I always love speaking to young people. Isn’t it wonderful to be reminded of the ideas, optimism and hope they have for the future? I sometimes fear that at a time when there is turmoil and disquiet around us – about our politics, economic system, civil discourse, the way we treat our planet – it is all too easy to lose sight of the goals we are aiming for in our businesses and public life. To see the raw power of hope for a better and more innovative world, which young people naturally have so much of, is a most restorative thing.
This was brought home to me last weekend, when I was privileged to participate in the Warwick Economics Summit, at the renowned British university. For the past 20 years, the Summit – the largest student-run economics conference in Europe – has created an international forum for the brightest students to discuss the pressing issues of the day with economic, political and societal leaders.
Tackling the issue of the impact of the technological revolution on the financial sector is a topic that could last days. In a spirited debate with Elisa Martinuzzi from Bloomberg, Henrik Johnsson from Deutsche Bank, Bastian Nominacher from Celonis and the students themselves, we explored how the Coronavirus pandemic has changed the financial industry, the risks and opportunities of the digital transformation and the what the future may look like for some of the budding FinTech entrepreneurs in the audience.
It goes without saying that digitalisation is literally re-shaping the world before our eyes. The pandemic has accelerated the shift towards direct digital financial channels that was already underway, and markets that banks like illimity serve are growing more than expected. As is the way of the market, there will naturally be winners and losers from this shift. The traditional banks will need to invest heavily in technology to avoid being left behind by digitalisation, most FinTechs won’t scale up sufficiently to survive, while the global Big Tech firms will continue to eat into financial data-based services. But new paradigm banks – not held back by any legacy and with bold new business models – like illimity, are underpinned by sustainable strategies and can deliver strong competition. From being little more than a power point presentation 18 months ago, we have already created Italy’s largest open banking platform and have a balance sheet of over €3 billion.
To take advantage of the opportunities, and avoid the risks, of digitalisation, I believe we must start to understand and plan for some stark changes ahead. Digital channels will, for sure, replace physical ones. That means far fewer bank branches on the piazza in future. Vanilla credit evaluation will be replaced by artificial intelligence, and automation will do away with many traditional banking jobs. User experience will be central to growth and become a competitive weapon, as will risk management techniques. Leveraging the sophisticated skills and experiences of people from different industries and disciplines – like we do at illimity, where 60% of our 600 illimiters do not have previous banking experience – will be critical to success. Cyber security will become a never-ending struggle, not just for the small and mid-sized players, with cloud computing being the only way to handle this threat. Finance also needs to be a more attractive place for everyone – men and women – to work, so that we have a greater diversity of thought to deal with these challenges. The world is moving in the right direction, but it is important for FinTechs to lead by example. At illimity, we are one of very few banks to have a Chairwoman, Rosalba Casiraghi, and are committed to gender pay neutrality.
Given all this, what will investors look for in the next FinTech winner? Successful FinTechs will have sustainable competitive advantages, pick under-serviced markets with big growth potential, and demonstrate strong origination capabilities. Those that offer products and services which rapidly become commodities are sadly doomed to failure. Investors will also look for entrepreneurial Spacs, where the business clearly explains from the very start how it intends to invest funds and commits to manage the money it collects with explicit shareholder return targets – like illimity, which was launched with €600 million collected in a Spac. And while digital currencies will certainly be FinTech winners in the future, one thing I strongly hope will not is private cryptocurrencies, which go against the democratic principle of public ownership of currency. As to digital currencies, they will certainly be part of the future, but cryptocurrencies hopefully not. I look forward to pay with digital Euros, Dollars or Renminbis but I strongly believe that national or supranational currencies cannot be privatized. Cryptocurrencies as an artificial asset class for investments reminds me very much the Tulipmania of the seventeenth century.
Above all, creativity, innovation and common values are key to success. So, the future is not without its pitfalls, but it is certainly bright for FinTechs. The students we spoke to are the entrepreneurs, the programmers, the managers of the future. If they channel the vision and passion I saw on display at the Warwick Economics Summit, and are able to put the things they learn and experience in a wider context, we can be assured there are vibrant days ahead for the financial sector.