Today, no conversation about banks and fintech companies gets very far without the word ‘collaboration’ getting mentioned. But even if more financial institutions appear to be talking about the need to innovate and are moving to work with and support startups, true collaboration and integration is easier said than done. At the ExecFintech conference in Frankfurt last week, we caught up with Paolo Sironi, a thought leader on wealth management investment analytics at IBM, to talk about why there’s no “easy cut and paste” for incumbents in finance.
First off, where does IBM see itself in the fintech world?
IBM sits firmly in the space of innovation and it can help both sides of the game – new fintech as well as digital incumbents – to face disruption (race to zero prices) but most importantly to find a way out of the impasse by means of sustaining innovation (growing margins). Not only IBM is adding many more fintechs on its ecosystems, but IBM is also partnering with banks and asset managers to help them achieve fintech-like knowledge and competences.
Is what financial institutions are asking for changed?
Incumbents have a growing sense of the need for change. It’s not just coming from the fact fintechs are showcasing that change is possible, it comes from the fact regulators are asking them to change the way they talk to individual customers. It’s also about the way individuals are changing their behaviour and segmenting themselves irrespective of how institutions want to map them into pockets like retail banking or wealth management.
The moment you can access a service with technology for the right price – this is the true democratisation of banking. That requires the banks to change their incentives and organisational structures as well as their technology and the two things are equally important because if you do not have the right structure and right incentive, technology is no help.
What are the challenges?
There is no easy cut and paste. Financial institutions are big marketplaces, there is a lot of cross selling and you can’t just take something and plug it in somewhere else and pretend that will perform well. Building the culture is important.
What happens in the next two to three years may not end in the transformation of banks but those that at least understand what they have to do will be the ones in the race for 2020. Those that try to execute digitalisation strategies too spontaneously throwing money here or there are not set for big success.
What emerging tech are you excited about?
What excites me these days is gamification such as providing a gamified experience for investors to rewire their brains and learn how to face volatility in the financial markets. As wealth managers are becoming fee-only they want to make sure the asset under management volatility is minimised because that is where the source of revenue comes from. It’s not a brokerage business any more.
This means they need to deliver to individuals the right level of risk and ambition at the same time. People need to be taught what that level is and gamification is one option.
What are the opportunities around cognitive you’re excited about?
Wealth Managers are transforming from being packagers of products into being packagers of financial advice. The change is not easy as incentives are not yet aligned and most importantly competences are not abundant. Cognitive will grant the capability to lower the burden of transformation, and provide contextualised information to build sounder processes of investment decision-making.
Will humans be replaced?
There will be always be a huge space for human interaction but people need to be taken on a journey that is visual and graphical and ways that are standard and appealing. The future may be for more robo advice, but most likely the tech will be used by financial advisers to provide better advice.
In order to explain why you invest, you need to use a digital platform that creates good reporting, that automises the process of portfolio management so that you can focus more on conversation than administration.
Is robo-adviser an accurate description of what the technology does?
They are neither truly ‘robo’ nor truly ‘advisers’ – you can call them automated investment services but it does not break the news so you have to use buzzwords. But it can be misleading. It’s also a way of focusing attention on the fact there will be a lot more technological involvement in decision making.
How different will finance look in 10 years?
In wealth management it will be a lot more client-centric and fee-only and that is due to the cost of regulation being very high. Fee-only means you have to provide added value to customers in different ways and not matched to the expectation of the direction of the financial markets, but the capability of fulfilling one’s goals.