How will the Fintech revolution reshape financial services? Paul Kramarz PwC Vehicle Lending and Leasing Practice

What exactly is Fintech? Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century. Originally, the term applied to technology applied to the back-end of established consumer and trade financial institutions. Since the end of the first decade of the 21st century, the term has expanded to include any technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investment and even crypto-currencies like bitcoin. September 23, 2016

Growth of connection devices The pace of technological breakthroughs and rate of adoption will continue to increase Time from 10%-40% adoption Growth of connection devices Source: Cisco IBSG Connected Devices Per Person World Population Connected Devices 6.3 billion 500 million 6.8 billion 12.5 billion 7.2 billion 25 billion 7.6 billion 50 billion 0.08 1.84 3.47 6.58 More connected devices than people 2003 2010 2015 2020 Source: ITU, New York Times, Pew, Wall St Journal, US Census Bureau Key takeaways The world is increasingly more connected The Internet of Things will grow ever more rapidly Device proliferation will be accompanied by data proliferation Technology is changing faster than regulation September 23, 2016

Electronics content in cars has been constantly growing and is expected to reach 50% by 2030 Automotive Electronics Content (% of Total Car Cost) 1950 1960 1970 1980 1990 2000 2010 2020 2030 Sources: Company interviews, PwC analysis September 23, 2016

Customers are increasingly digitally savvy Share of Customer Base by Digital Generation Digital natives (12-33); Always on Globally connected Expect change Feel incomplete without technology See new technologies as addictive Traditional consumer Digital converts 2000 2008 2012 2004 2024 2016 2020 100% 50% Digital native Digital natives are the business owners and leaders of the future Percentage of the workforce 34% 70% 2013 2025 Source: Converging Megatrends – Shaking up automotive finance, PwC 2015 September 23, 2016

A mandate for change Channel preference by loan phase and generation Source: PwC Experience Radar 2015 Perhaps unsurprisingly, borrower age is strongly correlated to digital preference Consumers’ digital preferences are increasingly shaped outside of the lending industry A full end-to-end digital solution to facilitate a sale remains elusive Customers should be able to transition seamlessly between channels September 23, 2016

Lenders are running behind evolving expectations Average Customer Effort Score by loan phase and age group Source: PwC Experience Radar 2015 Younger consumers find traditional loan originations processes cumbersome and antiquated As digital evolution occurs, focus has been on the asset sale, not the financing Dealers are frequently resistant to changes to the current F&I Model September 23, 2016

Dealer Focus: mobile device intake The number of mobile devices used for car shopping is increasing at a rapid pace, doubling in 2015. Dealers must employ a robust cross-platform mobile presence in order to reach consumers. 2013-14 vs 2015 Auto Consumer Mobile Device Usage for Car Shopping Usage Percentage (%) Observations: Mobile device usage has doubled providing buyers information whenever and wherever needed. Even when physically present at the dealership, consumers seek car shopping information via their mobile devices. Dealers must focus across all spectrums of consumer devices in order to deliver the right information at the right time. By having increased mobile information available at their fingertips, consumers have flipped the power equation in the auto lending industry. September 23, 2016 Source: http://www.mobilecommercedaily.com/smartphone-tablet-use-in-car-buying-research-doubles-report

Is a Fintech investment a cost center? Experiences can trump interest rate, depending on asset class Customers increasingly demand convenience, even when it comes at a price An online price negotiation between dealers and customers can favor leasing, which tends to feature lower payments than traditional loans Leasing also features a more double ended customer experience than retail loans, creating the possibility of driving customer loyalty with experience delivery rather than price Price insensitive consumers may also present more lucrative cross-sell opportunities for lessors with other business lines Source: PwC Experience Radar 2015 September 23, 2016

What does Fintech mean to lessors? Alternative Competitors Dealer Model Evolution Core Leasing Consumers Manufacturers September 23, 2016

Open thoughts about Fintech… It is an evolution, not a revolution, but… … this evolution does not include extinction Change is the only constant The future may lie outside our borders There’s more to executing “Fintech” than just “Tech” Defining a strategy to cope is a must September 23, 2016

Thank you September 23, 2016