FINTECH CORPORATE INNOVATION INDEX 2015

FOREWORD Nicole Anderson CEO FINTECH CIRCLE INNOVATE The FinTech eco-system is shaping the future of financial services and it s about new entrants, new models and agile thinking. For this reason we adopt a new approach to insight. Engaging with industry experts across the globe to get their views, and to tap their knowledge on how enterprises are rising to the challenge of innovation. We focus on banking in this first edition and explore innovation from a structural, skill and strategy perspective, but also on the blend of internal models with external influencers and new entrants. Our findings throw up some surprises. Segments and territory show significant differences, whilst innovation models vary significantly. The pursuit of the perfect innovation formula remains elusive. However the themes of cultural openness, structural agility, investment, a programmatic approach to tapping into the innovation ecosystems, and the buy -in at board level, continue to remain the main factors for pioneering, forward thinking banks that are breaking away in the innovation race. I trust you will gain as much value in this insight as we did in undertaking this work. We aim to continue extending our intelligence through our ever growing and loyal FinTech global community.

EXECUTIVE SUMMARY 1 There is no one size fits all innovation strategy Banks applied different innovation strategies to achieve their goals. The implementation of the appropriate innovation methods and the link corporate objectives, is still the main challenge in defining a successful innovation strategy. 4 Retail banks are less active blending innovation into investment decisions Retail banks have approached innovation in a variety of programmatic ways, however investing is something that is still maturing as a way to accelerating innovation. 2 Strategic innovation capabilities are crucial Strategic innovation capabilities (e.g. innovation strategy, ecosystem participation) are fundamental to innovate and transform a bank continuously. Being plugged in enables banks to keep tabs on emerging market trends proactively and foster sustainable competitive advantages. 5 Private banks risk stagnation as innovation is unfamiliar terrain. Private banks innovation capabilities are seen as relatively immature compared to the other bank segments. Absence or lack of capability increase the risk of stagnation in the longer term. 3 Investment banks are the most innovative banks Investments banks and investment banking arms of global banks are seen as the most innovative banks by FinTech experts. Strategic innovation was perceived as well developed. Investment banks are in the strongest position to cope with the emerging market opportunities and threats according to our research. 6 US Experts perceive retail banks as more innovative US retail banks are leading the current innovation challenge against their European competitors. In order to compete with their US competitors, European banks should asses their current innovation efforts and operate with a global lens working with global talent and across a global innovation ecosystems.

RESEARCH METHODOLOGY Objectives The objective of the FinTech market index was to evaluate market perception of how innovative various banking segments were perceived in the market. The index reflects the outside perception of the ability to innovate as well as realized innovation benefits through a FinTech expert lens. Participating FinTech Experts by Location Approach The research is based on data gathered from known FinTech experts with a standardized questionnaire. The questionnaire included specific questions regarding relevant innovation capabilities and the actual realized benefits for each individual bank. The data analysis took the shape of the three different banking segments (retail, investment and private). Participants 101 valid questionnaires were received from a broad range of FinTech experts. The participating experts show a high degree of diversity in their professional background (from startup founders to banking directors) as well as location. The illustration on the right shows the geographical coverage of the participating experts. 3% 8% 6% 13% 70% Europe US & Canada India Singapore Others

BANKS INNOVATION RANKING 80 Overall Innovation Ranking 60 Innovation Benefits and Innovation Capabilities 78 50 76 74 72 70 68 40 30 20 10 Retail Banks Investment Banks Private Banks 66 Retail Banking Investment Banking Private Banking 0 Innovation Benefits Innovation Capabilities Our survey of over 100 FinTech experts indicated that investment banks are perceived as the most innovative both in execution and realized benefits. Retail banks have been accredited with relatively high innovation capabilities but they are not able to leverage these with the same benefit ratio as investment banks. Our research showed that private banks could gain relatively high benefits from dedicated innovation efforts given the momentum in other banking sectors but they seem to lack the capabilities and corporate culture is an obstacle.

REALIZED INNOVATION BENEFITS Customer Orientation Talent Retention Different Innovation Benefits Brand Financials Strategic Position Retail Banks Investment Banks Private Banks Investment banks* show a different benefit profile compared to Retail and Private banks Investment banks excel against other banks in strategic positioning, compliance, talent retention and customer orientation Private banks are perceived as leaders in realizing brand and financial benefits Retail banks substantially underperform in realizing several innovation benefits compared to investment banks Private banks received the highest average score of 5.4 out of 10 for strengthening their brand recognition. This means there is headroom for improvement across all other benefit areas Compliance Definition of Innovation Benefits: Refers to the realized benefits bank were able to gain out of their different innovation initiatives * Includes investment banking arms of global banks

INNOVATION CAPABILITY Innovation Capabilities Business Unit Relationship Organizational Structure Investment Decision Retail and investment banks show a high degree of similarity in their innovation capability profiles as well as a growing maturity Customer Segment Focus Customer Satisfaction Private have not yet reached the maturity of retail and investment banks. Especially in long term innovation capabilities Top Mgmt. Support Funding With an average of 5.4 out of 10 points the most mature capability was perceived to be Investment banks for their Ecosystem Participation All banks have still a significant potential to improve their innovation capabilities Communication Innovation Strategy Ecosystem Participation Retail Banks Investment Banks Private Banks Definition of Innovation Capabilities: Refers to the ability of an organization to perform a set coordinated of tasks, utilizing organisational resources for the purpose of proceeding innovation initiatives

ADDITIONAL INSIGHT: THE LINK BETWEEN INVESTMENT AND INNOVATION IS WEAK IN RETAIL BANKING Capability comparison retail & investment banks Organizational Structure Business Unit Relationship Investment Decision Customer Segment Focus Customer Satisfaction Comparing the innovation capability profiles of retail & investment banks, a significant difference is evident in the approach to investment decisions Many of our survey participants felt that innovation and investment are linked. This fuels greater momentum and ability to execute ROI and ROE come together and the need for evolving success measures are needed Top Mgmt. Support Funding Retail Banks Investment Banks Communication Ecosystem Participation Innovation Strategy

ADDITIONAL INSIGHT: INVESTMENT BANKS ARE WELL POSITIONED FOR CURRENT MARKET CHALLENGES Capability comparison private & investment banks Business Unit Relationship Customer Segment Focus Top Mgmt. Support Communication Ecosystem Participation Innovation Strategy Funding Customer Satisfaction Investment Decision Organizational Structure Private Banks Investment Banks Investment banks have greater C-level buy-in Many of the requirements needed for sustained innovation are better understood in Investment banking Investment banks were perceived as strategically well positioned to attract and retain talent Benefit comparison private & investment banks Customer Orientation Talent Retention Compliance Strategic Position Financials Brand Private Banks Investment Banks

ADDITIONAL INSIGHT: PRIVATE BANKS RISK STAGNATION DUE TO LACK OF INNOVATION Capability comparison private & investment banks Organizational Structure Benefit comparison private & investment banks Brand Business Unit Relationship Customer Segment Focus Investment Decision Customer Satisfaction Customer Orientation Financials Top Mgmt. Support Funding Talent Retention Strategic Position Communication Innovation Strategy Investment Banks Ecosystem Participation Private Banks Compliance Private banks innovation capabilities were seen as relatively immature compared to investment banks. They could gain substantial benefits in certain domains especially in branding and funding in the short term Operational capabilities such as business relationship, customer satisfaction and C-level support were on an equal level with investment banks. This could be an explanation why private banks are still able to achieve substantial benefits even with relatively immature strategic capabilities. Private banks face the risk of stagnation in their innovation journey in the long term because their strategic innovation capabilities (especially innovation strategy, ecosystem participation and funding) are underdeveloped. But these capabilities are necessary to foster sustainable innovation.

US EXPERTS PERCEIVE RETAIL BANKS AS MORE INNOVATIVE THAN THEIR EU COUNTERPARTS Perception of Capability Retail Banking Europe vs US Business Unit Relationship Customer Segment Focus Top Mgmt. Support Communication Ecosystem Participation Innovation Strategy Funding Customer Satisfaction Investment Decision Organizational Structure Perception of Benefits Retail Banking Europe vs US Customer Orientation Talent Retention Compliance Strategic Position Financials Brand Europe US Europe US In general US FinTech experts perceive retail banks as more innovative (higher ratings in innovation capabilities & benefits) than their European counterparts Strategic capabilities (like organizational structure, investment decision, funding and innovation strategy) were seen as more mature by US experts US FinTech consumer disruption is believed to have had an earlier impact and hence greater maturity in innovation From a benefits perspective the biggest difference is in compliance. US banks have had a stronger focus on regulatory compliance innovation than European banks

CONCLUSION Banks apply different innovation methods to achieve their goals. A blended model approach is most viable with different degrees of adoption based on innovation maturity. Strategic innovation capabilities are fundamental to innovation. These skills can be developed internally through diversification, access to external innovation ecosystems and industry experts Innovation departments should have a direct reporting line to senior management and maintain close relationships across different business divisions in order to implement innovation initiatives successfully US banks are leading the current innovation race against their European competitors. European banks should asses their current innovation appetite if they are to remain competitive in a global market.

FINTECH CIRCLE INNOVATE WHAT WE DO Empower Connect Convert We accelerate your innovation strategy through specific programs to support ideation to business return. We source best in class FinTech technologies to map to your business objectives to partner, incubate, invest or acquire We support your investment thesis to extract strategic value and achieve portfolio returns. Get in touch Web www.fintechcircleinnovate.com Email - info@fintechcircleinnovate.com 71-75 Shelton Street, London, WC2H 9JQ, UNITED KINGDOM 101 California Street, Suite 2710, San Francisco, CA 94111 U.S.A +44 (0)790 355 2816