Digital Banking FELABAN November 7, Guillermo Kopp Worldwide Financial Services Industry Director

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1 Digital Banking 2030 FELABAN November 7, 2016 Guillermo Kopp Worldwide Financial Services Industry Director

2 Digital is driving massive demand for transformation in financial services ~70% of IT budgets are currently required to keep the lights on (Source: Celent) $280B Paid in bank fines since 2009 (Source: Morgan Stanley) MANAGING THE REALITIES OF RISK, REGULATION, LEGACY SYSTEMS, AND COST PRESSURES > 15% customers > 50% of Gen Y LIKELY TO LEAVE THEIR BANK IN THE NEXT SIX MONTHS Top reasons: Ease of use and service (Source: Capgemini) FINANCIAL COMPANIES ACCOUNTING FOR US CORPORATE PROFITS 30% 17% Before 2009 By 2015 (Source: The New Yorker, May 16, 2016) DELIVERING INNOVATIVE CUSTOMER AND EMPLOYEE EXPERIENCES WITH SPEED AND AGILITY 80% of bank customers prioritize online and mobile functionality (Source: Wall Street Journal June 3, 2016) 80% of customers would switch to a insurer that provided personalized service (Source: Accenture) 2

3 Driving Digital Transformation in Financial Services Threats perceived by financial institutions TELCOS INVESTING AND RETIREMENT STARTUPS LOANS & CREDIT BANKING RETAILERS INSURANCE BLOCKCHAIN TECH COMPANIES WEALTH MANAGEMENT There are hundreds of startups with lots of brains and money working on various alternatives to traditional banking. Jaime Dimon, CEO, JP Morgan Chase Source: EFMA-Infosys Feb 2015 Digital Banking Report

4 Consumer expectations are being shaped by customer experience leaders outside of banking 2/3 of customers globally Are using FinTech product or services. Bankers underestimate the impact of FinTech firms on their customers. Traditional banking customers seek more personal or tailored solutions and are happy to consider alternatives to traditional banks. (Source: Gartner) 44% of banks report that improving user experience is their top priority Capgemini world banking report, April Derek Corcoran, Digital Business Banking Trends in 2016, Avoka, March 31, 2016

5 Digital transformation is essential to sustaining a competitive advantage ENGAGE YOUR CUSTOMERS EMPOWER YOUR EMPLOYEES OPTIMIZE YOUR OPERATIONS TRANSFORM YOUR PRODUCTS with compelling experiences across all channels to drive customer intimacy and be digitally astute for efficiency, compliance and risk management to unlock new revenue opportunities and achieve growth 5

6 Business Agility >80% of new apps in the next 5 years will be distributed/deployed on clouds Internet of Things/Devices Blockchain as a Service Market Data/Analytics Risk Compute The strategic focus in the cloud will shift from infrastructure to application platforms 34% of CIOs say technology as a service (cloud) will have the most profound effect on the CIO role in the future Big Data/ Machine Learning Dev/Test Cloud Platform Productivity Applications Production Cloud Infrastructure Cost Take Out Business Digital Marketing IT Core Systems Mobility Storage & Back-up

7 Blockchain is a secure, shared, distributed ledger Secure Ledger Distributed

8 Standby Letter of Credit (SBLC) - Current State Overview Amendment Negotiation Initial Contract Negotiation Initial Contract Negotiation Amendment Negotiation Accept Terms and Provide Issuing Bank Details Agrees to Buy Requests SBLC Validates and Approves Issuing Bank Provides SBLC Terms Submits Application Microoft Treasury Tracks security to expiration date so long as customer maintains payment schedule. If customer defaults, pursues claim with Advising Bank. Sends SBLC Resends SBLC Sends SBLC Forwards Amendments Reviews SBLC for Treasury Processing Reviews SBLC Again for Treasury Processing Inform Advising Bank in case of Customer default

9 SBLC New Process Flow - Distributed Ledger 1. Applicant agrees to transact with Beneficiary via SBLC 3. Applicant bank issues SBLC 5. SBLC activated with expiration date; transaction complete 2. Applicant submits SBLC request to the ledger 4. Beneficiary bank reviews and advises SBLC

10 Blockchain-enabled Digital Transformation - Benefits Improves process speed, efficiency and effectiveness Shifts operating model from transactional to relationship driven Enhances multi-party transparency Lowers adoption barriers

11 Together, with a growing number of partners, we have developed an open ecosystem in a secure environment supported by Azure. More partners every day! Azure

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