Swiss Financial Center and Fintech

Swiss Financial Center and Fintech CFA Switzerland – November 2015 Christine Schmid, Head Global Equity and Credit Research christine.schmid@credit-s...
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Swiss Financial Center and Fintech CFA Switzerland – November 2015

Christine Schmid, Head Global Equity and Credit Research [email protected] +41 44 334 56 43

Switzerland in an international context: Low rates for longer

Source: guardian.co.uk, breitbart.com, zeit.de, theolivepress.es, faz.net, federalreserve.gov, boj.or.jp

Global Macro View Summary Economy – EM slow growth or recession, Europe slight recovery, US domestic led – Solid growth in the US and (slow) normalization of inflation – Eurozone with slow recovery, but Greece unsolved – Mixed outlook for emerging markets – Uncertainties surrounding China, recession in Brazil

Monetary policy and interest rates: At its limit – First US rate hike expected 2016 – Bank of England to follow with delay – Japan remains extremely expansive – EZB to do QE for longer – SNB decides upon negative interest for long time

November 2015

2

Manufacturing Sector Sentiment Time for global recovery?

Last data point: 27.10.2015

Source: Bloomberg, Credit Suisse / IDC November 2015

3

BRIC countries PMI manufacturing new orders Disappointing stars Index

Values above 50 indicate increasing economic activity

80

70

60

50

40

30

20 Jan 06

Jan 07

Jan 08

Jan 09

Jan 10 Russia

Last data point: 30.09.2015

Jan 11 India

China

Jan 12

Jan 13

Jan 14

Jan 15

Brazil Source: Bloomberg, Datastream, PMIPremium, Credit Suisse / IDC November 2015

4

Worldwide government debt as % of GDP (IMF estimations) Emerging markets still at a low level < 10% 10% … 25% 25% ... 40% 40% … 55% 55% … 70% 70% …85% 85% … 100% > 100%

Last data point: 27.10.2015

Source: IMF, Datastream, Credit Suisse / IDC November 2015

5

Low inflation risks, rather the opposite High stability in developed countries % YoY 10 8 6 4 2 0 -2 -4 1997

1999

2001 USA

Last data point: 15.09.2015

2003 Japan

2005 Eurozone

2007 Germany

2009

2011 China

2013

2015

Zero inflation Source: Datastream, Credit Suisse / IDC November 2015

6

US: Labor market improves continuously Jobless claims in survey week vs. nonfarm payrolls 1'000s

1'000s 600

0

hires vs job cuts

400

100

200

200

0 300 -200 400 -400

jobless claims

-600

500

-800

600

-1000

700

2007

Last data point: 26.10.2015

2008

2009 Payrolls

2010

2011 2012 2013 2014 Initial jobless claims in survey week (rhs, inverted)

2015

Source: Datastream, Credit Suisse / IDC November 2015

7

Currencies: Dollar-strength expected to continue USD exchange rates to major currencies (2 years rolling) 135 130 125 120 115 110 105 100 95 90 Oct 13

Last data point: 26.10.2015

Feb 14

Jun 14 USD/EUR

Oct 14 Feb 15 Jun 15 USD/JPY USD/CHF USD/GBP

Oct 15

Source: Datastream, Credit Suisse / IDC November 2015

8

Emerging markets: Brazil's economy hit by recession Index

QoQ change (in %) 4

62

2

56

0

50

-2

44

-4

38

2008

2009

2010

2011

Brazil GDP Growth (lhs) Last data point: 30.09.2015

2012 Brazil PMI

2013

2014

2015

Brazil Services PMI Source: Bloomberg, Credit Suisse / IDC November 2015

9

China: Recent stock market crash Not for the first time ... 000'S 30

25

20

15

10

5 Jan 05

Jan 06

Jan 07

Last data point: 26.10.2015

Jan 08

Jan 09

Jan 10

Jan 11

Jan 12

Jan 13

Jan 14

Jan 15

Source: Bloomberg, Credit Suisse / IDC November 2015

10

Europe: Continental Europe GDP growth Back to the positive side Real GDP growth (QoQ, %) 1.0

0.5

0

-0.5

-1.0

-1.5 Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Germany

Q4 2012

France

Q1 2013 Spain

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Italy Source: Datastream, Credit Suisse / IDC November 2015

11

Europe: Unemployment Rates Sustainable recovery in southern Europe? % 30

25

20

15

10

5

0 Jan 95

Jan 97

Jan 99

Jan 01

Eurozone Last data point: 15.08.2015

Jan 03 Germany

Jan 05

Jan 07

Jan 09

France

Italy

Spain

Jan 11

Jan 13

Jan 15

Greece Source: Datastream, Credit Suisse / IDC November 2015

12

Europe: Private consumption loosing steam % YoY, 3 month average 5.0

Index, Level

0 2.5 -10

0.0 -20

-2.5

-30

-5.0 1996

-40 1998

Last data point: 15.10.2015

2000

2002 2004 Retail sales

2006 2008 2010 Consumer confidence (rhs)

2012

2014

Source: Datastream, Credit Suisse / IDC November 2015

13

Interest rates: Time to speak about a turnaround? Yields of 10 year government bonds Yield in % 6.0 5.0 4.0 3.0 2.0 1.0 0 -1.0 Oct 05

Oct 06

Oct 07

US Treasuries Last data point: 23.10.2015

Oct 08

Oct 09

German Govt Bonds

Oct 10

Oct 11

UK Govt Bonds

Oct 12

Oct 13

Oct 14

Oct 15

Switzerland Govt Bonds Source: Bloomberg, Credit Suisse / IDC November 2015

14

Switzerland: Monetary policy – no room to move for the SNB Waiting for EUR-recovery? 1.70 1.60 1.50 1.40

EUR/CHF

1.30 1.20 1.10 1.00 0.90 1999

2001

2003

2005

2007

2009

2011

2013

2015

Source: Datastream, Credit Suisse / IDC November 2015

15

The Swiss Financial Center

1 0.7

Others (incl. Dubai & Monaco)

0 0.7

United States

1.0

Luxembourg

1.1

United Kingdom

1.2

Caribbean and Panama

1.4

Channel Islands and Dublin

Hong Kong & Singapore

Switzerland

Destinations of offshore wealth in USD trillion 3

2.3

2

0.6

Source: Boston Consulting Group – Global Wealth 2014 November 2015 17

Contribution of financial centers to GDP 30% 25% 20%

15% 10% 5% USA*

UK

Luxembourg*

Germany

Singapore

Hong Kong*

Switzerland

0%

* values for 2012 Source: SIF, German Federal Statistical Office, Statistics Portal – Grand Duchy of Luxembourg, FSO/SECO, Singapore Department of Statistics, Office for National Statistics (UK), Bureau of Economic Analysis (USA), Census and Statistics Department (Hong Kong) November 2015

18

Positioning of the Financial Centers Key Strengths Switzerland The wealth management hub of the world • Traditional safe haven with stable political environment, high competitiveness and significant innovative capabilities. • The largest offshore wealth management center. Hong Kong Trade & financial hub for dynamic Greater China • Benefits from rapid economic growth. • Major financial center for trade finance.

Singapore Aspiring global wealth management center • Stable political climate, favorable tax regime. • Attracts clients from Asia’s rising economies. Source: Credit Suisse – Switzerland as a financial center 2014 November 2015

19

Switzerland, Hong Kong & Singapore Leading countries in terms of competitiveness

GDP per capita

1

(USD, 2013)

WEF Global Competitiveness Index

1

(Rank, 2013-2014)

IMD World Competitiveness Score

1

(Rank. 2014)

Human Development Index (Rank, 2013)

1

81,000 1st (-) 2nd (-) 3rd (-)

2 2

2 2

55,000 2nd (-) 3rd (+2) 9th (+3)

3 3

3 3

38,000 7th (-) 4th (-1) 15th (-)

Source: Worldbank, World Economic Forum, IMD, United Nations Development Programme November 2015

20

Traditional success factors of financial centers 1. People

5. Competitiveness

4. Infrastructure

Success Factors

2. Bus. Environment

3. Market Access Source: Credit Suisse – Switzerland as a financial center 2014 November 2015

21

Future success factors for international financial centers • Digitisation FinTech

• Lack of internationally harmonized regulation Costs and rules

Risks/ Opportunities

• Data security and storage • Technology infrastructure

CyberCrime

Business environment

Market access

• Little bureaucracy • Well-capitalized banks

• Growth in a multipolar world Regional wealth shift

November 2015

22

Swiss Financial Center Banking – a Sector in Transition Financial Crisis Loss of confidence / risk aversion More rigorous equity capital and liquidity guidelines Flood of regulation Deleveraging Extraterritoriality Fragmentation

Development of Real Added Value (Switzerland;1993=100)

Digitization Increasing transparency Decline in transaction costs Democratization of knowledge Rise of social media Data security/individual privacy

160 150 140 130 120 110

100 Debt Crisis Expansive monetary policy Pressure to comply in tax matters Maximization of tax revenues and introduction of new taxes (e.g. FTT, etc.) Weak euro/strong franc, negative interest rates

90 80 1993

1998 Banks

2003

2008

2013

Shift of Balance Increasing significance of emerging markets Rising importance of shadow banks

Swiss economy

Source: BAKBASEL. (2014). The economic significance of the Swiss financial sector.

November 2015

23

Costs on the rise – size and e matters Global Rise in Costs and Strong Growth of Competitor Locations Cost/Income Ratio in Private Banking Europe 60%

07

73%

08

78% 2'500

08

09

10

11

12

71%

73%

75%

75%

09

10

11

12

Cross-border assets under management in 2013 (CHF bn) Switzerland

2'000

1'500

Caribbean & Panama

1'000

GB

Channel Islands & Dublin

Singapore US

Asia 68%

77%

65%

North America 68% 64%

07

75%

Size vs. Growth of Offshore Wealth Centers

73%

76%

77%

79%

76%

Luxembourg

500

Hong Kong

0 07

08

09

10

11

12

0%

Sources: Booz & Company. (2014). Global wealth management outlook 2014–15.; SBA & BCG (2014). Actively shaping change.

2%

4%

6%

8%

10%

12%

Growth forecast for 2013-18 (p.a.) November 2015

24

Consolidation ongoing Consolidation of the Swiss Banking Landscape set to continue Number of Banks in Switzerland (Institutions) 1992 468

-185 (-40%)

Other banks Stock market banks1 Foreign banks2 Cantonal/regional banks3 Major banks

-30 (-55%) -10 (-24%) -28 (-18%) -115 (-56%) -2 (-50%)

2013 283

1

Institutions specializing in securities transactions and wealth management; 2 Includes foreign-owned banks and branches of foreign banks; 3 Including Raiffeisen

Source: SNB. (2014). Banks in Switzerland 2013.

November 2015

25

Costly - Regulation: System Stability The end to Too Big To Fail: 5% leverage and 28.6% RWA TLAC capital Composition of FSB TLAC

Comparison of Basel III, FSB TLAC & Swiss TBTF Legislation

Basic requirements 16.0%

20.0%

Buffer1

19.5%

∑ =19.5%-25% CH TBTF: 28.6%

a Gone concern

25%

Total loss-absorbing capacity (TLAC) as measure of capital robustness Includes stabilization ("going concern") as well as resolution ("gone concern") capital

25%

b

Going concern

c

Minimum Pillar 1 TLAC

Buffers1 ~5%

20%

∑ =19%3

15%

Capital Conservation Buffer 5.5%

∑ =13%

10%

5%

Requirement for CS (as per current status) 20%-24%2

Buffers1 ~5%

a

Other GLAC 8%-12%

?

c

Low-Trigger CoCos 6%

Tier 2 2.0%

Tier 2 2.0%

AT1 1.5%

AT1 1.5%



High-Trigger CoCos 3%

Minimum CET 1 4.5%

=

Minimum CET 1 4.5%

Minimum CET 1 4.5%

b

0% Basel III 1 Includes

FSB TLAC

Swiss TBTF Legislation

capital conservation buffer (2.5%) and G-SIB buffer (1%-2.5%); 2 CS: capital conservation buffer (2.5%) and G-SIB buffer (1.5%); 3 Based on original calibration

November 2015

26

Market Access is key for the Swiss Financial Center Short- and Long-Term Measures to Secure Market Access as Priority Short Term Global

Europe

Long Term

Bilateral solution (e.g. free trade agreement, tax treaty, financial dialogue) with Russia, Turkey, Saudi Arabia, UAE, China, Brazil, Argentina, and Mexico

Adjustment of regulation in Switzerland, where relevant for market access (equivalence) and aiming at a standardized, principle-based recognition process at EU level Improvement of bilateral market access to key countries (Germany, France, Italy, UK, Netherlands, Spain)

WTO-TiSA Greater involvement of Switzerland in standard-setting bodies

Market access for financial services providers as part of the future overall European policy (e.g. via (financial) services agreement – (F)SA)

November 2015

27

For international business Switzerland joined AEOI OECD/G20 Establish Global Standard AEOI Standard

Functionality of AEOI

Comprehensive definition of financial information to be exchanged automatically (including trusts) Operational platform to be based on FATCA model 1 Multilateral legal platform based on the OECD / Council of Europe Convention on Mutual Administrative Assistance in Tax Matters and bilateral agreements Monitoring by Global Forum – ratings on the progress of participating countries

Basic Documentation Model Agreement: ensuring data protection, specialty principle, reciprocity Standardized exchange of information: common reporting standard Interpretation commentary Basic data of IT solution

2016 January 1 Launch of new accountopening processes1 1 Timeline

Taxpayer in Country A has account with bank in Country B: Country A

Country B

Authority A can review foreign account data

Automatic transfer from Authority B to Authority A

2017 January 1 Start of general data compilation

Bank B reports data to Authority B

Account number Name, address, date of birth Tax ID number Interest, dividends Income from certain insurance policies Balance on account Income from sale of financial assets

2018 September 30 First exchange of information1

First general exchange of information

for early adopter nations and EU

November 2015

28

Risks - Future success factors for int. financial centers • Digitisation FinTech

• Lack of internationally harmonized regulation Costs and rules

Risks/ Opportunities

• Data security and storage • Technology infrastructure

CyberCrime

Business environment

Market access

• Little bureaucracy • Well-capitalized banks

• Multipolar world Regional wealth shift

November 2015

29

Global population growth 10 billion by 2100 Population (billion)

Forecast: +3 bn in the next 90 yrs

10 8 6 4 2 0 1500

1600

1700

1800

1900

2000

2100

Source: United Nations, OECD, The Conference Board

Source: United Nations, OECD, The Conference Board November 2015

30

Emerging middle class as main growth driver Growth Engine – EM Middle Class: •

Over 2,5 bn in BRIC states to spend between USD 10-100 a day



Approx. 5 times OECD volume

Em erging Consum er Survey CS engages with AC Nielsen to conduct primary research on EM consumers, interviewing 15’835 consumers.

Persons with daily expenditures (PPP-adjusted) between USD10 and USD100 (m people)

Share of middle class by country

3000 2500 2000

1500 1000

2000

2015 2030

500 0 Africa

LatAm

OECD

BRICs Source: OECD, Credit Suisse November 2015

31

Growth of Global Middle Class driven by Asia EM with favorable demographics

%

Rapidly expanding middle class in Asia Size of global middle class (millions of people with a daily income of between USD 10 and USD 100, PPP-adjusted) 5,000

Old age dependency ratio (po pulatio n aged 65+/po pulatio n aged 15-64 years)

80 70

4,000

60

3,000

50 40

2,000

30

1,000

20

0 2009

10 0 1950

1960

1970

1980

Emerging M arkets

1990

2000

Japan

2010 US

2020

2030

2040

Western Euro pe

2050

North America Central and South America Sub-Saharan Africa

2020

2030

Europe Asia Pacific Middle East & North Africa

Source: United Nations, OECD, Credit Suisse November 2015

32

Ageing is a global but African problem Emerging markets lack pension systems in need of wealth advise Working population growth (million people) 400

Advanced economies Africa other developing countries India China

Forecast

300

200

100

0

-100 1955

1970

1985

2000

2015

2030

2045

2060

2075

2090 Source: UN, Credit Suisse November 2015

33

Risks - Future success factors for int. financial centers • Digitisation FinTech

• Lack of internationally harmonized regulation Costs and rules

Risks/ Opportunities

• Data security and storage • Technology infrastructure

CyberCrime

Business environment

Market access

• Little bureaucracy • Well-capitalized banks

• Multipolar world Regional wealth shift

November 2015

34

We Are Living In A Digital World That Is Here To Stay And That Is Big And Fast Growing

1.4BN

ACTIVE USERS

Facebook biggest “country” in the world ahead of China and India

4.2TN

IN G-20 ALONE

Internet economy by 2016. Were it a national economy it would rank in the world’s top five ahead of Germany

90%

IN 2 YEARS

90% of the global data available today have been created in the last 2 years alone

Source: BCG and IMB 2014 November 2015

35

Technology Progress & Innovation Have Changed Consumers’ Habits And Behaviors

97%

57%

10.4

Say An Online Experience Influenced Their Purchase Decision.

Talk More Online Than They Do In Real Life.

Average Number Of Sources Consulted Prepurchase

Source: Google and Adweek 2012 November 2015

36

BANKING LANDSCAPE Will Change As A Result Of These Forces Long-term structural trends

ILLUSTRATIVE

Client Behavior

Wealth shift towards Gen. X/Y (U)HNWIs

Declining clients’ trust in banks New quality & quantity of regulation

Pure digital Hybrid

Post-crises trends

Face-to-Face

&

Client Service Expectations

New technologies empowering clients

Self-directed Selector

Validator

Delegator

Upstart Upstart online online competitors competitors E.g., Interactive Brokers, Cortal Consors, .comdirect, Swissquote, Saxo Bank, Wealthfront Hybrid / Big Hybrid / Big players E.g., UBS, Credit Suisse, Barclays, Deutsche Bank, Julius Bär Traditional players Traditional players

November 2015

37

“ Half of the world’s banks set to fall by the digital wayside.” Francisco Gonzalez BBVA Chairman/CEO BBVA is perceived as a leader in digital transformation, having spent billions – bought Wizzo, Simple.

“ The financial sector needs a disrupter.” “ If banks don’t change, we will change banks.” Jack Ma, Alibaba November 2015

38

BANKING LANDSCAPE – EXAMPLE WELLS FARGO

&

November 2015

39

What is FinTech ? Intersection between technology and finance Technical innovations/enabler or disrupting technologies towards to traditional banking Highly dynamic market (16’000 startups) Main market segments: – Analytics/ operations and risk management – Investment/ wealth management – Digital currencies – Payments – Lending and financing.... Aim to simplify and revolutionize banking

Source: Credit Suisse, CIB insights November 2015

40

FinTech revolution 45% of independent financial advisors and 24% of bank branches to disappear by 2020E – SocGen announced to cut 20% of its branches till end 2016 While FinTech earnings for the moment lower than 1% of whole banking segment’s earnings, they are expected to reach 5% by 2018 16’000 start ups estimated whereof in 15 years, more than 90% of current active players will have disappeared from the market because of unprofitability or acquisition from banks/ bigger player The 10% that will have survived have the potential to change the banking sector fundamentally

Source: Credit Suisse, McKinsey, BCG, CIB insights November 2015

41

FinTech in focus for funding How much is funding to FinTech startups booming? Almost USD 14 bn funded in last 12 months. From less than USD 1 bn in Q2 2010 to nearly USD 3 bn in Q1 2015. 6000

250

5000

200

4000

3000 100 2000

Number od deals

Million USD

150

50

1000

0

0 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Funding (FinTech)

Deals (FinTech)

Source: Credit Suisse, CIB insights November 2015

42

Success drivers of the FinTech sector

Innovation

• Lower individual costs

Lowcost

• Be customer friendly • Have fast processes • Adapt to new technologies

Simplicity

Success Drivers

• Attract young talents • Bring innovative ideas • Apply existing and new technologies

Plusvalue

Market access

• Take away parts of banks’ existing business volume • Create new customer needs/ serve untouched segments • Serve an increasing number of customers

• Be connected • Employ different user-interfaces (incl. mobile)

November 2015

43

Key risks faced by the FinTech sector •

Bigger Players



FinTechs are active in a very competitive market

Competition



Key risks

Larger innovator (Google, Amazon, Apple, ...) can eat an entire segment Lack of client base

Longterm profitability



Small generated revenues per customer must cover fixed costs

Regula -tion •

Banking is highly regulated and complex

November 2015

44

Challenges for traditional financial players – Speed and selection Fast pace of innovation and implementation of technology financial services players need to move quickly but processes are currently too slow Number of FinTech firms is exploding over time driven by much lower launching costs competition increasing

Banks are counting too much on loyalty of their customers change of financial provider is not a big issue anymore Goldman Sachs: –

“USD 4.7 trillion in revenue for traditional financial services is at risk of being displaced by new technology-enabled entrants.”

Jamie Dimon, CEO of JP Morgan Chase: –

“Silicon Valley is coming. There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking.... They are very good at reducing the “pain points” in that they can make loans in minutes, which might take banks weeks.”

Source: Credit Suisse, CIB insights November 2015

45

Sources of banks’ revenue are at risk Retail banking revenues at risk by 2020

Mortgage 8%

Payments 25%

Consumer credit 17%

Asset management 79%

Deposits 83%

Current account 16%

Credit cards 29% Source: Accenture, The Everyday Bank, October 2013 November 2015

46

Value chains are under pressure – in retail banking … Challenge in several parts of the value chain

Product Management

Sales

Origination

Service & monitoring

Collections and recoveries

Credit risk management

Source: “Retail lending origination exercise”, Accenture, Credit Suisse, companies’ websites November 2015

: 47

… such as in the payments process New players want to grab a share of the cake

Merchant

Acquirer

Network

Bank/Issuer

Consumer

Source: Credit Suisse, companies’ websites November 2015

48

… or in wealth management Banks no longer the sole provider of all services – competition

Account

Proposal

Trading & settlement

Asset allocation optimization

Performance review

Source: Credit Suisse, companies’ websites November 2015

49

Lending Fundamental business for traditional banks.

Notable FinTechs active in lending

All traditional segments in lending business are under pressure. FinTechs are providing new ways of lending: – – – –

Crowdlending/ Crowdfunding Peer-to-Peer lending Peer-to-Business lending Social (non-profit) lending

FinTechs are simplifying and widening the lending process. It is much faster, uses current technologies and is enlarging the number of players that are providing loans

Peer-to-Peer lending amounted to USD 25.5 bn in 2014 and could reach USD 290 bn in the next five years (MS estimates)

Source: Credit Suisse, Venture Scanner, Morgan Stanley, companies’ websites November 2015

50

LendingClub (www.lendingclub.com) World largest online platform that provides Peer-to-Peer lending Aim to provide more attractive interest rates and rates of returns than traditional players by lowering operational costs Possibility to negotiate the interest rate Loans up to 35,000 USD Near USD 2 bn loans have been funded in 2014

Source: www.lendingclub.com, August 2015 November 2015

51

Payment Banks earn non-interest income from payment processing services and help merchants set up payment systems.

Notable FinTechs active in payment

The collected fees and commissions are usually small taken individually but aggregated they can represent a substantial part of banks’ income FinTechs are providing innovative, simpler and faster payment solutions. Banks stands a chance if they position themselves rapidly and acquire the new developed technologies 43% of all FinTechs focus on payments (Too?) many FinTechs are active in the payment space and the market seems overcrowded; only a handful of solutions will take the flow.

Source: Credit Suisse, McKinsey, Venture Scanner, companies’ websites November 2015

52

Venmo (www.venmo.com) Payment service to make and share payments between friends Since 2013, Venmo is under the control of PayPal (PayPal bought Venmo from Braintree for USD 800 m)

Venmo differentiates itself from other competitors by the social aspects that are coupled with each transaction (i.e. details are shared) Payments are sent instantly, for free, from a Venmo account or debit card or a linked bank account. Payments per credit cards and non-major debit cards are charged a 3% fee

Source: www.venmo.com, August 2015 November 2015

53

2015 focus - Investment & wealth management Individualized investment solutions from banks are targeted toward wealthy individuals. Thus, the process is often personalized and costly

Notable FinTechs active in investment

Drive to zero cost and not time friction. Most of FinTechs use an internal algorithm not only to determine the risk profile of the investor but also to allocate different portfolios. Cost for investors are reduced to attractive levels and the simplicity of the investment process helps FinTechs reaching a wide audience – but still very standardized at the moment (for example ETF based) FutureAdvisor bought by Blackrock

Source: Credit Suisse, Venture Scanner , companies’ websites November 2015

54

Wikifolio (www.wikifolio.com) Online investment platform (for DE, CH and AT) Investment

Investors

Profit

Trades + Know how

Performance fees

Attractive for small investors that can look for investment ideas and invest trough certificates that replicate a trader’s strategy The platform can be risky for retail investors that follow a strategy that doesn’t match investor risk profile

Main advantages of Wikifolio are the low costs and its community Source: www.wikifolio.com, August 2015 November 2015

55

Acorns (www.acorns.com) Micro-investment app Small amounts (spare money) are invested on a regularly basis in a selected portfolio 5 diversified portfolios according to investor’s risk profile Invested money can be withdrawn at any time and for no cost Main advantage: low-cost and easy to use Main disadvantage: low-expected return even for the aggressive portfolio strategy

Source: www.acorns.com, August 2015 November 2015

56

Research – Advise Content Research in bank is both used internally and externally to support the investment allocation decision in WM/AM

Notable FinTechs active in research

FinTechs innovate in the research sector by providing tools to analyze and interpret data, that were previously non-existing in the market FinTechs employ the latest technology and automate most of the research process by making use of computational power and artificial intelligence. Reports can even be provided on a continuous basis

Source: Credit Suisse, Venture Scanner November 2015

57

Sentifi (www.sentifi.com)

Online platform to monitor financial markets participants Sentifi uses automated detection of impactful events for listed companies Signals are generated from machine based text analysis of publicly available information Messages are then ranked according to financial importance

Source: www.sentifi.com, August 2015 November 2015

58

NY - London - HongKong...

November 2015

59

NYC FinTech Innovation Lab: Background Financial Services Firms

Venture Capital Firms

Launched in 2011

Partnership between the NYC Investment Fund, Accenture and leading Venture Capital and Financial Services Firms Goal: attract tech firms to NYC along with the employment opportunities they represent Focus is on startup and growth phase firms that have developed leading edge technology for financial services firms FinTech program now active in London and Hong Kong

November 2015

60

FinTech Innovation Lab Alumni

2011

2012

2013

2014 November 2015

61

FinTech Innovation Lab – Class of 2015 2015 FinTech Company

Mentors Bank of America Barclays Deutsche Bank Goldman Sachs UBS

Digital Asset Holdings, LLC is building next generation cryptographically secure settlement and ledger services. The Company is providing safe and efficient settlement of conventional and digital assets as well providing a digital ledger to create, issue, track and transfer mainstream financial assets.

• • • • •

Financial abuse of older adults is a growing epidemic, costing seniors billions of dollars annually - with trillions at risk. EverSafe is an innovative technology service focused on safeguarding the financial health of seniors and their families. Our software protects older adults from exploitation and identity theft by monitoring banking, investment, credit card and credit report transactions for erratic activity on a daily basis. Trusted advocates, with access to a consolidated view of financial information, can be designated to serve as an “extra set of eyes” in monitoring and resolving alerts.

• American Express • Capital One • Guardian Life

Max is an intelligent cash management solution that helps individual investors earn more on FDIC-‐insured bank deposits, automatically. Max’s patent-‐pending cash sweep technology monitors interest rates and automatically reallocates funds among a client's existing checking account and higher-‐yielding online savings accounts to maximize yield and FDIC insurance coverage while maintaining a desired checking account balance. Individual investors can access Max directly at MaxMyInterest.com. Max can also be integrated into existing wealth management platforms, so that banks, brokerage firms, registered investment advisors (RIAs) and multi-family offices can deliver this innovative cash management solution directly to their clients.

• • • • •

Ally Credit Suisse Morgan Stanley UBS Wells Fargo

PierceGTI is a security product company that provides instructions on how to increase security. Using global threat, artificial intelligence and local log events, PierceGTI creates customized reports and recommendations for IT professionals to increase their security. PierceGTI leverages unique privacy-protected crowdsourcing and our Internet-scale global knowledge-base to link together customers for unified threat knowledge and increased defense.

• • • •

Ally Bank of America Barclays Guardian Life

PYT Funds, Pay Your Tuition, is a trailblazing financial services firm that connects families to banks with a new solution to financing education and solving the problem known as the the "parent loan trap". We have pioneered a platform that combines online crowdfunding with bank funding to secure a private student loan without a cosigner. Our technology innovates the way we finance education for the future and provides a more responsible lending platform to the family and the bank.

• American Express • Credit Suisse • JPMorgan Chase

Social Alpha delivers actionable insights and decision support tools for traders, analysts and investment managers, who use our real-time predictive intelligence to increase profitable trades and reduce investment risk. We leverage advances in large-scale Machine Learning and Natural Language Processing for the real-time analysis of millions of online news and social media sources. Our services include interactive visualizations to monitor portfolios, real-time alerts on market-moving social media activity and low-latency feeds of social analytics.

• • • •

Citi Credit Suisse New York Life Wells Fargo

Ufora makes analyzing financial data at scale quick and easy by automating the engineering. Our Smart Compute platform scales any sophisticated algorithm to any size data automatically and instantaneously, allowing analysts to address real world complexity and answer their most important questions in seconds. Hedge funds, banks, insurers, and credit card companies use Ufora to price complex financial instruments, analyze and mitigate risk, predict and prevent fraud, and decrease the costs of regulatory compliance. Firms using Ufora see a dramatic increase in the productivity of their technical workforce.

• • • • • •

Capital One Citi Credit Suisse Goldman Sachs JPMorgan Chase Morgan Stanley

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Mentee Opportunities Research/Holt

Day/Transition Trading Algo Trading Digital Private Bank Portfolio Managers Prime Services or Prime Consulting

Social Alpha delivers actionable insights and decision support tools for traders, analysts and investment managers, who use our real-time predictive intelligence to increase profitable trades and reduce investment risk.

Mentors • Citi • Credit Suisse • New York Life • Wells Fargo

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63

Mentee Opportunities CCAR Calculations/ Stress Testing

VAR or Other Risk Calcs Linear/Non-Linear Quantitative Research Algo Trading Client Analytics, Retention and Engagement Surveillance and Suspicious Activity

Securitized Products

Fixed Income Research

Ufora makes analyzing financial data at scale quick and easy by automating the engineering. The Smart Compute platform scales any sophisticated algorithm to any size data automatically and instantaneously, allowing analysts to address real world complexity and answer their most important questions in seconds. Hedge funds, banks, insurers, and credit card companies use Ufora to price complex financial instruments, analyze and mitigate risk, predict and prevent fraud, and decrease the costs of regulatory compliance. Firms using Ufora see a dramatic increase in the productivity of their technical workforce.

Mentors • Capital One • Citi • Credit Suisse • Goldman Sachs • JPMorgan Chase • Morgan Stanley November 2015

64

International FinTech hubs US Silicon Valley: General tech. environment, large startup scene, large home market, funding access. NY: Finance focus, home of the first FinTech lab, ‘full political’ support, large home market and access to funding. Europe London: Finance focus, ‘full political’ support and well marketed, access to funding. Berlin: General tech. in Europe, entrepreneurial environment – hip, cheap to start, funding ok, decent market size (Germany – biggest European market). Switzerland ?? Asia Singapore: Centralized initiative, full political support, as offshore hub for Asian clients and WM. HongKong: Centralized initiative, full political support, expensive location thus mostly subsidized by mentors or program owners, large potential home market (China).

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On track toward a Swiss Fintech Ecosystem Setting the scene: Growing entrepreneurial start up scene – Disrupters – Agile enablers – banks/insurers are in need Incubators: Various programs launched in Geneva or Zürich Swiss Voice: www.swissfinte.ch Swiss Corporates (mostly tech/telco, financials): – Initiatives launched in Switzerland and abroad Fintech challenges and innovation labs Dedicated funding structures (CS Next, Swisscom Ventures)

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Switzerland with typical Swiss problems - decentralized 1. Very academic: Innovation = education (university) and brick and mortar (building) - Only one part and slow to be built 2. Lack of ‘official support’ and flagship event to coordinate and market canton by canton approach 3. Lean regulatory process for FinTechs needed - Dedicated FINMA team as clear entry window and one stop shop 4. Clear business focus: Align to Swiss financial center strengths – WM, cyber security and insurance

5. Limited Swiss market size, Swiss FinTech’s in need of easy foreign market access while hub in CH - Regulatory adequacy is key 6. Great idea – sold poorly: Presentation and pitching DNA by entrepreneurs November 2015

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Recent Survey results – Switzerland mostly on track

Source: Swiss Finance Startups, Roland Berger: Swiss Fintech Study 2015 November 2015

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CS Digital Private Bank

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71

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Q&A

Risk warning Every investment involves risk, especially with regard to fluctuations in value and return. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income. For a discussion of the risks of investing in the securities mentioned in this document, please refer to the following Internet link: https://research.credit-suisse.com/riskdisclosure This document may include information on investments that involve special risks. You should seek the advice of your independent financial advisor prior to taking any investment decisions based on this document or for any necessary explanation of its contents. Further information is also available in the information brochure “Special Risks in Securities Trading” available from the Swiss Bankers Association.The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. 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Investments related to emerging markets countries may be considered speculative, and their prices will be much more volatile than those in the more developed countries of the world. Investments in emerging markets investments should be made only by sophisticated investors or experienced professionals who have independent knowledge of the relevant markets, are able to consider and weigh the various risks presented by such investments, and have the financial resources necessary to bear the substantial risk of loss of investment in such investments. It is your responsibility to manage the risks which arise as a result of investing in emerging markets investments and the allocation of assets in your portfolio. You should seek advice from your own advisers with regard to the various risks and factors to be considered when investing in an emerging markets investment. 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