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CNR Immersion

Innovation and Disruptionin Financial
ServicesRedrawing
thelines:

Technology’s growing influence onbusiness2017 Japan-US Forum
Masaaki Tanaka
2-June, 2017July 2015

Agenda1. What’s happening ～ Five global megatrends and technological breakthrough2. Highlights from PwC’s 20th CEO Survey
3. PwC Global FinTech Survey 2017
4. Discussion points ～ How business leaders are grappling with technological disruptions
Appendix21

1

What’s happening

45

PwC Strategy&3

Five global megatrends are fundamentally disrupting business…

Shift in global
economic power

Demographicand social change

Technologicalbreakthrough68%

3.3 million$300

Companies that will
have at least one
global business unit
head based in Asiaby 2017

Additional workers – The
65+ labour force in theUS almost doubled
between 1990 and 2010

Cost of today’s Sony
Playstation, which has
the computing power of a1997 military
supercomputer

Rapidurbanisation

400 million people
The increase in
China’s population
since 1980

Climate change andresource scarcity

50%
Increase in the demandfor energy – by 2030

Sources: The Economist: 2013 Asia Business Outlook Survey; ILO ‘Key Indicators of the Labour Market; Michio Kaku, ‘Physics of the Future’ (2011), Corbin Bal l Associates (2012); PwC analysis basedon data from United Nations, Department of Economic and Social Affairs, Population Division (2013); ‘Global Trends 2030: Alternative Worlds’, National Intelligence Council, 2912.

4

Most CEOs believe that technology will transform and disrupt theirbusiness.

86%of US CEOs say technological advances
will transform their business over the next
five years

Source：PwC 17th CEO Survey

5

2Highlights from PwC’s
20th CEO Survey

20th CEO Survey

Over the last 20 years, CEOs have witnessed tremendous upheavals asa result of globalization and technology
In trade• 4x trade flows• 5x financial flows• BRIC economies
In technology… however• Inequality is on the rise
• Mistrust in business• Growing social instability• Rise in populism• Exponential rise in global online traffic• Google, Wikipedia, Facebook, Alibaba
In society• Lifting 1 billion out of extreme poverty• New emerging middle class
20th CEO Survey

PwC720th CEO Survey

Percentage of CEOs that were very confident about prospects for growth
The percentage of Indian CEOs that were very confident about near-term prospects for growth was the highest globally. Incontrast, Japan was among the lowest – only ranking slightly higher than Venezuela.

India

71%

US39%

Global

38%

China

35%

ASEAN
Japan

32%

Q: How confident
are you about
your company’s
prospects forrevenue growthover the next 12months?

14%

Source：PwC 20th CEO Survey

PwC

820th CEO Survey

Uncertainty has become a way of life38%

CEO short-term confidence has risen compared to last year.
Question: How confident are you about your company’s prospects for growth over the next 12 months?

Respondents with “Very Confident” (%)

are “very confident

48
40

36

39

39

31

35

38

Global CEO
39

38
35

After the financial crisis
2008

'09

'10

'11

'12

'13

'14

'15

'16

2017

2015

2016

2017

Source：PwC 20th CEO Survey

PwC

920th CEO Survey

Waves of change

CEOs’ predictions of the impact oftechnology were pretty accurate 20 years
ago. Today, an even larger proportion
expect their industries to be reshaped by it.

27%
27%

33%
33%

20%
20%

59%
59%

Complete reshape industry
Significant impact
Moderate impact

30%
30%

No impact

20%
20%
8%
1%

Source: PwC, 1st Annual Global CEO Survey and 20th CEO Survey. Base: All respondents (1998=377; 2017=1,379)

PwC

2017

19981020th CEO Survey

CEOs’ digital literacy
Is digital literacy a requisite for business leaders to create and lead our future?

Global CEO

29%

Japanese CEO
55%

55% of Global CEOs
Source：PwC 20th CEO Survey

PwC

46%

43%

40%

37%

32%

Of Japanese CEOs
said that they havestrong digital skills
compared to69%

29%

31%

21%
13%
7%
Use robotics in my home

Make most of my purchases
onlineActive on social media

Use home automation
systems

Have strong digital skills

Consume digital media morethan print media

Question: To what extent do you agree or disagree with the following statements about your personal use of technology?
1120th CEO Survey

Digital risks and trust in business
There is a striking contrast between Japanese and US CEOs on the approach to some of the risks
around digital, governance, and risk management.

72%

Negative
impact on
trust by IT
outages anddisruptions innext 5 years

56%47%
36%

Japan
Extent yourcompany isaddressing thisissue today

48%

India

ASEAN Global

China

27%

US

25%
47%

54%

48%

47%
of Japanese CEOs
are addressing thisissue today while

71% of US CEOs

55%
71%

are alreadyaddressing it.

Source：PwC 20th CEO Survey

PwC

12

2

PwC Global FinTechSurvey 201713Global FinTech Survey 2017
Respondents profile

More than 1,300 respondents, from 71 different countries around the world

Type of companies

Venture Capital / Private…

Mobile…

Oceania 3%

Bank 32%

Securities
broker /Investment…

Latin America
13%

Africa 3%

COO 4%

Insurance / Reinsurancecompany 14%

Source: PwC Global FinTech Survey 2017

Head of Innovation…

Asia 33%

CDO/Business
Development 5%
Head of Strategy
4%
CFO 6%

Asset Managementcompany 6%
Other 12%Type of respondents

North America 9%

FinTech company
24%

Fund Transfer andPayments
institution 3%

Origin of respondents

Head of…
CRO/Riskmanager 3%
CEO 21%

Director / Head of
Department 15%

Europe 39%
Other 26%

Head of
IT/Digital/Technology 8%

14

FinTech is a driver of disruption in the market.

88% of incumbents are

Financial Institutions arelearning to partner andintegrateincreasingly concerned they arelosing revenue to innovators

82%
Financial Institutions areembracing the disruptive natureof FinTech

expect to increase FinTech
partnerships in the next
three to five years

56%
have put disruption at theheart of their strategy
Source: PwC Global FinTech Survey 201715

More than 80% of respondents believe their business is at risk
Q: Do you believe that part of your business is at risk of being lost to standalone FinTech companies within next 5 years?

2017 survey

201688%

93% 91%

95%

89%

83%

83%

88%

88%

82%80%

69%

GlobalLatin America

EuropeAsiaAfrica

North America

Q: What financial activities do you believe your customers already conduct with FinTech companies?

84%
68%

Payments

Fundtransfer

Source: PwC Global FinTech Survey 201760%

Personal
finance56%

Personal
loans

49%

Traditional
deposits /savings accts

38%

38%

Insurance

Wealthmanagement
16

Financial institutions are addressing customer retention in the faceof the disruptive nature of FinTech
Q: What do you think are the most important areas to address customer retention in the context of new FinTech competition?

1st

2nd

3rdPayments

Ease of use, intuitive
product design

Faster service

24/7 accessibility

Banking

Ease of use, intuitive
product design

24/7 accessibility

Faster service

Insurance

Ease of use, intuitive
product design

Superior customer
service24/7 accessibility

Asset &Wealthmgmt

Ease of use, intuitive
product design

Cost

24/7 accessibility
Source: PwC Global FinTech Survey 201717

Financial Institutions are learning to partner…
82% of companies expect to increase partnerships w/ FinTech in next 3-5 years
Currently engaging in partnerships w/ FinTech
Germany

Expecting to increase partnerships over next 3-5 years

70%

AU & New ZealandSingapore
US

78%

64%

83%

59%

82%

53%

88%

Global

45%

82%

UK

44%

India

42%

China

40%

81%
95%
68%

Brazil

30%

Japan

30%

S. Korea
Source: PwC Global FinTech Survey 2017

72%

91%
14%

76%
18

And integrate… but facing challenges around security, regulatory
uncertainty, differences in management, culture, business models
Q: When working with Financial Institutions (or FinTech companies), what challenges do you face?

Incumbents

When working with FinTech

Source: PwC Global FinTech Survey 201728%

IT security

58%

48%

Regulatory uncertainty

54%

55%

Differences in mgmt and culture

40%

40%

Differences in business models

35%

34%

IT compatibility

34%

36%

Differences in operational processes

24%

33%

Differences in knowledge / skills

24%

16%

Required financial investments

17%
19

Investment in enabling technologies will help narrow the gap
Q: What are the most relevant technologies
for your business that you plan to invest inwithin the next 12 months?
Data analytics

74%

Mobile51%

Artificial intelligence

34%

Cyber-security

32%

Robotics process automation30%% of large Financial Institutions that identified
these emerging technologies as the most
relevant to invest in within the next 12 months(vs. Large FinTech companies)
Large Financial Institutions

Large FinTech

19%
Blockchain
50%

30%
Artificial intelligence
46%
Biometrics and identity mgmt

21%

Distributed ledger technology(e.g. blockchain)

20%

Public cloud infrastructure

14%

Source: PwC Global FinTech Survey 2017

Biometrics and identity
management

20%
43%

Note: We include only responses of companies with more than 500 employees

20Blockchain is moving out of the lab
Q: Please describe the extent to which you are familiar with blockchain technology

Extremely familiar
Global4%

North America

7%

Japan

6%

Europe4%

Africa2Oceania

5%18%

Latin America

6%

14%

Asia

4%

Source: PwC Global FinTech Survey 2017

Very familiar

20%

24%

34%
25%

31%

25%

29%

21%

12%

41%

23%
23%
20%
16%

21

Regulations trigger both disruption and innovation
Q: In which areas do you see regulatory barriers to innovation in FinTech?

54%

50%

48%

40%

30%

Data storage,
privacy andprotection

Digital identityauthentication

AML / Know Your
ClientNew businessmodels(crowdfunding, P2Plending)E-money /cryptocurrency

Source: PwC Global FinTech Survey 201722

Managing expectations will be key…
Q: In your opinion, what are the opportunities related to the rise of FinTech within your industry?
ExpandLeverage
products and existing dataservicesand analytics

Increasecustomerbase

Respond tocompetition
fasterReduce costheadcount Differentiate

Improveretention ofcustomers

Decrease IT
infrastructure
costs

60%
46%

44%

38%

30%

29%

28%
19%

Source: PwC Global FinTech Survey 201723

3PwC FinTech
Survey 2017
~Japan results

24

FinTech moving at a slower pace for Japan’s Financial Institutions
The only way to get returns is to invest to learn.
Q: What percentage of your annual revenue do you allocate to FinTech
matters (investments into FinTech, IT projects, dedicated resources)?

Q: What is your expected annual Return on Investment (ROI)
on your projects related to FinTech?
25%
23%
22%

20%

15%

6%

14%

AnnualFinTech
investment

6%% revenue

GlobalSource: PwC Global FinTech Survey 2017

JapanGlobal
GlobalAsiaNorthLatin
America AmericaEuropeJapanJapan25

Different expectations on potential impacts of FinTech
Q: In your opinion, what are the opportunities related to the rise of FinTech within your industry?

60%
46%

44%

Global

38%
30%

29%

Expandproducts& services

Leverageexisting data
and analytics

Increasecustomer
base

Japan
36%

Differentiate

Respond tocompetition
faster24%

24%

Reduceheadcount
costs

36%

45%

58%
Source: PwC Global FinTech Survey 201726

Threats imposed by FinTech
Information security is a larger concern for Japanese financial institutions compared to theircounterparts who worried more about market competitiveness.
Q: In your opinion, what are the threats related to the rise of FinTech within your industry?

Global

72%

69%
63%

57%

48%

45%

41%

Source: PwC Global FinTech Survey 2017

Increased pricecompetition

Loss of market share

39%

38%
33%

Information security /privacy threatJapan

Increase of IT
investments

31%

Increase of customer
churn

31%

Legal / Compliancerisk27Renewed digital customer experience driven by customer centricity
Japanese financial institutions are slower in adopting digital channels to interact with customers
Q: What percentage of your clients do you interact with through the following channels?

22% JapanWebsite, web-based platform
Email35%

Branch

35%

40%
32%

Mobile application
Call center

Source: PwC Global FinTech Survey 2017

28%
28%

11%
16%

Social media

9%

Post mail

10%

Other

41%

Global

18%

19%
18%
16%
28

Regulatory barriers to innovation
Complexities of managing privacy, digital identity, and detailed customer data can be expensive hurdles
Q: In which areas do you see regulatory barriers to innovation in FinTech?

GlobalJapan

Data storage, privacy
and protection

54%

Data storage, privacy
and protection

Digital identity
authentication50%

1stAML/KYC

48%

47%

New business
model

38%

1st2nd

2nd
3rd

Source: PwC Global FinTech Survey 201759%

E-money /Cryptocurrency

3rd29

Draft4
PwC

Discussion points

Tough questions to ask for business leaders

1. What parts of your business model will benefit from further automation?
2. Is your HR function ready to adapt to managing man and machine? What’s
missing from its capabilities and how will you fix it fast?
2.3.Takepartnership
Howaareyou goingperspective
to find the rarer skills like leadership, creativity andadaptability required for your company to innovate and build brand
3. Integrate
to innovate
differentiation?
Have youconsideredhow
4.4.Createan IT
culture thatwillartificial
supportintelligenceinnovation and automation will help you
create competitive advantage in your key markets?

5. Concentrate on the customer’s voice and shift thinking to outside-in

5. Have you redesigned your business processes so that your employees are bestplaced to work seamlessly with automation to create new value?
31

Thank you

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