Riders on the storm

Vector 2

How fintechs and bigtechs are growing through innovation and how FIs must follow suit

Overview
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Fintechs and Bigtechs are unleashing a storm of disruption

Dozens of industries have been caught by surprise by technology disruption over the last few years

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With disruptors capturing value from incumbents

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Financial services presents a huge opportunity for disruption

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This opportunity has attracted over $70 Billion in funding for North American Fintechs in the last 5 years

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Source: CB Insights

Leading to Challenger Fintechs raising unprecedented war chests to combat FIs / Banks for market share

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Source: Crunchbase (July 2021)

... and to legacy banks/FIs being under attack from all directions

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Source: Crunchbase (July 2021), Zeta analysis

“Absolutely, we should be scared s***less about that.”

Jamie Dimon

CEO, JPMorgan Chase, on the Fintech threat to Banks
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Source: Company Analyst Brieng (Jan 2021)
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Neobanks

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Neobanks are seeing large scale adoption

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Source: Company press releases

And causing a massive customer share shift

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Source: Forbes (Feb 1 2021), Challenger Bank Chime Reaches The 12 Million Customer Mark, Cornerstone Advisers (2021)
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In January 2020, just 4% of Gen Zers and Millennials considered a checking account from a challenger bank their primary account. By December 2020, that percentage had grown to 15%.

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Source: Forbes (Feb 1 2021), Challenger Bank Chime Reaches The 12 Million Customer Mark, Cornerstone Advisers (2021)
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Big Tech

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Apple is coming for
your credit card

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Source: Source: Forbes (Mar 09, 2020), If Tim Cook Won’t Tell The World How The Apple Card Is Doing, I Will
Source: Bain (Nov 2019), Global Consumer Banking Survey; Techcrunch (Apr 5 2021), eMarketer (Mar 30 2021)

Amazon is unbundling the bank

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BNPL

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Source: Company annual reports & press releases
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55.8% of consumers have used a buy now, pay later service, up from 37.65% in July of 2020 - an increase of almost 50% in less than one year.

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Source: Ascent (March 2021), Study: Buy Now, Pay Later Services Continue Explosive Growth
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62% of buy now, pay later users think BNPL could replace their credit cards.

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Source: Ascent (March 2021), Study: Buy Now, Pay Later Services Continue Explosive Growth
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Paytech

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Source: Square (Feb 2021), Q4 2020 Letter to Shareholders
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Paypal and Square together have valuations that rival large banks

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Source: Market cap as of June 2021
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How are new
entrants building market share?

By changing the business model & how they deliver value

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By segmenting based on socio-economic needs

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Source: Company websites and press releases

By leveraging distribution effectively like tech companies

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Source: Zeta analysis
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By building for the consumers of tomorrow

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Millennials will experience rapid growth in their share of wealth to nearly 16% by 2030, but their per capita wealth will trail that of older generations. Firms will therefore need differentiated services to serve Millennials profitably.

Gen Z now controls $45 Billion in annual spending, and the oldest Gen Z customers are nearing 24. The group numbers nearly 60 Million in the U.S.

Gen Z members over the next decade will “grow up to be the most demanding consumer the world has ever known”

Fintechs are rolling out new apps and tools with the Gen Z user in mind, to help them build credit histories while still in college, and allow them to earn savings rewards for completing household chores.

Source: Crunchbase as of July
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What’s preventing Financial Institutions from doing the same ?

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Legacy Technology

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Outdated to serve digital needs

Legacy technology results in:
  • High technical debt & consumption of large chunks of IT spends
  • Slow delivery of new products & features to market
  • Low STP rates and dependence on manual processing - keeps costs high
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Banks spent anywhere from 65-70% of their annual technology spends on maintaining legacy systems

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Source: Wall Street Journal (2019), Technology Is Banks’ New Battleground

“New card programs are entering the market on card platforms that are flexible and agile and can provide a great cardholder experience. Legacy issuers must offer a similar experience or risk losing market share. Unfortunately, many legacy card programs exist on platforms that are not easily scalable, inefficient, and costly to upgrade, putting legacy banks and credit unions at a disadvantage in the market.”

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David Shipper,

Senior Analyst, Retail Banking & Payments practice at Aite-Novarica Group
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Discrete components

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Restrain product delivery and innovation

Discrete components result in :
  • Highly complex integrations and custom connecters for creating new innovative products
  • Increased costs due to integrating solutions from multiple vendors and maintaining them
  • Data being stored in silos in each discrete component - integrated view of data difficult or not possible
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Lack of cloud adoption

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Impacts scalability & resilience

Lack of cloud native systems result in:
  • Inability to scale systems elastically to meet increase in demand
  • Difficulty in managing system resilience
  • Higher costs in maintaining captive data centers and redundant capacity
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Not API First

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Inability to seamlessly integrate partners and build ecosystems

Systems that are not API first result in:
  • Inability to support Open Banking
  • Inability to support embeddable banking
  • Inability to drive innovation through partner focused ecosystems

Compounded by Macro Headwinds

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Low
Interest Rates

Pressure on NII, with need to increase fee based income

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Stagnant efficiency rates

Flat yield with high operating costs

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Changing demographics

Pressure on NII, with need to increase fee based income

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Pandemic

Optionally digital to optionally physical

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What do FIs need to win in this new landscape?

Customer centric digital strategy

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Product factory of services, mapped to life journey, delivered with high frequency

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Highly
personalized

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Mapped to their financial needs

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New revenue
models

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Improve efficiency by lowering TCO

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Reimagine what is possible

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Status quo is insufficient - must leapfrog neo and challenger banks

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Build for Tomorrow

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Principle 1
Control

Control all aspects of your business by controlling all points of integration and using a single stack

Principle 2
Pace of change

Build to allow rapid change and deployment of new products & features. This allows for quick iterations and product feature releases

Principle 3
Composability

Decompose technology tasks to their basic form instead of using monoliths. Use a micro-services led approach to allow quick composition of new products

Principle 4
Scalability

Embrace cloud based technology to allow for rapid scaling on demand

Have a workable plan for how to get there

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Billions of dollars have been spent on M&A + stack upgrades - too risky & too slow

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“Upgrading from a legacy platform requires a comprehensive strategy. Financial institutions must weigh the benefits of a slow and steady change against a parallel solution that allows for testing, control, and rapid installation."

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Brian Riley,

Director of Credit Advisory Service at Mercator Advisory Group
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How can we help you?

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Zeta enables you to launch innovative financial products that can compete & win in a crowded marketplace.

With Zeta's Omni Stack solution for FIs , you can launch new financial products within 90 days. What sets Zeta apart is its single modern stack consisting of core banking, credit and debit processing, loans and deposits with 100% API coverage and modern interfaces.

Why Zeta?

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Time
to Market

Launch new products in < 90 days and new features in days

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Modern
Experience

Provide modern, neobank-like experiences with a fully private-labeled & customizable mobile app

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Increase
Income

More customer retention, higher engagement, and contextual cross-sell for real gains in revenue

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Lower
TCO

Eliminate complex multi-vendor integrations and leverage simplified pay-as-you-go billing

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Modular greenfield deployment

Launch new programs in parallel with your existing legacy systems with zero overlap


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Open
Banking Ready

100% API coverage and extensive SDK support - built for you and your partners


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Infinite
Scalability

Elastically handle peaks and troughs in volume with our cloud-native, loosely-coupled, microservices architecture

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Extensive
Backoffice Capability

Configure products, support customers, launch promos, build dashboards and manage all your banking operations in one place

About Zeta

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Zeta is a modern banking tech company providing a bank-in-a-box solution to financial institutions around the globe. Co-founded in April 2015 by Bhavin Turakhia and Ramki Gaddipati, the company has 800+ employees and is headquartered in San Francisco, USA with offices across UK, Middle East, and Asia.

To know more about Zeta, log on to www.zeta.tech or follow us on Twitter, Facebook and Linkedin.

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