Positioning the bank at the heart of the expanding payments ecosystem

1. Positioning the bank at the heart of the expanding
payments ecosystem
Cards & Payments, Asia 2016
Devabalan Theyventheran
February 2014
Strictly Private and Confidential
Loon Wing Yuen
Director
Innovation
Group Information and Operations Division
Suntec City, Singapore
21st. April, 2016

2. 2
Agenda
Positioning the bank at the heart of the expanding payments ecosystem
►Banking on trust: how to leverage the faith customers have in their bank
►The other side of trust: doing away with it with blockchains and how can
banks leverage this
►Technology and fin-tech startups: the growing collaboration imperative
►Big Data Science: how Big Data and Data Science can improve the payments
value proposition

3. 3
CIMB started its innovation journey several years ago with internally led efforts – but
there are limits/constraints to these efforts and so we expanded to embrace open
innovation approaches in 2015.
► Internal Innovation – Having dedicated resources (people and budget) is important. Also important are
streamlining approval processes for innovation pilots and streamlining governance processes for project
execution. Building capabilities in advanced analytics is becoming critical. Also critical is close business
alignment and collaboration as well as leadership support.
► Open Innovation – We are discovering the advantages of tapping on to a huge talent pool in ASEAN with
our open innovation efforts. This also has the attendant benefits of renewing and refreshing attitudes and
mindsets within the bank.
CIMB’s Journey – Digital Innovation
3

4. Banking on trust: how to leverage the faith customers have in
their bank
Banks operate in large part being dependent on customer trust – but this key metric has been
on the decline in recent years.
Trust – “Firm belief in the reliability, truth,
or ability of someone or something.” –
OxfordDictionaries.com
Source: Confidence in U.S. Banks Low but Rising, GALLUP – June 22, 2015
Trust:
Consumers studied say they have a lot of trust in their primary
bank (60%) to keep their personal information secure. Trust in
health insurance companies (26%), credit card companies (24%),
brick and mortar retailers, that is retailers with a store front, with
a store front (17%), and online retailers (10%) lags behind banks.
Consumer trust is essential for the adoption of digital wallets,
with 9% of customers studied who have a lot of trust in their
primary bank saying they are likely or very likely to start using
one in the next 12 months.
Engagement:
The use of more channels does not maximize a customer’s
engagement with his or her bank.
The challenge for banks is that customers expect perfection
from each of the channels, and when even one channel is less
than a 5 (high) on satisfaction, customer engagement drops by
more than 30 percentage points.
Exceptional Omnichannel:
Consumers studied “want it all,” with an exceptional
omnichannel experience providing “excellent value,” but the use
of more channels does not maximize customers’ engagement.
Consumers studied want an experience that rewards them for
the business they do with their bank and provides competitive
rates and clear communication, which all drive perceived value.
4

5. Banking on trust: how to leverage the faith customers have in
their bank
In their 2015 global study, Edelman indicated advantage and opportunity with the correlation
between trust and public acceptance of the innovation.
Source: Edelman TrustBarometer 2015, Annual Global Study 5

6. Banking on trust: how to leverage the faith customers have in
their bank
Further, although Edelman reported on the phenomena of global evaporation of trust – there
are bright spots; in particular innovations in Electronic and Mobile Payments.
Source: Edelman TrustBarometer 2015, Annual Global Study 6

7. Banking on trust: how to leverage the faith customers have in
their bank
In fact, Edelman reports the largest trust gap (between the industry and particular category of
innovation) is in Electronic Payments (a large positive and opportunity).
Source: Edelman TrustBarometer 2015, Annual Global Study 7

8. Banking on trust: how to leverage the faith customers have in
their bank
And there are clear advantages to gaining trust with customers.
Source: Edelman TrustBarometer 2015, Annual Global Study 8

9. Banking on trust: how to leverage the faith customers have in
their bank
And how to win trust? To do that, Edelman says we have to have greater transparency and
provide clear benefits with our products/innovations to customers.
Source: Edelman TrustBarometer 2015, Annual Global Study 9

10. The other side of trust: doing away with it with blockchains and
how can banks leverage this
Blockchains are decentralised or distributed crypto ledgers. Transactions are executed in a
secure, authenticated, verifiable and immutable manner without the need for a trusted central
third-party or middle-man, as the “trust” is built-into/embedded in the blockchains themselves
 “Decentralised Single Source of Truth” concept.
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Concept Description
Decentralised / Distributed
Ledger
Shared ledger, records are append-only (no updates nor deletes), replicated across the
network.
Network Consensus All parties or members of the ecosystem use a common network protocol and commonly
verify transactions by consensus via a concept known as Proof of Work (PoW) or alternatively,
Proof of Stake (PoS) or Proof of Burn (PoB). Network consensus ensures blockchains to be
tamper-proof.
Cryptographic Security Transactions are secured, authenticated and verifiable via advanced cryptography.
Immutable Audit Trail Immutable audit trail of changes in the shared ledger is tamper-proof.
Smart Documents / Contracts Business logic (implementing business processes) can be embedded in the blockchains and
invoked when transactions are executed.
Blockchain Types
Mode of Access to
Blockchain Records
Mode of Access to
Txn Processing
Permission-
less
Permissioned
Public
Private
Blockchain Examples
Blockchain Type Example(s)
Public – Permission-less Bitcoin, Litecoin, Dogecoin
Public - Permissioned Proprietary colored coins
Private - Permissioned Ripple, R3, Eris, BlockApps
Positives & Improvements in transparency & Intermediaries, security, risk, fraud, disputes, settlements and costs.
1) Consortium blockchains
2) Blockchain Fin-Tech startups

11. The other side of trust: doing away with it with blockchains and
how can banks leverage this
Banks can leverage the Positives & Improvements in transparency & Intermediary elimination,
security, risk, fraud, disputes, settlements and costs with the usage of blockchain technologies.
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Payment Network
& Processing
Compliance
Record
Keeping
Trading
Document
Management
Smart
Contracts
Worker Remittances
KYC Registry*
Identity Mgmt
Loyalty Points*
Share Issuance
Shares
Commodities
Treasury Products
Trade Finance docs
(Trade Repository)
Legal docs*
Trade Finance
Smart Bonds
Cross-border Payments
Worker Remittances
Blockchain 1.0**
Blockchain 2.0***
Sidechains
BankingUseCases
* -- Use cases that
do not need
ecosystem
building – pilot to
learn, first
** -- Example: Bitcoin
blockchain
*** -- Example: Ethereum
blockchain

12. 12
Technology and fin-tech startups: the growing collaboration
imperative
Digitization can disrupt industries when it changes the nature of supply, demand, or both. – McKinsey
Unused Supply
 Customer use the product
partially
 Production is inelastic to
price
 Supply is utilized in a
variable or unpredictable
way
 Fixed or step costs are high
Source: The economic essentials of digital strategy, McKinsey Quarterly, Mar. 2016
Unmet Demand
 Customer has to cross-
subsidize other customers
 Customer have to buy the
whole product for the one
component they want
 Customer can’t get what
they want, where and
when they want it
 Customer not getting a user
experience that matches
global best practice
Fin-Tech Propositions
 High information asymmetries between customers and suppliers
 High search costs
 Fees and layers from intermediaries
 Long lead times to complete transactions
Demand
• Collaborating with tech startups
• Fin-Tech startup collaborations
• Merchant and ecosystem
partnerships
Supply
• Faster & more agile delivery
of IT services (2-speed IT)
• Open APIs & greater
service/API granularity
• Analytics APIs
• Online KYC & biometric
authentication

13. 13
Technology and fin-tech startups: the growing collaboration
imperative
The strengths and weaknesses of banks and that of fin-techs are largely complementary, opening up
synergistic opportunities.
Fin-Tech Bank
Advantage  Digital mindset
 Agility and culture of bias for speed
 Digital skills
 Big Data skills
 Culture of tolerance for failure
 Minimal regulatory oversight
 Technology architectures that are open
 Trusted financial brand
 Existing licenses
 Infrastructure (security, KYC, AML, fraud)
 Specialised financial knowledge (risk, regulatory
compliance, complex financial products)
 Operational strength (clearing, settlement,
liquidity mgmt, FX, ALM)
 Customer base
 Client knowledge (of corporate clients and
treasurers)
Disadvantage  The need to “scale trust”
 Small customer base
 Siloed (processes, products and organisation)
 Legacy mindset
 Cost of maintaining legacy infrastructure leaves
little room for investments in innovation
 Technology infrastructure is insular
► B2C Fin-Techs  Payments (for consumers) || B2B Fin-Techs  Treasury (for corporate treasurers)
► As customers’ digital lifestyles grow in breadth and sophistication, it will be difficult for banks to meet
all their needs
► Availability of Bank+Fintech Collaboration Infra is important (eg. OpenBanking APIs & SDK, Payment
Hub ISO 20022 capable, Analytics APIs, etc.)

14. 14
Technology and fin-tech startups: the growing collaboration
imperative
Based on each bank’s priorities and focus, the bank would need to discover where are those
synergistic opportunities to exploit.
1. Which Fin-Tech & Concept
2. What collaboration model (JV/acquisition, biz model or customer-base/route-to-market
partnership, technology sourcing, incubation, etc.)
3. What investment/partnership model (equity stake, exclusive/timing-advantage/non-exclusive,
etc.)
Payments
Area
Fin-Tech Concepts / Platforms Collab
Opportuni
ties
Payments &
Payment Rails
(Retail and
Wholesale)
P2P transfers, Blockchain-based
transfers, Blockchain-based settlements
Digital Wallet White-label wallets, Pre-paid virtual
cards, Card linked offers,
Conversational commerce, Virtual
money vouchers
Aggregators &
API Banking
Account aggregators, payment
processor aggregators, Loan
comparison engines
Treasury &
Trade
Invoice financing, Blockchain-based
ledgers, Process simplification engines
Sources: PwC Global Fintech Report, March 2016 & Efma-Infosys Finacle
Innovation Survey, 2015

15. 15
Technology
Capabilities
 Largely (but not limited to) Open Source
tools
 New Big Data processing frameworks and
platforms
 New Big Data consolidation platforms
 New Machine Learning approaches,
algorithms and frameworks/platforms
 New streaming/event processing
platforms
 Partner Analytics APIs
Application / Business
Capabilities
 “Segment of One” analytics and processing
 Contextual, Realtime intelligence
 Social Graph intelligence
 Customer Financial Attitudes (Savings
Propensity, Risk Appetite, Financial Goals, etc.)
intelligence
 Time-Series, Streaming analytics
 Historical, Life-Stage, Memory-based processing
 Customer Taste processing
 Intent detection
Advanced Analytics APIs
(re-purposed for Partners)*
Spending Behaviour score, Savings/Investment Behaviour
score, Realtime contextual micro financing need detector,
Realtime personal financing opportunity detector, Realtime
Context awareness, Social Context awareness, Gamification
engine, Taste-based Recommender, Risk Appetite score,
Financial Need and Aspiration score, Character classification,
Precision Credit scoring, True customer lifetime value score,
Precision Customer Churn prediction, Behavioural Outlier
detector, AI chat assistant, etc.
Big Data Science: how Big Data and Data Science can improve the
payments value proposition
Payments 2.0
Customer Expectations
 Personal
 Realtime / near-realtime
 Contextual (location, social, time,
taste, risk averseness, life-stage, life
aspirations, etc.)
 Natural / Conversational UI
As banks advance their Digital Payment offerings as well as Fin-Tech collaborations, there is an
associated need to enhance analytics capabilities in tandem, to support the growing sophistication of
these payment offerings and partner/ecosystem value propositions.
* -- Providing greater transparency and clearer benefits with our product innovations (Edelman)

16. How we operate Data Science Labs (DSL)
The DSL team works on the bottom 2 layers (Platforms and Smart Services); which enables the
construction or implementation of smart applications and analytics APIs above, either by DSL or
external partners.
16* -- Highly Accurate Classification, Regression, Association and Clustering services
Platforms
Big Data Processing
Frameworks
Big Data Repositories Advanced Machine Learning
Deep Insights Precision Scoring* Artificial Intelligence
APPLICATIONS: Offers4Me, Products4Me, P2P Crowdfunding, Robo Advisors, Advanced Credit
Scoring, Advanced Fraud Detection, Virtual Personal Assistants, Intelligent Personal Advisors, AI
ChatBot, Adaptive UI, etc.
Analytics Services
& APIs
Smart Applications
How do we operate?
1) DSL serves as a Competency Center
2) Possible business opportunities that can potentially be solved by exploring/hacking a data science-based
solution is submitted by or/and in collaboration with business stakeholders
3) DSL works on a possible solution(s) in close collaboration with business stakeholders
4) DSL builds and demos a Prototype to business stakeholder for agreement in principle to proceed to the
next step of a Pilot implementation
5) If Prototype is successful and there is consensus to proceed, business stakeholder together with DSL will
build a Business Case for this solution
6) If approved, this will then be implemented as an Innovation Pilot
Contextual Engine

17. Data Science Labs Pilots
Making the leap – establishing the Labs is the first step. This is closely followed by
deploying the team to work on approved pilots.
17
Area Pilots
Traditional use cases  Merchant Offer Recommender
New use cases  Identifying Hidden Preferred
Customers from Card
Transactions
Event Trigger / Path Analysis  Path to SME Forex Remittance
Digital Banking 2.0 use cases  “Can I afford it” feature in Mobile
Wallet app
Photo credit: Simon Blackley
via photopin cc

18. Summary
Positioning the bank at the heart of the expanding payments ecosystem and the path
to payments self-disruption.
18
Photo credit: www.p360.dk
► Leverage customer trust in banking
► Opportunity in the area of public trust in the area of Payments and Wallet
innovations (in the ASEAN region)
► Testing the Blockchain waters with consortium partners or blockchain-based fin-tech
startups
► Or just pilot blockchain use cases that do not need ecosystem building – to learn,
first
► Leverage existing customer trust and scale, and choose how best to collaborate with
Fin-Tech startups – with the attendant work to open up banking APIs for this
collaboration and ecosystem expansion
► Leveraging Big Data Science capabilities to providing greater transparency and
clearer benefits with our product innovations
► Re-purposing Advanced Analytics APIs for external partners and ecosystems

19. Thank You Terima Kasih