1 FINTECH DISRUPTORS 2019 REMOVING ROADBLOCKS THE NEW ROAD OF FINTECH FINTECHS NEXT WAVE2 METHODOLOGY Fintech Disruptors Report EMEA 2018, in its fourth year, is a temperature check on the status of digital financial services and the role of traditional financial institutions and fintechs in providing consumers with secure, easily accessible and value-for- money services and products. The report, carried out by MagnaCarta includes the results of a survey of 5,000 professionals within banking, financial services and fintech across Europe, the Middle East and Africa. In addition, interviews have been conducted with 24 experts across the region.1 CONTENTS Sponsor Introduction 2 Executive Summary 3 BUILDING BLOCKS Relevance 6Case study: Revolut 10 Openness 11Case study: Metro Bank 15 Automation 16Case study: Santander UK 20 Data 21Case study: Klarna 26 Interviewees 28 Imprint 29“IN THE PAST, A SHARED SUPPLY CHAIN HAS BEEN CRITICALLY OVERLOOKED BY BANKS, WHOSE SPEND WOULD RATHER GO TOWARDS CONSULTING HOUSES AND VENDOR SOLUTIONS. THIS IS THE FIRST TIME THAT WERE DEVELOPING A SUPPLY CHAIN OF FINTECHS THAT ARE PROVIDING SOLUTIONS THAT CAN EITHER PLUG INTO THE PRODUCTS THAT WE ARE DEVELOPING, OR THAT WE CAN PURCHASE AND INCORPORATE INTO OUR CLIENT VALUE PROPOSITIONS.” Liesl Bebb-McKay, Head of the FOUNDeRY, Rand Merchant Bank2 SPONSOR INTRODUCTION In 2018 the term Fintech finally entered the dictionary. The term is part of our everyday industry speak but it is now in the wider lexicon. The definition is: “prod- ucts and companies that employ newly developed digital and online technologies in the banking and financial services industries” whichof course is factually correct. However, in my opinion, it is lacking a key dimension, what does Fintech actually solve? What does it contribute to society? Why does it actually matter to consumers? Technology is a tool but not an end in itself. That is why at Klarna, we do not start with technology, but first focus on the question “what are we solving?” It is on this point where we at Klarna believe the real journey has only just begun. Never before have people had this much technology at their fingertips. Despite access to faster internet, better devices and smarter services, people actually have increasing complexity in their lives and find it harder to solve their daily time equation. This is especially true when it comes to handling money and managing purchases. People now spend more and more time worrying and admin- istering their finances and less time doing what they love. We therefore need to eliminate this unneces- sary friction and complexity in an increasingly bureaucratic, slow and impersonal world. That means offering services that help people seamlessly pay, finance, manage and keep track of their purchases. It is my belief that we as an industry will have failed in many ways if we cannot have a meaningful impact in empowering consumers to manage their daily financial life. In the context of this report, the four elements of relevance, openness, automation and data identified as critical to the future development of fintech are also fundamental to building consumer orientated solutions. This is not coincidental. The consumer will simply no longer be forgiving when their bank or service provider does not leverage the insights available to make their engagement person- alised, intelligent and simple. This is not about betting on future prod- ucts but rather future behaviours. There is also a clear maturation of views on openness and the historical lines between competitors, partners and customers are blurring. The overall strength of the ecosystem and partnerships will continue to be of utmost importance, not least as the value in specialism becomes increasingly clear . Such is the breadth and complexity of technology as well as market and consumer demands across sectors. It is obvious, no one entity can adequately fulfill all needs to everyone at the level required. We will all need each other. Ultimately, we at Klarna believe that those who have the courage to act and change things based on customer needs are going to be the ones that are successful. I hope you will enjoy this years report and gain some new and valu- able insights into how the market will evolve in the coming year. Happy reading, Sebastian Siemiatkowski BET ON FUTURE BEHAVIOURS OVER PRODUCTS “THOSE WHO HAVE THE COURAGE TO ACT AND CHANGE THINGS BASED ON CUSTOMER NEEDS ARE GOING TO BE THE ONES THAT ARE SUCCESSFUL.” Sebastian Siemiatkowski CEO, Klarna3 A decade after the Great Recession a lot has changed in financial services. But much has also stayed the same. Not including regulator-enforced bank rescues, league tables of the largest financial services organi- sations in Europe, and across the Middle East and Africa, are much the same as before the crash. Despite a dent to revenues, and share prices between 2008 and 2010, global bank market capitali- sation has grown nearly 50% in the years since 1 . Trust in banking has also bounced back UK consumers trust in banks is at the same level as high street retailers 2 . At a time when the number of bank branches in Europe has declined by a fifth, and the number of banks by nearly a quarter 3 , since 2008. But all is not quite as it seems. As banks have declined, numbers of new entrant fintechs have swelled estimated to be anywhere between 5,000 and 12,000 depending on your definition. Including several thousand across Europe, the Middle East and Africa 4 . Up the scale Plenty have gone on to become scale players. From mobile money providers in Africa a global pioneer to advanced payments services and challenger banks in Europe, fintech as a sector and a mindset has proved its here to stay. Its also proved its customer-cen- tred, data-rich operational model is more relevant than banks in a digital age. Its a model where relentless focus on smooth customer expe- riences triumphs over traditional industry channel or distribution metrics. And where the best pros- pects of success are in enabling commerce in its broadest sense over the selling of margin-first products. Fintechs no legacy advantage is no longer a given. Progress will be determined by an ability to respond to new technologies and emerging regulations and to scale the organi- sation accordingly. Whether the question is where to draw the line between data use and abuse, or how to scale an organisation for inevitable change, fintechs will struggle as much as banks to provide the answers. A failure to do so could quickly turn the building blocks of the new road into potentially fatal roadblocks. EXECUTIVE SUMMARY FAIR GAME OR FAIR PLAY? IN THE DECADE AHEAD THE SUCCESS OF FINTECHS AND BANKS WILL DEPEND ON THEIR ABILITY TO PROVIDE ANSWERS TO QUESTIONS POSED BY FOUR FOUNDATIONAL BUILDING BLOCKS. “IN THE NEXT DECADE RELENTLESS FOCUS ON SMOOTH CUSTOMER EXPERIENCES WILL TRIUMPH OVER TRADITIONAL CHANNEL OR DISTRIBUTION METRICS AS A DETERMINANT OF SUCCESS.” Fintech Disruptors 2019