There are three forces shaping the future of banking. Technology innovation is the first. For most traditional financial institutions -- banks and credit unions -- technology innovation is a weakness; instead, they rely on third-party firms ranging from established core providers to startups to provide them with a mix of products that they repackage and resell to their customers. Demographics is the second force. Millennials now account for 25% of the US population with 80 million and growing. The third force is the emergence of new business models on the one hand driven by Millennial demand and communication preferences, and on the other, enabled by new technologies as they are invented. The report examines data from multiple sources and suggests potential defenses for institutions to fend off competitive threats from technology, retail, and telecom firms that are gaining traction in the payments and banking arenas.

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Disruption in Financial Services:
Threats and Opportunities
Written by Andrew Tilbury 11.12.14

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ABOUT BLUEPOINT SOLUTIONS
Bluepoint Solutions provides end-to-end payment processing and
content management solutions to community financial institutions.
More than 1,400 credit unions and community banks nationwide
have deployed its enterprise technology, including the largest
corporate credit unions and credit union service organizations in
the country. Learn more at bluepointsolutions.com.

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THE FUTURE OF BANKING IS AT RISK.
This report examines data from multiple sources to identify and explain the forces that are
shaping payments and banking today. With substantial banking income at risk, it also
suggests potential defenses for banks and credit unions to fend off competitive threats from
non-traditional financial services firms entering the payments and banking arenas.
If you have difficulty answering any of the following questions, this report will be helpful as
a strategic guide to plan your future product roadmap and IT budget allocation.
• Are you prepared to compete with technology firms that start providing financial
services?
• Do you have a well-articulated strategy for attracting and retaining Millennials?
• Have you determined which digital wallets or services you will adopt and offer to your
customers and members?
• How are you adjusting your product roadmap to accommodate shifting consumer
preferences and the growing importance of the mobile channel?
• Do you have a future growth strategy that relies more on mobile and social
technology than it does on your branch or ATM networks?

4. Disruption is Here
Technology Innovation
New Business Models
Demographics
BANKING REVENUES ARE AT RISK
35%of banking revenues are projected
4
to be at risk by 2020 due to
disruption in the financial sector
Source: Accenture

5. The Apple Effect
In Q3 of 2014, Apple
generated $4.5b in revenue
from iTunes and its App Store.
There are more than 800m
active users of iTunes —
many of which already have
stored debit and credit cards.
Apple could quickly become
the dominant, global provider
of mobile wallets with the
unique combination of its
global smartphone market
share, launch of Apple Watch
— the first wearable device
capable of making point-of-sale
purchases, and reach of its
card-issuer, retailer, and
banking partnerships.
Apple has the potential to
disrupt financial services with
the same effect that Walmart
had on retailers Home Depot
had on hardware stores, and
the Internet had on travel
agents.
Add to this unique set of
capabilities the immense brand
recognition, brand loyalty, and
trust that Apple has with its
users, and a vision quickly
emerges of a new banking
ecosystem wherein traditional
banking institutions rely upon
Apple for inclusion in the world
of payments.
5
Source: Company Filings

6. Banking with Non-Banks
The majority of Americans are willing to bank with
at least one non-traditional financial services firm
with which they already have a relationship.
Traditional financial services firms no longer need
to compete with just their peers; they now face a
new challenge: competing with companies from
other industries that previously weren’t
competitors.
58% of Americans aged 35-54
are likely to
77% of Americans aged 18-34
are likely to
Source: Accenture
How likely would
you be to bank
with a non-bank?
This creates difficulty in both how to
compete, but also where to compete.
6

7. New Threats — Present and Future
Source: Accenture
7
Which of the
following
companies would
you be willing to
use as a provider
of financial
services?
New Threats
To Finserv

8. 8
“
Your biggest threat isn’t other financial
services providers.
Your biggest threat is non-financial services
firms entering banking and payments with
innovative products, respected brands, and
massive
customer bases.
”

9. 9
TECHNOLOGY
Established technology firms are
developing new products — think digital
wallets — that enable the creation of new
business models with enormous existing
customer bases.
1b Android users globally 800m iTunes users
100,000
106m active accounts Retailers, salons,
meals sold
Source: Company Filings

10. RETAIL Retailers looking to cut costs, collect valuable
10
customer insights, and boost loyalty
programs are looking for — and developing
their own — new payments systems,
including full service checking accounts.
237m
accounts at the
end of 2013
76.4m
members
15 MINUTE
90% of Americans live within 15
minutes of a Walmart store
8 cents of every dollar spent in
America is spent in Walmart
$100b
in Revenue in
2013
Source: Company Filings

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50.5m
subscribers
TELECOM
110m subscribers
34% market share of wireless
subscribers in the US
54m
subscribers
Source: Company Filings
Telecom providers enable adoption of new business models
through expansion of high-speed data access and mass
adoption of smartphones with built-in NFC functionality.

12. Paradigm Shift in Banking Channels
The attraction of digital banking — especially for Millennials — is undeniable
Devices are pulling people away from traditional FIs and branch networks
12

13. Away from traditional financial institutions, and
towards non-traditional financial service providers
Out of the branch, and
onto the computer
Off the computer, and
onto the mobile device
13
Paradigm Shift in Banking Channels

14. 94% Are active users of online
banking
72% Are active users of mobile
banking
72% Would be likely to bank with
non-financial services
companies with which they do
business
67% Feel the traditional and digital
experience they receive from
their bank is somewhat or not
at all seamless
39% Would consider using a
branchless digital bank
33%
1/3 of the US Population
Millennials: By the Numbers
14
Source: Accenture, Nielsen, Pew Research

15. 15
“
”
Branch growth has peaked.
Online banking growth has stabilized.
Mobile is the current avenue of growth.
Social is on the horizon.

16. Clicks versus Bricks
Online and mobile have grown at the expense of the branch.
47% of people use mobile or online channels as their primary method of banking.
47%
120,000
90,000
60,000
30,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Credit Unions Commercial Banks
Number of U.S. Branches
16
Sources: Bank of America, Business Intelligence, CUNA

17. How are the Big Banks Approaching Mobile?
Online growth has stabilized; Mobile use has doubled in the last 3 years
Chase Chase
90
67.5
45
22.5
0
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Bank Of America
Wells Fargo
Online
Customers
Mobile
Bank Of America
Wells Fargo Customers
Sources: Company Filings, BI Intelligence
17

18. Shifting Habits are De-Emphasizing the Branch
Each week…
of customers use ONLINE BANKING
use MOBILE BANKING
visit a BRANCH
Social will be the next wave of growth.
It is an opportunity for FIs that embrace it,
but a threat to those that ignore it.
57%
22%
14%
use SOCIAL MEDIA to 10% interact with their FI
Online and ATM are still the 2 most
commonly used banking channels.
18
Source: BI Intelligence

19. Consumer Preference is Driving Future Technology Investment
The paradigm shift towards mobile and social banking is gaining momentum.
FIs are shifting technology investments accordingly.
Mobile Spend Total Tech Spend
14.6% 4.2%
CAGR of mobile technology spend in the
next 4 years.
Change in total technology spend between
2013 and 2016.
vs
Sources: Aite, BI Intelligence, CEB Tower Group

20. Banking Apps are as Prevalent as ATMs
All of the 20 largest banks and 20 largest
CUs in the country have NATIVE apps for
both Android and Apple devices.
20

21. Wallets: By the Numbers
21
38% 38% of people would use
a smartphone as a wallet.
50% 5 out of 10 of the largest
banks launching with Apple
Pay.
220k 220,000 merchants accept
Apple Pay.
110k 110,000 merchants accept
CurrentC from MCX
$27b PayPal's mobile payment
volume in 2013.
6 of the largest card issuers are
partnering with Apple at launch
Sources: Bank of America, Company Filings

22. The Future Will be on Your Wrist
22
Wearables Today
already own wearable technology
would purchase wearable technology
would not buy it
5%
44%
47%
Apple will ship 15m watches in 2015,
securing ~40% market share of smart
watches. The launch of the Apple Watch
will validate wearables as a viable product
and payment category — just like iPod,
iPhone, and iPad validated their categories.
Apple Watch will be able to make
point-of-sale purchases.
CaixaBank and Visa are piloting payment wristbands to
15,000 customers. Linked to credit or debit accounts,
the wearer simply will wave it in-front of a reader to
make a purchase. Barclays is also piloting a wearable
called “bPay Band” that will be
available in 2015.
Sources: Bank of America, BI Intelligence Estimates, Company Filings

23. The Wallet Wars Have Started
Millennials are the largest
potential pool of new members
and are also the least
satisfied.
The mobile wallet could deliver
the seamless, frictionless
experience that Millennials crave.
Retailers such as CVS and
Walmart are trying to pick
sides and keep Apple Pay out
of their stores.
Banks and Credit Unions
are evaluating their options
for staying relevant in the
wallet ecosystem.
23
Banks and credit unions need to be on the
forefront of delivering the technology,
services, and experience Millennials are
looking for today.

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“
The potential for retail, technology, and
telecom firms to disintermediate financial
institutions from payments and, ultimately, their
customers is real; but there are distinct growth
opportunities for those willing to adapt to the
new environment.
”

25. Move Beyond the Transaction
The goal of these financial institutions
should be to shift service offerings,
business models, and culture to stay
positioned as critical players in the
value chain of payments and the larger
25
banking ecosystem.
40%
of customers in the US
and Canada have been
at their current bank for
10 years or more.
Source: Accenture
“
”

26. 26
Create the Banking Experiences Millennials Want
Recognize they value different things than their parents
Convenience
over
Brand
Immediacy
over
Trust
User Experience
over
Relationship
Self-Service
over
Face-to-Face

27. Eliminate the Reasons to Switch to a Non-Bank
International remittances p2p payments
Wallet Mobile deposit
Prepaid cards Personal financial management
27

28. Omni-Channel Banking is not Just a Buzz Word
It’s the key to creating a seamless banking experience that is defensible
against new threats and marketable to new customer segments.
mobile
online
social
branch / ATM
28

29. Move Beyond the Transaction
29
74%
of people in the US
characterize their banking
relationship as
TRANSACTIONAL RELATIONSHIP
VS
“
”
My relationship is defined by
simple transactions like
paying bills, checking account
statements, etc…
Source: Accenture

30. Relationship banking that delivers
long-term strategic guidance is where
traditional financial institutions have
the advantage.
30
“
”

31. Who Will the Winners Be?
31
Early
adopters
Innovators
Agility
Embrace
change
Grow market
share
First-movers
Move fast
Fast growth
Low risk
aversion
LEADERS
FOLLOWERS
Wait and see Copy cats
Reluctant to be
first mover
Never try new
technology without
seeing its
feasibility proven
Slow to
change
Moderate
risk aversion
Stable market share
LAGGARDS
Shrinking market share
Late
adopters
Resistant to
change
Reactive / not Zero innovation
proactive
High risk
aversion

32. 32
“
”
FIs need to refashion their internal culture to
embrace innovation and become
the first-movers in delivering new service
offerings or they will lose the fight for
Millennials — and their future.

33. Sources
33
Disruption is Here:
1 Accenture, “Banking 2020,” 2013
The Apple Effect:
1 SeekingAlpha.com, “Apple’s (AAPL) CEO Tim Cook On Q4
Results- Earnings Call Transcript,” 2014
Banking with Non-Banks:
1 Accenture, “The Digital Disruption in Banking,” 2014
New Threats- Present and Future:
1 Ibid
Technology:
1 TheVerge.com, “Google touts 1 billion active Android users per
month,” 2014
2 Asymco.com, “Monthly Apple Users,” 2014
3 Paypal.com, “Online: Love at first site,” 2014
4 Square.com, “Business Types,” 2014
Retail:
1 Statisticbrain.com, “Wal-Mart Company Statistics,” 2014
2 Trefis.com, “Costco Wholesale (COST),” 2014
3 GeekWire.com, “Amazon Prime tops 20 million members as
c company touts its best holiday season ever,” 2013
Telecom:
1 T-Mobile.com, “T-Mobile US, Inc.: America’s Un-carrier,” 2014
2 Statista.com, “Market share of wireless subscriptions held be
c carriers in the U.S. from 1st quarter 2011 to 2nd quarter 2014,”
2014 2014
3 Sprint.com, “Sprint Reports Results for the Quarter Ended
M March 31, 2014,” 2014
Millennials: By the Numbers:
1 Accenture, “The Digital Disruption in Banking,” 2014
2 Nielsen, “Millennials: Breaking the Myths,” 2014
3 Pew Research, “Millennials in Adulthood: Detached from
Institutions, Networked with Friends,” 2014
Clicks versus Bricks:
1 Bank of America, “Trends in Consumer Mobility,” 2012
2 BI Intelligence, “The Mobile and Online Banking Report:
Mobile Is Pulling Customers Away from Branches and
Online Banking,” 2014, p. 7
3 CUNA, “Credit Union Report year-End 2013,” 2014
How are the Big Banks Approaching Mobile?:
1 BI Intelligence, “The Mobile and Online Banking
Report: Mobile is Pulling Customers Away from Branches
and Online Banking,” 2014, p. 10-11
Shifting Habits are De-Emphasizing the Branch:
1 Ibid, p. 3
Consumer Preference is Driving Future Technology Investment:
1 Ibid, p. 12
2 Ibid, p. 19
Wallets: By the Numbers:
1 Bank of America, “Trends in Consumer Mobility Report,” 2014, p. 11
2 MCX.com, 2014
3 Apple.com, “Apple Pay,” 2014
4 Paypal-media.com, “Financials,” 2014
The Future Will Be On Your Wrist:
1 Bank of America, “Trends in Consumer Mobility Report,” 2014, p. 12
2 CaixaBank.com, “CaixaBank launches the first Visa
contactless wristband, supporting payments with a
simple tap of the wrist,” 2014
3 BI Intelligence, “The Wearable Computing Market Report:
Growth Trends, Consumer Attitudes, and Why
Smartwatches Will Dominate,” 2014, p. 10
4 Mobile Payments World, “Bayclays Set to Launch
Contactless Payments Wristband,” 2014
Move Beyond the Transaction (1):
1 Accenture, “2014 North America Consumer Digital
Banking Survey: The Digital Disruption in Banking,” 2014, p. 2
Move Beyond the Transaction (2):
1 Ibid, p. 4