Paolo Sironi, the global research leader for banking and financial markets at the IBM Institute for Business Value, looks at how emerging business models are transforming financial services.
Lessons learned
Paolo sets the stage by describing how technologies are born in America, regulations in Europe, and business models in Asia, before explaining the financial system with the help of Laurel and Hardy. He sets out three key contrasts:
- disruptive innovation against sustaining, high value innovation
- the asymmetry of information, and mobile pull technology vs banking as a push industry
- the unbundling of open banking against rebundling on platforms and ecosystems
Paolo enlarges on this third point, describing how innovators often think they are digitising inside a linear value chain but need to move to looking at outcomes. In financial services terms, turning from targets like value of assets under management to aiming to help clients achieve their goals.
He goes on to talk in more detail about asymmetry. He explains how services with less asymmetry – payments, and to a lesser extent borrowing – are those where fintechs have been most successful. By contrast, it is more difficult for clients to understand the value in investment and particularly insurance services.
Conscious and contextual banking
Paolo uses Mario Draghi’s words to highlight the weaknesses in current banking business models, and the need to adjust to digitisation. What matters is not to digitise the product but to digitise the relationship. He identifies three dimensions – open data, AI and business models – for shifting towards the outcome economy.
Paolo highlights the role of information and communication in enabling financial institutions to exert market power. From this he develops two concepts:
- invisible, contextual banking eliminating the friction in non-bank ecosystems
- conscious banking where the bank’s role is visible to the client
He shows how business value increases as we move from traditional banking, to digital, and then on to contextual and conscious banking – offering real-world examples of how these are developing around the world. Finally, he outlines how the two concepts can be combined in panoramic banking for a world of open finance.
Hugely thought-provoking and well worth watching – more than once!