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Open innovation: financial technology, banking, business

Milan, 02/12/2019, National Interest

Banking is one of the sectors most exposed to the digital revolution. The major changes introduced by new technologies and the various actors that have debuted on the credit market are causing traditional operators to wonder about their future. The timid attempts at innovation undertaken to date by Italian banks do not appear sufficient to ensure their competitiveness in a scenario that is seeing sources of short and medium term returns shrinking.

The most farsighted strategy is that which encourages receptiveness and innovation through a closer relationship with Fintech. The data not only indicate the continued global growth of investments in firms applying technology to finance, but also show that the most successful experiments are precisely those that combine a capacity for innovation and Fintech data analysis with the traditional client base of financial institutions.  The goal is to put the focus back on the customer, with new dedicated services but without neglecting the wealth of trust – and risk management capacity – represented by credit institutions.

In an effort to meet this challenge, the financial world should embrace open innovation, participating in and allowing itself to be contaminated by the innovative ecosystem that is spawning and nurturing Fintech operators. Indeed, what the credit sector is aiming for is the unbundling of current financial services and the creation of platforms for accessing them.

The difficulty in bringing this revolution to term are multiple. The first concerns the change in mentality that financial institutions established on a 20th century model must undergo in order to understand and take advantage of the opportunities offered by Fintech. Another important point is the regulator’s role, which risks putting the brakes on a rapidly developing sector. Each of these concerns are capable of slowing innovation in Europe – and Italy in particular – as the American and Chinese tech giants move into the sector.

The changes are already under way, and will have major consequences over the short run. Credit institutions are obliged to equip themselves in order to remain competitive and protect their systemic role. An alliance between traditional and Fintech actors, moreover, seems the only way to ensure that those financial services that underpin the economy – and are, not least, guaranteed by the constitutional importance that the security of savings and lending services enjoy in Italy – do not become a motherlode of sensitive personal data for tech giants to mine.