Yours in Finance: Paolo Sironi
Mary Wisniewski
Head of Content
The same questions asked of the people shaping the future of banking and fintech.
Welcome to Yours in Finance, where we are tracking how banking is changing. Once again.
Paolo Sironi, author of “Quantum Sapiens” and IBM, says “sometimes digital apps are clumsy, so it can happen that digital becomes the new friction.”
Or, "This is not Amazon. You cannot call back the ETF saying basically, ‘Can I send it back to you if it did not perform?’”
About Paolo
Paolo Sironi is the author of “Quantum Sapiens” and global thought leader in banking and financial markets at the IBM Institute for Business Value.
Q&A
The interview is edited for brevity and clarity.
What's difficult about managing money?
Well, money is emotion. I didn't say emotions. I said emotion because it's linked to the problem of survival.
We are all aware that we are going from being born to die. And we are aware that we don't know what happens across this journey because fundamental uncertainty is out there. It drives the financial markets, but it also drives our life. So, money is a mechanism that we need to use to basically go through this journey in life.
The majority of people believe money is just about mathematics. So, they think if they can get a formula, it will solve everything for them. But they forget the markets are fundamentally uncertain, so you cannot solve them with a formula. And the investor is uncertain as well because you don't know what will happen to you, and yet, you have to make decisions.
People need help using that emotion in the right way, to compensate where mathematics cannot go. So, that makes it very difficult.
What do you like about digital banking?
What I like about digital banking is that it's made banking, at least on the basics, more accessible to people or that was the idea. I think that convenience is a relevant aspect, but also the capability of accessing [your account] whenever you need. That doesn't come as a free lunch because sometimes digital apps are clumsy, so it can happen that digital becomes the new friction.
But largely speaking, I think that digital banking gave the opportunity to many to do their banking in more convenient ways as everybody's busy, and on the basics at least you don't have to visit the branch to do what you're supposed to do. That did not resolve the whole problem of the banking relationship, but a large part of it can now be handled more autonomously.
What financial habit or behavior are you unwilling to automate?
Decision making when it comes to investment management and insurance cannot be automated.
Even algorithms on the trading floor fail. But we also need to deal with the instability of the investor, which doesn't mean that you're crazy. Instability means that things can happen to you. Maybe you change your preferences, maybe you get sick and maybe you get married. Maybe you have a counter opinion that, you know, you have to consider and then you want to do it.
So you cannot automate this. Automation will be locking you into something where you're not represented as you evolve as a person, as a human being. The meaning of the decision is more important than the decision itself, and so that cannot be automated.
What's the financial decision you'd be happy to outsource to an AI agent?
Saving money. And the reason is because saving is different from investing. When you invest, a mistake can be made. But this is not Amazon. You cannot call back the ETF, saying basically, “Can I send it back to you if it did not perform?” So when it comes to investing, that means you need to dispose of your money, give it to somebody else, and then it requires an element of consciousness and responsibility.
When it comes to saving, our habits tend to be very loose. So we forget about it, so we tend to overspend. That is where a machine can be disciplined. If you're saving a bit too much, that’s still okay, right? You can still change the decision and then use the money. But if you spend or invest not cautiously, then you cannot call it back. So that's where the machine shouldn’t take a leading role.
What earns the right to be someone's primary financial relationship?
A transparent relationship. Transparency is the opposite of opacity, not privacy. Privacy is always there. But transparency means whenever I talk to someone, I need to know what is the incentive mechanism behind that person. You know, a lot of investments, products you can buy, they have kickbacks. So, you don't know whether the advice you’re given is fair or not fair. So everything needs to be declared.
In a world that becomes more and more digital, where AI dominates, radical transparency is the only thing that saves not just the investor, but also the provider of financial services.Why? If a business model is based on that opacity, therefore a lie, AI can lie better than you.
It's good for any business model in investment and insurance that has to deal with the digitalization of everything.
How do you define a bank?
Okay, a bank is a relationship. Okay, so what is this relationship? The business model of a bank is a risk manager. So, we used to say in the 1990s, every banker is a risk manager. Now we also say that every bank is a risk manager. But it means that the banks need to manage the risks they take as they build the capacity to serve the clients. It’s a risk-taking process, right? Banks help their customers, risk-manage their finances, their opinions, their decisions, their working capital if they are companies.
So, the bank is a risk manager, but how do you deploy risk management? It is not through calculation. It's through a conversation. It's a relationship piece. Why? Because risk management is not a measurement of risk. But it's understanding what cannot be measured and making conscious decisions about that, so that requires a relationship to open up our mind to even the contradiction because people, companies and banks will make money or lose money. Not about what they can measure, but what they can't measure becausefundamental uncertainty is a structure. So building that conversation is what defines a good bank.
Now, the conversation can be expensive. That's a problem. The conversation doesn't necessarily scale, so every time technology helps that conversation to be had at competitive prices, value is generated because the value of financial services is to intensify the financial consciousness of their clients. So, I always ask myself when I look at a startup or the new digital initiative from a bank, would that help intensify the financial consciousness of their clients? If the answer is yes, that's sticky value. If the answer is no, it can be speed, can be convenience, everybody can duplicate it, right? It doesn't stick.
What is the last thing you bought that you're still thinking about?
Bookmark packs. Yes, I love to read books on paper.
A lot of people read my books on Kindle. I just can't. And with this one, every time, every book, I open and then I put the bookmark inside, and then I know, when I read it, it's part of the experience. To me, it makes it different.
