This week, I had the real pleasure to join Alessandra Perrazzelli, the Deputy Governor of the Bank of Italy, and Silvia Pavoni, Economics Editor of The Banker, to discuss
Italy’s banking system at the FT's Global Banking Summit.
Spread over the course of three days and forty four sessions, the FT’s acclaimed annual Summit – held online for the first time – got stuck into some weighty issues, from how banks will evolve post-Brexit to navigating the payments revolution, and from tackling financial crime to innovation in a digital world.
Significantly, Italy was the sole country which had a panel session dedicated to it. It struck me that this unique recognition for a country where, it used to be said, there were more bank branches than ice cream shops, demonstrates to colleagues in the international financial community just how far Italy has come in only a few decades. From over 1,000 banks, we now have around 100.
Of the forces shaping the Italian, and indeed global, banking sector, the strongest is undoubtedly the enormous impact of disruptive digital technologies. From the unexpected and rapid growth of open banking platforms to the simple fact that physical bank branches in the piazza are being replaced by an app on a phone, the digitalisation of finance is transforming the way banks operate and what they have to offer.
There will be winners, and unfortunately, losers, from this transformation. Traditional incumbents will need to invest heavily in technology to keep up with challenger banks, while many FinTechs and new banks won’t reach the scale required to become established and succeed. Many of the international Big Tech companies will also occupy larger shares of services that are data based. In this fiercely competitive arena, new paradigm banks will emerge as winners.
What do I mean by new paradigm banks? Well, this is a new generation of banks with totally new business models and sustainable strategies. They are not held back by a legacy, and are fully digital, but still retain the right balance of the human touch and support. They are also fully modular, to be open to FinTech integration, and are data centric. They are also highly specialized in underserviced parts of the market. In other words, they are properly built for the twenty-first century, and not paddling furiously under the surface just to keep up and keep afloat in it. Another hallmark of this type of bank, and one which reflects its adaptability and agility, is that it can be created rapidly. Take illimity – 18 months ago, we were a power point presentation. Fast forward to today and just look at what it’s possible to achieve. In a few weeks, we raised €600 million from scratch on the international markets and are now one of the few public banks listed on the Milan Stock Exchange. Our balance sheet exceeds 3billion Euro, our ROE in the first full year of activity is in the around of 5% and and in the unforgettable year of the pandemic, we have created the largest open banking platform in the country, through our joint venture with Hype.
So, the digital revolution is fundamentally reshaping the banking and financial sector, and is here to stay. Straight after the panel, Alessandra launched Milano Hub, the Bank of Italy’s new innovation centre supporting the digital evolution of the Italian financial sector. What better illustration of the strength of our country’s commitment to the transformative role of technology in the industry. Innovation in the banking sector will come also through FinTechs. The encouragement given to them by the country’s premier economic and financial institution is a welcome sign that we will be in prima fila to take advantage of all the benefits it has to offer.
You can find the video of our session (and many other interesting ones) at the FT Banking Global Conference here