Paolo Sironi is an influencer and an expert about innovation and technology in financial industry. We had a chance to catch up with Paolo to find out more about his activities and get the scoop on what fintech trends are hot in 2019.
Hi Paolo, would you like to give a short introduction for the ones that still don't know who you are?
A CNBC commentator once introduced me as an entrepreneur of ideas. As a matter of fact, that is true. I am the global Fintech Thought Leader for IBM Financial Services and elected member of IBM Industry Academy, which shapes strategic C-level conversations among financial institutions, Fintech entrepreneurs and Regulators. What matters to me the most in these strategic discussions is how to deliver new differentiating revenues on digital banking, while keeping a consistent human touch on the innovation agenda to foster progress alongside change.
Well done on the new book "Financial Market Transparency", what has the response been to it so far?
"Financial Market Transparency" is the fourth and latest of my innovation series, which I launched in Davos during World Economic Forum.
I started my literature with a book on quantitative methods innovation, moving the investment management engines beyond the limitations of Modern Portfolio Theory: "Probabilistic Scenario Optimisation" (2015).
I doubled down with my acclaimed best-seller "Fintech Innovation" (2016), discussing disruptive innovation versus sustaining innovation in banking. My third publication tackled the daunting issue of delivery value with regulatory change "MiFID II: Value Generation for Investors".
Finally, this latest "Financial Market Transparency" is the ring which rules them all. It is a biological approach to economics theory and constitutes my biggest thought leadership challenge so far: innovating the way we believe the world works. I think FMT will be a game changer for all, especially those readers dealing with innovation wanting to make positive impact on our society and the planet we live on.
I am continuously travelling for IBM worldwide and I hear so many conversations about technology and artificial intelligence but not enough attention is given to define what is "value" in financial services. Yet, I feel that financial services leaders (and the world at large) need to find appropriate answers to ethical questions in order to create new anti-fragile micro-foundations powering the forth industrial revolution. Only by defining what is value we can make sure innovation is inclusive and has a positive impact on society.
Transparency on intentions, costs and consequences is that criteria that will enable us to transform fintech innovation into fintech progress. It works with business models, it works with AI explainability, it works with politics. It's about creating a consequentialist ethic that guides corporations and individuals in their decision-making journey.
The book has received a fabulous response because we all feel we need progress, not just change.
What do you think are going to be the big tech trends for 2019 specifically for the banking industry?
This is going to be the starting year of the convergence of advisory models.
I have been working a few of my IBM years to explain why the winning model for open banking platforms is not a marketplace, not a distribution channel of products nor a manufacturing architecture. The industry progressive transformation from transactions to services requires to understand how to build advisory platforms powered by AI and risk management engines, which only can aggregate the financial life of families and small medium enterprises.
I believe we will see more banks and fintech offering in this space.
What needs to happen for open banking it to really take off?
The main obstacle for banking transformation are not legacy systems but legacy leadership, that means learning how to transform organisational incentives to meet the functioning of revenues in a digital world.
Open banking is often confused with technical capabilities to deliver best in class API-driven products or solutions (internal of fintech related). Instead, open banking is the enabler for transforming financial services not as a "derivative" of previous models but applying "first principles". Therefore, incumbents shall look at open banking as the platform enabling them to find a new engagement mechanism with clients beyond their services and their industry borders, aggregating non-banking offers to stay relevant, blurring the line between existing business units.
Banks have always operated as aggregated silos: retail, lending, payment solutions, corporate banking ... Fintech made a mistake, morphing their offer into paytech, creditech wealthtech, insurtech, ... The reality is that, the final unicorn of digital transformation will be about clientech on an open banking platform. In this regard, China is ahead because of the interesting strategy of TechFin players.
Crypto assets has been an hot topic over the last couple of years. What do you think it will take for central banks to release their own digital assets? How far along on that journey are we?
The crypto community has largely self damaged itself by means of greediness and opacity towards the larger public. If blockchain is about trust, cryptos have been too often about scams. That doesn't mean the world can't go more digital when it comes to payments. IBM testing of stable coins through the partnership with Stellar, re-imagined on the IoT platform landscape for international trade, is an interesting example of well grounded forward thinking. Central banks can't move if the real economy doesn't make intermediate steps forward too.
Robo-Advisors is a topic that's been hitting the headlines. What is the market reaction to Robo-Advisors today?
Many Robo-Advisors have fallen into the trap of Silicon Valley inability to understand that investing is a PUSH economy (offer-driven) while digital is a PULL technology (demand-driven). This is the reason why many Robo-Advisors had to add human advisors or human relationships to complement their digital touch points and compensate for cognitive biases of final clients when it comes to investing. The only condition by which Robo-Advisors can be fully digital on mass markets is that AI-powered voice becomes deeply and truly conversational.
Voice can be the new marketing that makes your smart phone worked as a trusted PUSH mechanism. However, much has to happen in e-commerce in this regard before the biological mechanisms underpinning the entrusting of investment relationships could gets fully disintermediated for the many.
Where do you feel incumbents should improve nowadays in order to compete with new entrants and big tech companies?
Incumbents need to learn the difference between disruptive innovation and sustaining innovation within a consistent value-based framework. I feel many boards of banks and their innovation labs are falling short of this cultural concepts and focus too much on what technology is. There is no shortcut for incumbents. Only by taking these epistemological steps they can create a new culture for transparent innovation that transforms their organisation to stay relevant, and deliver to final clients a more diverse and enriching financial services industry.
Thank you for your time, Paolo, it’s been a great pleasure!