (API) Cloud: Less than 7 per cent reported using on-demand assets even in mission-critical areas • Leveraging on-demand assets versus ownership Social Technologies versus 71 per cent from pure play online/mobile banks/fintechs (e.g. Cloud)

Artiˆcial Intelligence Community: Only 23 per cent report that the community heavily influences their organisation • Value can be created for their community resulting (e.g. product ideas, product development) versus 50 per cent from pure play online/mobile in advocacy banks/fintechs Internet of Things (IoT)

Crowd: Only 8 per cent report using gamification and incentive competitions to turn crowd • Greater leverage of community (e.g. product ideas/ Robotics into community and only 3 per cent build gamification/incentive competitions into their development/converting crowd/gamification) products and services versus 42 per cent from pure play online/mobile banks/fintechs Block Chain and Distributed Ledgers Social: Only 6 per cent report that social/collaborative functionality is used to enhance or deliver • Leveraging social technologies to product/service offerings versus 36 per cent from pure play online/mobile banks/fintechs improve communication Advanced Wireless Networks

Machine Learning: Less than 7 per cent report using machine learning algorithms to analyse data • Which algorithm/systems/platforms can be used Virtual/Augmented Reality and drive actionable decisions versus 43 per cent from pure play online/mobile banks/fintechs to process/leverage the information you have

0 10 20 30 40 50 60 70 80 90 100 APIs: Only 12 per cent report their organisations expose some data to key suppliers • Social/collaboration designed into Pure play online/mobile banks/ntechs Traditional institutions (e.g. Interfaces or APIs) versus 36 per cent from pure play online/mobile banks/fintechs product/services

Automation: 87 per cent report their organisations don't leverage externalities or have • Designing products and services built around Data source: Telstra Research 2017 no special processes to capture or manage externalities or are using manual processes versus algorithms and machine learning 23 per cent pure play online/mobile banks/fintechs

Scalability: 80 per cent report their organisations have traditional, mostly manual processes • Exposing data to external ecosystem via APIs The quotient gap provides insights into transformation to build exponential (usually confined to standard operating procedure) and that some of their processes are and interfaces the traditional institutions operating capability (see Table 4). scalable and repeatable, but only inside the organisation versus 53 per cent from pure play areas requiring the most significant online/mobile banks/fintechs

Lean: Only 11 per cent report their organisation uses lean approach for all core functions • Automation, replication and scaling of key (innovation, marketing, sales, service, HR, legal, finance) versus 50 per cent from pure play processes outside the organisation and constantly online/mobile banks/fintechs reporting they do optimising through experimentation

Failure and risk-taking: 93 per cent report that failure is not an option and is career-limiting, • Treating experimentation failure as learning not encouraged, or is in name only versus 93 per cent from pure play online/mobile banks/ (and hence success) fintechs that report that failure and risk-taking are expected, pervasive, measured and even celebrated across the organisation

Collaboration: Only 7 per cent report their organisation uses advanced social tools for • Use of social tools for knowledge sharing, knowledge-sharing, communication, coordination and/or collaboration (e.g. Google Drive, communication and collaboration Dropbox, Yammer, Evernote) versus 50 per cent from pure play online/mobile banks/fintechs

Data source: Telstra Research 2017

Key insights: When it comes to the exponential technologies that financial services executives believe will have the greatest and least innovation/disruption impact over the next three years, there was little difference between executives from traditional financial institutions and pure play online/mobile banks/fintechs. The top two areas were big data, analytics, algorithms (93 per cent) and cyber security (89 per cent) (see Figure 32). For pure play online/mobile banks/ fintechs it's unanimous: one hundred per cent rated APIs as having the highest impact (versus 83 per cent of traditional institutions). A whopping 92 per cent rated AI as the second-highest (versus 64 per cent of traditional institutions) highlighting the differing perspectives on innovation and growth. The need to transform legacy processes may explain why one in two executives from traditional institutions believe Robotics will have a high impact over the coming three years.

44 45 4.0: Programmatic technology for exponential performance

“We want to serve two billion people in the next ten years by using technology, by working together with partners to serve those underserved44” Eric Jing – CEO Ant Financial

In the previous section, we showed • a focus on data-driven software- In this section, we will look at eleven characteristics that differentiate orchestrated automation in all developments in several of the Exponential Organisations from aspects of the business, enterprise and customer-facing traditional ones. Several of these technologies relevant to the exponential • a shift to on-demand, highly scalable characteristics are driven by environment and their implications IT asset models, and technology, including: for financial service organisations. • a focus on AI and machine learning to drive new experiences and optimise operations.

> Figure 33: Value increments from technology in exponential ecosystems 4.1: Technology investment models

Before we examine individual • investing to radically reduce the cost Both strategies are valid and necessary. technologies, it is important to to acquire and own the customer However, it is worth highlighting Value increment due understand the implications an relationship – often by building a (as shown in Figure 33) that the gains to increased agility and Exponential growth exponential environment has on the deeper understanding of the customer from the latter strategy typically new customer insight way organisations invest in technology. and delivering a more compelling accrue linearly. Efficiency gains also and service capabilites Organisations that thrive in exponential customer experience, and/or don’t provide long-term differentiation. environments are characterised by Typically, everyone from traditional • investing to radically reduce the Value a regular doubling of capability or by a institutions to fintechs has access to the marginal cost of service – by orders of regular halving of the incremental cost same technologies. Put simply, efficiency magnitudes, not by percentage points. Value increment due to of adding and serving new customers. gains are linear – it is experience gains new platform efciencies Typically, they follow one of two that are truly exponential. strategies (or a hybrid of both): Traditional linear growth

Time

Data source: Telstra Research 2017

46 47 Now, recall the eleven common creating exponential lag, if you will. how big they are. In short, technology characteristics Ismail et al identified As can be seen in Figure 34, even investment planning processes in in their study (see Table 3). Many of relatively immature Exponential traditional organisations need to be 4.2: Enterprise technologies those characteristics are cultural, Organisations already have substantially reengineered quickly. Organisational techno-social or are in technology greater scaling capability than scaling capacity must become a key domains that require significant traditional institutions, even when they factor in those processes and they driving exponential ecosystems capability-building phases. All of these are operating at a much smaller scale. must be able to invest in relevant take time to evolve in any organisation In order to compete in an exponential technologies more quickly and at and traditional organisations have environment, investment decisions the right times in their lifecycle “We’ve set our minds on being the best bank in this digital century, and we believe strongly the greatest disconnect with their need to be based on the rate at which (see Figure 34). that the best way to get there is to combine our in-house capabilities – our real-time core technology investment strategies – exponential competitors grow, not just banking platform, for one – with start-ups whose very existence is designed to redefine the financial services industry48.” BBVA Compass Chairman and CEO Manolo Sanchez > Figure 34: Exponential lag and the investment inflection point for exponential technologies

4.2.1: The new digital platform how enterprises architect digital An alternative approach is – making infrastructure applications49. In effect, these containerisation, where applications programmable technologies are making IT share an operating system and various infrastructure programmable. system resources, but are packaged From this point The inection The analysis reported in section 3 They are the same infrastructure atomically (i.e. each container hosts one onwards, point for decisions highlights many differences between technologies that Exponential application), so that the containerised exponential whether to invest Exponential Exponential Organisations and Exponential growth Exponential growth Organisations embrace from birth to applications can interact with the competitors can in exponential Lag traditional institutions. Several deliver speed of deployment, flexibility operating system through tightly out-scale linear technologies of these revolve around: and reduced capital outlays. managed APIs, but are isolated from growth companies isn’t here each other50. Containers are much Value Value i) making costs variable with demand- Virtualisation of infrastructure lighter-weight entities than VMs and side and supply-side capacity, helped fuel the initial growth of many It’s here! typically more capital-efficient: a single exponential companies. Being able ii) providing greater flexibility to physical server can typically host many to stand up virtualised servers on Traditional Traditional support increased experimentation more containerised applications than commodity hardware – particularly in linear growth linear growth and agility, and applications hosted in dedicated VMs. the cloud – decreased initial capital Containers are also more dynamic iii) placing assets under the control outlays, making expenses variable with –because they are portable and of software making data-driven, demand. Virtual Machines (VMs) can lightweight, capacity can be created, evidence-based decisions. also provide strong isolation between Time Time shifted or shed quickly in response applications at a hosting level. However, Our previous report (Millennials, to demand (see Figure 35). as each VM contains a complete Data source: Telstra Research 2017 Mobiles and Money) showed a range of new cloud-centric infrastructure operating system plus the applications technologies that are redefining being hosted, they’re relatively complex, heavyweight entities. Key insights: • Even relatively immature Exponential Organisations have substantially greater scaling capability than traditional institutions, although they are operating at a much smaller scale. > Figure 35: Virtual server vs containerised architecture • Organisations don’t just need to look at new technologies to maintain relevance in an exponential environment – they need to look at new decision-making approaches to technology investments. Physical host Physical host

Now let us look at some of the a) technologies that will allow enterprises b) new customer interaction VM VM Application Application Application container container container technologies that are underpinning to radically improve efficiency, agility technologies that are reshaping how Guest application Guest application exponential performance and how and automation, and consumers and enterprises engage. companies are using them. To help Guest operating Guest operating Application Application Application structure our technology tour, we’ll system system container container container break them up into two main areas:

Hypervisor Container engine

Host operating system Host operating system

Data source: Telstra 2017

48 49 Whereas containers change building blocks (microservices) that deployable; are (ideally) stateless; are world. Although many functions and place over tightly permissioned the way applications are hosted, are assembled and orchestrated into loosely coupled to each other and to much data will be exposed through networks. Software defined networks microservices change the way applications typically by automated applications; interact only via clean, open APIs, there is critical need to enable tightly permissioned networks applications are constructed. control software. Microservices must well-defined, language-agnostic protect the integrity and confidentiality to be automatically instantiated or Microservice architectures focus on be as small and simple as possible; are APIs, and communicate via simple of the data and activities. API-enabled changed on the fly, increasing flexibility swarms of small, atomic functional autonomous, atomic and independently web-centric protocols (see Figure 36). interactions will often need to take and reducing cost51 (see Figure 37).

> Figure 36: Traditional vs microservice architecture > Figure 37: An example of SDN-controlled data flows

Application Application server Applications Applications Northbound interface

Mobile Online µ µ µ µ µ µ µ SDN controller presentation presentation µ Presentation microservices Business logic Southbound interface Mobile Online µ µ µ µ app logic app logic µ µ µ µ

Orchestration µ µ

Enterprise External Integration layer adaptors Logic adaptors

Application-specic Enterprise platforms Third-party services Enterprise rewalling platforms

Third-party services

Data source: Telstra 2017 Data source: Telstra 2017

Microservices seem well suited • microservices interact using Most networks feature advanced Network Function Virtualisation (NFV) Using NFV, software automation to exponential innovation: web-centric APIs, so integration capabilities to control and customise is closely related to SDN. Where SDN can rapidly construct, configure, is typically less complex. resource allocations, including defines how network elements can be manage and tear down networks using • microservices can (in theory) be bandwidth, priority, route selection orchestrated in a consistent and open software automation. As with SDN, continuously developed, tested and Of course, servers, applications and security services. Traditionally manner, NFV defines how network enterprise rules and design patterns deployed independently from each and enterprise services are not the those capabilities are complex, functions can be implemented as can be enforced in software policy other – greatly reducing development, only infrastructure building blocks. heterogeneous, distributed and largely automatically controllable software rather than through manual design deployment and maintenance Networks are a critical part of most controlled manually by experts making on commodity hardware. NFV defines: authority reviews and negotiation – overheads. enterprise product deployments. change processes slow, error-prone ensuring greater levels of compliance However, network infrastructure is • a regular set of well-defined, • as the interaction points between and expensive. Software Defined with security and architectural often built on specialised hardware standardised network functions microservices are limited and well Networking (SDN) provides a way standards. NFV also promises to reduce and managed using skilled network (for example load balancers, DNS defined, testing can be rigorous and to intelligently orchestrate disparate deployment cost because physical specialists. This means network servers, firewalls, etc.) called Network automated – ensuring more stable network hardware within overarching redundancy is achieved at the cloud deployment can be a slow and often Virtualised Functions (NFVs), software can be delivered faster. policy constraints. Not only does this infrastructure level rather than relying expensive process. Two emerging make change faster and safer but the • a set of specifications that on multiple deployments of specialised • microservices are typically very cheap network paradigms – Software capability can be exposed via APIs commoditised hardware must hardware (see Figure 38). to instantiate and, since they are Defined Networking (SDN) and that allow applications to dynamically meet to implement, and ideally stateless, can be instantiated Network Function Virtualisation request network features such as or torn-down very rapidly in response (NFV) – are promising to deliver for • an API-driven framework for lower latency, higher bandwidth or to demand – delivering better user networking the flexibility and economy management and orchestration enhanced security and have these experience with reduced cost. that virtualisation, containers and of NFVs. rapidly provisioned without risk of microservices will deliver for computing, destabilising the network. This ability is storage and applications. particularly important in an open-API

50 51 > Figure 38: Traditional vs NFV application infrastructure The Road to 5G is the delay caused by speed-of- Security. Cellular technologies light transmission delays and the traditionally focus on security. “5G” stands for fifth generation and processing time required by network 5G extends the concept of network is the next major wave of cellular devices. 5G is being engineered to slicing to security. Not only is traffic network technology. Most press Redundancy minimise network latency. 5G will isolated to dedicated slices of the around 5G focuses on the promise infrastructure introduce significant changes in the network, but these can support of enormous bandwidth. Indeed, the radio, transport and core network different “pluggable” security figures are staggering: Telstra’s live that provide very low latency at very technologies. For example, one Router trials in September 2016 saw peak Physical application Virtual router high reliabilities for specific use organisational security standard may transfer rates of over 20 gigabits infrastructure cases. The standards will ensure that mandate an esoteric form of elliptic per second†. Massive bandwidth small packets used for applications curve cryptography. As a core part and more advanced approaches to Switches like driverless cars and mission- of standards, 5G can allow that on vSwitches sharing it mean 5G will be perfectly Router critical industrial automation are their slice, avoiding the need for a viable as the primary connection sent by the network within a very layer of over-the-top software to technology for many applications Load Balancer tight latency-tolerance, irrespective implement it. Virtual load balancer Switches that today require wired. of network loading. “Things” as first-class citizens. 5G is scheduled to be standardised SDN-like control. As mentioned, A range of technologies such as Firewall over the coming years. The journey Virtual rewall 5G network infrastructure will CAT-M1 and Narrowband-IoT Load balancer from 4G to 5G will not be a step largely be built on Software Defined are being progressively deployed change (except, perhaps, from a Networking (SDN) and Network that enable Internet of Things (IoT) marketing perspective). Even before Servers Function Virtualisation (NFV) devices to be connected using 5G is standardised, 4G standards will Firewall principles. This provides carriers cellular technology to achieve VMs evolve to incorporate many features with the opportunity to expose much lower power consumption Containers contributing to 5G technology. Application Programming Interfaces (and thus longer battery life) and Carriers such as Telstra will regularly Servers (APIs) through which customers can reduced component costs. deploy many of these features in programmatically request, configure advance of 5G-branded network and control network resources. implementations. Beyond extreme † In 2016 Telstra and Ericsson conducted the Network slicing. Allows operators first live trials of a pre-standard 5G service in bandwidth, 5G and 4G evolution the southern hemisphere. The trials showed technologies will evolve to directly to dedicate particular resources such Data source: Telstra 2017 the massive bandwidth and low latency address the needs of a broad range as spectrum (and hence bandwidth) expected from 5G once standardised. For more information, see https://exchange.telstra.com. of vertical industries by providing to particular customers. 4G au/2016/09/20/reimagining-future-5g-first- specific new capabilities. Some of standards don’t have strong support live-trial-australia/ Security is an area of significant activity machines hosted in different clouds So how do we secure the programmable the more relevant features include: for network slicing. While innovations ‡ For more information about Telstra LANES™, in a containerised, microservice-based all connected by a network that is institution? An emerging strategy is such as Telstra LANES™ ‡ do allow us see https://www.telstra.com.au/business- Ultra-reliable low-latency. 5G and NFV-plumbed world. Traditional continuously and dynamically changing. to build-in security based on a strong to slice networks in a fairly static way. enterprise/industries/mining-and-resources/ and 4G evolution are designed to telstra-lanes perimeter-based security models Not only that, but the platforms micro-segmentation approach, 5G will bring much finer granularity slash latency. Network latency simply collapse when a system or themselves (such as container which seeks to prevent attacks by as a core capability in standards. platform might be composed of frameworks) are still relatively wrapping protection around every dynamically orchestrated workloads immature and have been the subject workload, increasing visibility, security on hundreds or thousands of software of criticism regarding their existing and operational efficiency enabling elements spread across different security models. automated security without container platforms and virtual impacting performance.

Key insight: Next-generation digital platform technologies (such as containerisation, software-defined networking and network function virtualisation) are virtualising infrastructure and making it dynamically controllable by software. They have the potential to be the key infrastructure technologies of the exponential age.

52 53 4.2.2: Making process mimic human behaviour. They can Perhaps the key benefit of RPA is that 4.2.3: Programmable intelligence Predict That: How Institutions interact with systems through the it can deliver these without requiring Compete and Win with Data Analytics, More intelligent robo-advisors programmable Ismail et al. reported that successful same interfaces humans use. They can change to the underlying legacy we characterised this hyperconnected Exponential Organisations tend to One very active area of machine We know from the research reported in use standard office automation tools. systems – effectively bringing those world with five basic premises: focus on data analysis, automation, learning activity is the development section 3 that Exponential Organisations Human users train them by example systems into the exponential model. algorithms and replicability, with • everything is connected, of automated financial advisors seek to remove costs and friction from to extract and process data in Among the most difficult processes an underlying focus on scalability. (or “robo-advisors”). These not only their operations. Beyond that they seek existing systems. • everyone is connected, to create agility and flexibility internally. to automate are those involving As we’ve discussed, Exponential use advanced analytics techniques We also know they focus on data- This is a significant departure from trust, particularly multi-party trust. Organisations also constantly seek to • everything is intelligent, to analyse the behaviour of traditional automation approaches, Blockchain has been a hot term in use data to optimise their operations, financial markets, they also use driven, software-controlled automation • everything that can be measured where teams of business analysts financial services for a few years now, their products and interactions. IDC machine learning to understand as a means to achieve these ends. will be measured, and Infrastructure is only one source of identify processes and data, followed and is mooted to be a game changing and EMC estimate that the size of the the behaviour of the individual cost and friction in financial services. by large-scale system integration tool for trust-based processes. data universe (the sum data humans • analytics will remove friction from customer to make personalised Process and manual/semi-manual platform implementations and finally A blockchain is simply a record of produce and copy each year) will grow business and lifestyle processes. recommendations. All this is processes, in particular, are huge development of bespoke code to entries or events in a digital ledger exponentially from 4.4 Zettabytes in achieved with a much lower In many ways, those five premises drivers of labour costs. They are also automate the relevant processes. (or database) that is shared and 2013 to over 44 Zettabytes55 in 2020. cost base than dedicated teams reflect how Exponential Organisations typically some of the most painful areas Usually by the time the automation is replicated between multiple parties. To give some perspective, in long form of analysts. function. Early estimates for the to change – often the resistance to implemented, things have changed What is important is that, subject that’s a 44 with 21 zeroes after it. number of connected devices varied It’s no surprise that large players changing an existing process is a bigger in the organisation and the process to certain assumptions, the record To make matters even more challenging, wildly and many were speculative such as Charles Schwab have the barrier to agility than any financial is no longer optimal. A seemingly is mathematically provable to be in the same report IDC and EMC to say the least. We’re now seeing wherewithal to develop machine- commitment required. endless cycle of change requests and immutable (i.e. it cannot be changed estimate that while 22 per cent of that 53 consensus emerge that there will be learning-backed robo-advisors . redevelopment ensues. In RPA, when without detection). Blockchains appear data was useful for analysis in 2013, 20-30 billion connected devices by But the availability of highly Most Exponential Organisations are a process changes, the robot is simply to be well suited to maintaining a range by 2020 that will rise to 37 per cent. 202057. IDC estimate shipments of capable, mature cloud-based relatively young and have the benefits retrained on the new process – an of distributed ledgers. That represents an almost 17-fold wearable devices alone will grow to machine learning platforms of a relatively new technology stack and exercise that usually takes staff-days increase in useful data in seven years! So why do various people propose over 215 million per year in 201958. has enabled start-ups such as architecture. Typically, these greenfield or staff-weeks, not staff-years. More While the size of the digital universe that blockchain is an exponential One major issue being faced by the IoT Australia’s Stockspot to develop systems provide APIs and service advanced RPA uses machine learning, is doubling every 25 months, the technology? Because in many community is security – or rather the and release very capable AI-based sets that can be utilised for process not only for the robots to learn how amount of useful data is doubling automation or orchestration – although applications simply establishing shared lack of it. Many embedded devices were robo-advisors quickly and with humans implement processes, but to 25 per cent faster. 54 trust between parties that a given never envisaged to operate in an open, relatively small investment . sometimes using a bewildering array automatically detect changes in the event took place can be a complex Exponential Organisations have connected environment. Tales abound of differing or incompatible approaches. systems, reports, etc., and relearn and resource-intensive process, yet it an unquenchable thirst for data. about connected devices ranging from Traditional financial service providers how to automate the process. – even those who have successfully is critical to many types of transactions. They analyse it to understand their pacemakers to passenger vehicles to executed core system transformations – RPA has the potential to: In short, counterparty risk introduces operations and how to optimise them. controls for major industrial hardware friction to a wide range of transactions. They analyse it to understand their with, at best, rudimentary protection. have many legacy “brownfield” systems • radically reduce the costs associated Blockchain may be a useful technology customers and their customer’s context A common saying encapsulates that often have very long investment with manual and semi-manual to massively reduce that friction and to improve service. They analyse this situation: “The ‘S’ in IoT stands lifecycles. In reality, the most common processes by removing human labour, integration models for these systems thus, increase transaction volume financial data to create new and for security”. Not only does lack of involve spreadsheets, email, text • greatly increase the speed and and reduce transaction cost. innovative information-based products. security leave these devices open to reports, phone calls and an awful throughput of these processes, be maliciously manipulated (and even Increasingly that data will be gathered lot of man hours. destroyed), it poses a threat to those • greatly reduce costs associated from connected embedded devices who use data from IoT devices. Data with processing errors and and the insights derived from analytics An emerging technology showing can be changed or false data injected increase compliance, will be actioned by other connected, substantial promise to bring legacy Key insight: Robotic Process to influence business decisions – embedded devices. These are the systems and processes into the digital • open these legacy processes and Automation has the potential particularly if those decisions “Things” in the “Internet of Things”. world is Robotic Process Automation systems to orchestration via software to lessen the impact that legacy are automated. In our previous report56 Analyse This, (RPA). RPA can be thought of as the control, and systems and processes have logical extension of data scraping52: on the capacity of traditional a relatively cheap but brittle way of • unlock and expose valuable institutions to compete with extracting data from systems. RPA organisational data which these new exponential entrants. “robots” are intelligent software that processes currently obscure.

54 55 Big data formally refers to data sets One of the most promising application 4.2.4: The programmable enterprise becomes more complex – tools to Disruptors and forward-thinking that are big enough to challenge areas for machine learning is security. The hardware driving analytics effectively and efficiently create them incumbents such as BBVA and Credit In this section, we’ve shown how traditional storage architectures, The two most common ways of to new levels become a priority. Hence the rise of Agricole don’t see open API strategies Exponential Organisations seek to processing capabilities and analytical developing heuristics to monitor dedicated API Management Platforms as a means of compliance, but rather Growth in the capability of big orchestrate their infrastructure, approaches. Now big data has become for threats are: that help automate tasks such as as a means of participating in a rich data platforms will, in part, be processes and intelligence via software- a catch-all for any reasonably large version management, distribution ecosystem of innovation. Recall from i) forensically dissecting observed driven by a new generation of controlled data-driven automation. In data set, the hardware and software and change management. Section 3 that Exponential Organisations threats to look for signatures (which hardware. Today, many analytical section 3, we highlighted that these platforms used to store and process typically seek greater leverage of relies on the threat being known), or techniques are implemented on organisations exchange data and Disruptors such as Fidor Bank and it, the analytical techniques and Community (including developer generic high-speed multicore CPUs services with their external ecosystem Starling Bank are well advanced in even the tools used to visualise the ii) smart people hypothesising new communities) and tend to use social or by repurposing the Graphics via APIs and interfaces. By putting implementing comprehensive internal data and the insights derived from threats and their likely signature tools to engage internal and external Processing Units designed to internal capabilities, external outputs and external API strategies. Some analytics. Each of these aspects are (which unfortunately falls afoul of communities. The developer world accelerate high-end graphics and external inputs under software traditional institutions also understand becoming commoditised. Almost every a key axiom of security: “the internet is shifting from a paradigm where applications. A new class of control, rather than making them the importance of APIs – at least for major technology platform provider is always smarter than you are”). developers are users of data, services processors is emerging that hardwired, processes organisations some aspects of their own external offers either incredibly capable and the APIs that expose them to one Instead, machine learning can be is expressly designed to gain velocity, agility, reusability and partnerships. To some extent, regulators pre-engineered physical big data where they are customers who consume harnessed to observe traffic flows etc. accelerate big data and artificial scalability. We call this concept the will tip the hand of other incumbents. appliances, incredibly capable cloud- them. Just like other customers, they and automatically identify new forms of intelligence algorithms. programmable enterprise. In 2015, the UK government drove the hosted big data solution stacks, or both. must be found, won over and continually anomalous behaviour. The anomalous creation of the Open Banking Working One approach is to augment a Obviously, many enterprises have managed. Independent and enterprise However, access to highly scalable big traffic flows can then be immediately Group, which has published the Open traditional CPU with additional access to the same range of internal API Marketplaces are emerging data platforms, whether on-premises or blocked or flagged for urgent review62. Banking Standard – a framework for hardware. For example, Intel have and external building blocks –that’s not as a tool for this process. Whereas in the cloud, only goes part of the way to developing an open interchange standard augmented their Xeon architecture a sustainable differentiator. Sustainable traditional enterprise developer portals being able to scale the analytics piece for customer banking data in the UK. The with Field Programmable Gate differentiation comes from how they are typically about servicing the basic of the puzzle. The traditional approach Key insights: XS2A, or “Access to Account” provisions Arrays (FPGAs). These are very orchestrate those building blocks needs of existing developers (such as to developing analytical models is of the Payment Service Directive 2 (PSD2), • Providers of commoditised large arrays of programmable and their skill in doing so. Application access to documentation etc.), these resource-intensive, with highly skilled likely to come into effect in 2018, will analytics platforms are in an arms hardware logic blocks with Programming Interfaces (APIs) are marketplaces have rich social features analysts exploring datasets, developing give EU customers the right to connect race to cope with spiralling data interconnections that can be the glue of programmable enterprises. and are focused on attracting and hypotheses and building models to other financial services providers to their volumes. The jury is still out on configured by software to create As a result, mastery of API technology retaining engagement with a community test these on small sets of data, then payment accounts – in effect, mandating whether capability or data will hardware implementations of becomes a critical capability, not of developers and (as with other types progressively refining the model. Not that financial service institutions scale faster. complex computational functions. just a hygiene factor. Exponential of customers) eventually turning them only can this be slow and expensive, provide usable APIs exposing this data. Organisations know this in their bones. into advocates (see Figure 39). the sheer volume of data available to • Machine learning provides a way Another approach is to develop The European Banking Association has As APIs become more fundamental to financial service providers can make to drastically reduce the manual Application-Specific Integrated created a working group to help ensure organisations – and the API environment even the exploration phase difficult for effort required to develop new Circuits (ASICs), custom-designed this occurs in an open API environment. the most skilled analysts. An alternative analytical models and insights for particular big data and AI approach is called machine learning. – and hence fast-track the algorithms. For example, Google In machine learning, algorithms are development of the products developed a custom ASIC to used that generate models directly that rely on these. accelerate performance of its > Figure 39: An API-driven ecosystem from data (either with or without human open source TensorFlow machine supervision). These models can then learning software library. Google be used to make predictions (predictive used this ASIC to implement the Internal and external analytics) or to inform decision-making. AlphaGo system which competed Applications Third-party apps developer In effect, machine learning can make with, and defeated, the world’s community the identification of relationships and top-ranked player of the strategy development of analytics models much board game Go59. Google also used less labour intensive. Machine learning these units to find all of the text techniques are advancing rapidly visible in its massive Google Street User-experience APIs and many cloud technology providers View image database in less than API marketplace Third-party and developer 60 Financial and lifestyle process APIs offer highly capable, cloud-based five days . API gateway community consumption-priced machine engagement Access and entitlement 61 System-level APIs learning capabilities . management API End-to-end security

Data Analytics stores platforms Third-party data and services Core Identity Other banking platforms platforms

Data source: Telstra 2017

Key insight: In an exponential world, APIs become the cement connecting internal and external data and services. Management of APIs and the ability to attract and retain developer communities around organisational APIs are becoming critical capabilities.

56 57 4.3: Customer interaction technologies

The work of Ismail and his collaborators NLP and NLU are part of a group of websites, designed largely to deflect at Singularity University highlighted Zuckerberg goes Iron Man technologies sometimes referred to calls from the contact centre. Now a far that high-performing Exponential One famous example typifies as Cognitive Computing. There is no more intelligent cadre of conversational Organisations are typified by a hunger how quickly intelligent natural commonly agreed definition of cognitive agents (chatbots) are gaining traction to develop deep engagement with language-enabled agents can computing, but general definitions on popular messaging platforms like customers and a focus on community be created. Facebook’s Mark include those technologies that seek Facebook Messenger, WeChat, Kik and social tools. Both exponential and Zuckerberg set himself the task of to emulate, predict and influence and WhatsApp. traditional institutions are beginning human cognition. Among the disciplines creating a home-built equivalent of These bots – backed by sophisticated to explore new customer interaction commonly associated with cognitive Jarvis – the fictitious virtual butler natural language capabilities and technologies to create new customer computing are NLP, NLC, machine created by the character Tony Stark machine learning – can provide advice, experiences with the potential for reasoning and adaptive user in the Iron Man franchise. give directions, answer questions, greater engagement. interface design. 67 Using publicly available cloud take orders and even take payments . Highly constrained, task-specific services, Zuckerberg was able Major technology companies have The term “Conversational Commerce” command or menu-style voice to create a reasonably capable made massive long-term investments has been coined, characterised by interfaces are nothing new, appearing “virtual butler” with a natural in machine cognition and natural intelligent natural language agents in application spaces ranging language voice interface for his language research. We are now interacting with customers on channels from contact centre IVRs to home home with about 100 hours of witnessing the fruit of that investment such as online chat, messaging apps automation control and control of in- development65. His virtual butler – natural language technology is or even voice. vehicle entertainment and navigation becoming commoditised, driving a could, for example, orchestrate Chatbots have grabbed the attention systems. Truly flexible natural language trend that Microsoft CEO Satya Nadella home automation devices and of customer-facing enterprises very voice interfaces have been a long has described as “Conversations answer basic questions. quickly for some highly pragmatic time coming. as a Platform”. reasons. Firstly, the huge number Natural language computing – including Firstly, cloud technology providers have of users of messaging applications Natural Language Processing (NLP) and deployed highly capable and rapidly – particularly among Millennials. Natural Language Understanding (NLU) evolving portfolios of natural language Ovum report Facebook Messenger, – has steadily advanced over several Capital One’s Alexa skill and cognitive computing cloud WeChat and WhatsApp alone account decades. 2016 saw several major services (e.g. IBM’s Watson Developer for three billion Monthly Active Users Amazon’s Alexa voice-enabled milestones. Microsoft demonstrated Cloud66). These enable developers (MAU) and the total number of MAUs virtual assistant platform allows transcription of free speech in real-time and organisations to assemble is predicted to reach almost five billion third parties to develop “skills”, essentially as effectively as humans sophisticated conversational systems by 202068 (see Figure 40). According to or integrate services that can be were able to do it63 – an important much faster and to scale without Business Insider, the number of users delivered through Alexa-enabled milestone as many NLU techniques investment in infrastructure. of messaging apps surpassed those on devices such as the home-focused rely on transcribing speech as a social media apps for the first time in Amazon Echo range. Secondly, over the last five years first step. Google reported their early 2015, and now exceed it by more consumers have seen highly capable, translation engine now performs US bank Capital One has developed than 20 per cent69. Quite simply the extensible voice interaction platforms close to professional human and released an Alexa ‘skill’ that potential audience is enormous. In fact, initially targeting smartphones. interpreters in several benchmarks64. allows customers to perform a Daryl Plummer from Gartner predicts These have trained users to be more range of transactions. For example, that, by 2020, the average person will comfortable with voice interactions. users can do things such as check converse more frequently with bots Now a new generation of voice-centric balances, track spending, instigate than they will with their own spouse70. home devices – such as Amazon transfers and pay bills – all using Echo and Google Home – are rapidly Secondly, the vast majority of mobile natural language voice interactions. extending the voice interaction apps struggle for user attention71. paradigm. The Consumer Technology Gaining engagement can be both Association’s 2017 Consumer a slow and expensive business. Electronics Show was awash with voice Popular messaging apps typically platforms and applications for them. already enjoy very high user engagement, offering organisations Voice is not the only medium where the opportunity to utilise “borrowed natural language and cognitive moments”72 on these platforms. technologies are having an impact. A generation of customers is emerging who are already accustomed to interacting with organisations via chat. Initially this was driven by quite simplistic FAQ chat agents on corporate

58 59 > Figure 40: Over-the-top messaging app users Most customers interacting with Now many other organisations, Summary financial service providers value including financial service providers, We’ve seen that exponential companies 5 knowledgeable, personalised, are joining the IPA fray – typically by have a strong software-driven, intelligent and proactive advice. Such either by integrating their service with automation-focused, platform-driven interactions drive strong customer one of more of the existing general approach to process, product and satisfaction and can create deep purpose IPAs or by developing their customer service to: 4 levels of engagement. Unfortunately, own dedicated assistants. human assistants capable of providing For more information about IPAs, a) radically reduce the marginal cost that level of service are expensive. automated advice and the technologies of service, and Even if providers are willing to invest underpinning them, see our previous 3 in advisors, people with the right skill b) create a stronger relationship report Analyse This, Predict That – set and training are typically in high with the customer. How Institutions Compete and Win demand. The human advisor model with Data Analytics74. In doing so, they themselves are simply doesn’t scale exponentially. becoming programmable enterprises. 2 Underpinning this are infrastructure Users (Billions) However, combining intelligent natural language interfaces (whether voice or Key insight: Customer interaction technologies such as virtualisation, text) with artificial intelligence, context technologies such as pervasive containerisation, software-defined networking and network function 1 awareness and a range of artificial natural language voice interfaces, intelligence techniques (including intelligent agents and smart virtualisation. Game-changing cognitive technologies and machine chatbots on social messaging commoditisation of technologies learning), can provide organisations platforms are providing a way to from the big data and artificial intelligence disciplines such as 0 with a means to provide deeply deliver a personalised and engaging engaging service in a scalable way. customer experience, and to do so machine learning, natural language 2013 2014 2015 2016 2017 2018 2019 2020 Intelligent Personal Assistants economically and at a scale that and cognitive computing are changing (IPAs) refer to a class of software is unprecedented. In addition: our understanding of both the Year that combine: organisation and the customer. • voice is rapidly emerging as the And, finally, a new range of • awareness of personal context, new interface of choice for many technologies such as chatbots Data source: Ovum 2017 personal services, and natural language interfaces • deep insights into customer are changing the experience we can behaviours and intentions enabled • intelligent chatbots are gaining offer the customer and the speed by predictive analytics, traction and, according to some pundits, may supplant mobile apps and scale at which we can do it. Mastercard Plum Bank of America's Erica • access to a rich array of software- as a major customer channel, and controllable services, and Mastercard is active in chatbots Plum (https://withplum.com/) In late 2016 BoA launched a • IPAs are finally starting to deliver on both sides of payment services, is a start-up personal savings natural language virtual assistant • a highly engaging natural language very deep and personalised announcing in October 2016 that assistant targeting UK Millennials. integrated with their mobile app. interface via voice, text or both. engagement at near-zero marginal they would release natural language, It connects to users’ saving Users interact with the assistant, Together, these allow an IPA to fulfil service cost. AI-backed bot platforms targeting accounts, provides advice on a dubbed “Erica”, via voice or text chat. the role of a highly skilled human both banks and merchants73. savings strategy and implements Using Erica customers can perform personal assistant. a deposit schedule to achieve this. Through KAI, Mastercard’s bot a wide range of actions: information The five-year evolution of “general for banks, consumers will be Users can interact with Plum finding, balance queries, transfers purpose” IPAs such as Apple’s Siri, able to ask questions about their through Facebook Messenger, and other transactions. Google’s Assistant and Microsoft’s accounts, their purchase history, asking questions, checking Using predictive analytics based Cortana has allowed consumers to their spending levels and balances and issuing instructions on spending, saving and purchasing become more comfortable with the receive contextual products via chat. patterns, Erica can also provide concept. It has also allowed those and service offers as well as advice (either proactively or companies to tune both interaction personalised education. reactively) such as suggesting saving and service delivery models – many Bot for merchants will allow strategies or alternative products. will recall the performance of early consumers to shop and complete versions of those IPAs was a source transactions on popular messaging of both humour and frustration. platforms and pay using the MasterPass digital payment service.

60 61 5.0: Conclusion

In a Millennial-led, mobile-first, • transforming to an exponential Programmatic technology potentially Our vision for an exponential financial programmatic exponential financial operating model – institutions that unlocks value in an institution’s services world will be characterised services world, the requirement for are more progressively digitally business and operating model while by institutions that will be: traditional institutions to innovate will transforming their business and new interaction technologies are be, as Ian Narev CEO Commonwealth operating models, such as retail reshaping customer engagement: ‘distributed, software- Bank of Australia described, an banks, are better placed to meet • technology investment – controlled, data-driven, “existential imperative”75. the challenges and opportunities the fundamental physics of the autonomous, real-time presented at these inflection points This research has identified the exponential environment means than credit unions, investment and programmable.’ factors and their inflection points that organisations don’t just need to banks, insurance and wealth will catapult the industry onto a new look at new technologies to maintain In my first report on Millennials in management organisations, ‘exponential’ trajectory. These are: relevance – they need to look at 2009, the key message was “they’re whose operating models are new decision-making approaches coming”. The key message I leave you • peak profit performance – less exponentially transformed. to technology investments. with this year is “they’ve arrived, and Millennials, their consumption of More broadly, however, eight in they’re voting with their money!” As mobile digital and their wallet size 10 financial services executives • the programmable enterprise Millennials permeate all facets of our have become lead indicators of perceive the most significant – infrastructure, process and society, I hope the insights from this performance and, by 2028, they’ll gaps to be in the categories of intelligence are all becoming subject report help your organisation in its become a main source of profit for on-demand resources, leveraged to software-controlled, data-driven transformation into a Millennial, institutions for an estimated 18-year assets, interfaces and scalable automation. Through this, analytics mobile and programmatic world. period. The US, UK, Chinese and processes, social technologies, APIs, can be used to drive cost and Indonesian markets have already hit artificial intelligence, automation, friction out of operations, products these inflection points and are likely experimentation and risk-taking. and services. to ride the exponential growth curve Organisations that thrive in exponential • new interaction technologies For more information ahead of other markets studied. environments are typically characterised – Exponential Organisations Visit: www.telstra.com/3MI • exponential quotient gap – by a regular doubling of capability, or, by are exploiting new interaction a significant 36 per cent quotient a regular halving of the incremental cost technologies to create deep Contact your Telstra account gap between traditional institutions of adding and serving new customers. engagement with near-zero representative: and digital challenger business Typically, they follow one of two marginal cost of service. • Asia: +852 2827 0066 models has emerged, translating strategies (or a hybrid of both): • Americas: +1 877 835 7872 into a 2-3x cost advantage to scale 1. Investing to radically reduce the • EMEA: +44 20 7965 0000 for exponential performance for marginal cost to acquire and own • Australia: 1300 835 787 the new breeds. the customer relationship – often Contact Rocky Scopelliti directly: by building a deeper understanding [email protected] of the customer and delivering a more compelling customer experience, and/or, 2. Investing to radically reduce the marginal cost of service – by orders of magnitude, not by percentage points.

62 63 6.0: About the author

Rocky Scopelliti is the Global Financial • ICT as a Driver to Improve Service to Educated in Australia and trained in the Services Industry Executive at Telstra. Generation Y for Financial Services United States – at Sydney University He is Telstra’s strategy and thought and Stanford University, respectively • Servicing Micro Businesses – What leader in banking, finance and insurance. – Rocky has a Graduate Diploma in Financial Services Need To Know Corporate Management and a Master Rocky has more than 20 years’ senior • Mobile Innovation – Next Frontier for in Business Administration. He is also a management experience in the Growth and Productivity for Insurers Graduate and Member of the Australian information technology and financial Institute of Company Directors. services sectors, encompassing • The Financial Services CIO – Why Agile product development, strategy and IT Strategies are Key to Meeting the planning, business development, Requirements of a New Financial Age research and strategic marketing. • The Digital Media Bank – How Video A distinguished strategist, author can Better Engage Your Customers and international speaker, Rocky has and Workers contributed to the World Economic • Cross-Industry Innovation – the Forum’s Disruptive Innovation in Secret May Well Be In Another Financial Services program, delivered Industry (co-produced) key note addresses at events such as Mobile World Congress and published • Towards a Clever Australia – Banking, 12 thought-leadership research reports Financial Services and Insurance that have become widely recognised for Industry Insights Whitepaper their contribution to the development of • The Digital Investor – How Changing digital financial services. These include: Demographics and Digital Technologies are Impacting the Wealth Management Market • Analyse This, Predict That – How Institutions Compete and Win with Data Analytics • Mobile Identity – The Fusion of Financial Services, Mobility and Identity • Millennials, Mobiles and Money – The Forces Reinventing Financial Services • Exponential Performance – In a Millennial, Mobile, Programmatic World

64 65 7.0: Acknowledgements

Warren Jennings Warren Jennings is the Principal Strategy Specialist for key industry verticals in Telstra’s Chief Technology Office. He has decades of experience in developing strategies, products and service offerings that combine emerging technologies and mature technologies from a wide variety of disciplines to solve real-world issues for organisations and their customers. Warren has Honours Degrees in science and engineering from Monash University and a Masters degree in Electronic Commerce from Deakin University.

66 67 8.0: Notes and references

1 Salim Ismail (2014). Exponential Organisations; Why new organisations are ten times better, faster, and cheaper 22 KPMG (November 2016). Mutuals Industry Review. Accessed from https://home.kpmg.com/content/dam/kpmg/au/ than yours (and what to do about it). Singularity University pdf/2016/mutuals-industry-review-2016-report.pdf 2 Telstra (2016). Millennials, Mobiles and Money – The Forces Reinventing Financial Institutions. 23 McKinsey & Company (2016). A Brave New World for Global Banking; McKinsey Global Banking Annual Review 2016 Accessed from www.telstraglobal.com/Millennials 24 Forrester Inc. (July 2016). “2016 Global Mobile Banking Functionality Benchmark” 3 Telstra (2015). Mobile Identity: The Fusion of Financial Services, Mobility and Money 25 Forrester Inc. (July 2016). Data Source: “2016 Global Mobile Banking Functionality Benchmark, July 2016” 4 Salim Ismail (2014). Exponential Organisations; Why new organisations are ten times better, faster, and cheaper 26 EFMA & Infosys (October 2016). Innovation in Retail Banking, 8th Edition than yours (and what to do about it). Singularity University 27 The Independent (5 May 2015). Facebook, Airbnb, Uber, and the unstoppable rise of the content non-generators. 5 BBVA (2017). The Next Step: The Exponential Life. Accessed from www.bbvaopenmind.com Accessed from http://www.independent.co.uk/news/business/comment/hamish-mcrae/facebook-airbnb-uber-and-the- 6 RFi Group (2016). Survey of 2,000 Chinese adults, conducted in 2016 unstoppable-rise-of-the-content-non-generators-10227207.html 7 eMarketer (18 August 2016). China Eclipses the US to Become the World's Largest Retail Market: Mobile now accounts for 28 RFi Group (2016) Survey of 4,000 Australian adults, conducted in 2016 more than half of all ecommerce sales in China. Accessed from www.emarketer.com/Article/China-Eclipses-US-Become- 29 RFI Group (2016). http://campaigns.anz.com/bank-accounts/job-ready/?cid=of:tv:job-ready Worlds-Largest-Retail-Market/1014364 30 RFi Group (2016) Survey of 4,000 Chinese adults, conducted in 2016 8 Alois, J.D. (13 July 2016). Global Fintech Investment Growth (Infographic). Accessed from www.crowdfundinsider.com/2016/07/87856-global-fintech-investment/ 31 NPS is calculated by subtracting the proportion of homeowners who said the likelihood of recommending the institution was a rank of between 0-6, from the proportion of homeowners who said the likelihood was between 9-10, where 0 9 Market exchange rate represents the foreign exchange rate between each local market currency and USD, is ‘not at all unlikely’ and 10 is ‘very likely’. i.e. NPS= ‘Promoters-Detractors calculated as at December 2016. 32 RFi Group (2016). Survey of 4,000 Chinese adults, conducted in 2016 10 Salim Ismail (2014). Exponential Organisations; Why new organisations are ten times better, faster, and cheaper than yours (and what to do about it). Singularity University 33 RFi Group (2016). Survey of 4,000 Indonesian adults, conducted in 2016 11 Kurzweil, Ray (2005). The Singularity Is Near: When Humans Transcend Biology is a 2006. New York: Viking Books. 34 RFi Group (2016). Survey of 1,000 New Zealand personal loan holders, conducted in 2016 12 Telstra (2016). Millennials, Mobiles and Money – The Forces Reinventing Financial Institutions. 35 RFi Group (2016). Survey of 4,000 Singaporean adults, conducted in 2016 Accessed from www.telstraglobal.com/Millennials 36 RFi Group (2016). Survey of 4,000 UK adults, conducted in 2016 13 McKinsey & Company (2015). The Fight for the Customer; McKinsey Global Banking Annual Review 2015 37 Refers to Google Play and iTunes app reviews 14 McKinsey & Company (2015). The Fight for the Customer; McKinsey Global Banking Annual Review 2015 38 https://www.help.barclays.co.uk/faq/payments/payment-information/payee-new.html 15 TSYS (2015). Addressing the Generational Shift Among Cardholders: Strategies for FIs to Successfully Engage Millennials. 39 Nationwide (16 October 2015). Our branches are changing. Accessed from http://www.nationwide.co.uk/guides/news/ Accessed from http://tsys.com/payments-hub/white-papers-studies/White-Paper-Addressing-the-Generational-Shift- articles/2015/08/our-branches-are-changing Among-Cardholders.html 40 RFi Group (2016) Survey of 4,000 US adults, conducted in 2016 16 Richard Foster Yale University; Babson’s Olin Graduate School of Business 2011. Exponential Organisations; Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it) Singularity University 41 PYMTS (22 September 2016). USAA Banking on Digital. Accessed from http://www.pymnts.com/news/digital-banking/2016/ mobile-digital-banking-future/ 17 Salim Ismail (2014). Exponential Organisations; Why new organisations are ten times better, faster, and cheaper than yours (and what to do about it). Singularity University 42 RFi Group (2016) Survey of 4,000 US adults, conducted in 2016 18 McKinsey & Company (2016). A Brave New World for Global Banking; McKinsey Global Banking Annual Review 2016 43 Macheel, T. (5 December 2016). What the Citigold Experiment Says About Mobile Banking's Direction. Accessed from www.americanbanker.com/news/what-the-citigold-experiment-says-about-mobile-bankings-direction 19 PWC (2016). Banking Matters; Major Banks Analysis May 2016 44 Chung, F. (3 June 2016). Ian Narev says it’s innovate or die for Commonwealth Bank. Access from www.news.com.au/ 20 Business Insider, February 1, 2016. Atom Bank has raised £100 million and will announce within weeks. finance/business/banking/ian-narev-says-its-innovate-or-die-for-commonwealth-bank/news-story/727a288aaa1234afb Accessed from https://www.businessinsider.com.au/atom-bank-raises-further-100-million-2017-1?r=UK&IR=T 5eda58af2e8bbb9 21 McKinsey & Company (2016) Capital markets and investment banking: Time for real change and bold actions 45 Telstra (2016). Millennials, Mobiles and Money – The Forces Reinventing Financial Institutions. Accessed from www.telstraglobal.com/Millennials

68 69 46 Salim Ismail (2014). Exponential Organisations; Why new organisations are ten times better, faster, and cheaper 67 Platforms such as Facebook Messenger and WeChat have integrated payments wither their messaging platforms, than yours (and what to do about it). Singularity University making it possible for customers to have a conversation with a brand resulting in purchase – all within the messaging app. 47 CNBC Arjun Kharpal (19 January 2017), Alibaba payments arm aims for 2 billion users in 10 years, says blockchain coming 68 Ovum (September 2017). OTT Messaging Forecast: 2016–20 to Alipay. Accessed from http://www.cnbc.com/2017/01/19/alibaba-affiliate-ant-financial-says-blockchain-coming-to- 69 Business Insider (September 2016). Messaging apps are now bigger than social networks. alipay-aims-10-billion-users-10-years.html?view=story&%24DEVICE%24=native-android-mobile Accessed from http://www.businessinsider.com/the-messaging-app-report-2015-11?IR=T 48 BBVA (30 October 2014) Accessed from https://www.bbva.com/en/uy/news/economy-business-and-finance/bbva-dwolla- 70 Levy, H. (18 October 2016). Gartner Predicts a Virtual World of Exponential Change. team-up-to-offer-real-time-payment-innovation-to-u-s/ Accessed from www.gartner.com/smarterwithgartner/gartner-predicts-a-virtual-world-of-exponential-change/ 49 Telstra (2016). Millennials, Mobiles and Money – The Forces Reinventing Financial Institutions. 71 Business Insider reports that users spend almost all of their screen time on just three apps. See BI Intelligence. Accessed from www.telstraglobal.com/Millennials (20 December 2016). The app engagement report: The tools and tactics brands, marketers, and app makers can use to keep 50 Security concerns have been raised about several container frameworks where isolation between containers and users invested and maximize value. Business Insider Australia. Accessed from www.businessinsider.com.au/the-app- their potential to impact the host operating system are not well managed. engagement-report-the-tools-and-tactics-brands-marketers-and-app-makers-can-use-to-keep-users-invested-and- maximize-value-2016-11 51 For more information about how Telstra enables customers to dynamically create tightly-permissioned networks on our global networks, see https://www.telstraglobal.com/au/products/connectivity/pen 72 “Borrowed moments” occur when time spent by customers in one app can be used by another organisation as a channel for communication or engagement with that customer. 52 Data scraping can be thought of as simple piece of IT automation that takes data intended for human consumption (e.g. application user interfaces, web interfaces, email reports or electronic documents) and makes that data available 73 Mastercard. (25 October 2016). Mastercard Makes Commerce More Conversational With Launch of Chatbots for Banks to other programs and systems. and Merchants. Accessed from newsroom.mastercard.com/press-releases/mastercard-makes-commerce-more- conversational-with-launch-of-chatbots-for-banks-and-merchants/ 53 Charles Schwab https://intelligent.schwab.com/ 74 Telstra. (2015). Analyse This, Predict That. Accessed from www.telstraglobal.com/big-data-in-financial-services 54 Leigh, L. (27 July 2016). Stockspot becomes first Australian robo-advisor to integrate AI and machine learning into financial advice. Access from www.startupdaily.net/2016/07/stockspot-integrates-ai/ 75 Chung, F. (3 June 2016). Ian Narev says it’s innovate or die for Commonwealth Bank. Access from www.news.com.au/finance/business/banking/ian-narev-says-its-innovate-or-die-for-commonwealth-bank/ 55 IDC and EMC (April 2014). “The Digital Universe of Opportunities” news-story/727a288aaa1234afb5eda58af2e8bbb9 Accessed from https://www.emc.com/collateral/analyst-reports/idc-digital-universe-2014.pdf 56 Telstra. (2015). Analyse This, Predict That. Accessed from www.telstraglobal.com/big-data-in-financial-services 57 Here’s a sample of some of the more recent forecasts of the number of connected devices in 2020: • Gartner (2015). 21 billion (“Gartner Says 6.4 Billion Connected “Things” Will Be in Use in 2016, Up 30 Percent From 2015” • McKinsey: 26-30 billion: Bauer, H., Patel, M. & Viera, J. (December 2014). The Internet of Things: Sizing up the opportunity. Access from www.mckinsey.com/industries/high-tech/our-insights/the-internet-of-things-sizing-up-the-opportunity) • Ericsson: 28 billion: Ericsson (2015). Ericsson Mobility Report: On the pulse of the networked society. Access from www.ericsson.com/res/docs/2015/mobility-report/ericsson-mobility-report-nov-2015.pdf • IHS Technology (2016). 30.7B: IHS Technology. (2016). IoT platforms: enabling the Internet of Things. • IDC: 28.1 billion: IDC (2014). Worldwide and Regional Internet of Things (IoT) 2014–2020 Forecast: A Virtuous Circle of Proven Value and Demand. Accessed from www.idc.com/downloads/idc_market_in_a_minute_iot_infographic.pdf 58 IDC (2016). “IDC Worldwide Quarterly Wearable Device Tracker” 59 For an interesting summary: Kock, C. (19 March 2016). How the Computer Beat the Go Master. Accessed from www.scientificamerican.com/article/how-the-computer-beat-the-go-master/ 60 Osborne, J. (22 August 2016). Google’s Tensor Processing Unit explained: this is what the future of computing looks like. Accessed from www.techradar.com/news/computing-components/processors/google-s-tensor-processing-unit- explained-this-is-what-the-future-of-computing-looks-like-1326915 61 For example: Microsoft Azure. Accessed from azure.microsoft.com/en-us/services/machine-learning/; Amazon Web Services. Accessed from https://aws.amazon.com/machine-learning/; IBM Bluemix Catalogue. Accessed from console. ng.bluemix.net/catalog/services/ibm-watson-machine-learning/; Google. Accessed from cloud.google.com/products/ machine-learning/; and many, many others. 62 For an example of how advanced security analytics is utilising machine learning, see www.telstra.com.au/business-enterprise/solutions/security 63 See Linn, A. (18 October 2016). Historic Achievement: Microsoft researchers reach human parity in conversational speech recognition. Accessed from blogs.microsoft.com/next/2016/10/18/historic-achievement-microsoft-researchers-reach- human-parity-conversational-speech-recognition/#sm.0001ynvh9xn1fekhuk61x7gc7vqiz 64 See Simonite, T. (27 September 2016). Google’s new services translates languages almost as well as humans can. Accessed from www.technologyreview.com/s/602480/googles-new-service-translates-languages-almost-as-well-as- humans-can/ 65 See Zuckerberg, M. (19 December 2016). Building Jarvis. Accessed from www.facebook.com/notes/mark-zuckerberg/building-jarvis/10103347273888091/?pnref=story 66 See Watson Developer Cloud. Accessed from www.ibm.com/watson/developercloud/

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