Creating a Strategy for the

New FinTech Ecosystem

This report was jointly produced by Above & Beyond and Belatrix Software

To prepare for the emerging FinTech ecosystem, we highlight 4 trends for 2017
and beyond to inform your digital transformation strategy

Developing a strategy for an interconnected FinTech

ecosystem

In the past few years we have seen the rapid evolution of FinTech from generating
novel ideas which solve customer problems, to offering core financial services.
We have seen the shift from digital startups, characterized by a lack of financial
wherewithal and which operated on the edge of tightly regulated markets,
to the emergence of mature financial digital organizations at the heart of the
traditional financial world.

We can describe the development and maturing of FinTech in 3 main waves:

1. The early emergence of digital startups helping consumers. Originally

FinTech solutions were the preserve of B2C markets which solved specific
customer problems such as offering home loans faster and easier. They used
new technologies such as mobile and cloud computing, and were characterized
by a laser focus on the customer with all the hall-marks of a digital Silicon-
Valley style start-up.

2. Transition to B2B markets. Today FinTech plays a role at the core of B2B
innovation in financial markets, and industry observers widely expect B2B
FinTech revenues to dwarf those in consumer markets within the next couple
of years. Organizations such as Currency Cloud (cross border B2B payments),
Payoneer Escrow (escrow services), and Hummingbill (B2B invoice platform)
all reflect a maturing industry.

3. The creation of an ecosystem between FinTech and traditional players.

FinTech organizations are realizing that the required go-to-market investment,

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 economies of scale, and regulatory needs, means it makes sense to partner with
traditional financial institutions. On the other side, established players recognize
the value, innovation and potential of FinTech in a world which is increasingly
mobile-first. These financial institutions are also adopting many of the methods
that FinTechs use so successfully, from a focus on the customer, to using Agile
software development, to holding hackathons, and forming accelerators and
innovation programs.

Therefore, in 2017 and beyond we will see the coming together of FinTech
and established financial players to form an ecosystem which will transform
the world of finance. The strategy for how to best to do this however, is still
emerging.

While many large institutions, such as Bank of America, have developed a digital
transformation strategy, have a digital team in place, and clearly recognize
the shift in the industry which is underway, many mid-size, regional financial
institutions are still missing the ball. In 2017 this has to change.

Therefore, to help organizations in their strategy development efforts we have

put together 4 predictions for the future of FinTech and financial services,
which we believe need to underlie the strategy of every financial organization.

1. Millennials squared a parable of a digital wallet and beer

money

Earlier this year Sam Crowder

stood up at a televised baseball
game, and held a sign asking his
Mum to send him beer money.
He included his Venmo account
information. Thousands of
people sent him money, as his
sign went viral. Beyond sharing
this story as advice in case
youre ever thirsty and leave
your wallet at home, what it
reflects is how the use of new
technologies may start with
digital natives, but then rapidly
spread to other generations. It
reflects the inter-generational
adoption of, and use of, FinTech
technologies.

So, when looking at the potential

of new services, it is important
not just to consider the young
people who will adopt it. But
what will happen when they
introduce the technology
to their friends and family.
Millennials are the earthquake
that shakes companies, and adopt new tech and services at lightning speed.
The rest of us are the tsunami of adoption that follows and lead to exponential
growth.

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 2. Facebook, Amazon, Google or Ant Financial will become
the largest retail bank in the world

Its 2020 and to apply for a loan, instead of going to your local bank branch, you
quickly ask Facebook for approval. This is far from fanciful thinking. Even as of
today, PayPal is arguably one of the largest retail banks it has more money in
deposits than all but the largest 20 US banks, and offers services from payments,
to loans and credit cards (albeit currently via partners). But we believe that
one of the major tech companies, whether
Some bankers and analysts that is Facebook, Amazon, Google, or Ant
think that Google, Facebook, Financial (the financial arm of Alibaba)
Amazon or the like will not fully will not only transform retail banking, but
enter a highly regulated, low- rapidly become the largest retail bank in
margin business such as banking. the world.
I disagree. What is more, I think
banks that are not prepared
for such new competitors face These major tech companies have the
certain death platform and the scale to upend retail
banking. They already have a digital wallet
which underlies the services that enable
Francisco Gonzlez, CEO, BBVA users to buy and sell on their platforms,
such as Google Wallet and Amazon
Payments. Facebook Messenger Pay is already available in the US while it
recently received an e-money license from the Central Bank of Ireland. This
means European users will be able to store and transfer money, and make online
purchases. The transition to becoming the largest retail bank in the world will be
swift and brutal for traditional banks.

3. Regulators finally make the pivot to supporting the FinTech

ecosystem

BitX, a bitcoin startup in Singapore, was looking to enter the UK and European
markets. Instead of having an arduous journey gaining the required licenses
and approvals as it would have expected in the past, BitX was accepted into
the regulatory sandbox of the UKs Financial Conduct Authority. This enabled
it to test its services and build its product with the backing of the regulator.
This kind of thinking reflects how in the past few years we have seen regulators
move from hindering innovation and new services, to proactively supporting
and strengthening the FinTech ecosystem.

It is a challenging line to take, particularly in the world of finance to help create

the framework and environment for innovation, while also protecting consumers
and businesses. However, increasingly we see regulators getting this blend right.

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For example, the European Unions Directive on Payment Services (PSD2) will
create an EU-wide single market for payments. This will drive new opportunities
and innovation in the payment sector, because it will force financial institutions
to provide secure access for a third-party service provider to a customers online
account. Meanwhile, we have seen regulatory sandboxes emerge not just in the
UK, but in locations from Singapore to Australia. The US Treasury meanwhile
recently announced it will start issuing special purpose national bank charters
to FinTech companies.

In the future, expect to see the emergence of RegTech. This will enable real-time
interaction and analysis between regulators and financial institutions. Indeed,
this is already happening in Austria, where the central bank, the Oesterreische
Nationalbank (OeNB), developed a software platform between itself and the
banks, so it can view and analyze information in real-time.

4. Look beyond the hubs to find innovative ideas

Across Kenya, mobile money has become ubiquitous being used by at least
one person in 96% of Kenyan households. But what is the real impact of mobile
money in such countries? One study estimated that M-PESA, the Kenyan mobile
money system which enables money to be stored on a phone and be sent via
text, has helped lift 2% of Kenyan households out of poverty.

What this example demonstrates is that the impact of FinTech innovation is

often created and experienced outside of the usual hubs of finance such as
in New York, London or Singapore. So, although the UK dominates the world
of fintech (generating an estimated 6.6billion in FinTech related revenue),
leading organizations are looking for inspiration among the innovative services,
products and ideas being created from Guadalajara, to Laos, to Kenya.

In many cases we can see that the unique financial environment of these
locations is resulting in novel ideas. For example, Guadalajara based start-up
Kueski uses a persons digital footprint to assess their credit worthiness a
particular challenge in Mexico where credit is not available to large swathes of
the population. In Latin America Tigo Cash is a mobile financial service which
already handles more cash than many financial institutions in the region. We will
see markets and services emerging which are currently not on anyones map,
and become some of the most important financial organizations in the world.

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Final thoughtsIn case youre not yet convinced about the
FinTech revolution

If there was ever a time to realize

the impact of FinTech and how
transformative it will be, then look no
further than the Singapore Fintech
Festival which took place last
month, and where Jorge Ruiz, CEO
of above & beyond, was a judge in
the Hackacceletor. More than 12,000
people from across 50 countries
attended the event! Organized by
the Monetary Authority of Singapore
(MAS), in partnership with the
Association of Banks in Singapore
(ABS), it brought together much
of the FinTech community to
demonstrate the innovation and
potential of the sector. Alejandro
Nino, COO of above & beyond, was part of the U.S. Delegation that participated
in the festival. These kinds of events make us realize we are just at the tip of
transformational change in the financial sector.

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