CORP-2929

Technology on the Rise, Are You Ready?Emerging Technologies Center

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Famous Quotes

Technology is changing banking dramatically… but I don’t think that small fintech companies are going to challenge us… So I’m not concerned that new technologies will harm [us].²

Jes StaleyCEO – Barclays, 2017

“”

Silicon Valley is coming…There are hundreds of startups with lots of brains and money working on various alternatives to traditional banking¹.

Jamie DimonCEO – JP Morgan, 2015

“”

Neither RedBox nor Netflix are even on the radar in terms of competition… It’s more Walmart and Apple³.

“”Jim Keyes

CEO (former) Blockbuster 2008

¹Jamie Dimon Letter to Shareholders, April 2015² Business Insider, May 2017³ InsideRedbox.com, December 2008

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Is there an origin to FinTech?

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The Evolution of FinTech

• Internet drives the utilization of information

• Electronic transactions in all asset classes become the norm

• Vast amounts of information being stored

• New business models begin to form

Source: State Street Analysis, Data from CB Insights, DealRoom, Tech in Asia, Crunchbase

1970 1990 2008

• Companies leveraging computers to support financial services operations and delivery

• Little change in model, big boost in performance and efficiency

• Mobile and data begin to dominate conversations

• Instant access to data and insights

• Technologies augment human intelligence

• Business model transformation accelerates

1970 – 1990: Computer Takeover

1990 – 2008: Internet Boom

2008 – 2017: Mobile, Data & Beyond

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”

Why is FinTech so hot today?

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The Perfect Storm of FinTech Explosion

Abundance of Investments

Pace of Technology Innovation

Change in Consumer

Expectations

Lower cost ofTechnology

FinTech

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Abundance of Investment

Source data: CB Insights / Analysis: State Street 2017

$1,61 $1,56$2,50 $2.32

$3.49

$11.27

$13.74

$16.61

205288

483523

676

885

10921164

0

200

400

600

800

1000

1200

1400

0

2

4

6

8

10

12

14

16

18

2009 2010 2011 2012 2013 2014 2015 2016

Funding Total Deals

Funding ($B)

# of deals

FinTech investment dollars and deals (2009-2016)

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8

20092005 20112000 2017

Source data: CB Insights, Upfront Ventures

Start up Costs (2000 – 2017)

Lower Cost of Technology

Open source software and stacks accelerate

AWS launches Elastic Cloud Compute in 2006 – birth of commercial cloud computing

$5,000,000

$1,000,000

$50,000

$5,000$1,000

Start upCosts $

Apple launches iPhone App Store in 2008 – birth of a new business paradigm

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Pace of Technology Innovation & Adoption

Source: Market Realist, Blackrock

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Telephone Electricity Car TV Air Travel

Credit Card PC Cellphone Internet Smartphone

Adoption of Technology in the US (1900 - Present)

AdoptionRate %

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Change in Consumer Expectations

Mobile Technology

Social Media

E-Commerce

Internet of Things

• Available anytime / anywhere

Information Expectations

Service Provider Delivery

End User Engagement

• “Always on” Customer Service

• Self-Service / Happy to help themselves

• Expect mobile / user friendly experience

• Information travels instantaneously at network effect (avg. 1:200)

• Targeted advertising / no wasted ads

• Direct access to consumers

• Empowered to praise or critique

• Provide friends with recommendations

• Inevitable price transparency and comparison

• Personalized product recommendations

• Everything is connected, one digital identity

• Better insights onto customer behavior and usage

• Omni-Channel Servicing

• Review systems (e.g. yelp) drives accountability to deliver excellence

Source: Pew Research Center, 2016, icmi.com

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”

FinTech Footprint

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Epicenters of FinTech Disruption 2012-2016

S.F./Silicon Valley

NYC/Boston

Australia

Hong Kong

Israel

Singapore

Ireland

U.K.

Germany

China

Growing FinTech Investment hubs

India

Canada

Brazil

Sources: CB insights, State Street Analysis

2016 Breakout FinTech hubs

$8.5B720

$3.5B517

$845M140

$257M38 $245M

91

$860M209

$256M46

$2.3B366

$770M128

$13.9B177

$401M76

$476M17

$370M25

$530M75

Sweden

Primary FinTech Investment hubs

Japan

$29561

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Progression of Financial Sector Disruption

0,31

0,46

0,48

0,51

0,55

1,91

1,99

2,00

3,93

4,38

5,60

8,90

15,79

0 2 4 6 8 10 12 14 16 18

Compliance

Point of Sale

Cybersecurity & IdentityMgmt

Consumer Analytics

Business Intel, Analytics& Performance Mgmt

Billing, Expense Mgmtand Procurement

Insurance

ecommerce enablement

Asset & Financial Mgmt& Trading

Accounting & Finance

Marketplace

Lending

Payments

Source: CB Insights / Analysis: State Street

Investment in FinTech by Sector

Investment in FinTech ($B)

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Changes to Traditional Financial Services

Beyond Banking

• Next-generation personal financial management

• P2P lending & investment• New digital lending• Aggregator comparison

engine

• Mobile payments• International

remittances• Mobile point-of-sale

devices• Other payment

processing

Retail Wealth Mgmt.

Operations &InfrastructurePayments Insurance

• Robo-advisory• Social investing• Crowdfunding• Investments across regions engine

• Blockchain• API ecosystem• Payment infrastructure• Big data base risk assessment• AML/KYC• AI and Machine Learning• Cybersecurity

• Telematics• Social integration• IoT and connected devices• Prevention

• NextGen trade finance• Trading• NextGen collateral mgmt.• Trade analytics

• One-stop shop for businesses

• P2P corporate lending & investment

• NextGen lending to SMEs• Digital cash mgmt.

Small & Midsize enterprises

Capital Markets& iBanking

Digital for unbanked

NextGen digital marketing

Virtual marketplace

Retail value chain & coupons

Digital Model re-inventors

Source: McKinsey: Bracing for Seven Critical Changes as FinTech Matures

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What are banks doing about it?

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Going on the offensiveIncumbents dive in to FinTech with projects, partnerships and investment

State Street tests blockchain based system for securities lending in effort to adopt emerging technologies (December 2016)

JPMorgan partners with InvestCloudfor Digital Wealth Management(September 2016)

HSBC announces partnership with FinTech company Tradeshift (March 2017)

Northern Trust & IBM launch the first commercial deployment of blockchain for private equity based on the Hyperledger Fabric (February 2017)

Blackrock leads funding round for FinTech startup iCapital (December 2016)

UBS, the first global bank to create an innovation lab at accelerator Level 39, to focus on Blockchain & FinTech innovations (April 2015)

Citigroup creates Citi FinTech to embrace the FinTech Revolution (June 2016)

Barclays & Techstars graduate latest FinTech Accelerator Class in New York (September 2016)

Source: Banking Technology, Bloomberg, Business Insider, Crowd Fund Insider, EconoTimes, Fortune, Fund Intelligence, Reuters, Xconomy

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State Street’s Innovation Philosophy

We Will Achieve This Through…

A portfolio approach to managing emerging and disruptive technologies

• Undertake multiple projects concurrently to diversify risk• There is no one single technology that will define the future

Design-thinking as a way of creative idea generation and prototype implementation

• Apply analysis then synthesis when evaluating trends • Start with divergent thinking before converging ideas

Willingness to take action and experiment without all the information

• Avoid “paralysis by analysis” by taking quick actions

Embracing “not created here” ideas and encourage “outside-in” thinking

• Ideas are generated everywhere and we must be willing to try competitive ideas

Acceptance of failure • Must be willing to take calculated risks when evaluating disruptive trends

• Resiliency is key with this type of work

Ideation Realization

Identify Explore Prototype Pilot Scale

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Dublin & London• Mentorships with start-up accelerators:

Accenture, National Digital Research Centre (NDRC), Level39 and Innovate Finance

• Consortiums: Deloitte Investor and Fund square Investor AML utility

• R&D partnerships with UCC Advanced Technology Centre and CeADAR

Boston & New York• Research relationships including MIT and Harvard

• Founding member of many industry consortiums and partnerships networks

• Board member at FinTech Sandbox & Mass TLC

• Investments/partnerships with local FinTech Startups

San Francisco & Bay Area• Research consortium with

Stanford and UC Berkeley

• Prototyping with several local FinTech on Machine Learning and Blockchain

• Active engagement with VC community

Hangzhou & Hong Kong• Partnership with Zhejiang

University on Advanced computer technology and research development

Locations where STT has FinTech related relationships

State Street’s Innovation Footprint

STT office locations

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CORP-2929©2017 State Street Corporation-All Rights ReservedExp Date: 05/31/2018