Financial ServicesTechnology 2020 and Beyond:Embracing disruptionTo succeed in this rapidly changing landscape, IT executives will need to agree with the rest of themanagement team on the posture they wish to adopt. Will they try to be industry leaders, fastfollowers, or will they just react? Whichever direction they choose, they will need to devise a clearstrategy to move

ContentsForeword3Executive Summary5The ten technology forces that matter: how to compete in the financial services industryin 2020 and beyond71 FinTech will drive the new business model82 The sharing economy will be embedded in every part of the financial system113 Blockchain will shake things up124 Digital becomes mainstream155 ‘Customer intelligence’ will be the most important predictor of revenue growth and profitability176 Advances in robotics and AI will start a wave of ‘re-shoring’ and localisation207 The public cloud will become the dominant infrastructure model228 Cyber-security will be one of the top risks facing financial institutions239 Asia will emerge as a key centre of technology-driven innovation2510 Regulators will turn to technology, too27Six priorities for 2020281 Update your IT operating model to get ready for the ‘new normal’292 Slash costs by simplifying legacy systems, taking SaaS beyond the cloud, and adopting robotics/AI323 Build the technology capabilities to get more intelligent about your customers’ needs354 Prepare your architecture to connect to anything, anywhere375 You can’t pay enough attention to cyber-security406 Make sure you have access to the necessary talent and skills to execute and win42Conclusion45

ForewordIs your business equipped to compete?We are pleased to introduce Financial Services Technology 2020 and Beyond:Embracing disruption.This paper complements PwC’s Project Blue1and the PwC Megatrends framework2, whichexamines the forces that are disrupting therole, structure, and competitive environmentfor financial institutions and the marketsand societies in which they operate. Italso continues our series of publicationsexamining the future of financial services,including: R etail Banking 2020: Evolution orRevolution?3 C apital Markets 2020: Will it Change forGood?4 Asset Management 2020: A Brave NewWorld5Can you envision branches and operationcentres staffed by sophisticated robotsinstead of human tellers? Or pictureeveryone from high net worth investors tohigh school teachers taking financial advicefrom artificially intelligent apps – and theninvesting across asset classes, currencies andgeographies on a real-time basis? Or imagineif launching a bank, an asset manager oran insurance company was as simple asplugging in an appliance?We can. This is not fantasy; it is wherethings are headed. We have been looking atthe financial services landscape and askingsome tough questions about what comesnext. These are some agenda items for theleaders who operate and supervise theglobal financial system: Will blockchain beas significant to the future of banking as theInternet was to physical stores? Or will fraudand technical complications marginalise itsapplication? Will the public cloud be safe andreliable enough to outcompete on-premisessolutions? Could cyber-attacks really causeworldwide panic and loss of confidence inthe financial system?The post-crisis regulatory frameworks havebeen gradually settling into place, andfinancial institutions have been adjustingtheir business models accordingly. It is nowbecoming obvious that the accelerating paceof technological change is the most creativeforce – and also the most destructive – in thefinancial services ecosystem today. In thispaper, we set out to capture the real worldimplications of these technological advanceson the financial services industry and thosewho must supervise and use it.Julien CourbeGlobal FS Technology LeaderPwC US 1 646 471 [email protected] h blue2 h ces/banking-capital-markets/banking-2020.html4 h ml5 h 2020-a-brave-new-world.htmlPwC 3

Project BlueThere are huge forces at work in the globaleconomy today – from a shift in globaleconomic power and climate change tourbanisation, demographic shifts, and more.Many of our clients have been using ourProject Blue framework to help assess howthese megatrends will affect their strategiesand business models for 2020 and beyond.Project Blue offers a structured process foradapting to these changes. Seeing the futureclearly and developing a proactive, strategicresponse – rather than simply reacting toevents – will set apart the winners fromthe losers in a fast-evolving market. Thereis no single ‘best answer’; whether thesedevelopments are threats or opportunitiesdepends on the nature of the organisationand where in the world it sits. The resultswill help your institution better targetinvestment, identify talent requirementsand develop the necessary operationalcapabilities needed to make the most of itscompetitive potential.4 PwC Financial Services Technology 2020 and BeyondEach of these forces will shape our livesin many ways. But for the financial servicesindustry, as the post-Financial Crisisregulatory wave retreats, technology standsabove the rest. In this paper, we look atthese changes, and offer some suggestionson how to prepare for the opportunities andthreats ahead.

Executive SummaryA glimpse of what is to comeLet’s say you are a bank executive. Imaginethat you are competing against a trulyglobal, multi-service, low-cost, digital bank:customers accessing their accounts throughtheir mobile phones, paying with a tap ontheir wearables, sweeping savings to anETF portfolio (designed by an AI (artificialintelligence) engine based on their savingsgoals and risk appetite profile) offeringno-fee, cross-border payments. Imagine ifyou faced a competitor bank like this, witha low and nimble footprint, prototypingnew services quickly, managing regulatorycompliance transparently, using an AI systemto limit fraud losses, and hedging currencyrisk using cryptocurrencies.This competitor does not exist today. But inthe next few years, it is a very real possibility.Now what?You are a bank executive. Imaginethat you are competing against atruly global, multi-service, low-cost,digital bank: customers accessingtheir accounts through their mobilephones, paying with a tap on theirwearables, sweeping savings to anETF portfolioThe financial services industry has seendrastic technology-led changes over the pastfew years. Many executives look to theirIT departments to improve efficiency andfacilitate game-changing innovation – whilesomehow also lowering costs and continuingto support legacy systems. Meanwhile,FinTech start-ups are encroaching uponestablished markets, leading with customerfriendly solutions developed from the groundup and unencumbered by legacy systems.Customers have had their expectations setby other industries; they are now demandingbetter services, seamless experiencesregardless of channel, and more value fortheir money. Regulators demand more fromthe industry too, and have started to adoptnew technologies that will revolutionise theirability to collect and analyse information.And the pace of change shows no signs ofslowing.In our latest Global CEO Survey, across allsectors business leaders told us the speed oftechnological change is one of their biggestconcerns. In fact, in financial services, 70%of the leaders told us the speed of change intechnology was a concern.6 One factor is thatthe time it takes to go from breakthroughtechnology to mass-market applicationis collapsing. For example, in the UnitedStates, it took the telephone 76 years to beadopted by half the population. By contrast,the smartphone did it in under ten years. Weare now watching blockchain move from anotebook sketch to an established technologyin a tiny fraction of the time it took for theInternet to be accepted as a standard tool.Indeed, technology-driven change is sopervasive that no financial institution isimmune. In Section 2, we address how theseand other global megatrends are affectingthe financial services industry, with aparticular focus on the IT department.6 S ource: PwC’s 19th Annual 19th Annual Global CEOSurvey, Jan 2016PwC Financial Services Technology 2020 and Beyond 5

Ten competitive technologydriven influencers for 2020It is clear that technology is affectingfinancial services in a multitude of ways.In the following section, we discuss ten keythemes that we believe IT executives willneed to address as they begin their strategicplanning for 2020 and beyond. These tenthemes include: FinTech will drive the new business model T he sharing economy will be embedded inevery part of the financial system Blockchain will shake things up Digital becomes mainstream ‘Customer intelligence’ will be the mostimportant predictor of revenue growthand profitability Advances in robotics and AI will start awave of ‘re-shoring’ and localisation T he public cloud will become thedominant infrastructure model C yber-security will be one of the top risksfacing financial institutionsEach of these themes is likely to affectfinancial services companies and theirleadership teams in far-reaching ways. Andwhile each may have a disproportionatelystrong effect on a given geography, customerset or industry segment, they all presentopportunities for the thinking executiveto get ahead. When you know a roboticsmovement is coming, for example, you havea choice: to lead the charge, to make sureyour organisation has the right listeningcapabilities and agile architecture to bea ‘fast follower’, or to watch others takeadvantage of a generational shift. Thissection sets up a challenge around the tenthemes: to understand them, prepare forthem and see how to use them to get acompetitive advantage.Priorities for 2020The pace of change is increasing and showsno sign of slowing. Financial institutionsare looking to the IT organisation to domore to help make sure they are wellpositioned to succeed in the future. There aremacroeconomic trends sweeping the world,and technology-driven influences buffetingthe industry. What is the best approach tomoving forward? A sia will emerge as a key centre oftechnology-driven innovation Regulators will turn to technology as well6 PwC Financial Services Technology 2020 and BeyondWe see six priorities for success for 2020and beyond, based on our research and ourexperience in the field:1. Update your IT operating model to getready for the new normal2. Slash costs by simplifying legacy systems,taking SaaS beyond the cloud, andadopting robotics/AI3. Build the technology capabilities to getmore intelligent about your customers’needs4. Prepare your architecture to connect toanything, anywhere5. You can’t pay enough attention tocyber-security6. Make sure you have access to the talentand skills necessary to execute and winTo succeed in this rapidly changinglandscape, IT executives will need to agreewith the rest of the management team onthe posture they wish to adopt. Will theytry to be industry leaders, fast followers, orwill they just react? Whichever directionthey choose, they will need to devise aclear strategy to move forward. Mostlikely, there will be a need to partner withinnovative FinTech start-ups and changetheir business practices based on lessonsfrom other industries. They will certainlyneed to maintain laser-sharp focus on theircustomers’ preferences, both stated andunstated.Frankly, each priority is important. The goodnews is that each one is also achievable.The answer: combining tactical short-termactions with long-term initiatives that tie to alarger, strategic vision. This is how financialservices firms will succeed in 2020 andbeyond.

The ten technology forces that matter:how to compete in the financial servicesindustry in 2020 and beyondThere are many large forces sweeping society, from demographic and socialchanges to shifts in global economic power. But one force in particular –namely, technological breakthroughs – is having a disproportionate affect onfinancial services. Here we look at the ten most important technology-driveninfluencers that will shape competition in this industry by the decade’s end.PwC Financial Services Technology 2020 and Beyond 7

1FinTech will drive thenew business modelFor a long time, new marketentrants found it difficult to breakinto the financial services industry.The large, well-establishedfinancial institution that we call‘incumbents’ had advantages insize, and their networks addeda multiplier effect. They hadstrong compliance systems inplace to manage ever-increasingregulations, and they had theclient base and resources toprosper even in tough economicconditions.Where is the epicentre ofdisruption?Most disrupted FS sectorsUp to 28%of businessat risk by2020Source: PwC Global FinTech Survey 20168 PwCBankingandPaymentsUp to 22%of businessat risk by2020Insurance,Asset Managementand WealthManagement

Well, not any more. FinTech disruptors havebeen finding a way in. Disruptors are fastmoving companies, often start-ups, focusedon a particular innovative technology orprocess in everything from mobile paymentsto insurance. And, they have been attackingsome of the most profitable elements of thefinancial services value chain. This has beenparticularly damaging to the incumbentswho have historically subsidised importantbut less profitable service offerings. In ourrecent PwC Global FinTech Survey, industryrespondents told us that a quarter of theirbusiness, or more, could be at risk of beinglost to standalone FinTech companies withinfive years.7Global investments in FinTech mor