FinTech revolution

Banking as a Service Summit 2018

Jarosław Dąbrowski, DFCM

1. World’s FinTech Market

2. FinTech market in Europe

3. FinTech market in CEE

4. FinTech market in Poland

III. Who invests in FinTechs?

V. Key challenges and perspective of growth

I. Market overview

II. Top companies

Agenda

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IV. Regulatory changes

5. Possible paths of development

World’s FinTech market

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World’s FinTech market is thriving, and its pace of change is constantly increasing. Among the factors influencing this change are the changing role of financing services, growing importance of mobile payments and demographic changes.

82% financial institutions expect to increase FinTech partnerships in the next three to five years

88% of them are afraid of loosing business to innovators

30% of big financial institutions are investing in Artificial Intelligence

The biggest challenges for FinTechs and financial institutions partnerships are different management and culture and regulatory uncertainty

77% expect to adopt blockchain aspart of an in production system or processby 2020

Total invetment in FinTechs in 2016 was $19.1 billion

1/3 of financial services in the world can be taken over by Fintechs

Consumer banking and paymentsare the most endangered banking areas by Fintechs

Source: „Global fintech report 2017” PWC, statista.com

Expected ROI on FinTech related projects is 20% globally (the most in Asia – 25%)

54% of financial institutions see data storage, privacy and protection as the main regulatory barrier to innovation

FinTech market in Europe - facts

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More than $8 billion has been invested in European fintechcompanies since 2010

Europe is also home to major banks which continue to be active investors in fintechstartups globally (eg. Spanish Banco Santander)

The digital transformation of European banks continues with banks projected to spend in excess of €62 billion on IT in 2017

Digital banking services remain a strategic priority for European banks, with 61% of European banking executives viewing investments in technology as very important

Differing tax systems within the EU, as well as significant discrepancies between countries in their adoption of financialtechnologies, provide room for future improvement

92% of European banks areinvesting in blockchaintechnology and 62% of them in financial services software and regulatory technology

Source: European Banking Federation

FinTech market in CEE – market overview

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856m

190m

73m

83m119m

39m

588m

73m121m

92m

CEE FinTech market value is 2.2 EUR bPoland Poland has become a regional leader in technologically advanced,

pioneering solutions in the banking sector Cybersecurity is becoming increasingly important

Austria Traditional financial market Growing number of Fintech

solution in the area of Asset management and capital market

Bulgaria Low technological maturity of society, low online

banking penetration Banks start to implement innovative technologies

(such as HCE)

Croatia Online banking penetration

low, but fast-growing Unique FinTech company has

been established in Croatia (Oradian)

Czech Republic The Czech banking sector can be

considered one of the most innovative among all CEE countries

Mature market of FinTech startups

Hungary So far mobile payment apps have not found favor

with the Hungarian market OTP is the leader of innovation among banks, but

the other ones are lagging

Romania Romanian banks are following European trends and

deliver a high-quality user experience Several mobile payment applications on the market

Slovakia The Slovak banking sector is innovative and open to new

digital solutions Online lending and P2P model growing in popularity

Slovenia Most established banks in Slovenia

are showing signs of technological maturity

The inventiveness of Slovenian banks is average

Source: „Fintech in CEE” Deloitte

FinTech market in CEE – trends

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In total, the CEE FinTech market is estimated to be worth over €2.2 billion, with the FinTechinvestment market in the region to grow at 55% annually until 2020.

Innovations for the banking sector provide the greatest share of FinTech solutions in all CEE countries.Such solutions are highly developed in virtually all countries (internet and mobile banking, contactlesscards, etc.).

Insurance and asset management sectors are considered to be far behind, with the focus in theinsurance industry being on improving distribution channels (apps, gamification), and launching newservices based on telematics.

The asset management sector is deemed to be still conservative with most financial institutions usingsystems provided by traditional vendors

Estonia is CEE’s near-runaway tech-leader, with the government encouraging or even requiring thedigitization of business processes and many aspects of daily interactions with the public sector

Poland has been widely considered to be among the frontrunners as a hub of technologicalinnovation

Source: „Fintech in CEE” Deloitte

FinTech market in Poland – market overview

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Polish financial sector

Banking

38 commercial banks 78% of banked population Top 5 banks represents around 50% of assets in the

sector

Insurance

59 insurers Banks have a strong role as insurance intermediaries

in the life segment

Asset management

The top five asset management companies accounted for 45% of total sector assets

487 companies (including 57 foreign entities) listed on the Warsaw Stock Exchange

Polish FinTech sector

Polish FinTech sector value is 856 EUR m, which standsfor almost 40% of CEE market value

Investments in FinTech in Poland amounts to only0,005% of GDP (lack of capital is one of the main barrierof growth)

Polish society is technologically advanced (relativelyhigh online and mobile banking penetration)

Polish banks are among the world technological leaders

Polish innovative solution BLIK has already over 2 milionusers

Development of FinTech solutions in Poland is driven bythe customers’ expectations (31% of banks’ customersfind mobile application and online system on the mostimportant factor in bank choice)

Source: „Fintech in CEE” Deloitte

FinTech market in Poland – top companies (success cases)

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Sector: Mobile payments, B2C

Founded: 2013

Description: System of innovative mobile payments created by Polski Standard Płatności(which was founded by 6 Polish banks: Alior, Bank Millennium, BZ WBK, ING, mBank and PKO BP). It is the new, secure way to pay in shops, withdraw cash from ATM or make online payments (by generating the unique code).

Sector: Digital payments, B2C

Founded: 2006

Description: Since 2006, conquering the online payments market not only in Poland but also worldwide. Companiesfrom PayU Group operate in 17 countries on 4 continents, offering over 250 various payment channels – transfers online, payment cards, installments, delayed payment, one-click, recurring.

Sector: Digital payments, B2B, B2C

Founded: 1999

Description: Provides innovative solutions in the area of payment services, finance and insurance. It bringssolutions for secure and convenient transactions. Blue Media createsproducts and services that minimize the hassle of everyday tasks like paying bills, toping upthe phone or buyinginsurance.

Sector: Blockchain & cryptocurrencies, B2C

Founded: 2015

Description: Billon is a peer-to-peer payment system based on digital cash blockchain solution.As contrasted to widely known bitcoin it is not a currency, but rather cryptocash. The uniqueness of this system lies in the fact that it brings the huge cost advantage of infrastructure based on a distributed blockchain.

Sector: Automatic accounting, B2B

Founded: 2015

Description: Main product: CashDirector -automated accounting platform, helps SMBs manage cash in the real-time, boosts sales of factoring, loans and payments. Delivered within banking internet platform. Successful unique implementation in mBank (polish 4th biggest bank).

Source: Press research

FinTech market in Poland – who invests in FinTechs?

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Venture capital funds

MCI, founded in 1999, is one of the mostdynamic private equity groups in EmergingEurope. Currently, with the use of PE/VCfunds, MCI implements early stage, growthstage and expansion/buy-out stageinvestments.

Example investments in Fintechs:

Group of venture capital funds dynamicallyinvesting in the early stage companies withglobal ambitions. They are focusing on thesolutions from the area of consumerinternet, fintech, IoT and hardware.

Example investments in Fintechs: Example investments in Fintechs:

Polish investment fund focused oninvesting in enterprises at an early stage ofdevelopment (seed, start-up). The Internet,mobile, e-commerce and IT are their fieldsof interest. They have invested in over 100projects so far.

Source: Press research

FinTech market in Poland – who invests in FinTechs?

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Public institutions Banks

• The Polish Development Fund is a group of financial and advisory institutions for entrepreneurs, local governments and private persons investing in sustainable social and economic development of the country.

• They finance and accelerate the innovative companies from financial Sector.

• The main task of the National Centre for Research and Development is management and execution of strategic research and development programs, which lead directly to the development of innovativeness.

• The biggest Polish bank (PKO BP) strategy is to invest in innovative companies.

• In 2017, it bought ZenCard (platform for loyalty programs).

• mBank, 4th biggest Polish bank has launched mAccelerator, which will invest 50 EUR m in new technologies.

• The aim of the project is Fintech sector development.

• Alior Bank has launched program for startups together with Huge Thing accelerator.

• The best startups will gain financing and will be cooperating with Alior Bank.

Source: Press research

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FinTech market in Poland – who invests in FinTechs?

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NC Index

• The biggest stock exchange in CEE

• Market capitalization around 1419.2 PLN billion

• Over 430 companies listed

• Significant grow of WSE indexes (including WIG20 andmWIG40) since Q3 2016

• NewConnect is an alternative stock exchange allowingsmaller, mostly technological companies to be listed.Exchange is conducted outside the regulated market asan multilateral trading facility

• 408 companies listed and market capitalization 9.6 PLNbillion

FinTech market in Poland – regulatory changes

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EU regulatory changes

Legal changes in Poland

PSD 2

Should be adopted to Polish law until January 2018 (currently at the stage of legislative work)

The PSD2 seeks to standardize and make interoperable card, Internet, and mobile payments.

It is expected to accelerate open banking as it will require banks to open up data and transactions to certain new payment market entrants (per the PSD2 XS2A rule).

It introduces a new category of entities to the payment market – TPP (Thrid Party Provider)

MIFID II

It will change the European financial market (increase transparency, change the distribution model of investment funds)

XII.2016Financial Supervision Authority announces, that Poland should become the regional hub of financial innovations

I.2017 – XI.2017• Team of analysts identifies over

100 regulatory barriers of Fintech growth

• 3 barriers has already disappeared, 58 are in the state of liquidation

THE AIMThe aim is to change attitude of financial institutions to financial innovations and create friendly legal environment enabling development of Fintechs.

Source: Press research

FinTech market in Poland – key challenges and perspective of growth

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Key challenges Key driving factors

• Legal barriers (eg. unclear regulations concerning data protection)

• Necessary change of, Financial Supervisory Authority attitude to new, innovativecompanies (currently very conservative)

• Introducing PSD2 EU directive, which will probably have great impact on Fintech sector development

• Slow change of Financial Supervisory Authority attitude, liquidating legal barriers

• Cybersecurity: will fintechs, as startups, have enough funds to ensure security of data?

• Increasing venture capital investments in fintechs(currently only 0,0005% of GDP)

• Polish Fintechs should start to operate globally and avoid the „middle income trap”

• Great technological maturity of Polish banks (banks are Fintechs themselves)

• Many unique solutions invented in Poland (eg. BLIK)

• High penetration of online and mobile banking, as well as positive attitude to technology innovation among Polish people

• Potential od Polish specialists: we are currently the hub of talented IT specialists and technological graduates

Legal issues

Technological issues

Other issues

Source: „Fintech w Polsce – bariery i szansy rozwoju” report

What are the possible paths of development?

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Traditional financial institutions will lose 20% of market share to fintechs

Many banks will disappear from the market, others will significantly reduce their role

According to the first scenario,traditional financial institutionswill gradually deepen theircooperation and adapt theirservices to the changingexpectations of clients.However, the reconstructionwill be too slow, resulting in theloss of around 20% of marketshares to fintechs.

It may happen that the actionstaken by the banks will beinsufficient and the dynamics ofthe changes will lead to thedisappearance of many of themfrom the market, while the restwill bring to the role oforganizations offering basicfinancial services such as billsbanking, deposits and a narrowrange of loans.

There will be a symbiosis and cooperation between traditional financial institutions and Fintechs

The combined strength of traditionalbanks and fintechs will lead to theemergence of a new ecosystem ofbanking services that responds moreeffectively to customer needs andmarket challenges.

The most possiblescenario for Poland

Source: „Sektor finansowy coraz bardziej fintech” - PWC

Thank you foryour attention

Presentation prepared by analytical department of