Santander – Innovation Ecosystems

Sept 2016
 INTRODUCTION  
JOHN  EGAN
Mul$ple  $me  founder    -­‐  3  exits
Economist  &  author  of  2  books,  (Harriman  House,  Gill  &  McMillan),  10+  commercial  
reports  &  white  papers  on  retail  banking  &  innova$on  in  finance
Leads  strategy  business  at  Anthemis
Previously  Head  of  Innova$on  at  Lafferty  Group  and  CEO  at  Sandbox
Board  member  at  University  College  Dublin  Innova$on  Academy  and  faculty  at  
Interna$onal  Academy  of  Retail  Banking
 AGENDA 3

Ar$cula$ng  a  trajectory  for  the  future  of  retail  finance

1 2 3 4 5
Overview What Why How Who
Agenda,  Format  &  Objec$ves   What  is  Innova$on  &  the   Why  is  Innova$on  necessary?   How  do  large  ins$tu$ons   Who  is  needed  to  effec$vely  
for  the  presenta$on importance  of  defining  it Why  should  you  develop  an   manage  and  deploy  it? deploy  innova$on  –  
ecosystem  to  facilitate  it Governance  &  Org  structure

6 7 8 9
Ecosystem Major Themes Frameworks Q&A
How  do  you  know  which  parts   How  can  current  Innova$ons   How  to  deploy  innova$on   Open  up  to  Q&A
of  your  innova$on  func$on  to   be  described  as  themes? ini$a$ves
externalise?  How  to  cul$vate  it
 BUSINESS MODEL 4

“Maximising  transac$ons  per  user”

REVENUE TRANSACTION
The  tradi$onal   The  new  model  
business  model   of  banking  is  
of  banking  has   maximising  
been  maximising   transac$ons  per  
revenue  per   user.  A  model  
customer.  A   that  neutralises  
model  plagued   agency  by  
by  agency,   commericalising  
inefficiency  and   the  sell  side  of  
credit  arbitrage   plaborm  based  
transac$ons.
 CUSTOMER USER 5

Your  customer  is  not  your  user

Transactions Portal Convergence Life Planning

Increasing  number  of   The  Current  Account  is   PALM  –  Personal  Asset  
daily  transac$ons the  product Liability  Managers.  
Invisible  banking

Gender Shift Next-gen Servicing

Women  are  changing  the   Enriched  Servicing,  
dynamic  towards   fric$onless  banking,  
outcome  based  returns Voice,  push/pull,  A.I,  new  
channels  etc
 CONNECTEDNESS 6

Everything  and  everyone  will  be  connected

Devices
We expect 34bn devices to be connected
to the Internet by 2020. The massive flow DATA
of connected data will make
interoperability a prerequisite for all
businesses and make the trade of data
streams increasingly critical.
People
As identity becomes an increasingly
amorphous asset class, genetic data will
become increasingly important and
divisive

ANALYSIS AGGREGATION

Environment
Macro-economic forecasting will become
increasingly accurate due to agricultural
and environmental sensors tracking
animals, weather, atmosphere and soil
conditions
 VALUE CHAIN 7

Banking  is  not  being  disintermediated

Expand & Augment Aggregate & Expedite Disrupt & Obviate

These  new  entrants  are  either   These  entrants  are  increasing   The  disruptors  are  alemp$ng  to  
expanding  the  value  chain  through   transparency,  improving   reduce  cost  or  increase  user  
new  channels  and  features  like  apps   convenience  and  expedi$ng   sa$sfac$on  by  significantly  altering  
and  comprehensive  portals  or  they   purchase  primarily  through   or  obvia$ng  elements  of  the  
are  improving  the  customer   aggrega$on.  This  is  forcing   exis$ng  value  chain  Examples  
experience  by  making  it  more   incumbents  to  reconsider  loyalty   include  end  to  end  digital  plaborms
responsive,  convenient  and   management  and  cost  compression
personalized  
 PRODUCTS 8

You  say  tomato  customer  says  potato

Mortgages Cards & Payments Credit Savings & Wealth Current Account

Land  registries  are  moving   Increasing  transac$on   Greater  demand  for  credit   The  wealth  management   The  Current  account  is  the  
online  allowing  for   volumes  make  white  lable   access  than  ever  before.  We   basement  has  reduced   natural  point  of  secure  
streamlined  digital  end  to   card  proposi$ons  alrac$ve.   make  more  transac$ons  and   significantly  allowing  for  the   convergence  for  a  users  
end  property  purchases.  E.g.   However,  cards  becoming   discre$onary  purchasing   entry  of  massive  new  pools   finances  and  an  opportunity  
Sunday.dk.  Emerging  need   increasingly  rewards   power  is  declining.  Retail   of  distributed  capital  who   for  enriched  decision  making  
for  distributed  living   dependent  but  declining   and  sme  credit  is  being   are  more  outcome   and  wellness.
financing.   interchange  fees  punng   disrupted  by  crowduding,   orientated  than  ever  before.  
pressure  on  rewards   new  forms  of  V.  C  and   Long  tern  savings  and  wealth  
programmes.   securi$sed  data. need  to  connected  to  retail.

I want to buy a house I want to pay for stuff I need help to pay for stuff I want to secure my future I want to interact with fin
 WHAT IS INNOVATION 9

The  Reduc$on  of  fric$on  between  points  of  input  and  output  for  the  purpose  of  op$mising  u$ity

Semantic Systematic Systemic

Semantic innovation is Systematic Innovation is a Systemic Innovation is a

innovation in the delivery or process of continuous and transitional innovation that
distribution channels. incremental innovation in an significantly alters the
iterative form competitive landscape by
High frequency. Low Impact.
improving effectiveness
Medium frequency. Medium
Impact.
Low frequency. High Impact.




Low
Mid
High


FORMS OF INNOVATION
Three  dis$nct  forms  of  Innova$on.  Each  requires  different  resources  and  capabili$es
01 SEMANTIC
BUILDING PROPOSITIONS
IN BETTER WAYS
Semantic innovation is innovation in the delivery or
distribution channels. Semantic innovation allows either
accelerated delivery of the product/service for the
same, or for proportionally lower cost, or reduced cost
of delivery at the same, or proportionally lower speed.
Driven by: Expertise in Org Process
Typical Innovator: Process Participants
Example: Introduction of factory conveyor belt
Skills: Systems Design, Process Design, Community
02 SYSTEMATIC
BUILDING BETTER
PROPOSITIONS
Systematic Innovation is a process of continuous and
incremental innovation in an iterative form. It is the
process of testing and rapidly changing. It is user
focused and relies heavily on customer feedback and
behaviour.
Driven by: Expertise in Users
Typical Innovator: Designers
Example: New models of cars, app updates
Skills: Product, UX, Platforms
JE
03 SYSTEMIC
DISRUPTING EXISTING
PROPOSITIONS
Systemic Innovation is a transitional innovation that
significantly alters the competitive landscape by
improving effectiveness. It often results in the
obsolescence of the existing population of propositions.
Systematic innovation is driven by incumbent agents
with existing and future product expertise rather than
product users.
Driven by: Expertise in Product
Typical Innovator: Sophisticated Expert(s)
Example: Replacing horses with cars
Skills: Forecasting, Anthropology, Economics, Science
 WHY IS INNOVATION
NECESSARY?
Advancements  in  technology  in  the  last  10  years  has  resulted  in  retail  banking  shiqing  from  being  
supply  driven  to  demand  driven.  Start-­‐ups  circumvent  deposit  orientated  regula$on  and  build  on  
top   of   banking   back-­‐ends.   Distributed   systems   are   reducing   cost   bases   whilst   improving   security.  
New   assets   have   emerged   and   the   access   points   have   changed   fundamentally.   Innova$on  
facilitates  the  integra$on  of  these  new  technologies  and  appe$tes.  

“Disrup(ve  technology  is  the  market  consequence  of  

monopolies  and  its’  sole  objec(ve  is  increased  u(lity”

Costs Revenue Bus Mod Users

Seman$c  Innova$on  in   Systema$c  and  Systemic   Open  finance  is   Plaborms  don’t  have  
par$cular  can  rapidly   innova$on  are  more   inevitable.  Innova$on  is   customers,  they  have  
reduce  costs   orientated  around   required  to  make  the   users.
revenue  genera$on appropriate  
infrastructural  
adjustments
 CAUSE OF INNOVATION DEFECIT 12

What  are  these  changes  happening?

Investment Banking Exponential Technology

Banks  invested  heavily  in   At  the  same  $me  technology  
investment  innova$ons  over  retail   started  to  facilitate  a  reduc$on  of  
yields the  barriers  of  entry  to  retail  
finance

1985-2005 2007-2011 2012- 2013-

Financial Crisis Interoperability

The  financial  crisis  undermined   Increased  connectedness  places  
trust  in  ins$tu$ons,    created   increasingly  importance  on  
dissa$sfac$on  with  the  status  quo   openness  and  interoperability  for  
and  forced  a  lot  of  people  into   the  sake  of  u$lity  op$misa$on
entrepreneurship
 HOW TO REDUCE THE DEFECIT? 13

How  to  deploy  innova$on  as  proposi$ons  and  plaborms  within  a  Retail  Bank?      

Capital Partnerships
Inves$ng  and  acquiring   Transforming  procurement  
technology  and   processes  to  expedite  the  
Technology proposi$ons  to  replace   People speed  at  which  partnerships  
Strategy
Overreliance  on  vendors  for   exis$ng  infrastructure.   Recrui$ng  the  appropriate   can  be  formed  and  tested Coherent  strategy  on  open  
core  technologies  is   strategy,  design  and   banking,  distributed  
problema$c.  Digital  Finance  vs   development  talent  as  well  as   workforces,  proposi$on  
Doing  Finance  Digitally   the  Thought  Leaders   manufacturing  and  strategic  
necessary  to  drive  systemic   objec$ves
innova$on
WHAT ARE INNOVATION ECOSYSTEMS 14

Curated  porbolios  of  contribu$ng  stakeholders

Curated Ecosystems
Understanding  and  cura$ng  the  relevant  ecosystem  
BANK Innova$on  Func$on for  every  problem  set

AGENTS.
Different forms of Innovation are driven by different agents
SEMANTIC
JE

1. SEMANTIC
Semantic Innovation comes from
the employees to improve total
innovation. Users are not directly
affected. Examples include
production & distribution efficiency,
employment and quality of work-
place upgrades

2. SYSTEMATIC
Systematic Innovation is user driven
innovation. Examples include a new
version of a product, service
upgrades or an app update based
on an improved understanding of
INNOVATION
customer/user needs.

3. SYSTEMIC
Systemic innovation requires
internal subject matter experts to
originate and drive change to users
because users are unaware of the
capacity for that change. Examples
include the introduction of tablet
devices, cloud computing and
distributed capacity technologies.
Requires an understanding of likely
structural and secular change

FRAMEWORK.
Discover, Design, Deploy to create a catalogue of innovation concepts
1. CONCEPTS CATALOGUE
A comprehensive statement of
innovation agenda and ambition
JE
supported by a constantly updated
catalogue of rated and assessed
innovation concepts, open to all
team members

4. DEPLOY
Develop roadmap for deployment of
each concept detailing necessary
resources, timeline and business
case
3. DESIGN
Clearly establish viable concept
objectives and establish how to be
successful in implementation

2. DISCOVER
Understand what’s going on. Scan
and assess rate of change for
OVERVIEW velocity, frequency and volume to
Each form of innovation utilises the identify many opportunity spaces
same framework for
implementation. 1) Discover, 2)
Design, 3) Deploy

STRATEGY.
Comprehensive innovation strategies require a series of
JE
responsive steps

01
ambition.
Clearly establishing the ambition for the
innovation function within a business. Clarify
what innovation means as well as the roles
and processes that are required to
implement it sustainably
02
distinguish.
Distinguish between the forms of innovation
and resource each function appropriately
with distinct teams, resources and objectives
03
discover.
Establish methodologies for constant
landscape scanning and discovery in order
to identify and quantify opportunity spaces

04
design.
A process for creating conceptual briefs for a
large number of concepts, all of which get
catalogued and the most successful of which
get developed
05
deploy.
06
assess.
Processes of testing, validation, approval Standardised review process to consider
and deployment of concepts impact of deployed concepts as well as
reconsidering or reframing previously
archived concepts in the catalogue
 Q&A 18

I  am  at  your  disposal

Technology Perspective Information

Ques$ons  on  emerging   POV  on  economic  events  that  will   Clarity  on  areas  of  technical  
technologies  that  will  effect  banking impact  retail  finance  or  expedite   sophis$ca$on  or  change
cyclical,  secular  or  structural  change
APPENDIX 19
 THE CURRENT ACCOUNT 20

This  is  retail  banking  

Current Accounts
Increasing  transac$on  frequency  over  the  last  decade  has  drama$cally  shiqed  the  role  of  the  current  account.  It  is  now  the  primary  financial  dashboard  as  well  as  the  
face  of  the  bank  to  the  customer.  

P2P PALM
Trigger  orientated  P2P   Enriching  financial  decisions  
funding  opera$ng  against   and  forecas$ng  life  
data  driven  risk  and  u$lity   moments  to  op$mise  u$lity
profiles

Passive Wellness CROWDFUND

Passively  inves$ng,  saving   Allowing  users  to  invest  in  
and  insuring  against   new  businesses  across  the  
outcomes  and  appropriate   bank  network  through  the  
risks current  account
 WEALTH MANAGEMENT 21

Wealth  management  for  everyone

The Portfolio
Data Streams
To  the  right  is  an  example  of  a  novice,  middle  income,  retail   Digital
investor  in  the  future.  He  has  full  and  easy  instant  access  to  their  
porbolio  of  assets  held  across  different  domains  and  plaborms.
€30,434 Currencies

•  Digital  Currencies  are  crypto-­‐currencies  like  Bitcoin  or  environmental  currencies  like  in   €20,038

 
game  currencies  
•  Digital  Assets  are  proper$es,  characters,  game  assets,  IP  etc  I  have  acquired  or  earned.    
Examples  include  rare  items  found  in  MMPOGs Personal Data
•  Esoteric  Incomes  are  incomes  generated  by  buying  into  the  securi$sed  earnings  of  my    

 
€186,654 Digital Assets

 
favourite  vine,  snapchat  and  YouTube  stars.  In  the  case  of  YouTube  it  comes  directly  from  
ad  revenues  generated  by  views

 
•  I  use  plaborms  like  crowdcube  to  buy  equi$es  for  start-­‐ups  I  like. €62,452

 
•  Spliced  Property  websites  allow  me  to  buy  pieces  of  property  assets  and  earn  income  from  
Private
 
the  rent  without  needing  a  mortgage
Equities
   
•  I  regularly  look  to  crowdfund  or  buy  algorithms.  It’s  a  touch  industry  to  do  well  in  but  it  has  
  Esoteric

 
huge  upside €10,082 Spliced
Incomes
•  I  have  accumulated  a  lot  of  Loyalty  ponts  with  different  brands  that  I  can  use  across  
purchases  by  exchanging  through  a  digital  money  market  app
  €15,204
property
Tokenis €18,822
ed Art
Dynamic Outcomes €4,782  
 

 
Constantly  shiqing  in  accrdance  with   Outcome  rather  than  yield  orientated  
personal  profile,  health  etc investments.     Algorith
ims
   
€9,044
Interoperable Custom
Wealth  management  linked  to   Assets  and  porbolio  par$cular  to  me.  
transac$onal  finance Part  DIY,  part  serviced
 WHERE? 22

Who’s  doing  what  in  finnova$on

22,000  start-­‐ups  in  Stockholm   Scandinavia
alone.  Integrated  land  registry.  
Bank  lead  iden$ty  infrastructure. United Kingdom Avant-­‐garde  regulator  and  first  
mover  advantages  are  primary  
selling  points.  Recent  launch  of  
regulatory  sandbox  is  helpful  

Israel More  engineers  per  capita  than  

anywhere  else.  Start-­‐up  na$on  
United States
produced  a  lot  of  fintech.  
Highest  flow  of  capital  into   Ins$tu$ons  are  slow  to  follow
FinTech.  Biggest  banking  system.  
Most  start-­‐ups.  New  York  
focused.  
Australia
China Australian  ins$tu$ons  are  leading  
the  way  with  innova$on.  Strong  
Tech  giants  and  banks  are   culture  of  proprietary  proposi$on  
aggressively  pursuing  growth   development  and  successful  
through  acquisi$on  and  yield  in   partnership  plays
financial  services
 THE FUTURE 23

A  vision  of  the  future  of  retail  finance

Forecast:

2025
The  Future  of  Banking  will  be  interoperable,  integrated  open  plaborms  with  massive  numbers  of  product  manufacturers  facilita$ng  u$lity  
op$mising  environments  for  end-­‐users  who  will  be  able  to  customise  their  en$re  financial  experience.  The  role  of  financial  ins$tu$ons  will  
increasingly  orientate  itself  around  compliance,  security  and  capital  u$lity  as  well  as  advice  through  personal  asset  and  liability  management  
mechanisms.  

Open banking
Open  banking  will  divide  exis$ng  financial  ins$tu$ons  into  
plaborms  and  manufacturers.  This  includes  insurers,  IFAs,  
wealth   managers   and   asset   managers.   There   will   be   a  
small   number   of   plaborms   with   a   large   number   of  
product  focused  vendors    

Digital Data & Identity

Environments Iden$ty   is   the   defining   asset   of   the   21st   century.   It   is  
becoming   increasingly   ambiguous   and   transposable.   The  
New  digital  environments  present  an  opportunity  for  both   management   and   trading   of   data   related   to   iden$ty   will  
manufacturers  and  plaborms.  These  landscapes  are   become  increasingly  important  with  licenses  necessary  to  
underinsured,  under  banked  and  under  valued manage  it.    
 CONCLUSIONS 24

Key  Takeaways

1
Open Platforms
The   need   for   open   banking   plaborms   is   undeniable.  
The  winners  are  to  be  determined.  The  focus  is  on  

2
Invisible Banking
Banks   are   becoming   u$li$es.   The   reduc$on   of   fric$on  
in   next   gen   servicing   allows   for   an   enriched   customer  
experience

3 Identity & Data

Iden$ty  and  data  will  be  controversial,  regulated  asset  
classes.  They  are  complex  products  but  they  sit  at  the  
core  of  next-­‐gen  finance

4
Demographic Shifts
Millenials   are   a   financially   vulnerable   cohorts   of   high  
earning   urbanites   who   have   postponed   significant   life  
events  in  favour  of  distributed  lifestyles

5
New Digital Environments
Games  have  highlighted  the  possibility  and  desirability  
of   virtual   and   digital   worlds   and   the   economies   that  
can  thrive  within  them.