“Innovation is not an App you can download from the Apple store”, Paolo Sironi, Best-Selling Fintech Author and IBM Industry Academy Member

Instead of a short bio, let us know what are your top 3 books everyone working on digital transformation needs to read and top 3 tech gadgets one needs to have?

Top three books? I just finished re-reading “The Foundation Trilogy” of Isaac Asimov, which is a futuristic plot about the fall of the Galactic empire and the Psycohistorians effort to shorten the new middle age. Asimov depicts with great anticipation today’s intersection of big data (historical data), artificial intelligence (mathematical models to estimate the probability of future events based on history and human psychology), and social media (people interaction and social responses to news and fake news). It is fun reading, and also visionary (The book is available for example in Germanyin the USin the UKin France and in Spain). My second book would be “Nudge”, by Nobel laureate Richard Thaler. He reminds us that we should focus on investors’ psychology while many FinTech entrepreneurs seem to place too much expectation on technology only (available in Germanyin the USin the UKin France and in Spain). And third, I would invite them to enjoy my “FinTech Innovation” which is second of a trilogy dedicated to the innovation in finance (available in Germanyin the USin the UKin France and in Spain).

Top three tech gadgets, instead? I would say a large screen mobile phone to all non-Millennials like me who spend too much time on their Apps: it just makes sense for healthy eyes, if not a better user experience. Second, the new Google headphones with translation capabilities are already on my shopping list: I long to finally understand the views of my Chinese readers when in Shenzhen and Shanghai. Third, during a recent banking conference I was given a small portable fan you can power with your iPhone … simply indispensable when I was writing my LinkedIn posts on the pool side in Las Vegas, last summer.

I think it is not too bold to say, that you are one of the most known persons in the fintech and insurtech area. How did that happen?

I was born a quantitative investment banker, I have been a FinTech entrepreneur before the hype, I now work at IBM during the cognitive transition. The variety of these experiences made me a natural translator to benefit business decision-makers and technology geeks. Many FinTech experts focus on WHAT innovation is, they take the WHY for granted and think that HOW is just going digital. Myself, I bring to the surface the real WHY disruption is happening in the industry, and share an executable theory about HOW we can transform financial services to generate more revenues as well as added-value for clients. Consciously, I didn’t place “disruptive innovation” at the core of my thought leadership for IBM Industry Academy, but the search for “sustaining innovation” beyond disruption.

Last year you wrote: “Fintech Innovation – from Robo-Advisors to Goal Based Investing and Gamification”. Did you expect this success? Why did your book became a classic within months? 

“Fintech Innovation” is my second book of a trilogy dedicated to the innovation in Financial Services (available in Germanyin the USin the UKin France and in Spain). It is a strategy book which uses FinTech language, but invites to move beyond buzzwords to see deep in the tectonic shifts of today’s industry transformation. Like flash evaporation, which creates gold during an earthquake, FinTech Innovation searches for the precious metals which will truly enrich the digital era post disruption. I often discuss the transformation of the Investment Management industry but my core message embraces corporate banking, payments, insurance and lending because it addresses how to survive the change of revenues from transactions to services, thus from product centric business models towards client centric advisory mechanisms. Holistic cognitive platforms based on Goal Based Investing and Gamified engagements are needed to bundle back all banking and insurance offers into the banking equivalent of Amazon Prime, which clients are willing to pay for transparently. This requires to innovate in the way we manage money (quantitative finance) to master the personal financial equation, to augment clients capability to understand finance and make transparent decisions, and to achieve sustaining innovation with a new and regulatory driven business model.

Now you work for IBM – a company that needed to reinvent itself several times over the last decades. How does IBM – in your opinion – manage that?

Innovation should be a constant, not the exception: real disruption does not come from “changing” but from lack of change. Yet, innovation is not an App which we can download from the Apple store: it is instead a delicate process of transformation in which we should do our training and workouts, thus get slimmer and more agile, before jumping to the other side of the digital fence. There is no immediate win and there will be criticism, but a man who wants to led the orchestra must turn his back on the crowd. I understand this is more difficult for banks and insurance companies, as they don’t have this DNA like IBM, having enjoyed a protracted period of growth through the asymmetry of information. But time is now: regulators are also inviting banks to change their business models (eg, MiFID2, PSD2) and technology is here to help.

There has been a lot of media attention lately on the finance industry. How do you estimate the state of the industry?

Disruption has been distilled into Financial Services as a consequence of the Global Financial Crises (GFC). The finance industry and many households are still coping with its unpleasant consequences, which is reflected into a progressive squeeze of banks’ margins. In such a disrupted landscape, banks and Fintech have two alternatives: either focus on disruptive technology or look for sustaining innovation. Disruptive innovation means surfing the trend of banking commoditization towards pure volume businesses, which digital seems to accelerate however fancy and cool. Some digital innovations I see around is like McDonalds to me, which is a great family experience on a Sunday afternoon, but not a healthy choice every day. Alternatively, the industry should seek for sustaining innovation which means true transformation of business models, out of products into client-centricity. Financial Services are already unbundled. Real FinTech innovation means an effort to bundle them back into a holistic advisory engagement which is built around clients’ needs and data. There is a lesson learned in China: client centric platforms win on digital.

What do you think are the biggest chances for incumbents to use the digital transformation as a chance? What are the biggest hurdles in your opinion?

The biggest lesson learned we can take from the dot come, from the last ten years of FinTech growth and from the amazing experience of Chinese TechFin is that platforms truly win on digital in the long term. Facebook is my platform for personal life, LinkedIn for professional being, Amazon for my shopping, Twitter for my political paranoia, WeChat is the platform of all platforms but where is the platform for my financial life? Becoming a platform means transforming from product revenues (which are locked into business unites and regulatory silos) into service oriented revenues, thus abandon the chimera of cross selling and focus on real client centricity. They say that US owns the technology, Europe deploys the regulation and China tries business model. Yet, all three are fundamental and none can be disregarded. Instead of testing which technology is best, banks innovation centers should understand first which is the best business model in the age of transparent banking services and collaborate with regulators to plug in technology that facilitates their transformation. This time around, it should be an ecosystem task.

Herbert Fromme, maybe Germany’s most famous journalist on Insurance topics, said a few weeks ago, that insures can reduce the majority of the tasks in the future and for the rest they need employees with different skillset. Do you think this applies for the financial sector too?

First of all, insurance is sold even more than investing because households are invited to think of negative outcomes to become buyers. Digital brings many benefits to streamline the processes in financial services, but front office disintermediation could easily create financial exclusion in the western world because many households operate in a “push” modality while only a few self directed ones know how to “pull” financial products. Clearly, it is a problem of financial education which is the core of the asymmetry of information. I think the real challenge is to augment employees skillset to focus on the relationship so that they can provide actionable insights to their customers within a personalized yet institutionalized framework, at convenient prices. The real asset class that banks and insurance companies possess is knowledge to help clients deal with their financial equation, therefore the real r-evolution is to learn how to use artificial intelligence to digitize knowledge and augment people capabilities to make complex decisions. This is consistent with the idea that banks and insurance companies should turn into a holistic cognitive platform that allows to re-build their clients’ lost trust. Trust is about knowledge in financial services. Households think they pay an advisor to buy a promise for return, while they buy risk. However, the meta truth is that clients don’t even buy products from a bank, but a fiduciary relationship in which they forge their decisions about better insuring or further investing. The real r-evolution is here, because this is the new value-generation for clients as I also discuss in my third book of the trilogy “MiFID2: Value-Generation for Investors”.

What are your Top 3 Do’s and Don’ts for a c-suite, that understands that he or she needs to act soon? 

The C-suite should openly investigate which organizational changes allow for client centricity beyond cross selling, which means services based on data insights and not products; it should focus on the risk management of the transformation, by identifying the operational risks and invest into a mitigation strategy; it should favor a cultural shift towards a client relationship model, in which products are simplified but relationships and competences are maximized.

The C-suite should not worry about FinTechs but TechFins; it should not consider technology as a solution but a means; it should not see regulation as a cost but an opportunity to transform.

What would you advise young people that are thinking to enter the finance industry?

Nobel laureate Richard Feynman once said “Imagine how much harder physics would be if electrons had feelings!”. A successful FinTech r-evolution doesn’t replace financial products with technology, but uses finance and digital as a means to grant humans to gain the center stage in Banking and Insurance 4.0. Therefore, students shall learn finance, especially behavioral finance, and understand how technology works. Banking students must understand that finance is not just about mathematics, but also and primarily investors’ behavior. Technology students shall learn that FinTech is not just about programming, but also and primarily the human experience.

Paolo Sironi, FinTech Thought Leader / Author

IBM Industry Academy – Watson Financial Services

Paolo is elective member of IBM Industry Academy and recognized bestselling author of Financial Technology, Investment and Risk Management. He advises clients with strategic insights on digital transformation and innovative business models by linking investment practices (FIN), financial technology (TECH), banking and insurance regulations (REG). Paolo formerly held senior positions in risk management and investment banking, he owns a track record as Fintech startup entrepreneur. Author’s page

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