Banks and Fintech on Platform Economies Contextual and Conscious Banking

Discover the future of the financial services industry with this insightful new resource on Contextual and Conscious Banking

In Banks and Fintech on Platform Economies: Contextual and Conscious Banking, accomplished fintech professional and author Paolo Sironi delivers an insightful examination of how platform theory, born outside of financial services, will make its way inside banking and financial markets to radically transform the way firms do business.

You’ll learn why the financial services industry must master the necessary shift of focus from selling business outputs to selling client outcomes. You’ll also discover how to steer the industry towards new forms of digital transformation underpinned by Contextual Banking and Conscious Banking platform strategies that will benefit stakeholders of all kinds.

This important book:

• Describes the shift in mindset necessary to help banks strengthen and extend the reach of their Banking-as-a-Service and Banking-as-a-Platform operations.
• Shows how a renewed interpretation of fundamental uncertainty inspires the usage of exponential technologies to achieve architectural resilience, and open the reference theory to spring new business models centered on clients’ and ecosystems’ antifragility.
• Financial services industry can break-out from a narrow space of value-generation to reclaim top spot against bigtech contenders, enjoying greater flexibility and adaptability at lower digital costs

Perfect for CEOs, business leaders, regulators, fintech entrepreneurs, wealth managers, behavioral finance researchers and professionals working at financial technology companies, Banks and Fintech on Platform Economieswill also earn a place in the libraries of bankers seeking a firm grasp of the rapidly evolving outcome economy and a view about the future of the industry.

PAOLO SIRONI is the global research leader in banking and financial markets at IBM, Institute for Business Value. He is one of the most respected fintech voices worldwide, providing business expertise and strategic thinking to a network of executives among financial institutions, start-ups and regulators. He is a former quantitative risk manager and start-up entrepreneur. Paolo’s literature explores the biological underpinnings of financial markets, and how technology and business innovation can bolster the global economy’s immune system in today’s volatile times. Visit Paolo's website thePSironi.com for more information.

dedication 5

Abstract and Back Cover 7

About the Author 9

Preface 11

I Foundations of Platform Theory 21

1 Platform Essentials on Outcome Economies 23

1.1 Introduction 24

1.2 Platforms and ecosystems 26

1.3 Innovating from output to outcome economies 31

1.4 Linear and non-linear thinking 34

1.5 Platform types 36

1.6 About platforms and innovation theory 37

1.7 Shifting the perception of value 40

1.8 Banks and fintech on outcome economies 43

1.9 Conclusions 46

Takeaways for banks and fintech 47

2 The Trust Advantage 49

2.1 Introduction 49

2.2 Elements of platform creation 51

2.2.1 The platform challenge 52

2.2.2 The chicken-or-egg dilemma 53

2.3 Transparency generates trust 56

2.3.1 It’s marketing, stupid! Or not? 57

2.3.2 Trust in the Middle Kingdom 57

2.4 The trust advantage for banks and fintech 59

2.5 Conclusions 62

Takeaways for banks and fintech 63

3 Open Innovation and Data 65

3.1 Introduction 65

3.2 Closed and open innovation 67

3.2.1 Attributes of closed and open innovation 69

3.2.2 Open innovation in platform economies 71

3.3 The strategic role of complementors 73

3.4 The monetisation perspective 74

3.5 The monetisation of APIs 76

3.5.1 Free usage 77

3.5.2 API consumers pay 78

3.5.3 API consumers get paid 78

3.5.4 Indirect monetisation 79

3.6 The monetisation of user engagement 79

3.6.1 Imposing transaction fees 80

3.6.2 Asking for access fees 80

3.6.3 Tiering enhanced access fees 80

3.6.4 Delivering enhanced curation 81

3.7 The API economy for banks and fintech 81

3.8 Conclusions 85

Takeaways for banks and fintech 87

4 Platform Governance Founded on Transparency 89

4.1 Introduction 89

4.2 Power comes with responsibility 91

4.3 Platform monopoly between competition and regulation 93

4.3.1 Intensified regulation 93

4.3.2 Better governance to fight monopoly powers 95

4.4 Negative externalities threaten platform resilience 97

4.5 Governance of openness and curation 99

4.6 Transparency governing principle 101

4.6.1 Transparency about platform management 101

4.6.2 Transparency about platform orchestration 103

4.7 Transparency for banks and fintech 104

4.8 Conclusions 106

Takeaways for banks and fintech 109

II Reinventing Financial Services 111

5 The Existential Shift of Bank Business Models 113

5.1 Introduction 113

5.2 The new normal of central banks 115

5.2.1 Lehman Brothers’ default 115

5.2.2 The annihilation of central banks’ systemic put 116

5.2.3 Banks’ catch twenty-two 121

5.2.4 From product-centricity to human-centricity 124

5.3 About the tension between information and communication 125

5.4 The Banking Reinvention Quadrant 128

5.4.1 The map and the compass 129

5.4.2 The information and communication quotients 130

5.5 Four BRQ business value spaces 131

5.5.1 Traditional Banking 132

5.5.2 Digital Banking 132

5.5.3 Contextual Banking 133

5.5.4 Conscious Banking 133

5.6 Conclusions 134

Takeaways for banks and fintech 135

6 Lessons Learned from Fintech Innovation 137

6.1 Introduction 137

6.2 The true meaning of disruption 140

6.2.1 My Robo-advisor was an iPod 141

6.2.2 Sustaining innovation with Contextual and Conscious Banking 146

6.3 Resolving the ”pull-push” motivational gap 149

6.3.1 Digital is a pull technology 149

6.3.2 What is going on on Amazon? 151

6.3.3 The offer-driven business of banking 152

6.4 Re-bundling on platform economies 153

6.4.1 From client centricity to human centricity 154

6.4.2 Banking-as-a-Service and Banking-as-a-Platform 156

6.5 Conclusions 159

Takeaways for banks and fintech 161

7 Competitive Factors for the Future of Banks 163

7.1 Introduction 163

7.2 The financial services engine 164

7.3 External factors affecting digital transformations 167

7.3.1 Digital infrastructure 168

7.3.2 Digital society 169

7.3.3 Digital ecosystems 170

7.3.4 Capital at risk 170

7.3.5 Regulation 171

7.4 Internal Factors enabling digital transformation 172

7.4.1 Digital leadership, strategy, and culture 172

7.4.2 New business architectures and operating models 173

7.5 Conclusions 174

Takeaways for banks and fintech 177

III Leading Strategies for Banks and Fintech 179

8 Contextual Banking 181

8.1 Introduction 181

8.2 Compete with open business architectures 185

8.3 From open banking to open finance 187

8.4 Contextual banking 190

8.4.1 Removing ex-ante frictions without increasing them ex-post 192

8.5 Bigtech gravity 194

8.5.1 Facebook experience vs. WeChat engagement 194

8.5.2 Amazon platform philosophy 196

8.6 Financial services fight back 200

8.6.1 Cloud-native payment providers are chipping in 201

8.6.2 Ping An’s investment philosophy 203

8.6.3 Banking orchestration of non-banking ecosystems 205

8.6.4 Platform of platforms 208

8.7 Conclusions 210

Takeaways for banks and fintech 211

9 Foundations of Financial Market Transparency 213

9.1 Introduction 213

9.2 Contextual Banking and arcitectural resilience 215

9.3 Conscious Banking and financial antifragility 217

9.3.1 Breaking-out from mainstream reference theory 218

9.3.2 Opening the reference system to fundamental uncertainty 220

9.4 Empirical evidence to open platforms and reference systems 223

9.5 Conclusions 226

Takeaways for banks and fintech 227

10 Conscious Banking 229

10.1 Introduction 230

10.2 Micro and macro antifragility across ecosystems 234

10.2.1 Value-generation at micro-level investors’ ecosystem 234

10.2.2 Value-generation at macro-level financial ecosystem 236

10.3 Unlocking hidden value in the ecosystem 238

10.4 Exponential technologies on transparent markets 240

10.4.1 Generating value with transparent AI 240

10.4.2 Opening the reference system with technology 242

10.4.3 Integrating clients’ emotion with transparent heuristic 244

10.4.4 Opening the AI envelope to stay radically rational 245

10.5 The scientific shift from reductionism to holism 246

10.5.1 Conscious Banking platforms at the edge of chaos 248

10.5.2 Augmenting human mind with technology 249

10.6 The core engine of Conscious Banking platforms 250

10.6.1 Value-generating interactions based on cost-benefit analysis 250

10.6.2 Open the risk management engine to the conscious image of endogenous uncertainty 252

10.7 Conclusions 254

Takeaways for banks and fintech 257

Concluding Remarks 259

Bibliography 263

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