1. A PATHWAY FOR SCOTIABANK’S INNOVATION: LEVERAGING FINTECH PARTNERSHIPS Presented To – Dr. Utkarsh Goel

2. Scotiabank's Partnership with Kabbage Scotiabank, a major Canadian bank, has been proactive in embracing digital transformation and partnering with fintech companies to enhance its offerings. One such partnership is with Kabbage, a leading fintech lender, which has allowed Scotiabank to digitize and streamline its small business lending in Canada and Mexico. This case explores the benefits of this partnership, the opportunities in small business lending, and Scotiabank's broader digital initiatives, including its exploration of emerging technologies like blockchain.

3. Challenges in Small Business Lending Lack of Credit History and Collateral 1 Traditional banks have historically struggled to lend effectively to small businesses, especially in developing markets like Mexico. Small businesses often lack the credit history and collateral required by banks, making it difficult for them to access much-needed financing. Slow and Manual Processes 2 The loan approval process at traditional banks can be slow and cumbersome, with manual underwriting and lengthy turnaround times. This creates a frustrating experience for small business owners who need quick access to capital to grow their operations. Limited Lending in Developing Markets 3 In Mexico, only 12% of small businesses received loans from financial institutions, compared to higher rates in other Latin American countries like Brazil and Chile. This represents a significant opportunity for banks like Scotiabank to expand their small business lending in these underserved markets.

4. Scotiabank's Partnership with Kabbage 1 Digitizing Small Business Lending Scotiabank partnered with Kabbage, a US-based fintech lender, to digitize and streamline its small business lending in Canada and Mexico. This allowed Scotiabank to provide a more cost-effective and customer-friendly lending experience, with faster turnaround times for loan approvals. 2 Leveraging Fintech Expertise By working with Kabbage, Scotiabank gained valuable learning experiences that it could apply to future partnerships. The bank was able to leverage Kabbage's expertise in data analytics and technology to enhance its small business offerings and better serve its 120,000 small business customers in Mexico. 3 Replicating the Partnership Model Scotiabank viewed the Kabbage partnership as a successful model that it wanted to replicate in other areas to address gaps in its small business lending portfolio. The bank's digital leaders saw this as an opportunity to drive innovation and provide better banking experiences for its customers.

5. Banks are pursuing various partnership models with fintech companies, including licensing agreements, where fintechs license their technology to banks. This has been a prevalent model in small business lending and other sectors. Partnership Models Between Banks and Fintech Licensing Agreements Capital Investments Joint Ventures Capital investments by banks in fintech startups allow banks to gain a foothold in the space and understand emerging technologies. This model is becoming increasingly common as banks seek to stay ahead of the curve. While less common, joint ventures between banks and fintechs provide opportunities to combine expertise and resources, creating synergies that can benefit both organizations and their customers.

6. Fintech companies are leveraging emerging technologies like blockchain, data analytics, and machine learning to enhance the efficiency and performance of financial services. These innovations are seen as a major disruptive force in the industry. Fintech Disruption in Financial Services Leveraging New Technologies Competitive AdvantagesMarketplace Lending Fintech firms often have advantages over traditional banks, such as lower costs, faster speed-to-market, and more flexible regulations. This allows them to offer more innovative and customer-centric financial products and services. One prime example of fintech disruption is in the area of small business lending, where fintech companies are providing loans directly to borrowers through online platforms, known as marketplace lending.

7. Digital Factory Innovation Hub Scotiabank has also launched the Digital Factory, an innovation hub focused on redesigning the customer experience and exploring emerging technologies like blockchain. This demonstrates the bank's commitment to driving digital transformation and staying ahead of the curve. Fintech Partnerships Scotiabank views fintech partnerships as a key strategy to drive innovation and provide better banking experiences for its customers. The Kabbage partnership is just one example of how the bank is leveraging external expertise to enhance its offerings. Tangerine Acquisition Scotiabank has been proactive in its digital banking efforts, including the acquisition of Tangerine, an online bank. This strategic move has allowed Scotiabank to expand its digital footprint and better serve its customers' evolving needs. Scotiabank's Digital Initiatives

8. Fintech Disruption and Scotiabank's Response Fintech's Competitive Advantages Fintech companies are seen as a major disruptive force in the financial services industry, with estimates of over $470 billion in profits at traditional firms at risk. Fintechs often have advantages like lower costs, faster speed-to-market, and more flexible regulations compared to traditional banks. Scotiabank's Digital Transformation Scotiabank has been proactive in its digital banking efforts, acquiring Tangerine and launching the Digital Factory innovation hub. These initiatives demonstrate the bank's commitment to staying ahead of the curve and providing innovative, customer-centric financial services. Leveraging Fintech Partnerships Scotiabank views fintech partnerships as a key strategy to drive innovation and enhance its product offerings. The Kabbage partnership is just one example of how the bank is leveraging external expertise to better serve its customers and stay competitive in the rapidly evolving financial services landscape.

9. SWOT ANALYSIS Strength Addressed a major pain point: The partnership addressed the significant challenge of limited access to loans for small businesses. Leveraged Kabbage's expertise: Scotiabank benefited from Kabbage's experience and technology for small business lending. Faster loan processing: Kabbage's technology likely enabled faster loan processing times compared to traditional methods. Weakness Reliance on external technology: Dependence on Kabbage's technology could limit Scotiabank's control over the lending process. Potential brand dilution: Partnering with a lesser-known fintech company (compared to Scotiabank) might have initially diluted brand recognition for the lending service. Limited scope: The initial partnership focused on Canada and Mexico, potentially missing opportunities in other regions.

10. SWOT ANALYSIS Opportunity Expanding the partnership: The success could lead to expanding the partnership geographically or introducing new loan products. Exploring other fintech collaborations: The experience can inform future partnerships with other fintech companies to address different challenges. Blockchain exploration: The case highlights the potential of blockchain technology, which Scotiabank can explore for further improvements. Threats Competition from other banks: Other banks might adopt similar strategies or partner with different fintech companies. Disruption by other fintech companies: New fintech entrants with even more innovative solutions could threaten Scotiabank's market share. Data security concerns: Increased reliance on technology introduces potential security risks for customer data.

11. Recommendation for Scotiabank 1 Replicating the Kabbage Model Scotiabank's successful partnership with Kabbage has provided a valuable model for the bank to replicate in other areas. As the bank's digital leaders consider the next steps, they will need to carefully evaluate how to leverage this partnership model to address other gaps in Scotiabank's product and service offerings. 2 Exploring Blockchain Opportunities In addition to fintech partnerships, Scotiabank is also actively exploring the potential of blockchain and distributed ledger technologies. The bank's participation in industry consortia like R3 will be crucial in developing blockchain-based solutions that can enhance efficiency and transparency in the financial sector. 3 Aligning with Strategic Priorities As Scotiabank's digital leaders chart the bank's path forward, they must ensure that any fintech partnerships and emerging technology initiatives are closely aligned with the bank's overall strategic agenda and digital transformation efforts. This will help maximize the impact and benefits for the organization and its customers.

12. (IMB2022009) Abhijeet Srivastava (IMB2022031) Sunny Pandey (IMB2022045) Rajeev Kumar Thank you! Anjani Kumar (IMB2022031)