Beyond Fintech: A Pragmatic Assessment Of Disruptive Potential In Financial Services Part of the Future of Financial Services series | Prepared in collaboration with Deloitte August 2017 Foreword Consistent with the World Economic Forum’s mission of applying a multistakeholder approach to address issues of global impact, creating this report involved extensive outreach and dialogue with numerous organizations and individuals. They included the Forum's Financial Services, Innovation and Technology communities, professionals from academia and the public sector. The outreach involved over 150 interviews and 10 international workshop sessions, encouraging collaborative dialogue to discuss insights and opportunities concerning fintech disruption within the financial services industry. The holistic and global perspective of this report would not be as enriched without the support and contributions from the subject matter experts who assisted in driving our thoughts forward about the future of the financial services industry. In particular, we thank this project’s Steering Committee and Working Group, introduced in the Acknowledgements section, which played an invaluable role with their expertise and patient mentorship. Also critical has been the ongoing institutional support for this initiative from the Forum and the leadership of our chairman, whose vision of the Fourth Industrial Revolution has been inspirational to this work. Finally, we are grateful to Deloitte Consulting LLP in the United States, an entity within the Deloitte1 network, for its generous commitment and support in its capacity as the official professional services adviser to the Forum for this project. For feedback or questions, contact: R. Jesse McWaters – World Economic Forum, Lead Author [email protected] Rob Galaski – Deloitte [email protected] 1 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (a UK private company limited by guarantee [“DTTL”]), its network of member firms and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL, also referred to as “Deloitte Global”, does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional adviser. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. 2 Members of the Steering Committee The following senior leaders from global financial institutions provided guidance, oversight and thought leadership to the Future of Financial Services series as its Steering Committee: Robert Contri Kimberly Hammonds Anju Patwardhan Global Financial Services Leader, Global Chief Operating Officer and Chief Senior Partner, Deloitte Information Officer, Deutsche Bank CreditEase Fintech Fund Ann Cairns Jason Harris David Puth President, International Markets, Chief Executive, International Property Chief Executive Officer, Mastercard and Casualty, XL Catlin CLS Bank International David Craig Michael Harte William Sheedy President, Financial and Risk, Group Head of Innovation, Global Executive, Corporate Strategy, Thomson Reuters Barclays M&A, Government Relations, Visa John Flint Axel Lehmann Dieter Wemmer Chief Executive, Retail Banking and Wealth Group Chief Operating Officer and Member Chief Financial Officer, Management, HSBC of the Group Executive Board, UBS Allianz 3 Members of the Working Group The project team would also like to acknowledge the following executives of global financial institutions who helped define the project framework and shape strategic analyses as its Working Group: Josh Bottomley Lena Mass‐Cresnik, PhD Bob Reany Global Head, Digital, BlackRock EVP, Identity Solutions Product, HSBC Bank Mastercard Thomas Brown Victor Matarranz Peter Rutland Partner, Senior Executive Vice‐President, Strategy, and Partner and Global Co‐Head, Financial Paul Hastings Executive Chairman’s Office, Santander Services, CVC Capital Partners Claire Calmjane Neil Mumm Nicolas de Skowronski Director, Innovation, Vice‐President, Corporate Strategy, Deputy Head, Investment Solution Group, Lloyds Banking Group Visa Bank Julius Baer Christof Edel Max Neukirchen Huw Van Steenis Global Head, Strategy and Business Managing Director and Head, Strategy, Global Head, Strategy, Development, Financial, Thomson Reuters JP Morgan Chase Schroders Roland Fejfar Robert Palatnick Colin Teichholtz Vice‐President, FinTech IBD, Managing Director and Chief Technology Partner and Portfolio Manager, Morgan Stanley Architect, DTCC Pine River Capital Management Rob Galaski (Project Adviser) Justin Pinkham Fabian Vandenreydt Americas Financial Services Leader, SVP and Group Head, Payments Innovation, Global Head, Securities Markets, Innotribe & Deloitte Mastercard the SWIFT Institute, SWIFT Dorothy Hillenius JP Rangaswami Director, Corporate Strategy, Chief Data Officer, ING Bank Deutsche Bank 4 Editors’ Note The Disruptive Innovation in Financial Services project was launched at the World Economic Forum Annual Meeting 2014 in Davos‐ Klosters, in a world still consumed with navigating the aftershocks of the global financial crisis. But in the wings, a new challenge for the financial system was growing in the form of fintech –new entrants that promised to rapidly reshape how financial products were structured, provisioned and consumed. Nearly four years later, as this initiative draws to a close, we take the opportunity to reflect on the changes to the financial system – taking stock of the impacts that fintechs have had and considering their evolving relationships with both incumbents and regulators. More importantly, it presents an opportunity to consider what lies beyond the horizon for financial services. The technologies of the Fourth Industrial Revolution have triggered a seismic shift in the financial system, the implications of which will extend far beyond the fintechs that pioneered their use in financial services. Value chains that have characterized the industry for decades are being disrupted and reshaped with implications for customers, regulators, incumbents and every other stakeholder in the financial system. In this fourth report of the Future of Financial Services series, we hope to build upon our previous work and provide the many stakeholders of the financial system with a better understanding of the forces transforming financial services, as well as an outlook for its future. R. Jesse McWaters Rob Galaski Project Lead, Disruptive Innovation in Financial Services Americas Financial Services Leader World Economic Forum Deloitte 5 Contents 1. Context and Approach…………………………………………………….………………………………………………………………………………………………..…………….. 7 2. Key Findings and Uncertainties …………………………………………………………………………………………………………………………………………………..…. 11 3. Sector Deep Dives 3.1 Payments………………………………………………………………………………………………………………………………………………………………………………….. 35 3.2 Insurance………………………………………………………………………………………………………………………………………………………………………………….. 59 3.3 Digital Banking………………………………………………………………………………………………………………………………………………………………………….. 84 3.4 Lending……………………………………………………………………………………………………………………………………………………………………………………… 105 3.5 Investment Management………………………………………………………………………………………………………………………………………………………….. 126 3.6 Equity Crowdfunding………………………………………………………………………………………………………………………………………………………………… 147 3.7 Market Infrastructure……………………………………………………………………………………………………………………………………………………………….. 168 Acknowledgements…………………………………………………………………………………………………………………………………………………………………………….. 189 Contact Details............................................................................................................................................................................................ 195 6 Section 1 Context and Approach WORLD ECONOMIC FORUM | 2017 7 CONTEXT AND APPROACH | PAST REPORTS This report represents the culmination of three phases of research into the transformative role of fintechs on the financial services ecosystem Since December 2014, the World Economic Forum has strived to understand the impact of innovations on the financial services ecosystem, and to determine how all stakeholders would be affected PHASE 1 Phase 1 laid out a foundation for understanding the transformative potential of new entrants and innovations on business models in financial services. It focused on: Establishing a clear taxonomy for understanding which fintech innovations are the most relevant Mapping possible futures for the evolutionary paths of emerging fintech innovations Exploring the implications of fintech on key stakeholders (consumers, incumbents, regulators, etc.) Phase 1outcomes are captured in the report, The Future of Financial Services PHASE 2 Phase 2aimed to illustrate the role of financial infrastructure in enabling the future of financial services. It focused