Banks and Fintech

Banks and Fintech
on Platform
Economies
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Banks and Fintech
on Platform
Economies
Contextual and Conscious Banking
PAOLO SIRONI
This edition first published 2022
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Library of Congress Cataloging-in-Publication Data
Names: Sironi, Paolo, author.

Title: Banks and fintech on platform economies : contextual and conscious
banking / Paolo Sironi.
Description: Chichester, West Sussex, United Kingdom : John Wiley & Sons,
2022. | Series: The Wiley finance series | Includes bibliographical
references and index.
Identifiers: LCCN 2021033426 (print) | LCCN 2021033427 (ebook) | ISBN
9781119756972 (cloth) | ISBN 9781119756989 (adobe pdf) | ISBN
9781119756996 (epub)
Subjects: LCSH: Banks and banking. | Internet banking. | Financial services
industry. | Finance—Technological innovations. | Multi-sided platform
businesses.
Classification: LCC HG1601 .S545 2022 (print) | LCC HG1601 (ebook) | DDC
332.1/7—dc23
LC record available at https://lccn.loc.gov/2021033426
LC ebook record available at https://lccn.loc.gov/2021033427
Cover Design: Wiley

Cover Image: © AKSANA SHUM/Shutterstock
Set in 10/12pt TimesLTStd by Straive, Chennai, India

I am grateful to MR. He inspired this epistemological journey and
opened my conscious mind – through transparency – in the discovery
of homo sapiens’ biological value on our planet of finite resources.
Contents
Forewords xv
About the Author xxix
Disclaimer xxxi
Introduction 1
PART ONE
Foundations of Platform Theory
CHAPTER 1
Platform Essentials on Outcome Economies 15
1.1 Introduction 16
1.2 Platforms and ecosystems 17
1.3 Innovating from output to outcome economies 22
1.4 Linear and non-linear thinking 24
1.5 Platform types 25
1.6 About platforms and innovation theory 27
1.7 Shifting the perception of value 29
1.8 Banks and fintech on outcome economies 31
1.9 Conclusions 33
Takeaways for banks and fintech 34
vii
viii Contents
CHAPTER 2
The Trust Advantage 35
2.1 Introduction 35
2.2 Elements of platform creation 37
2.2.1 The platform challenge 38
2.2.2 The chicken-or-egg dilemma 39
2.3 Transparency generates trust 42
2.3.1 It’s marketing, stupid! or not? 42
2.3.2 Trust in the middle kingdom 43
2.4 The trust advantage for banks and fintech 44
2.5 Conclusions 47
CHAPTER 3
Open Innovation and Data 49
3.1 Introduction 49
3.2 Closed and open innovation 51
3.2.1 Attributes of closed and open innovation 52
3.2.2 Open innovation in platform economies 53
3.3 The strategic role of complementors 55
3.4 The monetisation perspective 56
3.5 The monetisation of APIs 58
3.5.1 Free use 59
3.5.2 API consumers pay 59
3.5.3 API consumers get paid 60
3.5.4 Indirect monetisation 60
3.6 The monetisation of user engagement 61
3.6.1 Imposing transaction fees 61
3.6.2 Asking for access fees 61
3.6.3 Tiering enhanced access fees 61
3.6.4 Delivering enhanced curation 62
3.7 The API economy for banks and fintech 62
3.8 Conclusions 65
Contents ix
CHAPTER 4
Platform Governance Founded on Transparency 67
4.1 Introduction 67
4.2 Power comes with responsibility 68
4.3 Platform monopoly between competition
and regulation 71
4.3.1 Intensified regulation 71
4.3.2 Better governance to fight monopoly powers 73
4.4 Negative externalities threaten platform resilience 74
4.5 Governance of openness and curation 76
4.6 The transparency governing principle 78
4.6.1 Transparency about platform management 78
4.6.2 Transparency about platform orchestration 79
4.7 Transparency for banks and fintech 80
4.8 Conclusions 82
PART TWO
Reinventing Financial Services
CHAPTER 5
The Existential Shift of Bank Business Models 89
5.1 Introduction 89
5.2 The new normal of central banks 91
5.2.1 Lehman Brothers’ default 91
5.2.2 The annihilation of central banks’
systemic put 92
5.2.3 Banks’ Catch-22 95
5.2.4 From product-centricity to human-centricity 98
5.3 About the tension between information
and communication 99
5.4 The banking reinvention quadrant 101
5.4.1 The map and the compass 101
5.4.2 The information and communication
quotients 103
x Contents
5.5 Four BRQ business value spaces 104

5.5.1 Traditional Banking 105
5.5.2 Digital Banking 105
5.5.3 Contextual Banking 105
5.5.4 Conscious Banking 106
5.6 Conclusions 107
CHAPTER 6
Lessons Learned from Fintech Innovation 109
6.1 Introduction 110

6.2 The true meaning of disruption 111
6.2.1 My Robo-advisor was an iPod 113
6.2.2 Sustaining innovation with Contextual
and Conscious Banking 117
6.3 Resolving the “pull-push” motivational gap 119
6.3.1 Digital is a pull technology 120
6.3.2 What is happening on Amazon? 121
6.3.3 The offer-driven business of banking 122
6.4 Rebundling on platform economies 123
6.4.1 From client-centricity to human-centricity 124
6.4.2 Banking-as-a-Service and
Banking-as-a-Platform 126
6.5 Conclusions 128
CHAPTER 7
Competitive Factors for the Future of Banks 131

7.2 The financial services engine 132
7.3 External factors affecting digital transformations 135
7.3.1 Digital infrastructure 135
7.3.2 Digital society 135
7.3.3 Digital ecosystems 136
Contents xi
7.3.4 Capital at risk 137

7.3.5 Regulation 137
7.4 Internal factors enabling digital transformation 138
7.4.1 Digital leadership, strategy, and culture 138
7.4.2 New business architectures and operating
models 139
7.5 Conclusions 140
PART THREE
Leading Platform Strategies
CHAPTER 8
Contextual Banking 147

8.2 Compete with open business architectures 150
8.3 From open banking to open finance 152
8.4 Contextual Banking 156
8.4.1 Removing ex-ante frictions without
increasing them ex-post 158
8.5 Bigtech gravity 159
8.5.1 Facebook experience vs. WeChat
engagement 160
8.5.2 Amazon’s platform philosophy 161
8.6 Financial services fight back 164
8.6.1 Cloud-native payment providers are also
chipping away bank revenues 164
8.6.2 Ping An’s investment philosophy 166
8.6.3 Banking orchestration of non-banking
ecosystems 168
8.6.4 The platform of platforms 170
8.7 Conclusions 173
xii Contents
CHAPTER 9
Foundations of Financial Market Transparency 175

9.2 Contextual Banking and architectural resilience 177
9.3 Conscious Banking and financial antifragility 179
9.3.1 Breaking out from mainstream reference
theory 179
9.3.2 Opening the reference system to
fundamental uncertainty 181
9.4 Empirical evidence to open platforms and reference
systems 183
9.5 Conclusions 186
CHAPTER 10
Conscious Banking 189

10.2 Micro and macro antifragility across ecosystems 193
10.2.1 Value generation at the micro-level
investors’ ecosystem 193
10.2.2 Value generation at the macro-level
financial ecosystem 196
10.3 Unlocking hidden value in the ecosystem 197
10.4 Exponential technologies on transparent markets 199
10.4.1 Generating value with transparent AI 199
10.4.2 Opening up the reference system with
technology 201
10.4.3 Integrating clients’ emotion with a
transparent heuristic 203
10.4.4 Opening the AI envelope to stay radically
rational 204
10.5 The scientific shift from reductionism to holism 205
10.5.1 Conscious Banking platforms on the edge
of chaos 206
10.5.2 Augmenting the human mind with
technology 207
Contents xiii
10.6 The core engine of Conscious Banking platforms 208

10.6.1 Value-generating interactions based on
cost-benefit analysis 208
10.6.2 Open up the risk management engine to the
conscious image of endogenous uncertainty 210
10.7 Conclusions 212
Concluding Remarks 215
Bibliography 219
Index 227
Forewords
EMBEDDED BANKING EXPERIENCES1

Brett King, bestselling author of The Rise of Technosocialism,
founder Moven and Breaking Banks Podcast
The pandemic saw a massive decline in branch activity over a very short period.
While many hope for branch activity to come back, changes in behaviour in mobile
usage and online tend to remain permanent––so that hope is unfounded. For many
banks, however, their distribution platform is their branch network: it is their access
identity; it is the way they are embedded in the community; it is where their branding
sits; it is how they measure customer excellence, experience, and engagement. The
bigger issue for branch economics is acquisition of customers at a digital scale that
is being demonstrated by the more successful neo-banks, buy-now-pay-later opera-
tors, and wallets around the world. As more and more day-to-day banking market
share is taken by digital equivalents of a bank account, the role of branches for all
but certain exceptional use cases becomes largely unsustainable. Right-sizing branch
networks will be forced upon publicly listed banks. Banks reliant on branches will
have nowhere to go. It is not that bank branches will disappear, but that banks that
rely on branches will. Without a robust digital acquisition model, customer inflow
and product applications through a branch will slow to a trickle that is not enough to
sustain the future bank. If you have a product or service that still requires a signature
in 2025, you are going to be struggling for any cross-sell and up-sell. You simply will
not be able to survive as a bank with revenue from the branch alone. No way. Friction
will be the biggest killer of bank revenue in the next 10 years. The lowest friction
experiences will win the highest network adoption rates. We can already demonstrate
that in China, India, Bangladesh, Kenya, and elsewhere.
In 2020, the mobile payments networks of Alipay and Tencent WeChat Pay deliv-
ered almost twice the total number of payments to merchants of the entire global
plastic card market, that includes credit cards, debit cards, gift cards, . . . as reminded
in Turrin [1]. These changes are all illustrative of banking becoming embedded in
our world through non-bank networks, where many of those network operators are
xv
xvi Forewords
starting to offer financial services in context. The big shift is this: in the world of bank-
ing from the 1400s to 1995, every bank transaction or product was issued through
a bank-owned and bank-operated channel––a branch, call centre, broker, or ATM
network. Today, non-bank channels dominate day-to-day banking access and trans-
actional activity. Within a decade, non-bank channels will dominate revenue also.
BYE-BYE PRODUCTS, HELLO EXPERIENCES
As payments have evolved, the tendency is to move away from both the closed, propri-
etary nature of bank-owned and bank-operated payment networks and from complex,
slow systems toward instant or near real-time payments. The reality is that networks
like PayPal, WeChat Pay, and Alipay have demonstrated much greater utility within
their networks than bank-to-bank transactions or cash for day-to-day payments capa-
bility. And it is not just for payments. The boom in Buy Now Pay Later (BNPL) credit
access is again evidence of embedded banking experiences. Instead of treating credit
as a product, such as a credit card, that you need to apply for separately before you
engage in purchasing activity, BNPL allows you to not worry about credit options
until you are engaged in the purchase process. By streamlining credit access in this
way, the utility of credit becomes much more powerful and meaningful. It makes
the use cases for a plastic credit card that you need to apply for in advance, much
harder to sell in a real-time world. The reason cheques and cash use are in decline,
and the reason more people use Alipay and WeChat Pay in China today, is because we
increasingly use technology in day-to-day interactions. We are clearly going to use
devices with a bias toward frictionless and open payment architectures that have com-
parable utility. The future of payments is unavoidably experience-rich, friction-
and artifact-poor.
Examining savings, credit, and lending, and other aspects of finance, will demon-
strate the same trend. Online and mobile experience design is leading us toward rapid
utility and fulfillment. The fastest, most seamless credit experience is not an applica-
tion for a credit product on your phone or laptop while you are in a store, but simply
a provisioning of credit based on a preferred or enabled relationship. The product
(credit card, overdraft, personal loan, line of credit, etc.) structure disappears to sim-
ply enable you to get access to the utility of extra cash when you need it the most.
Context is the new experience battlefield because it brings the utility of banking to you
when and where you need it, instead of relying on the customer asking to be approved.
This is the key switch that is being made––Bank 4.0 experiences will be an attack
on the entire onboarding and application process banks have designed today.
Designing experiences in the Bank 4.0 age means that the previous product and chan-
nel structures offer almost zero benefit in this new world. In fact, they may bias you
toward experiences with unnecessary friction and limit you in terms of scale.
This begs the question: if products have to make way for contextual experiences,
what does a bank org chart look like? Where do all the products and channels go?
Forewords xvii
WHEN BANKERS ARE NOT BANKERS ANY MORE
When I am asked by bankers who they should hire for what is coming next, I always
begin with, “Stop hiring bankers!”. The qualitative research I have carried out has
come up with just a few of the jobs that will be considered critical in revenue and
capability growth in financial services over the next five years or so: data scientist,
machine learning specialist, experience designer / storyteller, behavioural psycholo-
gist, blockchain integrator, compliance and risk programmer, community advocate,
and identity broker. I refuse to add robot psychologist, emoji translator, and customer
experience Ninja to this list. However, I might be tempted to add an AI ethicist, for
example. Some roles I have left out that are critical for future development already
exist in numerous banks, but they will become increasingly important in building
a bank platform that is competitive. They include business analysts, venture capital
teams for investing in FinTech, those that manage and grow technology partnerships,
hackathon, or incubator labs––basically the ability to rapidly grow the bank’s tech-
nology capability without building it internally. The real challenge, of course, is that
if you are a tech graduate coming out of a university looking for a job today, would
you be looking to work for a startup, a tech major like Facebook, Apple, or Google, or
would you be wanting to join a bank? Recruiting these skills will surely be a challenge
for financial services organisations culturally.
An organisation chart in today’s modern bank is not all that different from an
organisation chart you might have seen 30 or 40 years ago, but there have been new
competencies and capabilities inserted into the structure. What is most noticeable
about an organisation chart of a bank in the future is that the bank functions as a
“platform”––it can surface the underlying utility and capability of the bank. In a Bank
4.0 organisation, it is not the omni-channel capability that is the key, it is complete
channel agnosticism, engagement, and revenue-pragmatic focus. The modern bank-
ing organisation is focused on customer delivery, whether retail, SME, corporate or
otherwise. As such, the organisation becomes much more mission-focused when it
comes to revenue delivery. When you look at the likes of Ant Financial and oth-
ers attacking this space, they have business units around core competencies, but not
organisation charts focused on products. Their organisation chart is unconventional,
focused on KPIs that measure active users, daily engagement, cumulative actions,
such as borrowing over the lifetime of the customer, and year-on-year growth. Their
collective business unit growth is designed to speed up the reach of their network as
it grows [2]. This leads us to think of the new Bank 4.0 organisation structure not as
a chart showing strategic business units, but as core competencies across the organ-
isation that can share missions, customer goals, and so forth in a matrix form that a
typical bank today would encounter huge challenges to accomplish. In terms of com-
petencies, we see that “banking” per se just becomes one of the competencies of the
bank, and in equal terms Delivery, Business Operations and Technology Operations
are just as critical.
xviii Forewords
While we might see today that AI and something like Amazon Alexa or the
latest mobile app would sit under the purview of the Information Technology or Dig-
ital team, in this new world delivery capability becomes a customer experience and
engagement platform that is far-reaching––essentially the new driver of revenue, rela-
tionship, and reach. In this new model, technology operations become the underlying
platform capabilities that are needed to surface utility and experiences in real time.
Instead of traditional operations, we have technology and business operational com-
petencies, as both are just as critical, but require very different skill sets and division
of labour.
A few new areas emerge that you would not find on the organisation chart today,
namely, Research and Development, Partner Management and Operations, Data
Modelling, Experience Design, and, of course, Artificial Intelligence. Many of these
functions are counter-intuitive for the banks that have iterated from the Bank 1.0
world––their immune systems of internal core systems, legacy process, compliance,
and entrenched product teams are extremely likely to push back against these new
competencies. If these competencies are not built, however, the ability to deliver
revenue in a real-time, tech-first world will be tough.
NOTE
1. This is an excerpt from [3].

Forewords xix
BANKING AS AN AFTERTHOUGHT1
Richard Turrin, bestselling author of Cashless: China’s Digital
Currency Revolution
When you go to your bank’s website, odds are it is to check your balances or
perhaps pay a few bills. Whether you did so on your computer or cell phone, I will
wager that while there you ignored the bank’s latest advertisements touting their latest
credit card or favourable rates. Like most users by now, you are comfortably numb
to the bank’s latest offers.
This experience is repeated billions of times globally every day. The utility of
a bank’s website is narrowly defined by immediate needs and how quickly one can
accomplish these tasks. Banks enable this situation because your money is captive
on their portal. You must use their system to access it. The reason, beyond legacy
systems and ingrained behaviours, is that banks think of their portals as destinations
with limited functionality. They are designed to do only two things: provide you with
digital services and push products at you in the hope of making a sale. You go to their
site or app not because you want to, but because you have to. There is no alternative.
Until, that is, digital currency comes to town.
The system I described exists in the West today (at least in the banks most of us
use); it also existed in China before the launch of payment giants like WeChat and
Alipay in 2014. In the West, money is immobile, it belongs to you, but the means of
transfer belongs to the bank. In practical terms, if your bank falls short of your needs,
it is more than likely that you need to physically go to the bank, pay a fee for issuing a
cheque to close your account, and march off to another bank. In China, instant digital
payments through WeChat and Alipay broke that old system, and that country’s new
digital currency will further weaken the banks’ control of how clients manage their
money. It is a defining moment in banking services. Above all, it empowers the indi-
vidual. Digital currencies will allow users almost complete freedom to move money
wherever and whenever they want.
“STICKY” PLATFORMS REIGN SUPREME
Now compare any bank’s website experience with a full platform tech service like
Amazon. You go to Amazon not just to buy a book, but to read the candid reviews
from other customers on millions of products, check out a few movies, see what is up
with the latest music, and, if you are hungry, see what is available at the supermarket.
Amazon is a platform that started with selling books but went on to offer products
and services that encompass virtually any lifestyle.
xx Forewords
PLATFORMS TRY TO CAPTURE OUR TIME BY PROVIDING US

WITH AS MANY DIVERSIONS AND AS MUCH UTILITY AS
POSSIBLE
What makes Amazon so special? It is a platform that aims to fulfill many of life’s
needs in one spot. It is the exact opposite of your bank’s website, which offers one
and only one siloed service. Platforms, whether built around social connections or
e-commerce (the two most common core offerings), try to capture our time by provid-
ing us with as many diversions and as much utility as possible. We use them willingly
because we get more out of them, and they harken us back because they satisfy our
needs.
PAYMENT PLATFORMS AS SUPERAPPS
The banking experience in China, is, as you would expect, radically different. I no
longer bank on either the bank’s app or online; there is simply no need. My money is
all accessed through WeChat Pay or Alipay platforms, which are aptly named “super-
apps” because of the number of services they perform. It is a remarkable experience
that frees access to my savings and pushes banking to where it belongs, as the enabler
of me doing something, instead of being the focus. It is a massive transformation in
how we use banks and one that changes how users perceive banks as a necessity and
money’s place in our lives. “Seamless” is the best description. Money and technology
coming together to form a seamless integration of using your money so you can live
your life. Never a thought of how the money will move, where it will go, and the
underlying mechanics. It simply all combines to help get stuff done. This is business
as usual in China. Research shows that 93% of consumers with a bank account in
China also use one or more of the digital payment companies. In practical terms, it
means that banks have been driven off centre stage by the superapps. It is so disrup-
tive that it is no wonder banks in the West find it culturally challenging to adopt even
the most basic of open banking techniques, like building open APIs, for fear that it
will lead down a similar path of disenfranchisement.
Most of us do not wake up in the morning and say, “I want to visit my bank
to see what’s up.” Instead, we use it to buy a house or send money. The bank is a
means to an end, usually a vaguely unpleasant diversion required for us to get to
our goal. Now imagine that the bank is no longer a necessary stop on the path to
achieving a goal. Car sales showrooms’ in-house financing programmes realised this
years ago with sign-now and drive away programmes, which sought to reduce the
effort of getting a car loan. The sellers realized that checking rates and going to the
bank to sign the documents were likely to kill a sale, so they did an end-run around
the process to keep customers onsite. Car companies took much of the auto financing
business away from banks, so why banks remain blind to their own expendability is
a mystery to me. There have certainly been plenty of digital disrupters overturning
Forewords xxi
other industries, like Uber, Airbnb, or Square. And it is not like the banks can not hire
and nurture digital talent. It simply comes down to vision (or the lack thereof).
Imagine a world where your money is available on a mobile-based digital pay-
ment platform that addresses all of your life activities. Secure and convenient because
it uses facial recognition to unlock payment, accepted nationally and used to pay bills
large and small, all from a single platform. This is not just buying a coffee using
Apple or Google Pay, but a payment system that cuts across all of your life, including
your internet presence, your local shops, rent, mortgage, insurance, investments, and
personal cash transfers. Press a button on your phone, click buy, facial recognition
confirms, and done. You never go to the bank, never go to your bank’s website or
app, meanwhile, you know that your money is secure. This dream was made real by
the digital payment platforms, which turned China “cashless” and is a model for the
West’s development of platforms that can make banking an afterthought.
NOTE
1. This is an excerpt from Chapter 16 of [1].

xxii Forewords
CLARITY ON REINVENTING BANKING

Dr. Efi Pylarinou. founder of Efi Pylarinou Advisory &
Global Fintech Influencer
Innovation and transformation are a multi-dimensional duo whose impact

remains partly unpredictable. The last 10 years of this duo’s effect on financial ser-
vices have resulted in a shift away from the ingrained culture and values of an industry
that has been natively offer-driven, regulated, and non-transparent.
Paolo Sironi has focused on the intersection of businesses in financial services,
the deployment of exponential technologies, and the underpinning new theoretical
frameworks that can help us make sense of the dynamic impact of the duo. Using
his Financial Market Transparency (FMT), he stresses the importance of building
businesses that use exponential technologies to reduce the painful experiences of
financial uncertainty. Feeling uncomfortable with uncertainty, and striving to deal
with it, are a deeply rooted human condition. Theoretical frameworks that incorporate
financial uncertainty in their considerations and their potential business propositions
are the only ones that can lead to successful businesses.
In this book, Paolo Sironi guides us to understand the exponential importance of
a shift from an offer-driven business to a demand-driven business, while at the same
time, leveraging openness combined with a mindset that ditches the industrial-era
thinking of selling products. He builds an invaluable quadrant––the Banking Rein-
vention Quadrant (BRQ)––that captures how a regulated, idiosyncratic industry with
asymmetries of information between the manufacturers, the distributors of financial
services and the consumers; can innovate and transform and in which ways.
The Banking Reinvention Quadrant (BRQ) introduces the concept of outcomes
which are brilliantly juxtaposed with outputs. In a world in which product margins
are shrinking at an accelerated pace, focusing on outcomes is the only way to build a
human-centric relationship and use it as the foundation of the services offered. Iron-
ically, the increased disintermediation and the readily available use of exponential
technologies and connectedness have also resulted in the rise of the importance of
the human relationship.
The Banking Reinvention Quadrant (BRQ) captures how financial uncertainty
and human relationships are foundational in creating sustainable, high-value
business propositions. The two main platform models that have emerged from
various regional financial services innovations and transformations—Banking-as-a-
Platform and Banking-as-a-Service—fit naturally into the BRQ as the two main
ways to unlock value for consumers in a sustainable fashion.
Think of a world designed in such a way that transparency is the governance
mechanism, openness is the engine to make advice scalable, contextual, and in full
alignment with what Paolo Sironi defines as Conscious Banking.
This time Paolo Sironi has written the TAO for Banking (Transparency, Advice,
and Openness), a text that will surely become a classic.
Forewords xxiii
DIGITAL PLATFORMS ARE EATING BANKING

Ron Shevlin, Director of Research for Cornerstone Advisors,
and Senior Contributor for Forbes
I asked a room full of bankers recently what they thought when they heard the
word “platform.” The most frequent responses were “online banking,” “mobile bank-
ing,” and “lending.” One guy said, “Shoes.” Very funny, Mr. Saturday Night Fever.
Interestingly, no one said, “Amazon.” While the term “platform” is widely used in
the industry as a technology construct, there is another (non-footwear) use of the
word––as a business model. And platform business models are taking over banking.
WHAT IS A PLATFORM?
Despite the recent spate of books on the topic, the platform business model is hardly
new. Platform Strategy defines a platform as a “Plug-and-play business model
that allows multiple providers and consumers to connect, interact, and create and
exchange value.”
Mark Bonchek and Sangeet Paul Choudary describe three things a company must
do to be a platform [4]. First, be a magnet. A platform must attract the right providers
(those with the most desirable products and services) and the right consumers (those
who the providers want to do business with). Second, act as a matchmaker. A platform
requires a mechanism for matching consumers to the right providers, and for enabling
providers to reach the right consumers who come to the platform. Third, provide
a toolkit. The toolkit is what enables providers to easily plug into (and out of) the
platform, and to integrate with consumers.
There are (at least) four types of digital platforms taking over the banking
world:
■ Megabank API toolkits. BBVA, Capital One, Citibank, Deutsche Bank, HSBC,
and Wells Fargo all have some form of developer hub, portal, or exchange that
enables third-party apps to access, integrate, and/or extract data about the bank’s
customer base. While a “toolkit” is a critical component of a platform strategy,
the megabanks’ efforts are too narrowly focused on the technology side of the
coin to qualify as a true platform. The mindset still seems to be “if enabling
third-parties to interact, integrate, and engage our client base enables us to sell
more of what we already sell, we’re all for it.”
■ Marketplace platforms. In their earliest incarnations, marketplace lenders like
Prosper and Lending Club could not really be considered platforms because they
lacked the toolkit for integration. That is changing. As lending marketplaces
hit speed bumps in their evolution, some have turned to a platform strategy.
xxiv Forewords
Kabbage, for example, re-branded itself as Kabbage Platform, the small busi-
ness lending marketplace that offers financial institutions processing capabilities
and access to non-traditional data sources for underwriting. The firm’s toolkit
includes integrating data from a variety of sources including Ebay, Etsy, Amazon,
and PayPal.
■ Analytics platforms. Analytics platforms are emerging on two fronts: (1) use-
case specific platforms like NICE X-Sight, which it describes as a “cloud-based
Financial Crime Risk Management Platform-as-a-Service,” enabling financial
institutions to manage and use data from multiple sources, and (2) generic plat-
forms like those from Trellance whose CU Analytics Platform is “a collaborative
ecosystem that will create communities of users, data scientists, and application
developers.”
■ Core integration platforms. There is an emerging set of players in the fintech
vendor space that might be thought of as “core integration platforms.” These
providers enable financial institutions to better integrate ancillary systems with
their cores.
IMPLICATIONS OF THE PLATFORMIFISATION OF BANKING
A few thoughts on this platformifisation of banking. First, open does not mean
platform. A firm cannot pursue a platform strategy and not be “open” but it can
be “open” and not pursue a platform strategy. Simply providing a facility to share
data does not make a company a platform. Second, platforms will change the way
banks acquire and deploy technology. While much of the attention is on platforms
like Amazon where consumers are buyers, many of the examples of platformifisation
listed here are those with banks as buyers. Platforms will change traditional software
sales approaches, making vendor performance management a critical IT skill. Third,
there’s a downside to platformifisation. Over-personalisation and unintended con-
sequences of data sharing are two risks of platformifisation. In a report entitled “Five
Fears About Mass Predictive Personalisation in an Age of Surveillance Capitalism,”
Karen Yeung wrote: “Personalisation practices foster and exacerbate the asymmetry
of power between profilers and those to whom personalised services are provided,
thereby increasing the opportunities for the former to exploit the latter” [5].
Forewords xxv
BANKING-AS-A-SERVICE IS THE NATURAL, LOGICAL, AND

EVEN INEVITABLE EVOLUTION OF OPEN BANKING
Simon Paris, CEO of Finastra, NED at Everbridge, and NED at
Thomson Reuters
Banking as-a-Service (BaaS) is the natural, logical, and even inevitable evolu-
tion of Open Banking. BaaS brings the emphasis of financial services back to the
service––by unequivocally putting the customer at the heart of the proposition and
enabling banking services to be digitally assembled around them and for them, in
whichever customer journey they are in, wherever they choose. Banking will go to
meet the customer where they are!
While some may see this as a threat, the more progressive understand the rele-
vance, scale, and growth opportunities to be captured by focusing on the customer in
their journey, contextual or conscious. Let us not forget that the industry has already
reached an inflection point in which the market capitalisation of the top payment firms
now eclipses that of the biggest banking names. The market continues to shift, and
the hockey puck is moving to BaaS.
The winners will be the institutions that take a customer-obsessed approach to
optimising and facilitating consumption of their services, seamlessly and securely.
For this, banks must balance two things. First, that their services are designed to
maximise value to the customer journey and their desired outcomes, and, second,
that they can act with agility to meet the customers where they are and when the
banking services are needed.
It can be easy, but it would also be wrong, to consider Banking as-a-Service
as simply embedding a service into a (normally) consumer proposition; the abun-
dance of opportunity is even greater in the realm of corporate and institutional
banking. Embracing “X-as-a-Service” would allow new value creation, such as offer-
ing services including Treasury-as-a-Service, Cash Management-as-a-Service or For-
eign Exchange-as-a-Service to extend reach and relevance, while empowering a vast
raft of smaller banks, neo, digital, challengers, and so on, through the provision of
economies of scale.
Joining the BaaS revolution is not just about having the correct tech stack. It
requires a genuinely collaborative and open mindset, and a skill set that transcends
product and technology, but can span the vectors of engineering, growth hacking,
customer-centricity, new monetisation models, and ultimately the new role of orches-
tration. Without focusing singularly on the outcome of driving consumption at the
optimum position in the user journey, some banks may miss the myriad opportuni-
ties that this market shift will bring about. However, from our vantage point, we are
greatly encouraged to see that the journey toward BaaS has already begun . . .
xxvi Forewords
THE BANKING INDUSTRY’S CINEMA PARADISO MOMENT

Theodora Lau, founder of Unconventional Ventures and
co-author of Beyond Good
We live in the age of data. We are surrounded by zettabytes of it with every click
and every scroll. Almost every aspect of our daily experience is shaped by it, in what
we call the experience economy. With so many businesses all vying for a limited pool
of time, attention, and money, the winners are those who can orchestrate memorable
moments for their customers and create connections that matter.
TRAVELING DOWN MEMORY LANE
The Italian movie, Cinema Paradiso, directed by Giuseppe Tornatore, illustrated that
point in quite a heartwarming way. The movie recalled the childhood memories of
a film director in the movie house Cinema Paradiso in Giancaldo, Sicily, and his
friendship with the projectionist. With the passage of time, and perhaps the irony of it
all, the movie theatre was demolished to make way for a parking lot. But the memories
lived on in a film reel left by his friend as he went on to become a successful director.
As we reflect upon how our own lived experiences and things that have played
pivotal roles in our lives, especially in the past two years, what do we remember? And
how has the global crisis accelerated not only business model transformation but also
shaped our perception on what we need and what matters?
Much like how the entertainment industry is reshaping the movie-going culture,
beyond just selling an admission ticket to the theatre, what is the banking industry’s
Cinema Paradiso moment – to go beyond selling a banking product?
SHARE PROSPERITY SHAPED BY DATA
Nothing illustrated the power of data and technology more vividly than the
COVID-19 pandemic. Many of us have adopted to new ways of working and
learning collaboratively––on a large scale and around the world. Businesses have
created new ways to serve their customers, from curb-side pickup to digital banking
tools and more widespread use of technology in call centres.
Beyond accelerating transformation for survival reasons, the crisis has also illus-
trated the power of out-of-the-box thinking and the need for collaboration with other
players. Instead of “one-size-fits-all,” businesses are increasingly recognising the
need to provide more personalised experiences, powered by an ecosystem of part-
ners. With the help of advanced technologies such as artificial intelligence, financial
Forewords xxvii
institutions now have the ability to get a true 360-degree view of consumer finances,
which will allow them not only to gleam valuable insights on the overall financial
well-being with the collated data, but provide actionable guidance toward a sustain-
able future path.
And there is so much more that can be done, across all customer touchpoints and
during the entire lifetime of the customer, beyond onboarding and life events, with a
holistic experience that truly aligns with the customers’ values and needs.
A re-imagined future of financial services, powered not by transactions, but
by emotional connections toward outcomes, is not unattainable. While the dawn of
the Internet and the smartphone era has driven much of the last wave of innovation,
artificial intelligence and big data will enable the next. As we rebuild from the crisis,
we must ensure that we do so responsibly, and with equity and humanity in the centre
of it all.
Our collective future – and our shared prosperity – depend on it.
xxviii Forewords
JAMIE DIMON MIGHT WANT TO TURN TO PAOLO

FOR A LITTLE GUIDANCE
Marie Walker, co-founder of Open Future World
Watching Paolo give the opening address at the 2021 Open Banking World
Congress was a bittersweet experience. As he shared a fascinating preview of the
insights in Banks and Fintech on Platform Economies: Contextual and Conscious
Banking, I couldn’t help thinking that he might be an essential act to follow.
Digitisation and open banking are disrupting the global financial services indus-
try. The world where banks could expect to push products onto captive customers
is fast disappearing, to be replaced by open ecosystems and dramatically improved
customer experiences. New players and partnerships are emerging, while the shadow
of bigtech looms . . .
How should banks, fintech, regulators, and other stakeholders react? Different
countries and organisations are following different open banking and open finance
models. European regulation is often contrasted with the market-led approach favored
by the US––but some of the most interesting (and under-reported) innovation is com-
ing from China.
This is the book I’ve been waiting for since first becoming aware of Paolo’s
ground-breaking work internationally, and also in China where most of the fintech
revolution is taking place. Paolo has the happy knack of being able to take the fun-
damental drivers of change and weave them together into a practical framework for
future strategies. While many of us are still getting to grips with how platform models
can be applied in the financial services sector, the concepts of Contextual Bank-
ing and Conscious Banking offer a much richer picture of embedded banking and
platformisation.
As an observer of the global open banking and open finance movement, it is easy
to get caught up in the excitement of the latest launch or partnership. Paolo puts the
day-to-day noise in a wider context, helping us understand where all this is taking
us. I have watched Paolo’s presentation more than once––this is a book that will be
worth reading and re-reading.
If Jamie Dimon is indeed “scared shitless” about the fintech threat, he might want
to turn to Paolo for a little guidance.
Exciting times!
Trim Size: 152mm x 229mm
k Sironi756972 flast01.tex V1 - 10/08/2021 6:29am Page xxix
About the Author
P aolo Sironi is the global research leader in banking and financial markets at IBM,
the Institute for Business Value. He is one of the most respected fintech voices
worldwide, providing business expertise and strategic thinking to a network of exec-
utives among financial institutions, start-ups, and regulators. He is a former quantita-
tive 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.
k k
xxix
k
Disclaimer
T his work features the thoughts, vision, and opinions of the author but are the
author’s alone; these do not represent the practice nor the views of his current
or previous employers, nor the beliefs of his present and past colleagues.
xxxi
Introduction
T oday it is very clear. Digital platforms are eating the world, affecting con-
sumer behaviour and transforming corporate strategies through a substantial
change in stakeholder value across entire industries. The removal of frictions
inside active ecosystems allows platforms to create unforeseen value-generating
interactions among participants. Traditional firms usually trade in the products
that deliver certain results and focus on the quantification of outputs like discrete
sales figures or quantities. Instead, platforms place the distribution of products
on the periphery of corporate strategy, and focus on the generation of outcomes
through hyper-personalised client journeys. To succeed in platform economies,
firms must overcome the complexities of monetising while trading in the results
themselves on open ecosystems. Placing the final users to the front and centre of
business action is necessary but might not be enough. In particular, the emergence of
outcome economies exposes financial institutions to the weakness of consolidated
revenue-generating mechanisms. Traditionally, banking performance was driven
by interest rate margins and fee-based models, centred on product distribution
channels. This business architecture is no longer able to stand the test of time, and
is facing an accelerated shift towards new economic, social, and digital normals.
Interest rate margins and product fees are evaporating, and the value chain, based on
the intermediation of financial products, is losing its grip. To generate sustainable
business value on outcome economies, banks and fintech need a new strategic anchor
that centres on a novel understanding of the “biological” relationship between
clients, financial markets, and technology. This discovery encourages both them and
the regulators to undertake a substantial redefinition of the business roles, economic
perspectives, and social purposes that are revealed in this book.
The advent of “outcome economies” is a tsunami for the traditional business
culture. Business and technology leaders are asked to join in a mindset change to
conquer outcome economies. Sustainable business performance is no longer based
on linear relationships between manufacturers, distributors, and consumers. Instead,
the main economic levers lie in the ability of new business models to engage users
and complementors continuously through digital technology. Innovators are required
to think in a non-linear manner through a novel understanding of users’ needs. They
are asked to master artificial intelligence and big data analytics to win users’ trust,
based on the transparent contextualisation of frictionless experiences, at convenient
prices. Essentially, products and services become more granular (e.g., micro-services
delivering personalised insights about Facebook users and their network of friends),
1
2 Banks and Fintech on Platform Economies
and can be embedded in users’ journeys to foster personalised interactions (e.g.,

understanding customer preferences to optimise product discovery on Amazon).
The platform orchestration of the ecosystems of users, producers, or developers is
essential to remain relevant in any industry, and keep up with competitors’ speed of
innovation by embracing exponential technologies. Digital technology unlocks value
by connecting individuals and organisations so that they can interact in ways not
otherwise possible, launching non-linear increases in utility. Cloud-native platforms
leverage digital interoperability to extend positive network effects across borderless
communities of providers and consumers, capturing an ever-growing share of users’
life value. They truly can revolutionise the way industrial products and services are
conceived, designed, produced, and distributed.
Did you take an Uber for your morning commute? You booked that on a digital
platform. Did you read about this book on LinkedIn while slacking on your job? You
found it on a social media platform. Was it delivered to your doorsteps by Amazon
Prime in less than 24 hours? You ordered it on an e-commerce platform.
Not all products and services can be conveniently reinvented inside outcome
economies. This is particularly true for regulated and highly asymmetrical industries
like financial services. First of all, regulation is a foundational industry backbone
since the cost of default cannot usually be subsidised privately. Therefore, fintech
innovation is often asked to develop inside sandboxes, although platform economics
can only be tested on large-scale real-world interactions. Second, a key role of reg-
ulation is to protect the final clients who are facing information asymmetries, which
permeate the consolidated practices of financial intermediation. Typically, platforms
flourish in traditionally asymmetrical markets because they add value by reducing
asymmetries through direct access to more or better information (e.g., markets for
used cars). However, this process of disintermediation is more complex for banks
and fintech because financial asymmetries are a double-edged sword. They are based
not only on information but also on human biology, as described in Sironi [1].
A novel understanding of what is really going on in banking and financial
markets is required in order to succeed with digital transformations. On one hand,
information asymmetries result in higher intermediation costs that digital platforms
can challenge by competing on cost convenience. On the other, they reveal a “bio-
logical” obstacle to full digital adaptation of client habits that cannot be eased with
better information without a transparent communication effort, centred on human
relationships. This human-centric approach to lower information asymmetries is
business-critical, and it refers to how clients deal with financial uncertainty when
taking clever financial decisions in consuming higher margin offers. In fact, digital
technology is not a level playing field across industries. Financial services require
a deeper understanding of the biological micro-foundations of financial markets to
succeed in fintech innovation. Silicon Valley was wrong to assume that behavioural
patterns are aligned when people purchase on Amazon compared to when they save,
borrow, or invest with Goldman Sachs. They are not.
Introduction 3
How can these problems be addressed and resolved? This book answers all these
questions, and provides practical building blocks, an innovative mindset, and key
strategic perspectives to succeed in fintech innovation on platform economies across
banking and non-banking ecosystems. Financial institutions are already updating the
traditional business models that were conceived inside output economies and are
striving to generate more business value in order to remain relevant in a transpar-
ent world, composed of outcome economies. Strategic investments in trusted data
architectures and artificial intelligence (AI) are a necessary step to dismantle out-
dated data silos across business units and increase the amount of information shared
on open banking platforms. Also, core communication capabilities, both digital and
human, have to be strengthened by infusing AI into all business critical processes. In
order to achieve this gargantuan effort of digital transformation, what is needed are
clear strategies that match corporate ambitions, the competitive landscape, the effec-
tive maturity of exponential technologies, and the digital adaptability of consumers
and ecosystems.
THE BANKING REINVENTION QUADRANT
Business and technology leaders can navigate these uncharted waters by following
the compass of “higher business value” on the Banking Reinvention Quadrant
(BRQ), as shown in Figure 0.1. The BRQ illustrates how to transform information
systems (i.e., core banking) and communication systems (i.e., digital interfaces and
human relationships) to reach the higher BRQ spaces, calibrating the intensity of
the information and communication strategies. The Information Quotient (IQ) is
the “technology” axis and represents the level of openness in the use of internal
and external data. It guides the shift from monolithic core banking to hybrid
cloud platforms, fostering the participation of partners and complementors. The
Communication Quotient (CQ) is the “business” axis and represents the intensity in
the use of AI to support digital relationships and new advisory models. It transforms
the value-generating interactions between financial institutions and clients.
Following the compass provided by the theory and principles of Financial Mar-
ket Transparency (FMT), the industry is developing from offer-driven propositions
(i.e., pushing mechanisms) to demand-driven consumption along user journeys
(i.e., pulling mechanisms). This corresponds to two distinct platform models:
Banking-as-a-Platform and Banking-as-a-Service. In the first platform model, the
bank owns the customer relationship, and integrates services from fintech and other
providers to complement the offering. In the second platform model, the customer
relationship is owned by the non-banking platform, which integrates services from
the bank. Banks and fintech can participate in non-banking platforms as partners and
complementors, or decide to orchestrate final ecosystems as sponsors and managers.
This book discusses the strategic evolution of these models, and identifies the two
Increasing
Information
Quotient HIGHER
BUSINESS
VALUE
ECOSYSTEM
CONTEXTUAL
BANKING
OUTCOME
OPEN
CONSCIOUS
INFORMATION QUOTIENT (IQ)
PLATFORMS
BANKING
Evolution of
ECOSYSTEM
Banking-as-a-Service
CLOSED
and Non-banking
Platforms
Evolution of
OUTPUT
Banking-as-a-Platform
PRODUCTS
SERVICES
Increasing
Communication
Quotient
TRADITIONAL DATA-DRIVEN TRANSPARENT
LOWER DISTRIBUTION DISTRIBUTION INTELLIGENCE
BUSINESS
PUSHED PULLED
VALUE
COMMUNICATION QUOTIENT (CQ)
FIGURE 0.1 The Banking Reinvention Quadrant
strategies that leverage them to generate the highest business value on the BRQ,
namely, Conscious Banking and Contextual Banking.
CONTEXTUAL AND CONSCIOUS BANKING PLATFORM

STRATEGIES
Contextual Banking and Conscious Banking occupy the highest business value spaces
on the BRQ. Contextual Banking excels in IQ, and makes Banking-as-a-Service capa-
bilities strategically invisible inside non-banking areas. Banks and fintech can lever-
age open finance frameworks to streamline value-generating interactions, and let
standardised offers be consumed in a personalised way at the right time and at point of
need. Conscious Banking excels in CQ, and allows Banking-as-a-Platform models to
be transparently visible, and stay relevant in front of end-clients, who are enabled
to understand the value of banking propositions. Open finance capabilities enable
holistic planning frameworks to guide the interactions between clients and trusted
advisors. In both cases, business leaders are asked to realign stakeholder incentives,
lowering the barriers separating business lines and opening up the organisations. Also,
technology leaders must redesign business architectures on compliant and secured
hybrid cloud platforms, gaining speed and flexibility to extend into adjacent indus-
tries and rebundle micro-services into innovative business models.
Introduction 5
This book touches on all the key aspects of the digital transformation in financial
services, and helps revenue-generating mechanisms to evolve on platform economies
from “outputs” (banks as distribution channels of products) to “outcomes” (banks
as transparent enablers of added-value experiences that support clients to achieve
their personal, financial, or business goals). The Global Financial Crisis (GFC) and
the COVID-19 outbreak heightened the existential need to rethink the scope and
structure of financial services, scouting for more symmetrical benefits to be shared
among shareholders and stakeholders across banking and non-banking ecosystems.
CEOs, business and technology leaders, innovators, start-up entrepreneurs, regula-
tors, scholars, and all readers interested in banks and fintech will better understand
the idiosyncratic challenges of the financial services industry in order to succeed in
outcome economies.
Essentially, exponential technologies enable platform innovation. Yet, only
a human-centric perspective can build more inclusive and added-value platform
economies, on which clients are supported in their life and business journeys
punctuated by clever financial decisions. This human-centric starting point (i.e.,
anthropological or biological) originates in the theory of Financial Market Trans-
parency, whose principles underpin the core messages of the book. Transparency is
a real make-or-break enabler for sustainable digital transformation.
ORGANISATION OF THE BOOK
The book is organised into three parts (Figure 0.2), helping readers through this learn-
ing experience about banks and fintech on platform economies:
■ Part I Foundations of Platform Theory

■ Part II Reinventing Financial Services
■ Part III Leading Platform Strategies
PART I FOUNDATIONS OF PLATFORM THEORY
Part I is dedicated to the essentials of platform theory. Core principles are reviewed,
while also introducing the idiosyncrasies of financial services. Readers will gain
from a deeper understanding of four business aspects. First, they will understand the
mechanics of outcome economies. Second, they will learn the relevance of users’
motivation and how platforms can address this. Third, they will appreciate how
business and technical openness can fast-track innovation. Fourth, they will position
platform governance in the light of financial market transparency to unlock business
value, and differentiate in a sustainable way when facing intensified competition
composed of bigtech contenders.
FIGURE 0.2 Organisation of the book
Chapter 1 answers the initial question: “What are platforms, and why do they
usually win against linear industries?”. An overview of general platform theory is
provided, without restricting it to the target fields of banking and financial markets.
Digital innovation is transforming all the relationships among producers, distributors,
and consumers from linear supply-chain mechanisms (i.e., output economies) to mul-
tisided ecosystems (i.e., outcome economies). Overall, clients are always demanding
the same thing: fulfilling their needs with frictionless user experiences at convenient
prices. This is what digital platforms typically enable.
Chapter 2 is about trust, and pushes the readers to make the first steps in plat-
form building. It answers the question, “How can platforms be launched, and par-
ticipants gain sufficient motivation to interact?”. Successful platform journeys are
made up of three stages: (1) launching the business; (2) consolidating its value; and
(3) helping it endure against internal and external threats. In this context, digital plat-
forms can thrive only if they generate positive network effects. The chicken-or-egg
dilemma needs to be resolved at the lowest possible prices: consumers shop where
they find either the best or the most convenient producers; producers sell where they
find enough motivated clients. Trust is the gasoline that kicks off the network effects
and makes them endure, whatever the industry. And trust is of particular relevance in
banking and financial markets, given the nature of the business.
Chapter 3 is about openness to answer the question: “How can established
platforms make money on open data and interactions?”. Opening up to the free
contribution of platform complementors accelerates and strengthens platform eco-
nomics. At the same time, platform providers must close business interactions when
Introduction 7
appropriate, control financial chokepoints, and fend off competition. Platforms are
more likely to succeed when participants and complementors make more money – in
aggregate – than platform providers. Enforcing unsuitable monetisation strategies
runs the risk of depressing positive network effects and damaging the generation
of shared value. Learning the most appropriate level of openness is never easy,
especially in financial services. Banks tend to be closed institutions, and typically
ring-fence access to clients and data.
Chapter 4 is about governance, and focuses on how to maintain long-term com-
petitive advantages. It answers the question: “Which governance models make plat-
forms resilient?”. Good governance helps to prevent platform failure and beats the
competition of external innovators. Adaptive governance maintains the right balance
between openness, regulation, curation, and monetisation. Data and insights must
be collected in a timely manner, and done right from the start, in order to guide
the governance decisions that are facing high business uncertainty. Clearly, business
uncertainty is not welcome in regulated industries like banking, which makes adaptive
governance a more complex tool. Transparency starts to emerge as the key opera-
tional principle that allows a fruitful reconciliation between platform governance and
banking regulation.
PART II REINVENTING FINANCIAL SERVICES
Part II focuses on financial services and fintech innovation.

Chapter 5 is about business value, and answers the question: “How do bank
business models change in the digital world?”. Banks are currently operating under
a new normal which is composed of low to negative interest rates, high costs of capi-
tal, depleted interest rate margins, contracting intermediation margins, and intensified
digital rivalry. Transformation is a matter of survival, not only of competition. Banks
and fintech compete to rebuild and gain client trust, differentiate from each other
with technology to improve the user experiences, and generate more value for the
communities they serve. Advanced contenders work on Banking-as-a-Service and
Banking-as-a-Platform architectures to attain higher business value on the Banking
Reinvention Quadrant. Readers will learn how banks and fintech can leverage the
essentials of platform theory to embed banking offers in adjacent ecosystems, as in
Contextual Banking. They can rebundle services into advisory and planning plat-
forms, as in Conscious Banking.
Having defined the path forward, what has prevented financial services from
expediting the digital transformation in the outcome economy? The reasons are dis-
cussed in Chapter 6, which is about fintech lessons learned. It addresses the ques-
tion on everybody’s lips: “Why has fintech not yet disrupted financial services?”.
Silicon Valley misunderstood banking and fintech, as it did not understand that mobile
is a demand-driven technology (i.e., ecommerce clients typically “pull” products
and offers) while the revenues that matter the most are generated by offer-driven
engagement (i.e., clients are “pushed” towards financial products and offers). Readers
will learn how to place an offer-driven industry on a demand-driven technology,
demystifying and redefining three buzzwords: disruption, digital, and unbundling.
Chapter 7 is about key enabling factors and focuses on legacy leadership and
regulation. It answers the question: “How can business and technology leaders gen-
erate higher business value?”. Platform journeys towards Conscious Banking and
Contextual Banking cannot be successful without a mindset shift that sweeps inside
organisations, and across the whole industry. The wind of change starts at the top
with a mindset shift that realigns shareholders’ and stakeholders’ interests (i.e., incen-
tives) fostering more agile and more transparent work places. Also, external factors
like modern infrastructure, digital adaptation of consumers, and proactive regulation
facilitate innovation. All factors are playing in for banking transformation.
PART III LEADING PLATFORM STRATEGIES
The third part provides a comprehensive review of how Banking-as a-Service and
Banking-as-a-Platform architectures enable Contextual Banking and Conscious
Banking platform strategies on a digitally and economically disrupted landscape.
Chapter 8 is about Contextual Banking, and answers the question: “What is
the volume-based invisible future of financial services?”. Financial services are get-
ting progressively disintermediated by bigtech companies, starting from symmetrical
offers made of mobile payments. The opportunity to make processes frictionless leads
to making banking contextual. As a consequence, banking becomes progressively
invisible and embedded into other industry journeys to unlock new value outside
banking relationships. Contextual Banking occupies a very high value space on the
Banking Reinvention Quadrant because it operates inside hyper-scaled businesses
and leverages positive network effects exponentially.
Chapter 9 is about Financial Market Transparency (FMT), and answers the
question: “What is the theoretical anchor that links Contextual Banking and Con-
scious Banking?”. The theory and principles of Financial Market Transparency form
the theoretical framework that encompasses the usage of exponential technologies,
real insights about clients, and regulation. If one of these aspects is missing, it does
not allow the sustainable generation of platform value. Instead, anchoring business
and technology action to the biological micro-foundations of the FMT provides the
theoretical thrust to unlock value through technology and new business models when
facing the instability of open cloud architectures, and that of financial markets. Con-
textual Banking and Conscious Banking platform strategies are based on symmetri-
cal foundations of the FMT, on which information and communication lie. On the
one hand, Contextual Banking providers deal with high complexity in information
management. On the other hand, Conscious Banking providers deal with high com-
plexity in communication management. Both find a solution in the FMT, leveraging
Introduction 9
simplicity of products and processes, and embedding uncertainty in the design of

cloud-based business architectures and relationship-based financial decisions.
Chapter 10 is about Conscious Banking and answers the question: “What
is the value-based visible future of financial services?”. Conscious Banking plat-
form strategies leverage open finance to bundle internal and external offers on
Banking-as-a-Platform architectures, and create holistic value-generating expe-
riences for clients. With the aid of exponential technologies, banks and fintech
can industrialise new financial services platforms that unlock transparent value by
linking in the network – through positive network effects based on consequentialist
ethics – the level of financial consciousness in individuals made part of a newly
orchestrated ecosystem. The result will be an increasing macro-level antifragility of
financial markets, which is more reasonable than searching for illusionary stability
in the presence of fundamental uncertainty.
Finally, the author shares his concluding remarks, reviewing in a last summary
what readers have learnt, certain that they can by then appreciate – albeit not neces-
sarily always share – all the theoretical elements, evidences, and reasoning this book
on banking and fintech platforms provides.
Enjoy reading!
PART
One
Foundations of Platform
Theory
SUMMARY OF PART ONE
Part One presents the aspects of platform theory that are essential elements for banks
and fintech competing on platform economies.
First, the Fourth Industrial Revolution is based on the digital transformation of
entire industries from output economies to outcome economies. This corresponds
to a shift from product-centric revenue mechanisms to the monetisation on client
journeys, as they attempt to fulfill personal, business, or financial needs.
Second, successful non-banking platforms addressed the trust advantage as a
key motivational aspect that invites users to engage in value-generating interactions
across entire ecosystems. Financial services are already asked to address the trust
issue in the aftermath of the Global Financial Crisis. Trust is core to their business,
even more than any other industry.
Third, platform openness is a competitive advantage because it accelerates inno-
vation and promotes network effects. Open banking and open finance regulation and
competition are asking banks and fintech to find new ways to monetise on open
ecosystems.
Fourth, transparency is the core principle of successful platform governance to
remain open − whenever and wherever it is needed − and trusted. Financial Mar-
ket Transparency emerges as the new positive theory that helps banks and fintech to
transform their business models generating value that clients are willing to pay for
accessing it.
The characteristics of output economies, the trust advantage, the dynamic level
of openness, and the transparency principles are the foundations of platform theory
that are needed to better understand how to reinvent financial services in the Part Two
of this book.
13
CHAPTER 1
Platform Essentials on Outcome
Economies
We stand on the brink of a technological revolution that will fundamentally alter

the way we live, work, and relate to one another. In its scale, scope, and com-
plexity, the transformation will be unlike anything humankind has experienced
before. We do not yet know just how it will unfold, but one thing is clear: the
response to it must be integrated and comprehensive, involving all stakeholders
of the global polity, from the public and private sectors to academia and civil
society.
— Klaus Schwab, executive chairman, World Economic Forum [1]
T he fourth industrial revolution is about platforms and exponential technologies,

which interact to reorganise entire ecosystems made up of companies, citizens,
and public institutions. Overall, customers always seem to appreciate the same, fric-
tionless experiences at convenient prices. This is what platforms do best but that is
only the surface. Letting the reality of network effects emerge through technology,
they shift the foundations of entire industries from outputs to outcome economies, and
deeply transform the way users perceive value and demand for services. However,
the transformation to outcome economies is a more complex endeavour for finan-
cial services because of regulatory constraints, and the biological unveiling of core
information asymmetries. The latter shadow the generation and perception of value
across human interactions, as well as on digital. This recognition is the starting point
for revisiting platform theory in the context of banking and financial markets, and
investigating the sustainable evolution of prevailing business models to harvest higher
business value.
15
1.1 INTRODUCTION
The first industrial revolution started in Great Britain around the 1770s with the
adoption of mechanised spinning, which was made possible by high rates of growth
in steam power and iron production. The term “industrial revolution” was coined by
the French envoy Louis-Guillaume Otto in a 1799 letter announcing that France had
entered the race to industrialise. It marked a major turning point in the history of
humanity and labour since homo sapiens started domesticating animals and plants.
It affected almost every aspect of human life, laying the groundwork for the emer-
gence of capitalism. According to Landes [2], the standard of living for the general
population began to increase consistently for the first time in history, opening an era
of progressive per-capita economic growth. At that time, industries were machine-
and labour-intensive, servicing a growing population of consumers in multiple coun-
tries in a very linear fashion: from producers to consumers. A recession followed the
economic boom in 1830s, when the market for energy-enabled innovations matured.
Neither the increasing popularity of locomotives and steamships, nor the appearance
of the electrical telegraph were powerful enough conditions to justify high rates of
economic expansion.
One century after the industrial revolution started, rapid economic growth surged
again in the 1870s. The late 1800s were characterised by rapid standardisation of
production processes, identified as the second industrial revolution or the “techno-
logical revolution”. Widespread deployment of electrical grids and new steel-making
processes allowed the mass production of consumer goods. Serial manufacturing of
machine tools and their interchangeable parts further streamlined production pro-
cesses with the orchestration of more effective assembly lines. The enormous expan-
sion of rail and telegraph lines allowed an unprecedented movement of people. The
epicentres were in the United States, Germany, Great Britain, France, Japan, and Italy.
Social tensions and financial turmoil were not absent, such as the Wall Street Crash
in 1929. The First World War was followed by the devastating Second World War,
leading to a new world order.
Almost two centuries after the industrial revolution began, a third phase of excep-
tional growth started around the 1960s. The third industrial revolution originated
with the mass adoption of computers and digital record-keeping. This “computing
revolution” is epitomised by the shift from mechanical and analogue electronic tech-
nology to digital electronics, which transformed not only production techniques but
also business processes. The invention of the first transistor at Bell Labs in 1947 was
followed by a relentless rate of growth in computing power. According to Moore’s
law, coined in 1965, the number of transistors in a dense integrated circuit will have
doubled every year for a decade. Moore’s empirical predictions, then revised to dou-
bling every two years in 1975, seemed accurate for many decades until around 2010,
when the semiconductor advance started slowing below the predicted pace. However,
the advent of the internet laid the groundwork for a new paradigm shift. By 2016, half
of the world’s population was connected, and cloud computing made data increas-
ingly accessible.
In the late 1990s, Austrian-born business writer Peter Drucker, who advised
top corporations in post-war America, said that “culture eats strategy for breakfast”.
Drucker never meant to say that strategy is unimportant, rather, that an empowering
culture is the most powerful enabler to organisational success. A few years later,
venture-capitalist Marc Andreessen wrote that “software is eating the world” in an
article in the Wall Street Journal [3]. Andreessen was witnessing, then participating
in, the exponential growth of American companies like Google, Apple, and Amazon,
soon followed by Facebook, Twitter, and the Chinese Tencent and Alibaba. Yet,
winners-take-all success is not just about “software” but novel forms of personal
and business interactions, and alternative ways of working and collaborating, which
“digital platforms” enable at an unprecedented pace through exponential technolo-
gies. Currently, a new breed of entrepreneurs is orchestrating digital platforms
to challenge traditional industries. They connect individuals and organisations on
mobile technology so that they can interact in ways not otherwise possible, launching
non-linear increases in utility and value across borderless communities of providers
and consumers. They revolutionise the way industrial products and services are
conceived, designed, produced, and distributed.
Klaus Schwab, executive chairman of the World Economic Forum, named this
new phase of extensive transformation the fourth industrial revolution [1]. This
is largely a “data revolution”, underpinned by internet ubiquity and scale deploy-
ment of artificial intelligence. The data revolution overlaps with the last stages of the
computing revolution, as the fifth generation of wireless technology (5G) becomes
mainstream and quantum computing matures. However, there is a key difference
between the third and the fourth revolutions that sets the latter apart. Essentially, tradi-
tional businesses are being progressively transformed inside-out in a significant shift
of business focus from outputs to outcomes. Exponential technologies are putting
platform economics on steroids to excel on outcome economies, using all means to
make the fourth revolution a platform revolution.
Currently, the most valuable firms on the planet are platforms. The total market
capitalisation of the five largest US stocks accounted for nearly 20% of the S&P 500
index at the beginning of 2021 (Figure 1.1), and they are all platforms (i.e., Apple,
Microsoft, Alphabet, Amazon, and Facebook). Similarly, Alibaba and Tencent are
the most valuable companies in Asia.
It is now clear that “platforms are eating the world”.
1.2 PLATFORMS AND ECOSYSTEMS
Platforms are not at all a modern phenomenon, although digital technology is forcing
a winner-takes-all advantage. The telephone network is one such example.
Apple 6.5%
Microsoft 5.6%
79.8% Other Amazon 4.2%

Facebook 2.0%
Alphabet 1.9%
FIGURE 1.1 Composition of the S&P 500, early 2020
Alexander Graham Bell patented the first telephone device in 1876 to transmit
vocal or other sounds “telegraphically” for the conduct of business and trade. He
founded American Bell Telephone in 1885 to operate local networks. He rebranded
it American Telephone & Telegraph (AT&T) in 1899 to operate long-distance ser-
vices to run the US monopoly on telecom operations in the early 1900s. Initially,
telephones were leased in pairs to subscribers, who had to arrange with telegraph
contractors to deploy a line between them (e.g., one phone for their home, and one
for their shop). Users who wanted to speak to different stores and suppliers would set
up multiple pairs of telephones until switchboards were introduced. As the telephone
system grew, its value extended beyond the initial one-sided dimension to create a
multi-sided platform, enabling billions of people to talk around the world. Clearly,
while telephone networks were connecting only individual pairs of users, or small
clusters, exponential value could not be generated. However, as more users started to
onboard, more people wanted to connect to a telephone line for very different pur-
poses ranging from residential use to long-distance business calls. Adding users did
not add value linearly but scaled the telephone platform exponentially (Figure 1.2).
Microsoft DOS is a more recent platform example, which well describes the traits
of the computing revolution. In 1980, IBM was planning to introduce a personal com-
puter (PC) for business use. Bill Gates, at the time a 25-year-old talented programmer,
was commissioned for less than one million dollars in fees and engineering work to
build the MS-DOS operating system. Microsoft, which Gates co-founded with Paul
Allen in 1975, was granted the right to bundle DOS with a suite of programmes running
on the IBM PC. As reported by the Wall Street Journal in 1986, there were no addi-
tional fees or royalties but the exclusive right to license other manufacturers. Trading
away the basic operating system to IBM, yet retaining the licensing right, allowed Bill
Gates to create a platform for a fast-growing hardware and software industry centred on
IBM compatibility. Microsoft leveraged the MS-DOS platform standard in the 1990s,
bundling the operating system with Office. Allowing the Microsoft Software Devel-
opment Kit (SDK) to be accessed – at no cost – by third-party developers ignited
single pairs multiple pairs
switchboard exponential
FIGURE 1.2 Telephone networks
positive network effects across the programmers’ ecosystem, which resulted in an

impressive proliferation of applications for DOS and Windows.
Today’s digital platforms are asset-light venues or technical solutions that gen-
erate value by facilitating interactions among participants without taking part in the
transactions themselves, or the generation of products and services exchanged. Typi-
cally, their open infrastructure and governance rules are designed to allow high levels
of participation, driving positive network effects to grow. As data is becoming increas-
ingly open and free, digital platforms are positioned to benefit even further. They
create unique value propositions for final users by opening traditional value chains,
innovating the way value is exchanged, and expanding their attractiveness with the
orchestration of entire ecosystems.
So then, what is the difference between a value chain, a platform, and an eco-
system, and how do they intersect and re-engineer the value chains? Porter [4] defined
the value chain as a set of output-oriented activities that a firm, operating in a specific
industry, performs linearly in order to deliver valuable products (i.e., goods or ser-
vices). Porter’s definition has proven particularly useful to describe the linked chain
of activities performed in the physical world by traditional companies. However,
although examples of value chains can be found in the digital world, the dema-
terialisation of products and services accelerates the transformation of value engi-
neering towards new forms of interactions, that open up the binary buyer-seller and
producer-distributor relationships to multi-sided interactions. Norman and Ramirez
[5] introduced the concept of the value constellation, in which value is generated by
the positive exchanges and interactions between the nodes of a network made up of
relatively autonomous units (e.g., firms, consumers, media, or regulators) that can be
managed independently but operate together or compete under a common set of rules
(i.e., governance). Ecosystems are composed of multiple stakeholders’ nodes that are
connected through single or interpretable networks that digital platforms reveal or
allow to orchestrate anew.
Shapilov and Burelli [6] observe that platforms and ecosystems are not the same.
They can coexist, or not, inside a business model with four permutations that corre-
spond to four different value propositions, which are here re-edited (Figure 1.3).
■ Single value chains. Value is generated by stand-alone interactions between buy-

ers and sellers, without any further connection between consumers or through
the business relationships of the sellers. For example, book shops are neither
platforms nor ecosystems as clients interact with the resellers and cannot access
deeper levels of the traditional value chain (e.g., book authors or publishers).
Brick-and-mortar retail banking is another example of value chains centred on
the sale quantifications of pre-selected financial products intermediated with the
clientele.
■ Digital value chains. Value is generated by enabling specific transaction types
between two parties, regardless of the nature of the underlying exchange.
E-commerce websites are platforms that channel the interactions between a
panoply of sellers and buyers within the specific constraints of intermediated
relationships. Amazon users can find the wanted products on a personalised
shelf, and further research without the intermediation of a physical, thus limited,
marketplace. Similarly, Allfunds is a platform enabling a cost-efficient distribu-
tion of financial products and related services. Self-directed professional users
can scout and access a catalogue of investment opportunities without the need
of further intermediaries. Digital value chains are still product-centric. As such,
fully digital robo-advisors are still product-centric value chains as they focus on
model portfolios with limited capability to personalise client journeys. Financial
assets are largely commoditised (i.e., model portfolios), while only liabilities
(i.e., goals) can generate true personalisation in the advisory relationship.
This explains robo-advisors’ limited capability to generate value on platform
economies: they can neither contextualise into adjacent ecosystems, nor can
they generate financial consciousness, as discussed in the rest of the book.
■ Bundled value chains. Value is generated through the informal orchestration
of ecosystem interactions filtered by priorities, which can be accessed by final
users through traditional engagement models. For example, a private equity
firm coordinates the aggregation of a variety of management capabilities and
business competences supplied by internal experts or specialised contributors.
They all concur to add value to the acquired firm, which benefits from the
dedicated coordination of capital resources and human skills. The private equity
firm builds specialised ecosystems, aggregating into a bundled offer otherwise
separated from value chains, but it is not a platform.
■ Digital ecosystem platforms and value constellations. Value is generated
by allowing the participants of an ecosystem to interact through different and
complementary contributions, which are facilitated by sharing data and insights
about user preferences and needs. Value shifts from outputs to engagement
outcomes, thanks to hyper-personalised experiences. While value-chain outputs
are fairly homogeneous, outcomes are all different because they are a function
of hyper-personalisation. For example, social media platforms are highly non-
linear businesses. They attract an impressive number of participants, and lock
their interactions inside win-win situations, exhibiting moderate or high levels
of openness in the form and content of their exchange. Wealth management plat-
forms are turning into holistic financial planning offers that hyper-personalise
the investment relationship, and allow value to be generated as a function of
the transparent interaction between professional and non-professional parties,
instead of being sourced from the distribution of highly commoditised financial
products. Digital ecosystem platforms are user-centric.
BUNDLED VALUE CHAINS DIGITAL ECOSYSTEM

PLATFORMS AND VALUE
CONSTELLATIONS
yes Output value is in the Outcome value is in the

bespoke collaboration hyper-personalisation of client
(aggregation) among multiple engagement across multiple
value chains. journeys.
Ecosystem
SINGLE VALUE CHAINS DIGITAL VALUE CHAINS
Output value is in the linear Output value is in the digital

no orchestration of manufacturing disintermediation of
and distribution of products. manufacturing and distribution
of products.
no yes
Platform
FIGURE 1.3 Value permutations between platforms and ecosystems

Digital ecosystem platforms exponentially leverage positive network effects

between participants of large networks. Not only can they transform business
relationships inside out of existing ecosystems (e.g., Uber re-engineering the taxi
industry). They can also generate their own ecosystems letting new views emerge
about economic reality (e.g., Facebook affecting the way people define their own
self-identity in a continuous tension between physical and digital life). The real,
and somehow discomforting, prowess of the fourth industrial revolution is that
digital platforms are gaining the ability to learn a deeper understanding of human
reality (e.g., social media interactions). This happens at the aggregate level of the
ecosystem, as well as the hyper-personalised component of each user.
On one hand, exponential technologies allow the reality of network structures to
emerge for platforms to engage with it. The transparent emergence of “deep” reality
also allows technology to catch the real forces at play within economic, political, and
social ecosystems, since the network is completely exposed. Therefore, new internal
ethical considerations and external regulatory requirements must step in to maintain a
fair and common level playing field. On the other hand, exponential technologies also
allow platforms to design “new” views on reality. In this case, unknown opportunities
can arise to potentially free new ecosystem value to be shared (i.e., a positive impact
on reality, such as financial inclusion), or exploit the network by deforming views of
reality (i.e., a negative impact on reality, such as fake news).
This book addresses these ecosystem tensions by anchoring platform strategies
in financial services to the theory and principles of Financial Market Transparency
(FMT), as presented in Sironi [7]. This work addresses the emergence of conse-
quentialist ethics inside the network effects of banking and non-banking ecosystems,
enforcing regulatory transparency on incentives, costs, and consequences of financial
intermediation.
1.3 INNOVATING FROM OUTPUT TO OUTCOME ECONOMIES
The intersection between platform economics and exponential technologies is accel-

erating the transformation of industrial and economic systems from traditional output
economies to digital-oriented outcome economies. The way goods and services are
conceived, designed, produced, and distributed on outcome economies abandons the
shore of incremental changes in the efficiency of distribution channels, and leads to
an effective redesign of traditional value chains and ecosystem interactions around
holistic user experiences and engagement.
Output economies correspond to industries configured in the form of linear
value chains. They connect makers of raw material to assemblers of final products
through manufacturers, finally distributing goods to final consumers through mul-
tiple channels (Figure 1.4). Established business models allow manufacturers and
consumers to trade in products that deliver certain results. For example, BMW wants
raw materials components final products channels
suppliers manufacturers assemblers distributors clients
$ $ $ $
FIGURE 1.4 Linear business
to organise its production plan to sell 100,000 units of the new 7 Series car within one
year. BMW starts by designing the new vehicle, prototyping the product, organising
the production line with the work of specialised suppliers and assembling the final
goods. The new cars are then distributed to licensed dealers internationally, where
consumer demand meets BMW high-quality supply. In this example, the core chal-
lenge of the German carmaker is about “selling 100,000 private vehicles in the year
ahead”. The business focus is about discrete sales figures or quantities.
Usually, added value is accumulated at every step of the process in an incremental
fashion, augmenting the final costs borne by consumers. These linear value chains are
then optimised by means of manufacturing and logistic decisions based on analytics.
Outcome economies, instead, correspond to business decisions that focus on a
deeper understanding of users’ needs, and are based on imagining alternative and
personalised ways to achieve the desired results. Typically, platform models allow
producers and consumers to share, through non-linear interactions, “value units” that
do not necessarily correspond to products (Figure 1.5). These non-linearities permit
network effects to increase almost exponentially. In essence, outcome economies trade
in the results themselves, which take the form of users’ experiences. For example, the
strategic mission of ShareNow is to mobilise users by deploying a fleet of Smart,
Mercedes-Benz, BMW, and Mini cars with a one-way point-to-point car rental. The
aim is to allow a large number of Berlin citizens to commute point-to-point in a given
year. Compared to traditional business models, the core challenge shifts from tracking
the production units of cars to enabling the highest number of people to travel. The
value chain of the automotive industry disintegrates, and the interaction of all actors
with regard to final users is reorganised to focus on perceived benefits along their
journeys.
Typically, digital platforms operating in outcome economies are asset-light and
exhibit huge revenue potential but cannot succeed without a deeper and instantaneous
understanding of customer needs and preferences that traditional businesses do not
have. Customers’ engagement is to be re-thought by infusing artificial intelligence
and data analytics to create seamless experiences that win user trust. It is essential
to hyper-personalise and hyper-contextualise user interactions at convenient prices.
Building a platform or joining an ecosystem becomes essential to stay relevant in any
industry and keep up with the speed of innovation.
platform
business client
business client
business client
FIGURE 1.5 Non-linear business
Reinventing an industry from outputs to outcomes is complex. It requires the

adoption of unconventional innovation strategies that pull traditional business archi-
tectures and organisations inside-out. Thinking in a linear fashion and thinking in
platforms are opposites, and the history of Apple is one example. Once there was
a time when Steve Jobs thought in a linear fashion. There was a second time when
he was thinking in platforms, making Apple the first ever trillion dollar company in
2019.
1.4 LINEAR AND NON-LINEAR THINKING
Apple Macintosh has always been recognised for good quality and design since the
first version appeared in 1984. Yet Macintosh lagged for many years behind its com-
petitors running on MS-DOS. The success of Microsoft derived from the higher
degree of openness of its operating system, encouraging an ever-increasing number of
complementors to significantly extend what users could do with their PC. In essence,
MS-DOS was built as an open development platform, fostering a high innovation
cycle to meet consumer demand, while Macintosh was designed as a good qual-
ity “closed” product that reduced its appeal to a niche of users. The hardware was
more expensive and not scalable, due to the lack of DOS compatibility. Third-party
software producers had to pay for programming languages and databases to build
Mac-compatible applications.
The beginning of a new era of design thinking started with the launch of iTunes
in 2000, and its Windows-compatible version in 2003. Basically, Apple embraced
platform principles and learned how to take linear businesses to the next level of
outcome economies, starting with the music industry. The music industry used to
assemble content from artists and distribute their product through retail shops. The
business model was very linear and inflexible. Feeding music to iPods using iTunes
software removed value chain inefficiencies. Listeners could start connecting directly
to producers and artists, while Apple orchestrated the match-making filtering for pre-
ferred music content. The music industry focus shifted from the linear distribution
of content to the coolness of the Apple experience, in a clear demonstration of the
prowess of outcome economies. The positive network effect kicked in to do the rest.
Putting clients to the forefront and centre is a necessary precondition but not
enough to allow monetisation. Cupertino’s turnkey ability resulted from keeping con-
trol of essential financial chokepoints, closing the platform where it made sense.
Music content could be loaded on iPods by iTunes only, which was also available
on PCs. This feature channelled the aggregation of buy-sell activity onto the Apple
marketplace. Instead, MP3 players were source-agnostic, which reduced competi-
tors’ capability to retain value. The design excellence of the iPod generated feedback
loops among users of the new gadgets, which propelled positive network effects for
the use of the iTunes software. When the first iPhone hit the market in 2007, iOS
was configured as an open development platform. Apple extended its marketplace to
feature an App Store. Initially, the transaction platform featured only 500 apps. As
of 2020, the store was hosting more than 2 billion apps, making it the most valuable
mobile platform in the world. While in 2019 Apple owned less than 15% compared
to Android’s 85% of market share in the global mobile handsets industry, its App
Store harvested almost 80% more revenues than Google Play, according to research
company SensorTower.
Essentially, Apple iOS was born as a development platform to attract an ecosys-
tem of interested developers worldwide. They were all allowed to interact with final
users through the Apple App Store only. The Apple Store is a transaction platform,
on which over one million of third-party complementors showcase their innovative
apps, increasing the value of the iPhone. Apple would have never been able to inno-
vate that much, and so fast, by owning all of the IP related to each new app, or by
overly restricting the way they were created and distributed (Figure 1.6).
1.5 PLATFORM TYPES
As the history of Cupertino reveals, there are two major types of digital platforms:
development and transaction platforms. The first are more technically focused,
with regard to the interactions among users and contributors. The second are more
business-oriented, with regard to the onboarding of final consumers.
Development platforms are technological workspaces and frameworks shared
by ecosystems of developers to create new complementary products or services. The
higher the utility of the complements, the more useful and valuable is the platform
for all existing and prospective participants, and the stronger become the positive
180
180
140
135 130
downloads in billions
100
90 85
75
60
50
45 35 40
30
25
15 18
6,5 7 10 14
1,5 3 4 5
0,01 0,1 1
0
Jul. '08
Sep. '08
Apr. '09
Jul. '09
Jan. '10
Apr. '10
Jun. '10
Sep. '10
Oct. '10
Jan. '11
Jun. '11
Jul. '11
Oct. '11
Mar. '12
Jun. '12
Sep. '12
Jan. '13
May. '13
Oct. '13
Jun. '14
Oct. '14
Jun. '15
Jun. '16
Sep. '16
Jun. '17
FIGURE 1.6 Cumulative number of apps downloaded from Apple App Store, 2008–2017
(in billions)
network effects. Value is generated by facilitating and streamlining development

tasks. Typically, users access an underlying product and leverage a software-
development framework. For example, Apple iOS is a development platform
granting app developers a framework to create their solutions and let clients down-
load them through the Apple Store, available on consumers’ iPhones. Similarly, a
high number of software complementors can innovate by leveraging on MS-DOS
compatibility, and let clients install their solutions on personal computers. In the
context of this book, Banking-as-a-Service models are development platforms.
Transaction platforms allow users and producers to connect and share infor-
mation, to trade goods, or to orchestrate services. Marketplaces are venues allowing
match-making between buyers and sellers, like Amazon and Airbnb. Social media
networks are platforms on which users interact directly to share pieces of information
as “value units”, such as Facebook and Twitter. Instead, data platforms allow users to
interact indirectly by crowdsourcing information on specific topics like rating restau-
rants on TripAdvisor. Transaction value is identified in the frictionless enablement of
buy-sell intentions or content sharing. Clearly, value grows with the number of par-
ticipants, and the number of successful and positive interactions. The most prominent
social networks (e.g., Facebook, Instagram, and LinkedIn) were born as transaction
platforms on which the sharable value units are pictures, thoughts, or personal com-
ments. Users can be consumers as well as producers of value units, and they are
rewarded by other users who put their “like” or reshare content with their network of
friends. Instant gratification is the currency used to reward user interactions. In the
context of this book, Banking-as-a-Platform models are transaction platforms.
Hybrid platforms are also emerging as a combination of development and trans-
action types, which evolve in a continuous search to generate more differentiated
value for all participants, expanding network effects and granting higher economic
opportunities. Hybrid types combine better and faster development of technical inno-
vation with higher convenience and frictionless interaction among all participants.
Blending a development platform into a transaction type, or vice versa, can take dif-
ferent levels of integration. For example, Facebook was born as a transaction platform
to connect people to advertisers. Thereafter, Facebook exposed its APIs on a develop-
ment platform to fast-track the external development of new features that could make
user experiences more compelling and Facebook more competitive. Hybrid platforms
will also represent the most valuable space in the platformisation journey of financial
institutions.
1.6 ABOUT PLATFORMS AND INNOVATION THEORY
Both linear and non-linear businesses have to address innovation with technology.
Development and transaction platforms just do it differently, especially on digital.
Using new technology is not necessarily the same as fostering innovation.
Technology can be defined as any process by which a firm transforms informa-
tion and data, human labour or economic capital into products or services of greater
value. Therefore, digital advice, instant messaging, GPS location could all be defined
as technology in the economy of this book. Technology is a process which evolves
over time, both inside and outside individual firms. The introduction of new technol-
ogy modifies the way firms operate or customers access services and products.
Innovation, instead, can be defined as any change in the use of technology which
is often reflected in new business models. Such a change can be disruptive or sustain-
ing. Sustaining innovation refers to improvements in product performance, being of
an incremental nature or more radical, that improves the quality of firms’ offer, fends
off competition or increases commercial margins, by operating either on lower costs
or on higher prices. Disruptive innovation, instead, might well result in worse prod-
uct performance, at least in the near term. Such revolutionary products are usually
cheaper, simpler, or more convenient to use and appeal to new customers or cre-
ate new needs in the clientele. Disruption is not a one day to the next event, and its
economic advantages are truly measurable only after the disruptive inflection point,
when new technology offers a path ahead to generate further improvements (i.e., fur-
ther sustaining innovation). That means a path towards higher and more sustainable
margins. Typically, linear businesses face two challenges in their lifetime: (1) decide
how much investment needs to be dedicated to sustaining innovation; and (2) recog-
nise that disruptive innovation can be the ultimate cause of their failure, although such
innovation might seem to be uneconomical in the near term. Financial services are not
excluded from this classic dilemma: “How do sustaining and disruptive innovation
interact to shape the future of industries?”
This question is central to Clayton M. Christensen’s work on the theory of inno-
vation [8–10], which well describes the existential competition in many linear indus-
tries. Christensen’s insightful representation of the interaction between disruptive and
sustaining innovation (re-edited in Figure 1.7), defines an ideal relationship between

industries and products across time and economic performance. There seems to be
a fixed amount of innovation that a regular customer can absorb in any linear indus-
try, hence a capped amount of money that clients are willing to pay to receive better
products or services. That means the incremental value of innovation is asymptotic
to consumers’ perception of value.
Clearly, not all investors are equally constrained due to different preferences or
spending capability. With regard to banking, this permits wealth management offers
across segments to be tiered: retail, affluent, high net worth (HNW), and ultra-high
net worth (UHNW). Markets or segments tend to saturate as time goes by, indus-
tries evolve, technology changes so does investors’ behaviour: no further innovation
can lead to higher business value. This is exactly when disruptive innovation has the
highest chance of succeeding. Missing the timing by being too early might cause new
offers to go unnoticed by consumers because, initially, disruptive solutions are often
seen as a phenomenon confined to less-appealing low-margin clienteles (e.g., retail-
ers) or distant markets (e.g., emerging economies). Yet, disruptive innovation can
downshift the product paradigm across markets and segments, so that customers start
favouring new solutions and embrace new offers. Established players might have no
time to adjust their traditional workflows or business models. Market leaders might
become laggards and new entrants gain momentum, climbing the hall of fame of suc-
cessful brands (e.g., Apple vs. Nokia). However, new entrants have to reignite the
cycle of sustaining innovation to stay relevant and strengthen their business margins
by improving once very simple disruptive products. It is worth noting, modern inno-
vation cycles seem to be shorter than ever as digital technology deploys new business
models much faster, and grows them exponentially, as in the case of platforms.
Performance
rate
ement
improv sustaining innovation
disruptive innovation
Time
FIGURE 1.7 Disruptive and sustaining innovation in linear businesses

The success factor of disruptive offers does not lie in new products per se, but in
their capability to capture client interest as they are ready and motivated. Clients do
not perceive more added value in maintaining established consumption habits, or they
are unable to consume further due to financial constraints. The timing of disruptive
innovation against clients’ readiness is of critical importance. Disruption cannot kick
in if consumers feel that existing products and services are still sufficiently valuable.
Convincing customers about something new is typically expensive, and often does
not reconcile well with low-margin lower-quality offerings.
Do platform businesses, which are outcome-oriented, face the same hurdles
of linear businesses, which are product-centric, when it comes to the relationship
between disruptive and sustaining innovation?
1.7 SHIFTING THE PERCEPTION OF VALUE
Two decades after the original publication of Christensen’s article in 1995, the word
“disruption” is facing an inflationary process and has lost much of its original mean-
ing. The term has possibly been overused to justify any innovation produced in Silicon
Valley or Shenzhen. This is why Christensen, Raynor, and McDonald [11] decided to
reset the tone of the discussion and started updating innovation theory in the light of
platform economies. In their work, Uber was epitomised as an example of sustaining
innovation, not disruption, meaning that Uber delivered only an incremental improve-
ment over the existing taxi industry. That sparked a lively debate. Losing “disruption
status” can be a serious offence in the valley! Christensen et al. state:
Disruptive innovations originate in low-end or new-market footholds.

Disruptive innovations are made possible because they get started in two
types of markets that incumbents overlook. Low-end footholds exist because
incumbents typically try to provide their most profitable and demanding
customers with ever-improving products and services, and they pay less
attention to less-demanding customers. In fact, incumbents’ offerings often
overshoot the performance requirements of the latter. This opens the door
to a disrupter focused (at first) on providing those low-end customers with
a “good enough” product. In the case of new-market footholds, disrupters
create a market where none existed. Put simply, they find a way to turn non
consumers into consumers . . . A disruptive innovation, by definition, starts
from one of those two footholds. But Uber did not originate in either one.
In their review of Christensen’s article, Moazed and Johnson [12] suggest that
Uber, founded in 2009 as on-demand limo services, was indeed an example of disrup-
tive innovation. They claim that UberX was surprisingly ignored in the paper. UberX,
which is the Uber service for the mass market launched in 2012, would resolve Uber’s
disruptive innovation puzzle, as it is a classic low-end market offering. Most likely,
whether Uber is an example of disruptive innovation or sustaining change is not the

key issue of the tender, as Moazed and Johnson also seem to recognise. The point is
that most of the theory of innovation is designed around the linear transformation of
value chains, in which value (and costs) accrue progressively along the manufacturing
process. Instead, what makes platform innovation different from output economies,
is that value generated for all participants no longer follows a linear model. Moneti-
sation can be decoupled from the products and services primarily rendered. As such,
Facebook does not monetise directly on the value units generated by the billion-plus
user-base. The “transactions” are virtually free between the parties: messages are
posted and friends reward them by liking them. Instead, Facebook’s monetisation
model is about advertising, leveraging on data for third-party advertisers or comple-
mentors. Therefore, while disruptive innovation down-shifts a market or allows an
industry to restart from a lower point, platform innovation resets whole industries
to harvest value which was not previously attainable. Successful platforms tend to
substantially change the user perception of value to motivate clients (Figure 1.8).
What truly matters is how user motivation accrues on three different value-based
scenarios: linear down-shifts, linear up-shifts, and exponential resets.
■ Disruptive innovation (linear down-shift). Clients fail to understand the value

of existing offerings or can no longer access such value (e.g., inexpensive Apple
iPods versus expensive Pioneer Hi-Fis, or low-cost robo-advisors versus expen-
sive financial advice). In this scenario, they are willing to embrace new offers,
although initially they might have a lower face value (quality) but higher intrinsic
value (perception).
platform
Performance
innovation
rate
ement
improv sustaining innovation
disruptive innovation
Time
FIGURE 1.8 Disruptive and sustaining innovation in platform business

■ Sustaining innovation (linear up-shift). Clients recognise that new products

have incrementally higher value. In this scenario, they are willing to buy the
products (e.g., Sony CD player versus Philips tape recorder, or financial broker-
age versus holistic wealth management relationships) or upgrade to their newest
versions (e.g., iPhone 12 versus iPhone 8).
■ Platform innovation (exponential reset). Network effects motivate users
(clients and producers) to interact on digital platforms. In this scenario, plat-
forms orchestrate outcomes across entire ecosystems, instead of streamlining
outputs on value chains (e.g., the whole commuting experience with UberX
versus calling a yellow cab).
The common enablers in all innovation scenarios are the changes in the genera-
tion and perception of value. Therefore, researching how clients effectively perceive
value is essential to identify the most effective techniques to digitise any industries.
1.8 BANKS AND FINTECH ON OUTCOME ECONOMIES
What are the main takeaways for financial services operating on platform economies?
Financial services are experiencing a near collapse of their traditional value
chain, which is cornering the industry into unsustainable business models looking
for hyper-scale. This often conflicts with the size of the jurisdictions in which they
operate, the constraints imposed by regulations, and the low elasticity of demand in
persistently low interest rate environments. Technology has been largely seen as an
opportunity to march ahead of the progressive evaporation of revenues. Yet, is this
sustainable?
Key banking revenues are usually generated through linear business interactions
among institutional counterparts (Figure 1.9). Most banking operations are organised
as siloed distribution channels of financial products. They feature a set of manu-
facturers and a list of distributors working with branches, human agents, or digital
interfaces. For example, asset managers trade stocks and bonds on capital markets
to build investment portfolios. These funds are made available to banks, which
bonds, stocks portfolio managers advisors, brokers families
distributors
suppliers manufacturers clients
assemblers
trading fees retrocessions commissions
FIGURE 1.9 Distribution channels in banking and financial markets

“push” them to final clients through brokers or wealth management relationships.

Professional intermediaries make money at every step of the process, collecting fees
and commissions that cumulate to embedded costs borne by the final clients through
financial transactions.
Notwithstanding the similarities to other industries, like music in the case of
Apple, there are some relevant idiosyncrasies that make any attempts to change to out-
come economies more complex. First, final clients do not consume banking products
frequently: loans are often a “once in a lifetime” event, and investment decisions are
not daily in most cases. This reduces the frequency of feedback loops needed to rein-
force the perception of value and hinders the propagation of positive – and ethically
balanced – network effects, no matter how good the users’ experiences. Therefore,
straight-through transaction platforms are harder to build in banking. Second, there
seems to be a stickier price/demand relationship in banking compared to other indus-
tries. Not only are transaction costs not always transparent, but clients themselves
have a hard time linking costs and value due to the biological unveiling of information
asymmetries. As such, this limited capability to understand the final value of finan-
cial intermediation reduces the scalability of self-directed offers without access to
offer-driven relationships that motivate users. Clients’ difficulties and biases in their
understanding of finance, particularly evident in wealth management and insurance,
have resulted in the dependence on human relationships in the last mile of distri-
bution channels that financial technology has a harder time to disintermediate than
expected. This also explains why retail brokerage models that leverage the fear of
missing out (FOMO) in up-trending capital markets tend to gain broader acceptance
than robo-advisors’ offer of digital wealth management. At least, until the markets fal-
ter. Ultimately, the race to zero prices through technology is a self-disrupting modality
that will also put these firms out of business due to the lack of hyper-volumes, or
alternative and less direct monetisation schemes.
As an example, Motif Investing was an innovative social trading platform,
launched in 2010, to popularise thematic investing, empowering users to connect
with trading ideas without the need for professional intermediaries. According to the
CEO and founder Hardeep Walia [13], “We are the world’s first investing platform
made social. We want to take the discussions that are already happening offline and
take them online. People like validation before making a purchasing decision. Our
platform makes it possible to quickly and easily share actionable ideas with your
personal and professional networks.” Motif focused its efforts on letting advisors
and investors build portfolios around specific thematics and economic trends, which
could be shared across a community of platform participants made up of professional
traders and retail investors. However, as the online brokerage industry headed to
commission-free trading due to intense competition, while markets were largely
trending up due to post-GFC central bank stimulus, the value-generating interactions
on Motif Investing platform were not able to stand up against zero-free trading
opportunities. Ultimately, Charles Schwab bought its technology in 2019, and clients
were directed to other investing solutions. The lesson to take away from the downfall
of Motif Investing is that there is value in creating non-linear business models

with innovative technology. However, until the platform operates inside output
economies, there is not enough change in the perception of value among participants.
Thematics are outputs disguised as outcomes, if not deeply anchored to transparent
planning frameworks and goals-based investing principles. Similarly, robo-advisors
are outputs disguised as outcomes, if not anchored to building financial awareness
as opposed to investment automation.
This book addresses the delicacies of banking platform strategies by helping
intermediaries to reset the definition of value with the aid of digital technology. This
unlocks the development of financial propositions from outputs to outcomes inside
transparent advisory relationships, anchored to goals. As such, Part III of the book
will discuss how to re-engineer added-value industry segments to counter the race to
zero prices.
1.9 CONCLUSIONS
Although platforms are not a recent phenomenon, digital technology is thrusting them
forward to shape the fourth industrial revolution. Digital platforms generate value
by facilitating interactions among participants without taking part in the transactions
themselves, or the generation of products and services exchanged. They create unique
value propositions for final users by opening traditional value chains, innovating the
way value is exchanged, and expanding their attractiveness with the orchestration
of entire ecosystems. This is about using data to transform linear businesses from
their traditional output focus and letting them thrive inside outcome economies. The
outcome-oriented engagement among platform core players generates positive net-
work effects, which promote innovation and transactions for an exponential number
of users and producers. Essentially, platforms transform users’ perception of value,
thus allowing innovative ways to monetise on user interactions.
TAKEAWAYS FOR BANKS AND FINTECH
This chapter addressed the following concepts:
■ The platform revolution induces a progressive shift of traditional busi-

nesses from outputs to outcome economies.
■ Inside output economies, linear businesses allow manufacturers and con-
sumers to trade in products that deliver certain results (e.g., how many cars
are sold in one year, or how many assets under management are collected
for monetary funds).
■ Inside outcome economies, non-linear businesses focus on a deeper under-
standing of user needs, and imagining alternative and personalised ways to
achieve the desired results (e.g., how many commuters can go to work with
car-sharing, or how many clients can achieve their personal, business, or
financial goals).
■ Added value is accumulated at every step of the process in linear work-
flows, augmenting the final costs borne by consumers. These value chains
tend to be optimised by means of manufacturing and logistic decisions
based on analytics.
■ In platform economies, producers and consumers share “value units” that
do not necessarily correspond to products. Non-linear value-generating
interactions can trigger network effects, and increment ecosystem value
almost exponentially.
■ Banks and fintech face specific hurdles on outcome economies. Final
clients do not consume banking products frequently (hindering the
propagation of positive network effects). Also, banking exhibits stickier
price/demand relationships that reduce the perception of value through
the sole appraisal of convenience.
■ The power of disruptive innovation is about a linear down-shift of con-
sumption habits, while sustaining innovation enables a linear up-shift of
value recognition. Instead, it is the substantial shift in user perception of
value that allows platforms to exponentially reset entire industries.
CHAPTER 2
The Trust Advantage
We don’t make money when we sell things; we make money when we help
customers make purchase decisions.
— Jeff Bezos, founder of Amazon [1]
T he first challenge for any new-born platforms is to resolve the chicken-or-egg

dilemma. It is not always easy to identify which set of users is more motivated to
onboard first and thus attract the other side, or which side of an ecosystem should be
subsidised to ignite positive network effects. The answer lies on which users can bet-
ter identify what platform value is, and feel incentivised to promote value-generating
interactions. Gaining user trust is the key because it enables all parties to interchange
freely. This is particularly relevant for financial services, given the nature of the busi-
ness and the role of relationships to make financial intermediation possible. There-
fore, digital platforms can unlock value in financial services only if they learn how to
digitise relationships, thus trust, and not products.
2.1 INTRODUCTION
Digital platforms have the power to reset traditional industries. They transform
the production and consumption of products and services from linear pipelines to
non-linear interactions across ecosystems, dominating market share and exerting
relationship power with final clients. However, they have not yet necessarily replaced
economic sectors entirely. Airbnb did not fully disintermediate hotel booking sys-
tems. Uber did not annihilate yellow taxis. Amazon did not force all retailers to close
their shutters. At least for now!
35
In particular, financial services have been affected only partially by platform

threats, although the industry has been relatively slow to embrace fintech innovation
and respond to an accelerated digital adaptation in client habits. First of all,
regulatory constraints tend to limit the entry of new contenders, limiting bigtech
inroads in many jurisdictions. Second, operating on outcome economies requires
serious changes in consolidated business models that many institutions are not ready
to make. Last, but not least, final clients are not always comfortable to self-direct
themselves to consume financial services on digital solutions, at least those services
that currently matter the most in terms of banking revenues. Clients do not always
recognise the value propositions of frictionless experiences beyond the convenience
of freemium models, and will not pay for access. Learning how to reveal the potential
value, and share it with clients through technology, are paramount to success with
fintech innovation. Yet, Silicon Valley did not properly identify what the value is
that clients are willing to pay for, transparently.
It is clear that the generation of shareable value is a core component of plat-
form economies. Not understanding what user value truly is impedes the progress
of platform economics, especially in banking and financial markets. Operating mod-
els are morphed around the management of information asymmetries that shadow
the understanding of value. This is due to clients’ biases and difficulty in perform-
ing financial decision-making under uncertainty. For example, when retail clients
make and execute investment decisions, they buy a financial product. However, the
value of the transaction does not derive from the surface level when buying a finan-
cial product. What truly happens deep inside clients’ psychology is that they buy a
“trusted relationship” with a banker, or a financial advisor. At the same time, pro-
fessional intermediaries show their competence by focusing client conversations on
financial market dynamics, which clients do not necessarily and fully understand.
Indeed, the financial advisors do sell financial products, but without an intensively
human effort of communication that integrates non-financial life conversations into
the transactions, they would not be trusted, and able to sell. According to a survey
by Italian market regulators Linciano, Caivano, Gentile, and Soccorso [2] on what
motivates households to work with financial advisors (human or digital), trust in the
relationship is the number one driver for investment decisions. Trust is more impor-
tant than historical performance, or a richer portfolio of investment products. And
client trust should not be exploited but serviced by reducing opacity and information
asymmetries.
The misunderstanding of the client axiology between a surface – made up of
financial products – and the industry foundations – made up of trusted relation-
ships – has misled the fintech ecosystem. Many banks and fintech thought that the
scope of digital innovation was to digitise distribution channels, and sell financial
products for lower prices. Although convenience is certainly welcome, most banking
clients are quite price-insensitive, especially when it comes to asymmetrical offers
like investing and insurance contracts. Since hidden value is treasured inside advisory
relationships, the scope of digital platforms should be to digitise relationships and
not products. This awareness resets the innovation emphasis on engagement methods
founded on trust, integrating user experiences based on convenience. Building trust
through transparency is a competitive advantage, and a foundational attribute of any
successful platforms based on symmetrical exchange of value.
2.2 ELEMENTS OF PLATFORM CREATION
The cockpit of linear entrepreneurs is composed of multiple levers for the man-
agement and execution of business strategies from design, through production, to
distribution. Value and costs can easily be measured and accrue linearly through
their processes. Instead, platforms orchestrating ecosystems do not fully control the
way value units are generated by the participants. The higher degree of openness
on the bumpy road of innovation makes monetisation efforts less obvious. Platform
entrepreneurs have to launch the business, onboard users, and substantially grow
value-generating interactions. Only then can they finally identify suitable strategies
to make profits based on data and interchanges. Platforms are not a game for control
freaks. On the contrary, it is usually the level of openness that lets them break
through. Understanding what must be essentially owned is strategic, while letting
partners and complementors fight for everything else.
Launching a platform is about resolving the chicken-or-egg dilemma. Producers
go where they can find interested consumers. Consumers shop where they can find
the most convenient products, or appealing brands. Which ones will be the first to
onboard? What are the most effective strategies to motivate users to interact at scale?
Typically, this involves subsidising one side of the platform interplay, sometimes
all sides. It takes capital, effort, and quite often ingenious imagination to ignite
positive network effects that grow platforms in popularity, while curating the quality
of the interactions. As a general rule, the bigger the platform, the greater the value,
the higher the chance to monetise. However, nothing is set in stone. Sometimes,
platforms have to narrow down their scope, and maintain a sufficient quality in
the interactions for users to feel motivated to pay for access or transacting. Access
to new platforms is often free in order to lure in as many participants as possible.
Unfortunately, it then becomes difficult to ask clients to abandon freemium models
without offering something truly relevant in return, incurring the risk of deteriorating
trust. Therefore, the monetisation of non-linear businesses requires lateral thinking
to discover yet unknown ways to retain value on entire ecosystem dynamics.
Collecting data about all user interactions is a precondition. User behaviour must be
analysed, understood, and modelled. Alternative or unconventional revenue options
should be tested. This all requires patience and curiosity along the adventurous
innovation journey. It requires both rigour and flexibility to engage in a dynamic
governance exercise, thus frequently calibrating the level of platform openness.
Platform entrepreneurs are like engineers operating a dam, setting different levels of
curation or letting freer interactions flood in.
2.2.1 The platform challenge

The platform challenge is made up of six essential efforts (Figure 2.1):
1. Motivate users.
2. Activate value-generating interactions.
3. Complement platform offers.
4. Monetise on ecosystems.
5. Govern the new business.
6. Compete continuously.
First, target markets must be analysed without preconceived assumptions about

client expectations. This is especially relevant when challenging highly asymmetrical
industries (e.g., banking and financial markets). Asking user groups might not help:
they are more useful for identifying incremental change, not so much for inspiring
disruptive innovation. Typically, users cannot foresee the added value of completely
new ways of engaging, until network effects kick in, motivating them to experience
platform benefits. Second, activating all the relevant interactions requires resolving
the chicken-or-egg dilemma, which often corresponds to a subsidising exercise. It is
not always obvious which side should be subsidised, and it is not always permissible
in regulated markets. Third, complementing a platform by opening up to third-party
innovation is a strategic way forward to extend available offers and services with
speed and convenience, increasing client engagement and encouraging more partic-
ipative added value. Network effects grow stronger and start consolidating as more
Compete
Govern
Monetise
Complement
Endure
Activate Consolidate
Motivate
Launch
FIGURE 2.1 The platform journey

complementors are onboarded, expanding the number of clients who can be reached
by producers, and vice versa. Fourth, only once platforms have been established, then
ideas for monetising on data and interactions can be tested, and consolidated. Fifth,
governing rules are calibrated and tweaked to preserve the long-term competitive
advantages, shielding the prevailing business model from negative network effects.
Last but never least, competing against new contenders is a never-ending task.
2.2.2 The chicken-or-egg dilemma

Successful platforms enable value creation in non-linear ways, aggregating the moti-
vated interest of a variety of users, not only consumers but also producers. Clearly,
consumers are motivated to spend time where they can visit a sufficient number of
vendors, or they can find appealing brands and products. On the other side, producers
invest to build market presence where they can find a sufficient number of potential
buyers. Each one is necessary to the others. The choice about which comes first is not
trivial.
In the physical world, opening a shopping mall requires careful planning, suffi-
cient investment, good marketing, and a well-informed strategy. Entrepreneurs and
investors ponder on the demographics of target areas. How many households are there
compared to office workers? What is the age distribution of the population? What is
the average household income? Is the area easily accessible by highways or public
transport? Is there a need for a marquee brand which can be offered favourable rent-
ing conditions to attract customers? They start when there is a proper understanding
and a good chance that consumers can reach them. Platform entrepreneurs are also
asked to make plans, and sometimes they adopt similar strategies. However, things are
not so simple, given the virtual nature of their digital business, and the result-driven
dynamics of outcome economies. Resolving the chicken-or-egg problem, and acti-
vating positive network effects, might require lot of venture capital and substantial
risk-taking. Business plans cannot forecast profits, nor expect to reach break-even
point in the short term. Even Facebook had to wait years before identifying the best
monetisation strategy. Parker, Van Alstyne, and Choudary [3] identify seven success-
ful strategies, here reviewed and re-edited: (1) make a splash; (2) small dimensions
count; (3) follow the white rabbit; (4) take a piggy-back ride; (5) seed the ground; (6)
get a marquee; and (7) take one side.
■ Make a splash. The marketing departments of linear businesses fight to build

brand recognition by securing airtime during the Super Bowl. Instead, platforms
must find ways to buy “engagement” instead of “selling” a brand. Success is
not measured in terms of outputs like “How many Jennifer Lopez’s songs were
downloaded after the halftime show?”. Platforms “make a splash” when they
address the question “How many people were motivated to interact generating
value units?”. Onboarding active participants is essential to start positive net-

work effects. For example, Twitter identified a community of initial users that
could easily be motivated to interact, reaching out where and when they would
typically meet. Given the nature of Twitter, people’s interactions needed to be
almost instantaneous, converging the interest of “distant users” on a “specific
topic” at the “same time”. Target users could not be “that far apart”, one from
the other, in the physical world to experience the “digitally distant” niceties
of the 140 characters microblogging service. In 2007, Twitter featured a set of
mega flat screens in the main hallways of the film and music festival South by
Southwest (SXSW), an event of 30,000 attendees. All participants were invited to
send an SMS with a special hashtag to mime the tweeting experience. Messages
were broadcast instantaneously in front of a huge crowd of like-minded people,
all suddenly motivated to contribute and sign up. Twitter brand recognition was
not established by marketing a product, but by allowing users to actively share
relevant value units, that is tweeting experiences.
■ Small dimensions count. The trust advantage is not free. Therefore, identifying
and operating inside the rings of small communities can be a good starting point.
For example, Facebook was launched as a closed platform to share information
among Mark Zuckerberg’s friends at Harvard. Once established, platform mem-
bership was extended to other like-minded college communities. The creation of
micro-communities within each campus allowed Facebook to control and under-
stand initial network interactions. Positive network effects took off when network
interconnectedness was allowed to expand. Students, whose interactions were
previously allowed inside dedicated rings, could start interacting outside their
local nodes making communities a more open and flexible concept, learning to
trust social media engagement with virtual friends well beyond the golden gates
of Ivy League US schools. This openness significantly transformed the scope
and tone of platform interactions.
■ Follow the white rabbit. Alice, a 7-year-old girl in Lewis Carroll’s story Alice in
Wonderland (1865), feels bored and drowsy while sitting on the riverbank with
her elder sister. She notices a talking rabbit run past, and follows him down a
rabbit hole, falling into a new world that challenges her beliefs and transforms
her perspective. For example, Intel partnered with Japanese routers provider NTT
in the early 2000s to promote WiFi connections. WiFi was not widely available,
consumers could not imagine the value of the innovation, and producers could
not envision the existence of a real market. The Intel-NTT partnership was the
rabbit demonstrating real interest from consumers, kick-starting the adoption of
wireless technology on a global scale.
■ Take a piggy-back ride. Launching a platform means organising ecosystems
interactions. Sometimes such ecosystems already exist but can be optimised or
transformed by new ideas or the adoption of new technology. Essentially, inno-
vators could exploit an existing platform, on which users and producers already
trust each other to interact, inviting them to extend their interchange to a new
platform on which experiences are improved. Thoroughly orchestrated strate-
gies result in the migration of entire marketplaces. For example, V.S.S. Mani
was a Mumbai employee for the local yellow pages. He thought that customers
could better access a large database of local businesses by calling a phone desk,
instead of searching manually through existing paper directories. JustDial went
live in 2007. Its database was originally created by digitising the paper content
of Indian yellow pages, and extending them with the door-to-door activity of a
local workforce able to reach out to a myriad of small businesses that were not
listed on the original repository. Enhancing the user experience with the cen-
tralised search criteria by phone, then online, JustDial managed to piggy-back
on the existing yellow pages’ relationships and win users’ trust in the prowess of
an established platform.
■ Seed the ground. Platforms might set the example of value-generating interac-
tions by simulating alternatively both sides of the interplay. For example, in the
early 2000s, PayPal launched a virtual bot that simulated real users buying and
selling goods on eBay. The buying avatar was asking to pay with PayPal, and
the selling avatar was reselling the same goods asking to be paid with PayPal.
Not only did real buyers and sellers come to know about the service. Most of all,
they actively tried the PayPal user experience, building trust in the new payment
method, allowing PayPal to reach critical-mass adoption.
■ Find a marquee. Adopting a marquee is an old marketing strategy. Shopping
malls offer very attractive renting conditions to top brands motivating more shop-
pers and lesser-known brands to rent commercial space. Platforms can also use
marquees but do not focus on brand awareness only. They need “actionable”
marquees to launch value-generating interactions. For example, PayPal offered
new users a $10 cash incentive to open an account or make a successful referral.
Users were motivated to spend the free money online, experiencing PayPal and
building trust.
■ Take one side. Subsidising one side of the interplay can motivate a set of users to
engage and attract more counterparts. For example, OpenTable began operations
by offering a free solution to a selection of restaurants for table management and
reservations. Restaurants that signed up primarily used the back-end software
to replace existing paperwork, table management, and email marketing. Once a
sufficient number of restaurants had onboarded, OpenTable focused on building
the consumer side, promoting the reservation system. This motivated a larger
number of restaurants to sign up to the booking service, for a fee.
There is something relevant that all of these strategies have in common, which
occupies a pivotal role in the platformisation of banks and fintech on outcome
economies. This is about generating a trust advantage, as the core engine that
motivates users to engage. Unfortunately, platforms can start off on the right foot and
evolve into more opaque mechanisms, as happened with social media. The conse-
quence is deterioration of value generation and, potentially, platform collapse because
of users’ dissatisfaction or the intervention of regulators. This is particularly relevant
in highly regulated markets like financial services (e.g., the fate of most peer-to-
peer platforms in China). When it comes to financial services, transparency is the
required fuel to run the trust engine sustainably inside outcome economies, and
avoid collapse, as is already happening inside output economies and opaque value
chains.
2.3 TRANSPARENCY GENERATES TRUST
Motivational aspects are very relevant because digital platforms require users to inter-
act on virtual venues, apps, and websites. Platforms have to match the interest of
individuals and entities which did not previously know each other. Only a deeper
understanding of ultimate human motivations to act and consume allows innovators
to master digital engagement, and launch positive network effects. In the rush to inno-
vate, this foundational element of platform theory is often disregarded. Instead, it
plays a critical role, especially in banking and financial markets.
In this regard, the author of this book wants to share a personal experience. He
was working in investment banking in the 1990s, supporting his brother part-time to
launch an online marketplace called Intrade. They wanted to sell over the internet the
best of Italian products and design: fashion, furniture, food, and travel. Buying design
furniture on Amazon might be common practice today, but it did not seem so normal
back in the 1990s. How to onboard distant producers instead of next-door businesses?
How to simplify payments and make them trustworthy? How to ship goods safely
and cheaply? How to onboard final consumers? All the key questions were on the
table. Notwithstanding entrepreneurial enthusiasm, the marketplace never took off.
Mistakes were clearly made, and too many faulty assumptions were taken about con-
sumer habits. However, there is a major lesson learned that is worth sharing: they did
not crack the code to build user trust, and motivate consumers to interact. Instead,
this is what Jeff Bezos understood, and explained some years later as reported by
Forum-Daily and Harvard Business Review [1]. Jeff Bezos came to recognise that
trust was the root of the problem, hence Amazon found the solution. He understood
what kept many internet users inactive and motivated them to trust e-commerce.
2.3.1 It’s marketing, stupid! or not?

Amazon was born in Seattle as a niche marketplace to sell academic books, soon
evolving into a fully-fledged online store. Already selling to computer geeks is not
the same as selling novels to the general public. Professional communities tend to
know exactly what they want to read. Instead, the general public might need more
support to choose a book. The difference is about buyers’ confidence with regard to
the perceived value of what they purchase, trusting that the book’s content would
match their reading expectations. Jeff Bezos once recalled how often publishers used
to complain that Amazon users could openly share negative reviews on the web-
pages. They insisted that only positive reviews had to be published. “It’s marketing,
stupid!”. Or not? Publishers misunderstood the nature of Amazon, which was not
a distribution channel of books on the internet. Similarly, readers should ask them-
selves if fintech start-ups are distribution channels of financial products on digital.
Rather, Amazon’s role was, first and foremost, to provide advice to its users about
the best book to buy. Advice was needed because readers were not used to buying
books online, could not touch the product and read sample pages, could not speak
to a bookstore manager, and get guidance. Publishing positive and negative reviews
was the necessary mechanism to build trust. Bezos understood that motivating users
to trust the value of their purchases was the first and foremost challenge for Amazon to
turn visitors into consumers. If the motivational element was missing or not would be
a make-or-break feature, especially in financial services. If client motivations are not
properly addressed, no marketing techniques will be truly effective. Meaning, clients
will onboard but will not generate transactions. Therefore, posting negative reviews
was the transparency-based mechanism to generate trust in the platform, turning users
from window shoppers to active contributors of value-based interactions. And trans-
parency is the core governance principle of financial services platforms striving for
higher business value on the BRQ. Clearly, reviews must not be fake and kept free
from potential abuse.
2.3.2 Trust in the middle kingdom

Similarly, eBay was the largest website in the world for online auctions, with 62
million users and over 21 billion dollars of market valuation, when they acquired in
2003 the Chinese website EachNet for less than $200 million. This made the San
Jose-based company the dominant player also in China, owning more than 80% of
the online market. Yet, their dominance faded very fast as the local market devel-
oped and consumers shifted en masse to Taobao, Alibaba’s solution (Figure 2.2).
At that time, Alibaba was not open to consumer-to-consumer markets but was devel-
oping a strong footprint as a business-to-business (B2B) marketplace, facilitating
transactions between third-party businesses (e.g., suppliers to plumbers). In response
to eBay’s EachNet threat, Alibaba launched Taobao (“hunting for treasure”) as a
commission-free marketplace.
Four key decisions made Taobao the preferred solution for the majority of
Chinese consumers in just four years. First, the web design had a busier look and feel
compared to that of the American rival, that was apparently more aligned to Chinese
preferences. Second, Taobao subsidised the marketplace with Alibaba revenues by
making all trades commission-free, with the majority of trade being direct C2C
sales more than C2C auctions. Essentially, while eBay was still conceived as a
second-hand marketplace for middle-class consumers, Taobao became the front
store for micro-shops selling their products online. Third, and significant, Alibaba
could let consumers interact with each other directly through instant messages.
This seemed to better fit local habits and better correspond to the Taobao business
nature and their commission-free set-up. Taobao was not concerned that trades could
be completed offline. However, they had to resolve the trust issue associated with
user-to-user interactions. The solution was found by customising their payment
method to local habits using recognised channels, especially important in the vast
Chinese countryside, where users were not accustomed to using credit cards. Actu-
ally, most buyers and sellers never had a credit card and could not sign up to PayPal,
limiting the number of market participants that eBay could effectively reach out to
inside China. Instead, Taobao’s model was based on escrow accounts set up with
Alipay: buyers’ money would go into an account held by China Post or the Industrial
and Commercial Bank of China (ICBC), to start with, and be released only after
goods were delivered and checked by the receiver. Trust is the essential fabric in any
business. “eBay’s single biggest problem in China was trust” as eBay CEO admitted
to Cusumano, Gawer, and Yoffie [4]. eBay’s operations were withdrawn from China
in early 2007. Technology prowess could not compete with the trust issue.
2.4 THE TRUST ADVANTAGE FOR BANKS AND FINTECH

What is the key lesson learned for banks and fintech? The key message of this chapter
is that winning on platform economies is not only about technology and friction-
less experiences, but also about building a trust advantage to unlock value through
90 %
60 %
30 %
2003 2004 2005 2006 2007
eBay Taobao Other
FIGURE 2.2 The online auctions market in China

technology. According to a survey involving 1,460 bank CEOs, the IBM Institute
for Business Value [5] sourced a critical action guide made of five business priori-
ties. Banking CEOs recognised that transparency is the first priority to win the trust
advantage.
1. Prove transparency, earning (back) trust by learning to use data in a way that
customers view as fair.
2. Earn reciprocity, giving customers something they value in return for their data.
3. Demonstrate accountability, strengthening data privacy policies and
programmes.
4. Double-click on data, repositioning data as a strategic asset rather than a tactical
or operational resource.
5. Future-proof strategies, crafting scenarios involving data to increase personal-
isation and engagement at every touchpoint.
Transparency realigns value generation for all stakeholders, allowing banks to

gain a deeper understanding of client motivations and, on platforms, allowing clients
to gain a deeper understanding of that of the producers. Lack of transparency “by
design”, thus reduced generation of trust, is one of the elements explaining why dig-
ital innovation has fallen short of expectations in financial services, so far. Fintech
entrepreneurs and innovation centres often worked on idealised views of what cus-
tomers want. They confused the attractiveness of free of charge “user experiences”
with what clients might be willing to pay for, inside outcome economies. Thus, they
fell back to thinking about outputs instead of outcomes. The former is about fric-
tionless access, the latter is about value units generated in a non-linear fashion. As
such, plugging better user experiences into linear models, to digitise existing prod-
uct channels, can be essential to improve initial engagement but might not launch real
transformation. Convenience and value do not necessarily appeal to users in the same
way. Clearly, this does not hold true for all products, but it is certainly a critical aspect
whenever the services attached to any products are as relevant as the products them-
selves. In finance, clients often confuse products (e.g., investment funds) and services
(e.g., the brokerage relationship by which they are offered the investment products).
With respect to wealth management, financial advisors and insurance agents sell prod-
ucts (i.e., financial contracts). Implicitly, clients buy relationships, which correspond
to the services these products come with. That is why fintech attempting to digitise
products typically fail. Instead, fintech should learn how to digitise the essence of
investment relationships, sharing knowledge and building financial consciousness.
Platforms operating in non-banking industries could address the motivational aspects
underpinning the chicken-or-egg dilemma by heavily subsidising one side of their
marketplace with venture capital money in a risky gamble that does not aim to gen-
erate sustainable revenues at the start. Instead, regulated financial entities need to
comply with stringent capital requirements, given their role in modern economies,
and the systemic risks they pose. Attempting to grow fast by subsidising users, like
granting unsecured loans without accounting for the risk management price, could
trigger damaging consequences, as demonstrated by the Global Financial Crisis. With
this in mind, the People’s Bank of China took an unprecedented move in 2020 to halt
the multi-billion IPO of Ant Financial. Chinese regulators started enforcing a redefini-
tion of the role and scope of digital platforms, in an attempt to ring-fence their prowess
and ambition to grow “no matter what”. Banks and fintech are asked to find a way into
platform economies that fully complies with regulatory expectations from inception.
Regulators have no appetite for a conflictual Uber-momentum. When the Monetary
Authority of Singapore (MAS) announced the digital bank framework in 2019, which
aimed to enable non-bank players with strong value propositions and innovative dig-
ital business models to offer digital banking services, it required that any applicants
must meet all relevant prudential obligations and licensing preconditions. Applicants
were asked to demonstrate the ability to meet the applicable minimum paid-up capital
requirement at the onset, and the minimum capital funds requirement on an ongoing
basis. They were also asked to demonstrate that the proposed business models were
sustainable.
It is no surprise that Maximilian Tayenthal, co-founder of German neobank N26,
made many commentators raise their eyebrows when he dismissed profitability as a
business goal in a 2019 interview in the Financial Times:
In all honesty, profitability is not one of our core metrics. We want to build
a global financial services company. In the years to come we will not see
profitability, we are not aiming to reach profitability. The good news is we
have a lot of investors that have very deep pockets and that share our deep
vision and that are willing to support the company over many years to
come. [6]
This does not mean that new players cannot learn from non-banking platforms,
especially when their business is not subject to capital adequacy requirements. Stripe
is one such example. John and Patrick Collison founded the Irish-born Stripe in
2010 to offer payment processing software and application programming interfaces
(APIs) for e-commerce websites and mobile applications. According to Tom Taulli
[7], what made Stripe successful were four key features: (1) product simplicity; (2)
identification of well-motivated communities; (3) transparency of offers; and (4) a
forward-looking strategy to grow and endure. First, Stripe provided simple “pay-
ment processing” software and APIs that could easily be integrated into third-party
websites and mobile applications with minimal understanding and dependence on
existing services. Second, they targeted the right community of motivated developers
instead of pitching to business owners themselves. Finding the right motivated buyer
is not always obvious, and the real decision-maker is not necessarily sitting at the
top of the firm. Third, they did not compete on costs but enforced transparent con-
ditions on their offers. This way they turned motivated developers, enjoying Stripe
simplicity, to become motivated sellers as they could themselves explain to busi-

ness owners the simplicity of the products, together with easy-to-grasp commercial
conditions. Competing on cost is generally not the best of strategies, as faced by
neo-banks like Monzo. Stripe remained free to add new services for a price. Last,
they started simple but quickly focused on bundling more value around these core
offers. These aspects will be further discussed in Part II of this book. As with the
Amazon and Stripe experiences, transparency principles are the cornerstone to
generate trust and build long-term competitive advantages.
2.5 CONCLUSIONS
Activating a platform is not an easy exercise, and it requires a good mix of ingenious-
ness and risk-taking. Network effects need to be continuously nurtured to enforce
resilient value-generating interactions among platform participants. Participants are
engaged when they can share reciprocal value. The identification of “value” is essen-
tial and precedes the implementation of digital methods to interact in frictionless
ways. Users’ motivation is often misunderstood, especially in offer-driven industries
like financial services in which “value” is overshadowed by the “biological” unveiling
of information asymmetries. Transparency generates trust to reveal value for clients.
That is why the trust advantage is a make-or-break motivational element in order to
succeed in outcome economies.
■ Innovators need to overcome six hurdles when venturing on the platform

challenge: motivate users, activate relevant interactions, complement avail-
able offers, monetise on ecosystem interactions, govern with flexibility,
and compete continuously.
■ Launching a platform means resolving the chicken-or-egg dilemma. Con-
sumers shop where they find the most convenient products or appealing
brands. Producers go where they find the most interested consumers.
■ In the physical world, opening a shopping mall requires careful planning,
investments, marketing and strategy. Platform entrepreneurs also make
plans. However, they face extra hurdles given the virtual nature of their
digital venues, and the non-linear dynamics of outcome economies.
■ Motivational aspects are very relevant on platform economies because
users are asked to interact on virtual venues, apps, and websites. Missing
the motivational elements is a make-or-break feature: clients could
onboard but might not generate transactions.
■ Fintech start-ups and innovation centres often work based on idealised
views of what customers want, confusing the convenience of “free of
charge” user experiences with what clients might be truly willing to pay
for, inside outcome economies.
■ To succeed in outcome economies, fintech innovation should not attempt to
digitise the distribution channels of products. Instead, fintech should learn
how to digitise the essence of banking and financial market relationships,
sharing knowledge and building financial consciousness.
■ Banking and financial markets users are sustainably motivated to join and
interact when they have trust in the relationship.
■ Value generation in banking and financial markets is hidden inside rela-
tionships because of the biological unveiling of information asymmetries.
Therefore, digital platforms can unlock value only if they learn how to
digitise trusted relationships, and not products.
CHAPTER 3
Open Innovation and Data
Good ideas may not want to be free, but they do want to connect, fuse,
recombine. They want to reinvent themselves by crossing conceptual borders.
They want to complete each other as much as they want to compete.
— Steven Berlin Johnson, journalist and author [1]
T here is an existential tension between openness and closure that underlies many
aspects of platform theory. On the one hand, platforms benefit from open inno-
vation. They can adapt faster to changing users’ needs and new market conditions.
Sharing data and insights across ecosystems of partners and complementors fosters
new opportunities to motivate user interactions and deploy monetisation strategies.
On the other hand, platforms need to reduce the level of openness, whenever nec-
essary, to control essential chock-points, and achieve sustainable profitability. They
must own what truly matters, allowing complementors to contribute with everything
else in a transparent governance framework of the application programming interface
(API) economy. Open banking platform providers need to understand these tensions
to succeed and endure. They are exposing banking and fintech capabilities to service
adjacent businesses or industries. However, innovating is one thing, monetising on
APIs is another.
3.1 INTRODUCTION
When platforms openly intersect with ecosystems, many things happen on the inno-
vation scene. There is a two-way relationship between them. On the one hand, plat-
forms add value to ecosystems by allowing frictionless transactions, higher level
of convenience, and new ways of interacting. On the other hand, ecosystems are
49
composed of users, providers, partners, and complementors that can enrich platform
experience through added-value feedback loops made of new ideas, solutions, and
services. Innovation is a continuous process of improvement and adaptation that ben-
efits from high levels of openness to ecosystem contributions. The work of exter-
nal complementors accelerates platform innovation, and boosts engagement. They
help to reinforce users’ motivation at convenient prices beyond the competences, the
imagination, and the capability of internal managers and developers. Opening the
innovation box allows platforms to enrich existing value units or add new ones in
ways previously not foreseen. The resulting improvement in user experiences makes
participants more committed, and reduces the risks of multi-homing (i.e., participants
making similar transactions in competing marketplaces). Typically, a thoughtful level
of platform openness increases the utility and frequency of value-generating interac-
tions. In a highly competitive environment, new ideas, products, or services can be
onboarded faster than contenders.
Resolving the chicken-or-egg dilemma is only the first step for platform suc-
cess. Continuously growing the frequency and quality of interactions, thus promot-
ing positive network effects, is the second strategic step in the journey. Interactions
between participants have to convey sufficient utility to the parties in order to cre-
ate stickiness in user behaviours. Only once expectations and their fulfilment are
solidly consolidated, then platforms can enforce direct or indirect monetisation meth-
ods. Monetisation attempts are always a delicate exercise because they can conflict
with consolidated habits. For example, rescinding free-access policies could induce
negative network effects.
Typically, digital platforms exponentially grow their user-base – and the
operating costs – before monetary value can be gained from ecosystem interactions
to become profitable. For example, it took almost six years and one billion users for
Facebook to push on social media advertising and generate net margins, until Sheryl
Sandberg joined as COO in 2012. Fast onboarding of users is welcome, also by
venture capitalists due to their evaluation methods based on user-base growth. That
generates a tendency for platform activation based on free access strategies. Also,
not all onboarded users interact, forcing the platforms to find ways to convert passive
participants into active users, thus consolidating platform economics. However,
what truly matters is the quality and sustainability of the participation, especially
in banking and financial markets, because of the long-lasting risk management
implications underpinning most financial transactions. Governing the level of open-
ness and preserving the level of curation are also important in order to maintain or
increase trust in the interactions. Therefore, platforms must identify what they have
to own, make it the best possible, and protect it. Otherwise, they leave everything
else open to the fantasy of users and complementors, avoiding the over-centralisation
of decision-making and excessive censorship. This requires an adventurous open
mindset, which can also benefit linear economies. And this is where platform theory
intersects the theory of open innovation, enriching the imperfect dichotomy between
business openness and closure.
3.2 CLOSED AND OPEN INNOVATION
The term closed innovation was introduced by Chesbrough [2] and refers to the
twentieth-century belief that successful innovation requires control and ownership
of Intellectual Property (IP). A company should establish its own research and devel-
opment units (R&D) and control the creation and management of ideas, products, and
services. Conceiving, designing, and building a new product would be performed in
a “closed” and self-sufficient way. Idealistically, closed innovation is a linear process
that moves in steps under the managers’ overview. They make all key decisions from
research to the development of new prototypes and ideas, deciding the preferred time
for going to market (Figure 3.1).
Chesbrough, Vanhaverbeke, and West [3] define open innovation as “a paradigm
that assumes that firms can and should use external ideas as well as internal ideas, and
internal and external paths to market, as the firms look to advance their technology”.
Companies cannot possess all the skills and knowledge required to master innova-
tion at convenient prices, and stay competitive. This seems to be particularly true
in modern economies. Science and technology involve a progressive level of inter-
connectedness across research fields, industries, and markets. Therefore, firms with
more permeable boundaries can access external competences, ideas, and processes at
lower cost. Open platforms allow knowledge and innovation to transfer more easily
both inward (inbound) and outward (outbound), in a continuous business process of
scouting and incubation. This can be visualised by a funnel containing holes, which
enable the exchange of ideas along the way (Figure 3.2). In a world of widely dis-
tributed knowledge, “inbound innovation” occurs when companies decide to buy or
to license processes and inventions from third parties by trading patents. Instead,
“outbound innovation” refers to all those internal ideas and prototypes that would
boundary
ideas
of firms
markets
research development
FIGURE 3.1 Closed innovation

boundary
ideas
of firms
new markets
markets
research development
FIGURE 3.2 Open innovation
not be used in a firm’s business but can generate value by taking them outside, by
selling licences, setting up joint ventures or making spin-offs. Therefore, open inno-
vation can be interpreted as a mechanism that goes beyond the onboarding of external
resources, such as the work and solutions of start-ups and rival companies, but lets
them complement each other with high degrees of business freedom.
The concept has become particularly appealing in the last two decades, due to
the impressive success of many start-ups operating from Silicon Valley or Shenzhen.
The growth model of these vibrant ecosystems is based on the action of thousands
of entrepreneurs, seeding and breeding innovation outside the research and develop-
ment centres of established organisations. Essentially, open innovation corresponds
to any change in the management of intellectual property, as well as its research and
development, which directly or indirectly influences the business model of a firm.
More recently, Chesbrough and Bogers [4] defined open innovation as “a distributed
innovation process based on purposively managed knowledge flows across organi-
sational boundaries, using pecuniary and non-pecuniary mechanisms in line with the
organisation’s business model”. Higher levels of openness will result in more positive
impact for the firms, the industry, the consumers, and society overall.
3.2.1 Attributes of closed and open innovation

What are the key principles of open and closed innovation? According to Chesbrough
[2], they are based on opposing views about six beliefs that revolve around people,
ownership, discovery, commercialisation, ideas, and IP.
Principles of closed innovation:
1. The smartest people can be selected and hired by the smartest firms.
2. R&D can be monetised only if all the industrial steps are owned, from discovery
to commercialisation.
3. First-mover success occurs only if firms make their discoveries themselves.

4. Winning firms commercialise innovation before their competitors.
5. Winning firms create the best ideas across industries.
6. IP must be kept under control to avoid competitors profiting from it.
Principles of open innovation:
1. The knowledge and expertise of many smart people still reside outside any given
smart firm.
2. External research will always be relevant, and internal R&D should be ready to
recognise it and find ways to insource it.
3. Profits can be generated by leveraging external research.
4. Building a better business model tends to be more successful than being a first
mover.
5. The combination of internal and external ideas increases the chances of success.
6. IP should be traded inbound and outbound to advance the business model of any
given firm.
Although Chesbrough’s theory has been very influential, the business literature
is still divided over whether open innovation is a real turning point in the evolution of
business management. While Chesbrough portrays a black or white image, business
reality features many shades of grey. According to Trott and Hartmann [5], the his-
torical confrontation of open versus closed innovation is too ambiguous: openness of
various degrees had always been performed by so-called “closed innovation” firms.
Since the early 1960s, many established firms have learned to exploit knowledge
beyond their borders, letting the innovation pendulum swing towards more or less
closedness, according to the existing opportunities. Allen and Cohen [6] identified
the role of gatekeepers who help firms share technology and expertise beyond their
boundaries, improving the R&D performance by linking internal researchers with
those sitting outside. Tushman [7] introduced the role of “boundary spanners”,
who are individuals who collect and exchange knowledge and information on
behalf of their firms, sitting indifferently inside R&D or other departments. Also,
old-school industries are not new to building alliances and partnerships to become
more competitive. Certainly, there are many examples of firms failing because they
closed their R&D to external knowledge and ideas. The history of Xerox is possibly
the most discussed in the literature, and reported extensively in Chesbrough [2].
3.2.2 Open innovation in platform economies

Most traditional examples of closed and open innovation are inherent expressions
of linear business models, in which open innovation is still paced within the
thoughtful awareness of company managers. In particular, Berkhout, Van Der
Duin, Hartmann, and Ortt [8] highlight that traditional use cases do not feature any
platform boundary
ideas interactions,
ideas and development
complementors new markets
FIGURE 3.3 Open innovation on platform economies
feedbacks or feed-forward mechanisms which are core to almost instant changes

in platform experiences and their evolution. Platforms are non-linear businesses,
whose dynamics between platform providers and platform complementors put open
innovation on steroids by posing different governance concerns. Moreover, although
there is little doubt about the merits of open communication to accelerate learning,
there is also increasing business awareness that sensitive knowledge and control of
key technological components could be lost, as discussed in Norman [9]. Therefore,
platforms have to design a well-informed governance framework to attain a suitable
openness level and benefit from the strategic role of complementors. They have to
continuously review the process of opening and closing to complementors in order
to catch the best trade-off, given platform maturity and market factors.
Social media platforms epitomise the prowess of open innovation on platform
economies, as they typically acknowledge that open innovation is not solely
firm-centric but it can also include ideas brought in by creative consumers and the
communities of users (Figure 3.3). The API economy leverages open innovation
in unforeseen ways, facilitating secure and efficient interactions inside and across
ecosystems, as well as in different markets.
For example, the founders of Facebook did not immediately foresee how users
would use the platform, learning along the way how consumers and producers were
interacting or what they were looking to achieve with platform engagement. Here is
what a 19-year-old Mark Zuckerberg said in an interview on CNBC [10], about how
big he thought his product could be:
It is impossible to tell. When we first launched, we were hoping for, you know,
maybe four hundred, five hundred people. Harvard didn’t have a Facebook,
and that’s the gap we were trying to fill. And now we’re at a hundred thou-
sand people. Who knows where we are going next. We’re hoping to have
many more universities by the fall, hopefully over a hundred or two hun-
dred. And from there we are going to launch a bunch of side applications
which should keep people coming back to the site, and maybe could make
something cool . . . Facebook is an online directory that connects people
through universities and colleges through their social networks. There you
sign on, you make a profile about yourself by answering some questions,
entering some information, such as your concentration or major at school,
contact information about phone numbers, instant messaging screen names,
anything you wanna tell, interests, what books you like, movies, and most
importantly who your friends are. And then you can browse around and
see who people’s friends are, and just check out people’s online identities,
and see how people portray themselves and find just interesting information
about people.
3.3 THE STRATEGIC ROLE OF COMPLEMENTORS
Digital platforms transform the open versus closed innovation debate. First, they are
non-linear businesses by design, thus they are way more accustomed to feedback
loops brought in by engaged participants. Second, they can almost instantly funnel
innovative value-generating units that accelerate growth exponentially. Third, they
are technically configured to accommodate the action of external complementors,
which can freely give their services and products through APIs. Notwithstanding,
more openness does not always result in better economic results. Careful governance
is required to pace the level of openness according to the situation, pulling strategic
innovation inbound and pushing tactical innovation outbound, accessing new busi-
ness models, and validating new strategies for monetisation. In this business context,
complementors can be allies to open platforms but they can also pose an existen-
tial threat.
Facebook started its business journey as a transaction platform to connect users
to users, then to advertisers. Subsequently, it launched a development platform and
exposed its APIs to attract more complementors and reinforce users’ engagement and
motivations. A key element in Facebook’s strategy was sharing a common user base
between the transaction side of the platform and the development side, leveraging
data and analytics to cross-pollenate both elements. The development side monetised
jointly insights on internal data and external usage, although lack of well-informed
governance led to the 2018 Cambridge Analytica scandal. Facebook managed to
reinforce positive network effects through the work of third-party programmers,
enhancing user experiences with offers like social games. For example, game
producer Zynga started leveraging the Facebook API platform and user network
with FarmVille in 2009, turning the new game into a viral hit worldwide. In early
2010, FarmVille had more than 80 million players worldwide. The extraordinary
success of FarmVille started posing a potentially negative effect on the efficiency
of the development platform. Zynga was dominating the game community, turning
into a price-maker against Facebook on splitting game revenues and sharing user
information. FarmVille’s strong gravity was also disadvantaging smaller gaming
complementors, reducing the strategic diversity of the development ecosystem.
Platforms have to balance the role and power of successful complementors, and
recognise in time any potential threats to their ability to steer user engagement and
ownership to the outside. Facebook could not stop Zynga but could acquire it to
consolidate value. Instead, Facebook remained open to existing contributions and
interactions, rightly considering that individual games can go viral but usually follow
accelerated cycles: they spike up in popularity, and then face a sharp decline. That’s
exactly what happened with FarmVille.
While Facebook was right to keep the platform open, yet learning to better reg-
ulate the role and interaction of external complementors, a different decision was
made to control Instagram. Instagram was founded by Kevin Systrom and released
on the Apple Store in 2010 as a mobile-only photo-sharing platform, enabling users
to take pictures, add filters, and share online. Users not only could post their pic-
tures on Facebook, leveraging its API platform openness, but the hashtag function
turned Instagram into an external social networking platform in its own right that
started steering traffic outside Facebook. Essentially, the picture-sharing mechanism
was openly complementing a business-critical component of Facebook, that had to
be protected, posing a threat to the ownership of many value-generating interac-
tions. Facebook decided to internalise the external innovator in 2012, offering almost
$1 billion for the acquisition.
3.4 THE MONETISATION PERSPECTIVE
Firms operating in output economies strive to sell a target number of products, for
the right target price, to the right target of people, within a target time frame. There
is a direct relationship between the costs and efforts of what has been produced and
how much money can be made. Clearly, new products and features are not always
welcomed by clients. The price has to be right. Marketing has to be effective to
generate demand and differentiate their product from those of their competitors.
Instead, platforms operating in outcome economies do not necessarily monetise
directly on the products or services they intermediate. Typically, they make profits on
value-generating interactions across entire ecosystems. The costs they bear are not a
function of production and distribution (ex-ante research, productising, marketing.
and distributing) but a function of user engagement time (ex-post interactions),
which they promote with the aid of complementors that leverage open APIs. Dam-
aging user engagement would significantly depress the network value. Therefore,
platforms need to learn how to retain a portion of the value created by all users
and complementors without affecting the interplay. Sometimes, this appropriation
of value is applied directly by imposing access fees on users or transaction fees on
complementors for the use of APIs. In other cases, the mechanism is indirect, like
granting access to data to justify marketing costs. Pricing is always a very delicate
game. Understanding how the perception of value shifts is a core theme of this
book to guide banks and fintech on outcome economies towards higher business
value, and its pricing. When Facebook acquired WhatsApp for $19 billion in 2014,
the messaging app faced an existential threat due to new monetisation strategies.
Founded by Brian Acton and Jan Koum in 2009, WhatsApp was born as a freeware
messaging app. In late 2013, a simple pricing scheme was introduced with the
intention of monetising the 200 million active users per month (currently, WhatsApp
connects more than 1.5 billion individuals). Existing users were still granted free
access, while new users were offered the first year freemium and then asked to pay a
$1 annual fee thereafter. Very simple, yet very linear thinking! Although $1 a year
is a negligible cost, the initiative backfired. Many existing clients were used to a
free service, and started fearing that further changes could be imposed, thus cutting
them out of personal connections. Changing business conditions from freemium to
access fees models reduced trust in the platform. And trust is key when people share
their thoughts, conversations, data, and money. WhatsApp created an unwanted
information asymmetry between the intentions of the provider and the expectations
of active users. The subscription fee was dropped in January 2016, as reported on
the company blog:
Making WhatsApp free and more useful. Nearly a billion people around
the world today rely on WhatsApp to stay in touch with their friends and fam-
ily. From a new dad in Indonesia sharing photos with his family, to a student
in Spain checking in with her friends back home, to a doctor in Brazil keep-
ing in touch with her patients, people rely on WhatsApp to be fast, simple
and reliable. That’s why we’re happy to announce that WhatsApp will no
longer charge subscription fees. For many years, we’ve asked some people
to pay a fee for using WhatsApp after their first year. As we’ve grown, we’ve
found that this approach hasn’t worked well. Many WhatsApp users don’t
have a debit or credit card number and they worried they’d lose access to
their friends and family after their first year. So over the next several weeks,
we’ll remove fees from the different versions of our app and WhatsApp will
no longer charge you for our service. Naturally, people might wonder how
we plan to keep WhatsApp running without subscription fees and if today’s
announcement means we’re introducing third-party ads. The answer is no.
Starting this year, we will test tools that allow you to use WhatsApp to com-
municate with businesses and organisations that you want to hear from. That
could mean communicating with your bank about whether a recent trans-
action was fraudulent, or with an airline about a delayed flight. We all get
these messages elsewhere today through text messages and phone calls so
we want to test new tools to make this easier to do on WhatsApp, while still
giving you an experience without third-party ads and spam. We hope you
enjoy what’s coming to WhatsApp, and we look forward to your feedback.
The world is witnessing the extraordinary growth of digital platforms. However,

there are not many low-hanging fruits in outcome economies. The business is com-
plex, risky, and capital-intensive. Still, a simple rule can be learnt. What clients used to
think is free cannot easily be turned into a cost. For that to happen successfully, clients
have to perceive a change, such as something different, or something enhanced.
There are multiple techniques to monetise on platform investments, focusing on
user interactions (i.e., final users’ platform access) or the data they produce (i.e., APIs’
consumption models).
3.5 THE MONETISATION OF APIS
API marketplaces are development platforms that allow third-party businesses to

consume APIs for the development and enrichment of their external offers (i.e., fin-
tech offering cross-banking account aggregation, exploiting open banking standards)
or their participation in platform interplay as complementors (e.g., gaming firms
developing social games on Facebook). APIs are the cornerstone of what is widely
seen as the next iteration of business development, allowing platform partners and
complementors to access, and integrate data and resources into their public or private
sites and applications. According to IBM [11], the API economy has three partici-
pants (Figure 3.4): (1) the API provider, such as the owner of the platform choosing
which business assets to make available as an API, under what terms and conditions;
(2) the API consumer, such as a developer who uses the API under the designated
terms and conditions to create services for end-users; and (3) the end-user, who does
not directly see the API, but benefits from its use in the app or from the services that
are provided. All three parties must benefit from the use of the API for monetisation
strategies to succeed.
Data and Insights Developers Final clients

apps
API
services
API Provider API Consumer End-users
FIGURE 3.4 The API economy

Multiple monetisation patterns can be identified in the broader API economy.

Often, banks and fintech interpret the API economy as an output-oriented digital
value chain, which is reflected in their open banking monetisation strategies. Instead,
exponential value springs from reconceiving the API economy as the technical pre-
condition that powers outcome economies for the secure orchestration of ecosystem
platforms. The most common monetisation strategies can be classified according to
four common patterns: (1) free use; (2) API consumers pay; (3) API consumers get
paid; and (4) indirect methods. They will complement the pricing discussion about
Banking-as-a-Service strategies in Part III of the book.
3.5.1 Free use

Platforms can offer free use of APIs to incentivise developers to sign up, and
understand the value delivered before subscribing to a paying model. Also, free use
might be justified by the benefits it provides to reinforce core platform business.
For example, the Graph API is the primary way for apps to read and write to the
Facebook social graph, and can be consumed for free, subject to a governance
framework. Saying that Facebook does not receive direct revenue for the API calls
does not mean that Facebook receives no benefits as a company. Using Facebook as
a preferred log-in method grants Facebook more data to understand patterns inside
serviced ecosystems.
3.5.2 API consumers pay

Platform providers can establish a variety of pricing schemes that API consumers
subscribe to, for the development of their services or adding value to their offers.
There are three common approaches: tiered fees, pay-as-you-go, and transaction fees:
■ Tiered fees. Multiple tiers of paid access can be offered, with pricing stepping
up in cost for the most valuable or advanced APIs. For example, Dropbox APIs
can be accessed according to the tiered Teams’ pricing scheme usage.
■ Pay-as-you-go. This is a very simple utility-based model, in which developers
pay for what they consume such as the amount of bandwidth or storage. For
example, developers consuming Amazon API Gateway only pay when the APIs
are in use. There are no minimum fees or upfront commitments, although other
fees might apply for some services such as Private APIs or optional needs for
data caching.
■ Transaction fees. API consumers pay the API provider a fixed percentage of a
transaction amount. This is the case of payment providers like PayPal.
Platforms can mix and match different combinations to generate revenues.

3.5.3 API consumers get paid

API platform providers can decide to provide a monetary incentive to API consumers
when their API use nurtures further engagement on their core business and generates
positive network effects. Incentive models can also encourage better integration and
quality of implementations. There are two distinct models for sharing API revenues
with external parties:
■ Revenue share. Platform providers can offer access to advertising networks,

embedding content in the sites and apps of API consumers. In turn, they rebate a
portion of the advertising revenues. An example is the API comparison sales of
digital travel agent Expedia.
■ Affiliate or referral. API consumers might include content of API providers in
their offers that steers traffic or allows consumers to purchase the offers of the
providers. The cost per click (CPC) is one such model. For example, insurance
companies can use third-party websites of airlines ticketing systems as exter-
nal agents. Airlines benefit from offering insurance products embedded in their
offers, and insurance companies reward them for client acquisition.
3.5.4 Indirect monetisation

There are multiple possibilities to monetise on API offers indirectly, such as improv-
ing platform curation that results in stronger network effects:
■ Marketing and brand awareness. APIs can serve as a marketing vehicle for the
digital presence of platform providers. The API platform provider can turn API
consumers into marketing agents, providing brand exposure on their websites
and applications.
■ Content acquisition. APIs often allow writing, updating, accessing, and delet-
ing content. Content acquisition via APIs can be a valuable method to enhance
platform curation.
■ Software-as-a-Service (SaaS). APIs might complement a SaaS software
solution and its offering as a standard or a premium feature, providing value to
core SaaS sales. There is no one-size-fits-all approach to API monetisation, and
there are few constants in either pricing or access. Successful API providers
are constantly adjusting, tweaking, and experimenting, trying to find the most
competitive approach possible. Most of all, open APIs are about business
development. Exposing them allows platforms to find new ways to monetise on
existing resources through the work and imagination of a variety of competing
complementors.
3.6 THE MONETISATION OF USER ENGAGEMENT

Platforms oriented to final consumers can monetise on entire ecosystems, like
allowing API consumers to advertise on their apps or consume insights on user
behaviour, or attempt to generate direct revenues from individual users as researched
by Parker, Van Alstyne, and Choudary [12]. In this latter case, four common patterns
are emerging: (1) the application of fees for transactions; (2) fee for access; (3) fee
for enhancements; and (4) fee for extra curation. Reviewing these models will
complement the pricing discussion about Banking-as-a-Platform strategies in Part
III of this book.
3.6.1 Imposing transaction fees

Participants exchange value units which differ according to the platform. Buyers
and sellers exchange goods on Alibaba. Freelancers offer their services on Upwork.
Friends share personal information on Facebook, or videos on TikTok. Asking users
to pay for these actions of sharing does not seem to work and would depress the
network effects. Instead, transaction fees work for other type of platforms, like
OpenTable. Consumers have free access while restaurants pay a fee for reservations
services that go through OpenTable. Essentially, OpenTable subsidised one side of
the platform business (i.e., patrons) and applied transaction fees to the other side
(i.e., restaurateurs). The need for planning and operational aspects of restaurants
makes them less sensitive to pay for fees in exchange for new reservations. Instead,
clients would not necessarily appreciate trading booking convenience for a cost,
since they are used to paying for food not access to tables.
3.6.2 Asking for access fees

The value received or perceived motivates users to join a platform and actively
participate. They might look for content on YouTube or buy goods on Alibaba.
Yet, that does not mean they are willing to pay a fee for accessing the marketplace.
Instead, there are motivated communities which would pay for access, like recruiters
on LinkedIn. They recognise that the social media platform can significantly
accelerate their match-making capabilities, turning into more profits or cheaper
scouting operations. In this case, the platform is generally free except for some
participants who receive specialised tools to interact.
3.6.3 Tiering enhanced access fees

Typically, platform participants are onboarded free of charges. Sometimes, they are
even subsidised to interact and generate network effects. Once interactions have been
sufficiently established, platform managers could attempt to offer premium features

for a price. All participants perceiving extra services as money-for-value would want
to take up this offer. For example, Alibaba was born as a free platform that does
not apply any transaction costs nor access fees. Instead, the Chinese marketplace
allowed sellers to pay for enhanced visibility of their products in client searches.
Their impressive economics did not start out oriented on transactions but focused on
how search engines work in a way that is consistent with the open nature of Alibaba,
where buyers and sellers are free to interact directly with less intermediating power
compared to Amazon.
3.6.4 Delivering enhanced curation

There are ecosystems in which users appreciate curation and are willing to pay for
it. That is the case of Sittercity, founded by Genevieve Thiers in 2001 to provide
baby-sitting services in Boston. Parents would typically value the effort it takes to
screen the reputation, qualifications, and track record of nannies. Therefore, they
would be willing to pay Sittercity to access curated content.
3.7 THE API ECONOMY FOR BANKS AND FINTECH

Financial services are in the midst of a digital transformation. Banks have been expos-
ing their data through APIs in response to regulatory expectations, as dictated by
open banking requirements. At the same time, advanced institutions took the chance
to launch API marketplaces and become more competitive, interacting with exter-
nal banking and non-banking ecosystems through larger open finance initiatives on
platform economies. Not many have found the right path to sustainable monetisa-
tion. One of the reasons is limited understanding in the fintech ecosystem about the
essentials of outcome economies, and the motivational idiosyncrasies of banking and
fintech. Yet, things are starting to change.
API platforms are the technical enablement underpinning digital transforma-
tions. They are the realisation of secured, instantaneous, and efficient sharing of
data – and insights – among multiple parties operating inside a digitised ecosys-
tem. Although financial services have been at the forefront of technology spending
for many decades, technology departments have been largely inward-looking, focus-
ing on scaling and optimising internal processes. This “closed” perspective formally
ended in 2015 with the approval of the Revised Payment Services Directive (PSD2),
which regulates European electronic payment services to make them more secure,
boost innovation, and help banking services adapt to new technologies. Open bank-
ing, as defined in the UK as a regulatory response to the PSD2, quickly became a
strategic imperative in banking everywhere. Open banking is nothing but the enforce-
ment of standardised API requirements to open banks’ data coffers in the process of
sharing client data with third parties, securely and promptly. It is the most tangible
representation of deeper digital transformations in financial services, in their journey
towards open business architectures, based on hybrid cloud platforms.
Prescriptive
Facilitative
Reviewing
Market-driven
FIGURE 3.5 International open banking postures

Note: the representation is not to scale.
Open banking initiatives are global front runners to promote and enable quicker
and secured fintech innovation with different regulatory oversight of the API banking
economy across jurisdictions. While regulation has been a key driver in Europe
and the UK, market forces promoted the open data transformation in China and the
US. The Bank of International Settlements [13] reviewed in 2019 the “status of
the open banking union” across major jurisdictions (Figure 3.5) and classified them
into prescriptive, facilitative, reviewing, and market-driven. Notwithstanding the
differences, they share a common set of attributes, such as fundamental consent,
privacy expectations, and security requirements.
■ Prescriptive jurisdictions. The adoption of open banking standards is driven by

regulations in EU, the UK, India, South Africa, Australia, Brazil, and Mexico. In
these jurisdictions, banks are required to share customer data upon explicit con-
sent, and third parties have to register with the assigned supervisory authority.
In particular, the Government of India, already in 2009, enforced identification
processes based on API access, leading to the creation of the Unique Identifica-
tion Authority of India (UIDAI). UIDAI is statutorily established under the pro-
visions of the Aadhaar [14], which is the world’s largest biometric ID system as
a proof of residence. Between 2009 and 2016, India built the India Stack, which
corresponds to the provision of various APIs for nationwide use that include
the Unified Payments Interface (UPI), unleashing substantial changes in Indian
payments, banking, and fintech.
■ Facilitative jurisdictions. Regulators have issued guidance and recommenda-

tions in countries like Singapore, Japan, Hong Kong, and South Korea. They
have published open API standards and technical specifications. In particular,
the Monetary Authority of Singapore (MAS) and the Association of Banks in
Singapore (ABS) published a comprehensive roadmap named “Finance-as-a-
Service: API Playbook” in 2016, which is a gold standard for regulatory advice
on open finance internationally [15]. The playbook set out a comprehensive
framework that introduced governance, implementation, use cases, and design
principles for APIs, together with a list of over 400 recommended APIs and
over 5,600 processes for their development.
■ Reviewing or implementing jurisdictions. Regulators are openly discussing
the drafting or the enforcement of open banking requirements and specifica-
tions in jurisdictions like Canada and Russia. In particular, Canada lacks an open
banking framework. In 2019, the Canadian Senate Committee on Banking, Trade
and Commerce invited the Government of Canada to initiate drafting an open
banking framework.
■ Market-driven jurisdictions. Competition and market opportunities can be a
strong motivation for the creation of open banking frameworks. Open banking
practices are primarily driven by industry implementations in mainland China,
the US, New Zealand, Turkey, and the UAE. In particular, the existence of an
extensive population in Asia, who do not have a bank account, provided banks
and bigtech with the business incentives to blur the lines between banking and
non-banking to serve new clients on mobile technology. In this regard, China
is truly at the forefront. All major financial institutions are players to create
and engage ecosystems underpinned by open banking and platform banking
capabilities.
Clearly, launching an open banking platform is just one of the initial stages of
the journey inside outcome economies, and not the longest nor the most complex.
Building an API platform and opening it up to the consumption of third-party
developers is the foundational stage, which has been travelled by many institutions
featuring modern and comprehensive API marketplaces. Yet competing on how
many APIs have been deployed is no proof of technical nor managerial success.
Instead, real business value is to be found in the second stage of the journey. This
is about creating frictionless experiences that engage end-users with new value-
generating interactions, inside new business models underpinned by open innovation
mindsets. In this final stage, banks can be passive utilities that rely upon the imag-
ination of fintech and bigtech companies. Or they can be active players, travelling
the Banking Reinvention Quadrant to harvest higher business value with advanced
Banking-as-a-Service and Banking-as-Platform strategies (i.e., Contextual Banking
and Conscious Banking, as presented in Part II and Part III of the book).
One of the major business shifts in financial services has been the progressive
transformation of revenue models from transactions to services. This is due to trans-
parency regulations, macro-economic conditions, and the race to zero price competi-
tion. Embedded fees and commissions, which are the backbone of the intermediation
of products within value chains, are becoming less remunerative. Financial interme-
diaries are asked to generate revenues by packaging financial products inside alter-
native mechanisms and leveraging online relationships and network effects typical of
other industries to lure customers into banking relationships. As such, open banking
platforms are the rudimentary starting point to learn how to capture monetisation
opportunities outside transaction fees based on products, while attempting innovative
ways to apply client-related fees to access enhanced and curated banking engagement.
In this regard, the first fully-fledged open banking platforms were born as
development platforms, focused purely on enabling access to data and services to a
potentially large market of API consumers outside banking (e.g., Solaris Banking-
as-a-Service, BBVA API Marketplace, or DBS Developers). These are proprietary
API marketplaces on which platform providers integrated their business workflows
and exposed key APIs to external consumers of analytics and services. Notwithstand-
ing the vibrant nature of the fintech ecosystem, not many managed to complete the
whole journey from platform providers, through developers, to end-user experiences
that generate sufficient revenues with transaction models. Well-informed banks
and fintech started leveraging open banking to enforce less direct strategies for the
monetisation of digital offers inside non-banking ecosystems (i.e., evolving Banking-
as-a-Service models into Contextual Banking platforms). In particular, Asian banks
started contextualising their offers inside non-banking engagement to facilitate
clients’ journeys and share value across platform interactions. Alternatively, banks
and fintech also started addressing relevant regulatory challenges to demonstrate a
direct link between the value received by clients and the remuneration of intermedi-
aries within holistic and transparent financial services relationships (i.e., evolving
Banking-as-a-Platform models towards Conscious Banking platforms). In particular,
European and US banks started bundling banking offers inside more transparent
advisory mechanisms and getting paid for access to knowledge and best practices.
3.8 CONCLUSIONS
Open innovation intersects platform theory on outcome economies to put successful

innovator games on steroids. Exposing platform APIs accelerates innovation and
engagement mechanisms to motivate participants and attract new users. Yet, it is
never easy to decide the right level of openness, as business complexity grows with
open boundaries. Platforms must close their business gates whenever required, to
retain monetisation capability and fend off competition. Open banking is the realisa-
tion of the open API economy inside the digital transformation journey of financial
services. Launching an API platform is the foundational stage but does not guarantee
revenue generation. Real business value is to be found in the second stage of the jour-
ney. This is about creating frictionless experiences that engage end-users with new
business models, underpinned by Banking-as-a-Service and Banking-as-Platform
architectures (i.e., Contextual Banking and Conscious Banking).
■ Platform openness allows the utility and frequency of value-generating

interactions to increase. User motivation can be reinforced at convenient
prices by the work of complementors, which accelerates platform innova-
tion and boosts engagement.
■ Open platforms allow knowledge and innovation to be transferred more
easily both inward (inbound) and outward (outbound), in a continuous
business process of scouting and incubation.
■ Traditional examples of closed and open innovation are inherently linked
to linear business models. Instead, platforms seem to take the open versus
closed innovation debate to a different level, putting open innovation on
steroids.
■ Platforms are more accustomed to using feedback loops from engaged
users and producers. They can funnel innovative value-generating units to
accelerate growth exponentially. They are set to accommodate the action
of external complementors, that can add their services and products for
free.
■ Generally speaking, strategic innovation must be pulled inbound and tac-
tical innovation can be pushed outbound.
■ Banks and fintech started contextualising their offers outwards, inside
non-banking platforms, to facilitate clients’ journeys and share value
across platform interactions (i.e., Contextual Banking).
■ Also, banks and fintech started bundling fintech offers inwards, inside more
transparent advisory mechanisms, getting paid for access to knowledge and
practices (i.e., Conscious Banking).
■ Initially, open banking platforms were centred on the idea that fintech
innovators would travel the last stage of the digitisation journey, allow-
ing monetisation on ecosystem data and insights. More has to be done in
this area.
CHAPTER 4
Platform Governance Founded on
Transparency
Move fast and break things. Unless you are breaking stuff, you are not moving
fast enough.
—Mark Zuckerberg, founder of Facebook [1]
P latforms might be eating the world, but they are not invincible. They require good
governance to be sustainable, fair, and trustworthy, and to prevent market fail-
ure. Failures can be due to the accrual of excessive information asymmetries, or
uncontrolled externalities that turn once positive interactions into negative network
effects. Transparency, internal and external, emerges as the key governing principle
to promote trusted value-generating interactions in the best collective interest of all
stakeholders across the ecosystem.
4.1 INTRODUCTION
Good governance corresponds to the set of rules which define who gets to partici-
pate in the platform interplay, and how. It sets out what one’s role is in participation,
how value can be shared, and how conflicts can be resolved. The essence of digital
platforms is to continuously nurture value-generating interactions among motivated
participants and motivate less active users with positive feedback loops. The value
generated in each transaction has to satisfy all parties involved, directly or indirectly,
including platform providers. Also, pricing affects user interactions as the wrong
approach can damage trust in platform fairness. An excessive asymmetry in favour
of one of the stakeholders could damage the interchange and depress network effects
and make users vulnerable to competing offers.
67
One of the key drivers of platform success stems from the disintermediation
of intermediaries operating in linear value chains, thus benefiting all parties with
a more symmetrical exchange. Typically, participants occupy only one side of the
marketplace. Sellers sell, and buyers buy. Instead, platform interactions are not
always one-sided, making information symmetry a key attribute. Buyers can become
sellers on eBay. Complementors can provide services through Facebook, but also
integrate Facebook services inside their business processes. It can happen that a set
of participants and complementors manages to exploit platform interplay to build
asymmetrical power for their own benefit. Unchecked conflicts of interests can arise
between the parties that affect the generation of shared value. While it might not be
possible to micro-manage all interactions, enforcing good governance can ring-fence
what users can do or how they can do it. Thus, platform providers must learn how to
regulate access and interchanges, mitigating negative externalities without excessive
censorship.
Governance is not only indispensable to regulate what happens inside platforms,
but also to balance the impact of platforms outside their business perimeter. The
amount of deep data which is generated on the network tends to place a growing
asymmetrical power in the hands of platform providers and complementors, which
can be abused and turned against weaker stakeholders. This strength grows with plat-
form size and extends beyond the pricing of individual transactions. It generates from
the instantaneous insights produced by intelligent analytics about network maps, user
behaviour and preferences, and the profiling of segments across large populations.
The abuse of information asymmetries could poison platform interplay with reduced
trust and negative network effects. When platforms become monopolies and manage
to annihilate competition, users might prefer to accept asymmetrical terms instead of
migrating to secondary alternatives.
Platforms must be subject to the same principles of transparency and account-
ability as any business, especially in regulated markets. This also applies to the
contextualisation of banking capabilities inside non-banking journeys. At the same
time, regulation needs to be refreshed to better correspond to the dynamics of
platforms and outcome economies. Regulatory requirements are typically morphed
around output-oriented value chains that preceded the digital era.
Essentially, good governance is based on transparency whether applied to
business exchanges in the physical world or digital interactions, based on the use
of internal and external data and analytics. Transparency precedes governance also
in technology because rules and norms could also be used to generate excessive
asymmetries in network interplays. Only good governance – founded on trans-
parency – helps to generate sustainable value, confine it whenever needed, and track
it to profit fairly from it.
4.2 POWER COMES WITH RESPONSIBILITY

Bigtech has gotten, well, very big. At the end of 2020, the five American giants
known as “FAANG” (Facebook, Apple, Amazon, Netflix, and Google’s parent
company Alphabet) had a market capitalisation of $6.4 trillion, more than the GDP
of Japan, smaller only than China’s and that of the US (Figure 4.1). Their success
has made them iconic brands throughout the world. But could they be harming the
broader economy?
There is no doubt that bigtech has achieved its success through innovation,
which also played a critical role during the 2020 pandemic crisis to support an
accelerated digital adaptation in everyday life. As the crisis created a need for social
distancing, and required people to stay at home, customers embraced pick-up and
delivery methods en masse. Google rolled out new tools and analytics to help small
and medium-sized businesses increase their digital-first abilities, let customers
know about temporary closures, contactless delivery, and curb-side pick-up options.
Online retail giants like Amazon and Shopify offered small businesses a lifeline
to finding a new digital presence, recording sharp increases in businesses signing
on their platforms. The pandemic enhanced the role of mobile wallets and other
payment methods like instant money transfers (e.g., PayPal and Venmo), QR codes
(e.g., WeChat and Alipay), and small merchants’ ability to participate in the digital
economy (e.g., Square). Consumers had options that not only enabled more ways to
pay but offered more ways to finance their purchases through mobile channels (e.g.,
buy-now-pay-later). Also, many restaurants leveraged delivery apps (e.g., Grab and
Uber Eats) to stay afloat during the pandemic. Radyant [2] surveyed US restaurant
owners, revealing that 37.5% would not have been able to stay in business without
partnering with third-party delivery apps.
Silicon Valley has promoted an aggressive start-up culture, pushing entre-
preneurs to rush in and grow client bases and venture capital multiples “no matter
what”. Provocatively, Mark Zuckerberg [1] stated: “Move fast and break things.
Unless you are breaking stuff, you are not moving fast enough.”
However, gold is not always all that glitters on the innovation scene. The strategy
of bigtech started to focus – sometimes excessively – on the monetisation of data
about users. E-commerce giants like Amazon found in cloud and analytics services a
way out to low margins in core interactions. The profits of Facebook and Google are
driven by an impressive capability to capture as much data as possible, and tweaking
it via algorithms to harvest “hyper-personalised” advertising and recommendations.
But power comes with responsibility. Start-ups often onboard users with very
few rules and norms, focusing on governance only after exponential growth has been
reached. Yet, infusing intelligent analytics into every step of platform interplays not
only gains winning insights about ecosystem interactions. It also provides valuable
feedback to step up governance rules, thus preserving and improving the quality of
engagements as platforms grow. Good governance is essential for platform to com-
pete and endure, but also to prevent negative externalities from disenfranchising users
and complementors. Digital platforms need to comply with accountability principles
based on transparency requirements, thus on regulation, promoting fairness and inclu-
sion in the economic system they serve, while searching for profit. This is a clear
message from the Chinese regulators in the recent overhaul of platform businesses
following the suspension of Ant Financial IPO in 2020.
USA
CHINA
JAPAN
GERMANY
UK INDIA
FRANCE APPLE SOUTH

ITALY MICROSOFT AMAZON CANADA RUSSIA
KOREA
ALPHABET
BRAZIL AUSTRALIA SPAIN INDONESIA MEXICO NETHER SWITZER
(Google) TENCENT FACEBOOK
LANDS ALIBABA
LAND
FIGURE 4.1 World economies and tech companies. The areas represent countries’ GDP and firms’ market capitalisation end of
2020, in US dollars.
The role of good governance is about the enforcement of a balancing act. In this
regard, better governance can also become a competitive advantage for the promotion
of new contenders operating in non-banking sectors, and especially those operating
in financial services.
4.3 PLATFORM MONOPOLY BETWEEN COMPETITION

AND REGULATION
There is a growing business debate, and a regulatory concern, that the largest technol-
ogy firms are exerting monopoly power and stopping value from being fairly accessed
or shared. For example, they can be tempted to front sell their own branded products,
thanks to direct knowledge about all prices and user searches, or they can bias internal
search engines to disadvantage those merchants that also sell on competing platforms.
As a matter of fact, most bigtech companies are currently facing increasing regulatory
scrutiny.
4.3.1 Intensified regulation

Technology giants around the world are facing higher regulatory barriers to expan-
sion. Following the political uproar in the aftermath of the Cambridge Analytica
scandal, US policy-makers started weighing in on Silicon Valley’s increasing power
and economic dominance. In 2020, the US House of Representative’s Judiciary Com-
mittee formally approved a report accusing US tech giants of buying or crushing
smaller firms, which could become the blueprint for anti-trust legislation. Already
in 2018, the EU Competition Commissioner Margrethe Vestager had launched a for-
mal anti-trust investigation on Amazon’s use of data from merchants selling on the
marketplace.
According to Vestager [3]:
European consumers are increasingly shopping online. E-commerce has

boosted retail competition and brought more choice and better prices. We
need to ensure that large online platforms don’t eliminate these benefits
through anti-competitive behaviour. I have therefore decided to take a very
close look at Amazon’s business practices and its dual role as marketplace
and retailer, to assess its compliance with EU competition rules.
However, the most significant regulatory action to rein in the dominance

of technology giants has started in China, which is also the home of the most
advanced innovations in financial technology. For a long time, China has been
seen as a permissive marketplace, dominated by the ascent of bigtech powerhouses

that made significant inroads into financial services. Nowadays, they not only
dominate payments, but largely influence lending practices, asset management, and
insurance services. A roadmap for tighter supervision started around 2017, when
Chinese President Xi Jinping declared finance an element of national security during
the National Congress of the Chinese Communist Party. Xi Jinping listed six tasks to
maintain financial security, including deepening financial reform and improving the
financial system by promoting accountability and compliance among financial insti-
tutions; strengthening supervision over systemically important financial institutions,
financial holding companies, and the financial infrastructure to prevent any supervi-
sion loopholes; fighting violations of laws and rules, with a focus on comprehensive
investigation of financial markets and internet finance. As reported on XinhuaNet [4]:
Financial vitality will lead to economic vitality, and financial stability is of

vital importance to economic stability . . . Finance is the core of a modern
economy, we must do a good job in the financial sector in order to ensure sta-
ble and healthy economic development . . . Accurate judgement of potential
financial risks serves as a precondition for maintaining financial security.
Xi Jinping’s speech was indeed the start of a big change in attitude of local regula-
tors, targeting significant de-risking of banking portfolios and shadow banking prac-
tices. Shadow banking refers to lending and other financial activities conducted by
unregulated institutions or under unregulated conditions, such as those conducted by
the technology giants. The relentless lending capability of digital platforms – powered
by data analytics and artificial intelligence – nurtured through securitisation practises
a complex and interconnected unregulated market. In 2020, the Chinese regulators
estimated shadow banking was worth $12.9 trillion, equivalent to 86% of 2019’s gross
domestic product.
Chinese P2P lending practices were the first to be exposed to regulatory pressure.
They started surging around 2012 as the means for cash-hungry small businesses
looking for short-term loans through retail investors, lured by the promise of yields
as high as 15%. According to a Crowdfunding Insider Report [5], regulatory efforts
to crack down on the sector resulted in the closure of more than 99% of the 6,000 P2P
lenders operating in 2016 to just 29 in 2020, resulting in over $115 billion owed to
investors in unpaid debt.
In November 2020, investors were left reeling by the suspension of Ant Group’s
$37 billion stock market listing, in what was set to be the world’s biggest initial public
offering. The event paved the way for a series of measures that indicate a significant
intervention of Chinese regulators to rein in the power of bigtech in the name of
financial stability. China started reconsidering the whole architecture of the digital
economy, enforcing more regulated innovation in terms of shared data ownership,
central bank digital currencies, public blockchain infrastructure, anti-trust interven-
tion, and rectification of corporate structures.
Following the IPO suspension of Alibaba’s fintech affiliate, Ant Financial Group,
the Chinese regulators fined Alibaba a record $2.8 billion on anti-trust probes, and
ordered Ant to revamp by rectifying its credit, insurance, and wealth management
businesses by returning to its origins as an online payments platform. Tencent is also
a major player in China’s market for digital payments, with its payment app WeChat
Pay competing against Ant Group’s AliPay for market share. As this book goes to
press, all other technology giants are being required to set up separate holding com-
panies to include their banking, insurance, and payment services.
4.3.2 Better governance to fight monopoly powers

According to eMarketer [6] research, Amazon accounted for almost 40% of gross
value in US retail e-commerce sales in early 2021, outpacing eBay by almost 30%,
the second largest US player (Figure 4.2). Third-party sellers account for about 60%
of the commercial activity on Amazon but they have little brand recognition, and little
negotiating power against the marketplace. Basically, Amazon can exert pricing and
branding faculty on the ecosystem, to the point that shipped goods arrive in its own
envelopes or brown boxes.
While regulators intensify their scrutiny, new contenders attempt to challenge
Amazon’s asymmetrical power. They compete on more symmetrical and differenti-
ated value for merchants.
The rise of Shopify is in many ways a reaction to Amazon’s governance rules.
Ottawa-based Shopify is a software platform visible only to merchants, founded by
Harley Finkelstein in 2006. The core business proposition is to make e-commerce
accessible to store owners unaccustomed to digital technology yet wanting to launch
$ billions, % of Amazon sales

320
302.36
260.86
240
222.62
186.99
156.27
160
39.7%
38.7%
37.3%
35.7%
33.9%
80
0
2017 2018 2019 2020 2021
FIGURE 4.2 Amazon’s share of US retail e-commerce sales

SHOPIFY
SHOPIFY
COMMUNITY OF DEVELOPERS
FIGURE 4.3 Shopify Merchant Solutions and its

ecosystem. The areas represent 2019 annual revenues, in
US dollars.
a ready-made yet personalised digital store, complete with payment methods, price
catalogues, and all it takes to be successful online. Compared to Amazon, Shopify
is not acting as a marketplace but presents itself as an alternative direct-to-consumer
model. Shop owners retain higher ownership of the relationship with customers, hav-
ing that direct line. In creating a software infrastructure that can be shared between
merchants, Shopify has not only strengthened the competitive prospects of existing
e-commerce businesses, it has also facilitated the emergence of new business interac-
tions that compete head-to-head with eBay as the second most favourite e-commerce
destination, after Amazon. Clearly, the power of Amazon is not yet matched in terms
of steering traffic and consumers. E-commerce success and brand relevance go well
beyond the ability to offer two-day shipping or easy returns without having to be on
Amazon’s website.
Possibly, there is one key reason for the rising appeal of Shopify. According to
the New York Times [7], Shopify app developers made seven times more revenues
as a community than Shopify Merchant Solutions, whose revenues totalled almost
$1 billion at the end of 2019 (Figure 4.3).
Here is a key takeaway: new competitors can steer engagement away from
established platforms only if they generate and share more value with the
ecosystem.
4.4 NEGATIVE EXTERNALITIES THREATEN PLATFORM

RESILIENCE
Understanding the nature of information asymmetries is an essential element of
platform theory, and it is particularly relevant in financial services. Information
asymmetries grant one party in a transaction more pricing power than its counter-
parts, due to more knowledge about products, services, or the market sentiment.
Their excessive exploitation can result in collapse, as happened with the banking
system in the aftermath of the Global Financial Crisis. Typically, platform providers
attempt to disintermediate asymmetrical agents to benefit the broader community of
users with more transparent access to previously restricted information. However,
in the process of disintermediation, it can also happen that platforms generate new
information asymmetries which they either directly control, or which they do not.
Things can go wrong which business owners did not intend, such as fraudsters using
highly branded products for illegal or dubious purposes that generate a negative
press. For example, in 2020, fashion brand Fred Perry decided to withdraw one of
its famous polo shirt designs, a black colour with yellow borders, after it became
associated with far-right organisations in the US. Also, platform participants might
engage in illicit behaviour like restaurants posting fake reviews on TripAdvisor,
or eBay sellers promoting counterfeit products. When platform agents excessively
exploit information asymmetries, the whole experience can deteriorate, affecting
users’ trust and threatening business failure.
Negative externalities correspond to all damaging consequences that arise
through seemingly consensual interactions between willing counterparts. Gover-
nance loopholes, such as sharing other people’s private data and their personal
insights without consent, affect all parties, including those not directly involved in
core interactions.
Mark Zuckerberg learned that lesson well in 2018. In 2010, Facebook announced
the launch of a platform called Open Graph, enabling API consumers to request Face-
book users’ permission to access personal data (e.g., name, gender, and location)
and insights (e.g., political preferences, sexual orientation, and religious views). API
governance rules allowed Facebook complementors to map each subscribing user’s
friends network. In 2013, Aleksandr Kogan, founder of Global Science Research,
created an app called “this-is-your-digital-life”. The firm invited 300,000 Facebook
users to access the app and take a psychological test for a monetary compensation,
which resulted in mapping millions of Facebook profiles. Facing a mounting debate
about data privacy, Facebook decided to change its governance posture in 2014, and
limit third-party access to user networks without gaining direct permission from each
friend in such a network. Unfortunately, these rule changes could not be retroactively
enforced. In 2018, Christopher Wylie, a co-founder of Cambridge Analytica with
Aleksandr Kogan, revealed to the New York Times that almost 90 million Facebook
profiles had been harvested, and used to lead political campaigns during the 2016 US
presidential election. Facing the Senate Judiciary and Commerce Committee hear-
ing, Mark Zuckerberg accepted responsibility for Facebook’s poor governance [8],
and declared:
It’s clear now that we didn’t do enough to prevent these tools from being used
for harm as well. That goes for fake news, foreign interference in elections,
and hate speech, as well as developers and data privacy. We didn’t take a
broad enough view of our responsibility, and that was a big mistake. It was
my mistake, and I’m sorry. I started Facebook, I run it, and I’m responsible
for what happens here.
Lack of transparency in how personal data is stored and used blows up, sooner
or later, and should be prevented ex-ante to stay resiliently open to the scrutiny of
regulators, policy-makers, and activist groups. Only effective good governance, pro-
moting openness and underpinned by transparency principles, will allow platform
providers to have a long-term positive impact on the ecosystem they serve, and gen-
erate responsibly sustainable value.
4.5 GOVERNANCE OF OPENNESS AND CURATION
Digital platforms channel ecosystem interactions among multiple stakehold-

ers, such as platform providers, users (producers and consumers), partners, and
complementors.
■ Providers launch the platform individually or in a consortium. They retain legal

ownership and control the core elements of technology. In their managerial role,
they organise the types, norms, and rules of value-generating interactions among
consumers and producers of goods and services. It is the responsibility of plat-
form providers to define and enforce good governance.
■ Users are all the parties entering into a relationship. They can be “producers”
or “consumers”. Producers are users that contribute their products or services to
feed value-generating interactions. These elements can be products sold on eBay,
news consumed on LinkedIn, songs streamed on Spotify. Bloggers are produc-
ers of LinkedIn content, while individuals are consumers of news and opinions.
Consumers reward producers in different ways. They can pay for goods bought
on Amazon. They can like, share, and comment on news and images on Insta-
gram. In many cases, platform users can switch roles. Uber riders are consumers
of travel experiences but they can also become a source for new drivers that
produce travel engagement.
■ Partners can be firms or consumer groups with a privileged relationship
with platform providers. They develop or provide important features in direct
partnership agreements with platforms. For example, insurance partners provide
coverage for hosts and guests in agreement with Airbnb, reducing the risk of
interactions and augmenting trust in the platform.
■ Complementors can be a large number of parties which contribute their services
to openly integrate platforms without strong ties with platform providers. Their
innovative work and efforts reinforce users’ perceptions of digital value. For
example, professional photographers can provide independent offers on Airbnb
to interested hosts, who are willing to improve the visibility of their properties.
This increases platform curation, and overall digital value compared to that of
their competitors.
Typically, the more open a platform is to the contribution of external agents, the
faster is the innovation cycle, the higher is the competitive strength, and the more
vibrant the ecosystem engagement. Openness can put on steroids positive network
effects but it can also have a counter-effect by adding new risks. Openness can reduce
the platform’s ability to control the quality of the interactions. Platform providers
must retain control of the core development features and define the key technical and
business-oriented pillars of the business architecture. At the same time, they have to
enforce enough porosity to leverage the uncoordinated action of external developers,
and that of contributing users. Good governance builds on a dynamic approach that
changes the level of openness as the business grows. Calibrating the right level of
openness can be a governance balancing act like walking a tightrope.
Most enterprises compete on the quality of products and the services they
deliver. Attaining and maintaining a sufficient level of quality for linear offerings
seem easier compared to the same effort in platform businesses. Linear entrepreneurs
own and understand most of the levers to improve each step of their production and
delivery lines. They can redesign key components of the manufacturing chain. They
can collaborate with suppliers to improve specific sub-components or to re-engineer
full assembly processes. They can decide to insource the production or the delivery
of business-critical components, or they can choose to outsource them to better
providers. Each one of these decisions is part of a complex cost-benefit analysis.
Instead, the primary role of platform providers is to orchestrate value-generating
interactions without owning full control. The search for exponential scale is challeng-
ing and often orthogonal to well-thought-out curation. Platform providers need to
take account of the tension between short-term virality and long-term sustainability,
and learn how to turn any interaction into a stickier long-term engagement by tiering
the level of curation. Understanding the desired level of curation not only reduces
platform risks, preventing positive network effects from becoming negative on
an equivalent exponential scale. It also grants a valuable token for monetising on
ecosystems, because it empowers users to personalise platform access, according to
the preferred level of quality, layered by higher fees.
For example, Meetup is an interesting business case. It is a digital service to
organise online groups hosting in-person events for users with similar interests.
As reported in TechCrunch [9], it launched as a freemium platform to reach circa
50 million registered members and 230,000 organisers, for an average of 15,000
in-person events per day. Unfortunately, lack of sufficient governance deteriorated
the quality of user experiences. Anyone could and would post events for free,
exposing users to time-wasting searches as they did not have the means to assess
the relevance and quality of offers. In a managerial u-turn on the monetisation
strategy, MeetUp started charging event organisers a monthly fee for the right to post
events, drastically reducing the platform size and the number of user interactions.
However, this approach raised the quality of engagement, thus user satisfaction
spared the platform from collapse.
4.6 THE TRANSPARENCY GOVERNING PRINCIPLE
Sustainable financial performance is enabled by the generation of an appropriate level

of business value to be shared fairly among all stakeholders. Linear entrepreneurs
can regulate the economics of participation in their value chains through bilateral
agreements with manufacturers and suppliers, producers, and consumers. Instead,
governing the distribution of value on platform economies is more cumbersome,
given the presence of spontaneous multi-sided interactions. If exchanges of value are
not sufficiently symmetrical, some counterparts could become dominant and nega-
tively affect the generation of positive network effects. Therefore, platform providers
require even stronger discipline to anchor their governance posture to robust princi-
ples, and guide sustainable monetisation strategies. Transparency principles are the
backbone of cost-effective internal and external governance grounded on consequen-
tialist ethics among stakeholder, as defined in Sironi [10]. They unlock value through
ex-ante self-regulation to reduce the cost of ex-post imposition of external rules and
norms. Higher standards of business conduct can co-exist with fewer controls, lighter
negotiation efforts, limited disputes, and higher efficiency.
4.6.1 Transparency about platform management

For businesses to thrive in outcome economies, collaboration between internal stake-
holders cannot be an effort but a shared cultural element. Organisations have a ten-
dency to create autonomous business spaces under their roofs, which result in data
silos and conflicting perspectives. Outcome economies cannot co-exist with frag-
mented data access, as data is the oil of core platform engines. Developers of core
components of business architectures, designers of user experiences, business devel-
opers, programmers of interfaces, data scientists, all need to be agile in their business
action to solve the complexities of platform interdependencies, and continuously
think outside of the box to anticipate, understand, and track any desired changes in
user behaviour. Transparent – and regulated – access to data and insights is essential
to launch competitive advantages from within platform organisations, as epitomised
by the notorious “Bezos’ API mandate”.
In 2018, Steve Yegge was a software engineer at Google when he wrote a “family
intervention” memo that was accidentally released to the public. The memo criticised
his employer’s ability to build accessible platforms, referring to Google+, mention-
ing Yegge’s previous experience at Amazon. Apparently, Jeff Bezos had issued a
mind-blowing note to his co-workers in 2002, about the imperative to enforce internal
transparency to boost competitiveness. Here is what we know about this memo:
1. All teams will henceforth expose their data and functionality through service
interfaces.
2. Teams must communicate with each other through these interfaces.
3. There will be no other form of inter-process communication allowed: no direct

linking, no direct reads of another team’s data store, no shared-memory model,
no back-doors whatsoever. The only communication allowed is via service inter-
face calls over the network.
4. It doesn’t matter what technology you use.
5. All service interfaces, without exception, must be designed from the ground up
to be externalizable. That is to say, the team must plan and design to be able to
expose the interface to developers in the outside world. No exceptions.
6. Anyone who doesn’t do this will be fired.
Bezos’ instructions were not aimed at micro-managing intra-company expecta-

tions, such as discussing technical preferences or which piece of information to share
among internal stakeholders. Instead, the memo addressed the outcome-oriented
characteristics of any departmental systems, pushing for full accessibility of data
across the organisation. The cultural engine that pushes winning innovation
is underpinned by an open mindset that fosters full transparency among
the business lines. Content and availability of analytics need to be transparently
available to all parties. The point-in-time contribution to the internal functioning
of the firm of each data element needs to be transparently available for review and
analysis. The result is the deployment of outstanding user engagement, thus higher
business value. Instead, siloed ecosystems and business units prevent adaptive and
agile solutions from being built, capable of tracking and morphing into market
trends and user behaviour, reinventing themselves continuously to endure and grow
stronger. Internal transparency is a foundational competitive advantage.
4.6.2 Transparency about platform orchestration

External transparency with users, partners, and complementors is equally important.
In particular, complementors and partners require point-in-time visibility in the
functioning of platform business orchestration and the evolution of technical archi-
tectures to make open innovation resilient to change. Any change in the engagement
rules must be known and discussed transparently. Co-opting key complementors and
core partners ex-ante in the strategic definition of parts of platform development is
a good practice. This accelerates business development and leads to licences and
conditions that make all parties fruitfully engaged and mutually satisfied. Higher par-
ticipation of partners and complementors is business-critical to continuously launch
competitive user experiences, and reinforce positive network effects. Transparency
benefits all users, keeping them motivated to participate, thus successfully pushing
platform economics. Peer reviews of products and producers, protection of personal
data, price comparison, status of updates for any delivery stage of products or service,
they all build trust and sense of ownership in digital engagement.
Clearly, whatever governance is set, there will always be information asymme-
tries that some parties will try to exploit against the others. Therefore, it is paramount
that platform providers learn how to use data and analytics to continuously monitor
platform dynamics and user interactions, and increase the level of symmetry and fair-
ness. In the age of platform dominance, regulators have also started to demand higher
transparency about the use of personal data, about the potential bias of any analytics
powered by artificial intelligence, about the truthfulness of news, and the traceability
of identities. Only transparency on platform incentives, on costs for clients, and
on consequences for all stakeholders will permit the fourth industrial revolution
to foster progress, not only change. This only encourages sustainable engagement
across open ecosystems. Open systems can avoid collapse as long as they stay trans-
parent, and this is critical in banking and financial markets.
4.7 TRANSPARENCY FOR BANKS AND FINTECH
The transformation of financial services operates at the intersection between new

exponential technologies and novel business models within a regulated framework.
Traditionally, a firm’s compliance posture is composed of internal rules and norms
defined to follow external regulatory requirements. On the one hand, firms invest to
embed regulatory requirements inside process automation to facilitate the imposition
and demonstration of adherence to obligations. On the other hand, they invest in cul-
ture and business processes to comply with regulations and the conduct guidelines
approved by the Board of Directors. However, business life is not perfect and a grey
area might remain between good intentions and imperfect execution, as demonstrated
by the many fines that banks and bigtech dealing with financial services have faced for
the improper conduct of their businesses. Transparency in business and technology
is required to build permanent trust and regulate fairly and fruitfully the interaction
among all stakeholders: clients, regulators, shareholders, partners, and the workforce.
In the physical world, gaps in conduct can be traced back to individuals who
might happen to act outside the required regulatory posture. Should the approval of
credit lines be biased because of gender or race, institutions can revise the human
decision-making process, and rectify improper behaviour to reinforce adherence
to unbiased rules and norms. Instead, the use of exponential technologies expands
algorithm-based decision-making in the digital world and potentially creates new
pockets of opacity that can hinder trust. In 2019, Apple and Goldman Sachs ran
into major regulatory problems when users noticed that the jointly issued credit card
seemed to offer smaller lines of credit to women than to men, forcing regulators to
investigate how the card worked to determine whether it breached any financial rules.
As reported by Wired [11], no one from the companies seemed able to describe how
the algorithms worked, let alone justify their outputs. What this means is algorithms
will need to be carefully audited to make sure they act fairly, as indicated by a new
barrage of regulations starting with the 2021 proposal by the European Commission
on trustworthy Artificial Intelligence. EU policy-makers addressed the safety

and fundamental rights of people and businesses, while strengthening AI uptake,
investment, and innovation. European Commissioner Margrethe Vestager [3] said:
On Artificial Intelligence, trust is a must, not a nice to have. With these land-
mark rules, the EU is spearheading the development of new global norms
to make sure AI can be trusted. By setting the standards, we can pave the
way to ethical technology worldwide and ensure that the EU remains com-
petitive along the way. Future-proof and innovation-friendly, our rules will
intervene where strictly needed: when the safety and fundamental rights of
EU citizens are at stake.
Essentially, the removal of human decision-making poses new concerns and will
progressively raise the enforcement of accountability to the level of the Board of
Directors because the algorithm cannot be accountable in itself. Therefore, trans-
parency on costs, incentives, and consequences emerges as the core principle in eth-
ically aligned design thinking that shapes the ex-ante digital governance of data,
analytics, and business models and fosters ex-post robustness and explicability. The
results are transparent, robust, and explicable data architectures, artificially intelli-
gent algorithms, and value-generating interactions, building trust in operations and
sustainable competitive advantages.
Trust increases along three dimensions that drive the evolution of well-informed
banks and fintech. First, trust in the use of open data through the API economy to gain
innovation speed. Second, trust in the use of AI within the organisation and in front
of clients. Third, trust in all processes leveraging open data and artificial intelligence
to power new business models on digital platform economies. In this regard, good
governance – founded on transparency – underpins the sustainable digital journey
towards higher business value which can be imagined as a transparency space
that corresponds to a 3-D view of the Banking Reinvention Quadrant (Figure 4.4).
Enforcing transparency in the permissible use of data and enforcing transparency in
the use of algorithms promotes trust (i.e., design, test, and deploy) in new business
models, new operating models, and architectures that are robust (not only resilient,
but also generating meaningful insights and interactions) and explicable (allowing
to trace back how intelligent algorithms learned from data, and from which datasets,
to drive platform interactions).
Transparency is the core principle of platform governance, which allows to
institutionalise the generation of trust among all stakeholders. It is the role of
transparency-anchored governance to direct the evolution of business models
towards Contextual Banking and Conscious Banking, thus permitting platform
economies to unlock value using technology in financial services. These aspects will
be discussed in the remaining chapters of the book, dedicated to platform strategies
on higher value spaces of the Banking Reinvention Quadrant.
HIGHER
BUSINESS
TRUST IN CLOUD AND VALUE
OPEN ECOSYSTEMS TO
GAIN INNOVATION SPEED
INFORMATION QUOTIENT
CONTEXTUAL BANKING
CONSCIOUS BANKING
LS
DE
MO IES
G G
TIN TE
E RA TRA
OP S
W NESS
NE I
I TH BUS
E W ED
T
RIV RUS
TH
DT
AN
LOWER COMM
BUSINESS U NICAT
ION Q TRUST IN TRANSPARENT
VALUE UOTIE
NT AI AND RELATIONSHIPS
FIGURE 4.4 The 3-D view of the Banking Reinvention Quadrant
4.8 CONCLUSIONS
Platform businesses tend to exhibit higher levels of complexity compared to linear

businesses, given the freer formats and types of potential value-generating inter-
actions among users. Good governance and well-informed architectural design are
required to address these complexities, fostering platform growth, effective moneti-
sation, and business models’ resilience. All governance decisions, from the ownership
structure to the norms and rules regulating conflicts, enhance the platform’s ability
to scout and produce sustainable revenues. In particular, transparency emerges as the
key principle to reinforce all positive aspects of platform engagement and mitigate
proactively all threats arising from internal abuses or negative externalities. With par-
ticular regard to financial services, transparency assumes an even greater role to foster
platform success, given the more subtle elements of business opacity which charac-
terised banking before the default of Lehman Brothers in 2008, and still remain in the
aftermath of the Global Financial Crisis. Not surprisingly, the theory and principles
of Financial Market Transparency, as in Sironi [10], inspire the next two Parts of the
book, finally centring the discussion on the idiosyncrasies of banking and fintech on
the platform economy.
■ Digital platforms rely on positive feedback loops to continuously nurture

value-generating interactions among all stakeholders acting on the ecosys-
tem.
■ Good governance allows the value generated to be shared fairly. It cor-
responds to the set of rules which define who gets to participate in the
ecosystem a platform serves, how value can be shared, and how conflicts
can be resolved.
■ Good governance calibrates the right level of openness in an act of
tightrope walking. It permits change in the level of openness to let busi-
nesses grow sustainably by mitigating potential cases of market failure
due to excessive growth of information asymmetries, the consolidation of
monopoly power, and the generation of negative externalities.
■ Good governance is fundamentally anchored to transparency principles.
■ Internal transparency facilitates open collaboration between lines of busi-
ness to excel in client-centric innovation.
■ External transparency allows value to be shared fairly on open platforms
among all participants.
■ Open systems avoid collapse as long as they stay transparent. This is
critical for banks and fintech operating on platform economies.
PART
Two
Reinventing Financial
Services
SUMMARY OF PART TWO
Part Two presents the main pillars needed to reinvent financial services on outcome-
oriented platform economies.
First, the Banking Reinvention Quadrant is introduced as a business value
space representing how banks can break out from lower value spaces to excel on
outcome economies by investing in higher intensity of the information quotient (i.e.,
hybrid cloud architectures, open ecosystems, open reference theory) and the com-
munication quotient (i.e., transparent, robust, and explicable artificial intelligence,
trusted advisory relationships, increased consciousness in clients’ interactions with
the new financial services platforms). These correspond to Contextual Banking
strategies (i.e., Banking-as-a-Service) and Conscious Banking strategies (i.e.,
Banking-as-a-Platform).
Second, three fintech lessons learned accelerate the digital transformation on
outcome economies: (1) Platform theory integrates the theory of innovation and
the dichotomy between disruptive and sustaining innovation. (2) Digital is a “pull”
technology (i.e., a demand-driven mechanism), while most banking revenues are
operated inside “push” economies (i.e., a demand-driven industry). It is strategic
to learn how to position an offer-oriented industry on a demand-driven technology.
(3) Platforms win on digital as they can re-bundle financial services along frictionless
client journeys.
Third, internal and external factors affect the capability of banks and fintech
to compete with bigtech and succeed on outcome-oriented platform economies. The
culture, the incentives, and the organisation must change to succeed in the digital
innovation journey on the Banking Reinvention Quadrant.
87
CHAPTER 5
The Existential Shift of Bank
Business Models
The necessity to adjust the business model to the digitalisation, to the changes in
technology, is something much more compelling [for banks] than being angry
about negative rates.
— Mario Draghi, former President of the European Central Bank [1]
T he Global Financial Crisis revealed the existence of deep imbalances in the

functioning of financial services, and the inadequacy of reference economic
theory. The intervention of the central banks temporarily saved the system but further
embroiled banks’ profitability in a narrow economic space. Financial institutions
are now asked to regain client trust, and rethink established business models on
outcome economies, based on higher transparency. And they have begun to do so,
advancing in a progressive transformation from distribution channels of financial
products (i.e., transactional revenues) to the enablement of client journeys (i.e.,
service fees). Well-informed institutions are competing with two complementary
platform strategies that occupy the highest value spaces in the Banking Reinvention
Quadrant (BRQ). They are contextualising their offers into non-banking ecosystems
(i.e., Contextual Banking). They are rebundling business capabilities into transparent
relationship services paid for by client fees (i.e., Conscious Banking).
5.1 INTRODUCTION
The history of finance is the history of money, hence the history of trade, which
can be traced as far back as 12500 BC to the use by Anatolians of obsidian, a raw
material used to build Stone Age tools. But banking, as we know it today, is a
more recent industry which was forged during the twelfth century and the early
89
Italian Renaissance to facilitate commerce and manage personal finance for wealthy
families in rich cities, such as Florence, Venice, and Genoa. Monte dei Paschi di Siena
is the world oldest bank, operating continuously since 1472. North European cities,
such as Amsterdam and London, took the lead during the seventeenth and eighteenth
centuries, when systemic banking innovations were created, such as central banking.
Only during the twentieth century have financial innovation allowed banks to
transform further, leading to the emergence of a variety of specialised business
models which integrate their traditional mission, centred on interest rate margins,
with other services, centred on fee-based intermediation margins (e.g., payments,
investment banking, and wealth management). New York and London emerged as
world leading financial centres in the 1980s, following the deregulation of interna-
tional capital markets. The product innovation brought in by quantitative finance
(e.g., complex derivatives and securitisation practices) enabled banks to expand
their balance sheets at an unprecedented pace. At the same time, technology started
transforming Wall Street. Electronic pits and high frequency trading increased the
level of international interdependence among financial institutions, to the point
of becoming a potential systemic threat to the stability of modern economies.
Following a series of market crashes and smaller financial crises, regulators enforced
new capital requirements, aware of the social costs of bank defaults. They aimed
to strengthen risk management practices in the conduct of these private enterprises
charged with high public responsibility. In retrospective, it seems that a set of faulty
assumptions in economic theory had the unwanted effect of promoting the moral
hazard implicit in the systemic put of central banks. The Global Financial Crisis
revealed the systemic interdependence of unsustainable business practices.
Also, the interrelationship between finance and technology has grown steadily
in order to chase economies of scale. For many decades, banks were the front run-
ners in information technology spending with the motto “invest more to save more”.
They needed to compete, and comply with increased regulatory pressure demanding
the fast-growing operations be strengthened. Notwithstanding, the fintech revolution
revealed the depth of bank technical debt, as most banking systems are still obsolete
and leave the industry exposed to unexpected competition. Start-ups and bigtech firms
use exponential technologies as a weapon to tear down the barriers of entry, and dis-
rupt established business models. Banks operate under a continuous existential threat
to the sustainability of cost/income ratios, whatever latitude and longitude they are
operating in. They are now required to increase their spending to transform digitally,
resolving core banking complexity and competing on client interfaces, while inter-
est rate margins are shrinking, intermediation margins are weakening, and economic
capital has become expensive. The increasing cost of capital pushed many institutions
to de-leverage credit portfolios, and confine risk-taking in capital markets operations.
While payment processing and lending activities are particularly exposed to the dis-
intermediation of technology giants, banks are turning their business focus to wealth
management and merchant banking to harvest intermediation margins.
Understanding how bank strategies need to reposition themselves, in order to
enable the final clients to actually be the central focus, is successfully transforming
banking with exponential technologies. The early attempts at digital transformation

resolved the client-centricity problem by using advanced analytics to target clients
“linearly” with personalised offers. Instead, in a financial world of declining
product margins, client-centricity means empowering clients to become active
users of transparent platform services to achieve their personal, professional,
and financial goals. The book will further refer to “human-centricity” to highlight
the need to overcome the traditional view of a “passive client” operating inside output
economies and embrace the inclusive perspective of an “active human being” living
inside outcome economies. This change in perspective realigns industry incentives
to the interests of clients via the transparent generation of more symmetrical value,
shared on new financial services platforms.
5.2 THE NEW NORMAL OF CENTRAL BANKS
The Global Financial Crisis signalled the end of an era of healthy margins and exces-
sive risk-taking. The imbalances characterising the business models of modern bank-
ing are rooted in the accelerated “financialisation” of the western world’s economies
in the 1980s. Yet, they became unbearable only on 15 September 2008 with the col-
lapse of Lehman Brothers, at the time the fourth largest investment bank in the US.
5.2.1 Lehman Brothers’ default

Founded in 1850 by Henry Lehman and his brothers, Emanuel and Mayer, the com-
pany grew from cotton trading into commodities trading on financial markets and
brokerage services, becoming one of the most prominent investment banks of the
twentieth century. In the early 2000s, financial innovation expanded the reach of
investment banks, all developing complex quantitative models that resulted in less
prudent risk management underpinning the US housing boom. Securitisation tech-
niques allowed banks to originate credit exposures with borrowers lacking full docu-
mentation and qualification, the so-called sub-prime lending. The industry assumed
that credit risks could be transferred out of bank balance sheets by selectively divid-
ing them into packaged investment products and diversified away by reselling them
on institutional and retail markets. Lehman Brothers branched into mortgage-backed
securities and other collateral debt obligations, becoming one of the major players
with a record of $146 billion of underlying mortgages in 2006 alone. The credit cri-
sis erupted in August 2007 with the failure of two Bear Sterns’ hedge funds, and
J.P. Morgan Chase buying out the smaller investment house in a deal backed by
the Federal Reserve. However, a rolling stone was set in motion. Market confidence
started eroding and Lehman Brothers was at the centre. In September 2008, the stock
plummeted some 77% in just seven trading days, and Lehman’s CEO Richard Fuld
was forced to file for bankruptcy. With $619 billion debts, Lehman Brothers was the
largest corporate bankruptcy filing in US history.
5.2.2 The annihilation of central banks’ systemic put

The insolvency of Lehman Brothers was not an isolated case of poor risk manage-
ment, but the tip of a melting iceberg. Industry-wide misunderstanding about the role
and value of banking and finance in the functioning of free markets eroded the repu-
tation of financial institutions, and shook the foundations of capital markets globally.
Due to the severity of the financial crisis, the conventional tools of monetary pol-
icy soon reached the limits of their effectiveness. Therefore, central banks had to
intervene in an unorthodox way with a massive injection of liquidity into the finan-
cial markets to prevent a global collapse. Quantitative Easing (QE) was intended to
expand economic activity by inflating the central bank balance sheets, by buying gov-
ernment bonds or other financial assets. Interest rates were brought down to zero or
very low levels in all major economies, exposing the weakness of the European bank-
ing system, and bringing the Euro to the brink of collapse. In July 2012, Mario Draghi
said his famous catchphrase:
There is another measure that I want to tell you. Within our mandate, the
ECB is ready to do “whatever it takes” to preserve the Euro. And believe
me, it will be enough.
The central bank systemic put corresponds to the widespread belief that cen-
tral banks can always rescue the economy and financial markets by lowering interest
rates, or by injecting liquidity into the system with quantitative easing or by coor-
dinating with fiscal policy. The term originates from the analogous comparison of
selling a “put option” on the market, and started to be used after Alan Greenspan
lowered the interest FED rates in response to the 1987 stock market crash and after
the 1998 crash of hedge fund Long-Term Capital Management (LTCM). Central bank
intervention intensified and became more pervasive, until the Global Financial Crisis
erupted (Table 5.1).
TABLE 5.1 FED systemic put

Year Economic and market crisis
1987 Stock market crash

1990 Savings and loan crisis
1991 Gulf War
1994 Mexican peso crisis
1997 Asian financial crisis
1998 Russian default
1998 LCTM’s default
1999 Year 2000 (Y2K)
2000 Dot-com bubble
2001 September 11
2008 Lehman Brothers’ default
2020 Covid-19 pandemic
The implicit support of central banks aided higher asset prices, made credit
spreads narrower, and asset bubbles more likely to open the door to a new economic
normal. After the GFC, multiple interbank rates and treasury yields fell into negative
territory on short, medium and long maturities (in the Euro area, Switzerland, and
Japan). US interest rates plummeted in 2008 to revive in 2016, but the emergency
brought in by the 2020 pandemic reset once more the economic framework in a
further annihilation of the systemic put (Figure 5.1).
As a matter of fact, Schmelzing [2] indicates that there is little unusual about
the current low rate environment, which the “secular stagnation” narrative attempts
to portray as an unusual aberration, linked to equally unusual trend breaks in
savings-investment balances, or productivity measures. The trend drop in real rates
(e.g., private debt, non-marketable loans, or the global sovereign “safe asset”) seems
to coincide with a steady long-run uptick in public fiscal activity, and it has persisted
across a variety of monetary regimes: fiat- and non-fiat, with and without the exis-
tence of public monetary institutions. Therefore, there seems to be no reason even
to expect rates to “plateau” around zero. Instead, against their long-term context,
currently depressed sovereign real rates are in fact converging “back to historical
trend”, suggesting that, irrespective of particular monetary and fiscal responses, real
rates could permanently enter negative territory in a world of finite resources, capped
growth potential, and interconnected economic systems (Figure 5.2).
While interest rates plummeted, prudential regulators had to orchestrate with
governments the bail-out of wrecked financial institutions, strengthen capital
Basis points 3M USD 3M EUR 3M CHF 3M GBP 3M AUD

800
700
600
500
400
300
200
100
–100
2008 2010 2012 2014 2016 2018 2020 2021
FIGURE 5.1 3-Month Interbank rates on EUR, CHF, JPY, AUD and the US dollar, from
2008 to 2021
20
18
16
14
12
10
0
1320 1370 1420 1470 1520 1570 1620 1670 1720 1770 1820 1870 1920 1970 2020
World Nominal Rate, GDP-weighted
FIGURE 5.2 Global real rates from 1317 to 2018 (%)
requirements, enforce the de-risking of credit portfolios industry-wide, and tame

fast-increasing non-performing loan ratios. The bail-out differs from the bail-in,
as defined by Calello and Ervin [3], which is a process to resolve failing banks, in
which the bondholders or depositors of financial institutions are forced to participate
in the recapitalisation process, excluding taxpayers. In 2008, the economy was
saved, temporarily, and banks were shielded from default contagion. However, the
profitability of most institutions faltered and stayed muted for more than a decade. In
particular, European banks remained vulnerable. Their market capitalisation has been
discounting heavily since 2008, attesting to unresolved weaknesses (Figure 5.3).
Central banks had to intervene once more in 2020 to fight the economic crisis
linked to the pandemic outbreak, resulting in an unprecedented spike in trading
volumes. US investment banks profited, also leveraging the resurgence of mergers
and acquisitions (M&A) in an all-time-high stock market, influenced by extremely
accommodating monetary policies and the strength of technology giants. This
rebound in financial performance might well be temporary.
What lies ahead is not reassuring. Interest rate margins are the backbone of
the revenue mechanisms in retail and corporate banking (e.g., lending, mortgages,
and deposits). Nowadays, these operations can hardly generate shareholder value for
most global banks, after the price for risk. McKinsey [4, 5] estimated that banks’
Return on Equity (ROE) plummeted from 17.4% in 2006 to 4.9% in 2008 on aver-
age, and has remained around 10% since then. In response, banks started pivoting
.SX7E
500
400
300
200
100
2007 2009 2011 2013 2015 2017 2019 2021
FIGURE 5.3 Euro STOXX Bank Index
towards fee-based intermediation margins, which are also under pressure. On one
hand, payment operations are challenged due to the lack of hyper-scale, especially in
European markets. On the other hand, passive investing has progressively eroded the
profitability of investment management, particularly in North America.
5.2.3 Banks’ Catch-22

Regulators and policy-makers are confronting a growing debate about the role and
the functioning of the financial system. Banks must learn how to make cost/income
ratios sustainable through innovation, by supporting structural changes in prevailing
business models and adapting to the new digital, financial, and economic normal.
Alternatively, they risk disappearing or being nationalised.
But is banking in a Catch-22 situation? Financial firms are at the centre of a
perfect storm made up of low interest rates, tougher regulations, higher costs of cap-
ital, de-risking of credit portfolios, low margins and digital competition challenging
centuries-old business models and banking relationships. The more central banks
intervene to save the system, the more bank margins seem to shrink. The more reg-
ulators intervene to strengthen bank balance sheets, the less risk-taking banks can
afford. At the same time, the unorthodox intervention of central banks generated sub-
stantial distortions in the price of risk, pushing banks towards lower asset quality in
the attempt to catch more yield and remunerate expensive capital. As a result, capital
adequacy remains under continuous stress.
Traditionally, consolidation has always been a potential way out to reduce pres-
sure. Back in 1990, Citigroup, Wells Fargo, J.P. Morgan Chase, and Bank of America
were actually 35 separate companies. The deal flow further accelerated in the US with
the start of the 2008 crisis. According to the Federal Deposits Insurance Corporation
(FDIC), almost 50% of the US financial institutions were lost through M&A between
2008 and 2019 (Figure 5.4).
In the same period, more than one-third of bank branches were closed in the UK,
and European banks lost more than 10% of their workforce, over 400,000 employees.
The consolidation process was actually slowing down in Europe, remaining limited
and domestic, given the cross-border tensions within the economic area. In 2020,
the ECB openly intervened to favour more mergers, including cross-border deals.
Refreshed guidelines were released on the supervisory approach, aiming to protect
new larger institutions from excessive capital requirements. However, further con-
centration into even larger, too-big-to-fail institutions might not provide the expected
economies of scale without resolving the structural gap in bank operations and archi-
tectures. The industry’s technical debt of monolithic core banking infrastructure can
hardly become more efficient on digital through the consolidation process.
Even more interestingly, Huber [6] investigated the effects of large banks on
the real economy to reveal theoretically ambiguous and politically controversial evi-
dence. He analysed the increase in banking size in post-war Germany. After the
Second World War, the allied forces broke up the bigger banks. Only smaller regional
entities were allowed to operate with the aim of weakening the ties between the bank-
ing sector and the defeated Third Reich. However, smaller regional lenders were
allowed to re-merge into bigger institutions between 1952 and 1957. The analysis
seems to indicate that the enlarged banks did not increase profits or efficiency, but
worked with riskier borrowers, and were more willing to allow these borrowers to
increase leverage. Although risk-taking works well in boom times, overleveraged bor-
rowers often fail during recessions, providing insights about lower profitability in the
12,347
10,453
8,777
7,887
7,397
6,533
5,610
4,718 4,519
1990 1994 1998 2002 2006 2010 2014 2018 2019
FIGURE 5.4 Number of FDIC-insured banks in the US

long run. Also, larger banks had slower lending growth than smaller banks, although
the difference was not statistically significant (Figure 5.5). Last, bank managers ben-
efited through higher salaries and media attention. Their salaries rose 251% between
1952 and 1960, while executives at smaller banks saw their salaries rise by only 102%.
The low-margin new normal is here to stay, and banks’ way out of the
Catch-22 situation is through the transformation of traditional business models to
comply – through technology – with the emergence of outcome economies. Mario
Draghi [1] touched upon this key topic when asked about the fact that negative rates
could destabilise the banking system and generate a new collapse.
Banks would like to have positive rates, unquestionably. So, whenever they
have negative rates, they do not like it. But, I would not go as far as say-
ing that negative rates would create the collapse of the financial system.
Because before getting there, one has to look at other things of our banks,
for example, the cost/income ratio. Many of our banks have cost/income
ratios which are completely way off any average indicator, both in Europe
and, even more so, in the world, if compared with other banks in other parts
of the world. There are certain structural weaknesses in the banking sector,
more pronounced in certain parts of the eurozone than in others. I think these
sorts of considerations affect much more than negative rates on bank prof-
itability, the banks’ capacity to lend. The necessity to adjust the business
model to digitalisation, to the changes in technology, is something much
more compelling than being angry about negative rates.
1.6
1.2
0.8
0.4
–0.4
–0.8
–1.2
–1.6
1948 1950 1952 1954 1956 1958 1960 1962
Merged Not merged
FIGURE 5.5 German banks’ lending to corporate clients, relative to 1951

Low interest rate environments are here to stay. Business models have to change.
But how?
5.2.4 From product-centricity to human-centricity

Overall, modern financial markets rely upon the work of credit institutions, acting as
a gearbox for the transmission of monetary policies. Over time, they have integrated
their strategies with services such as payments and remittances, merchant banking,
wealth management practices, and insurance, to create more diversified financial ser-
vices groups. Traditionally configured as linear businesses, they progressively have
optimised operations for the efficient distribution of products across verticals. Con-
sequently, digital has been often interpreted as an alternative distribution channel,
claiming to support product-centric distribution models with insight-driven client
journeys, thus missing the strategic component of business model evolution to com-
pete in outcome economies. Products remained the real centrepiece. Instead, true
client-centricity on digital implies a substantial redesign of the gearbox that drives
sustainable revenue.
Well-informed institutions understood the strategic importance of adjusting
their business models to put clients (humans, in a broader and ethical perspective),
not products and transactions, at the real centre of the new engagement model. They
started embedding financial services inside non-banking journeys to expand the rel-
evance of the offers, starting new design thinking processes from the needs of clients
as opposed to the traditional perspectives of bankers. This means rewiring client
engagement by contextualising inside non-banking digital platforms. Also, they
started investing to become centres of competences and advisory services, supporting
users in their client journeys to achieve their personal, entrepreneurial and financial
goals. Centring on relationships means bundling banking offers in an “all-in”
solution that provides a digital framework to address holistic financial well-being.
In a banking world, in which clients do not pay for products but the services
they consume, low-margin credit origination acquires new value, as it becomes the
core of the personalisation process. The liabilities of families and firms are all differ-
ent, while the assets available in the market tend to commoditise, whether they are
liquid or illiquid. Therefore, blurring the borders dividing different lines of business
and flipping their relative relevance, is allowing banks to find new rewards for core
banking operations inside financial planning and advisory services. Clients are pro-
gressively being asked to pay transparently for platform access and for any relation-
ships, human or digital, outside product transactions (e.g., fees on top). The industry
is witnessing this progressive transformation of business strategies, as banks shift
their focus from interest rates margins to the intermediation of products and ser-
vices. For example, in 2019, FTSE Russel dropped the largest Swiss bank from the
banking index, classifying UBS as an Asset Management company. This reflects
the evolution of the Swiss lender toward an “all-in” business strategy, which is centred
on more affordable and holistic wealth management relationships underpinned by
new profitability models based on client fees instead of product-oriented transactions.
The shift from product-centricity to human-centricity is a Copernican revolu-

tion in business thinking, which involves deep changes in both business posture and
technology adoption. This is well explained by the growing tension between infor-
mation (i.e., core banking and adverse selection) and communication (i.e., interfaces
and fee-based relationships).
5.3 ABOUT THE TENSION BETWEEN INFORMATION

AND COMMUNICATION
The existential transformation of bank business models is driven by the impact of

the monetary and economic conditions in which banks operate globally, the soar-
ing cost of capital, the increased transparency on costs and conflicts of interests, and
the progressive commoditisation of financial products. Digital is not the primary rea-
son for business change, it is an accelerator. On the one hand, the pandemic crisis
pushed consumers to adapt to a digital-first world, increasing the acceptance of dig-
ital touch-points following governments’ demand for social distancing. On the other
hand, digital technology enables the entry of specialised providers that can chip away
at banking activities that do not require access to a large balance sheet, such as pay-
ments and wealth management. Similarly, digital platforms can interject themselves
between banks and customers, collecting most rents and potentially monopolising
access to valuable data. As a result, banks risk losing their position as “first point of
contact” for financial services and could be reduced to be merely upstream suppliers
of maturity transformation services that have no direct customer access, particularly
in retail operations.
ECB researchers Boot, Hoffmann, Laeven, and Ratnovski [7] recognise these
changes and provide a conceptual framework on the impact of digital innovation on
financial services. They focus on the tension between information and communi-
cation, or core banking and interfaces, identifying superior information and com-
munication as the levers that enable financial intermediaries to exert market power.
Consequently, the changing role of information and communication is the real
driver of business transformation. Information refers to the collection and process-
ing of “hard” data, which can be integrated by the codification of “soft” information
and the use of non-financial data, monitored and analysed through artificial intel-
ligence. Instead, communication refers to the relevance of relationships in shaping
the way distribution channels work and it is currently integrated by mobile access
and virtual assistants. A critical function of the financial system is to transform sav-
ings into investments. The contribution of financial intermediaries overcomes the
frictions on information (moral hazard and adverse selection) and communication
(“match-making”). Mismanaging these elements prevents the desired allocation of
resources. To resolve communication frictions, intermediaries invest in the creation
and maintenance of “client relationships” and “product distribution channels”, histor-
ically leveraging upon their branch networks. Both frictions act as barriers to entry,
making financial services provision less contestable.
Traditionally, information – which shapes the structure of core banking pro-

cesses – had a dominant role, permitting financial intermediaries to generate charter
value, making them more stable and forward-looking but the landscape is changing.
The role of communication in determining the industry structure has been growing
and may now eclipse that of information through an existential transformation of bank
business models. Increased industry competition, and the reduction of net margins,
cannot be contested by relying on “hard information”. Similarly, Sironi [8] interprets
the role of regulation to enforce new business models based on the “communication”
between professional agents and final users on transparent banking and investment
platforms. Communication is the strategic structure of sustainable digital inno-
vation, because it re-invents client engagement.
Facing this significant shift of “powers”, well-informed banks are investing in
exponential technologies to improve their capabilities in processing communication
and information, which leads to a distinct evolution of Banking-as-a-Service and
Banking-as-a-Platform models (Figure 5.6). On one hand, legacy systems are being
Financial intermediaries exert market power with superior

information and communication
CORE BANKING INTERFACES

more demand-driven more offer-driven
BANKING-as-a-SERVICE BANKING-as-a-PLATFORM
more self-directed more relationship-oriented
CONTEXTUAL BANKING CONSCIOUS BANKING

INVISIBLE VISIBLE
HIGHER BUSINESS VALUE

FIGURE 5.6 The tension between “communication” and “information” leads to Contextual
Banking and Conscious Banking
updated to hybrid cloud platforms, business processes refreshed with cloud services,
applications modernised, and digital interfaces powered by more intelligent analytics
(e.g., AI-driven instant credit approval). Well-informed institutions are enriching
traditional offers with financial and non-financial services according to the prevail-
ing regulatory frameworks, developing platforms that interact with non-banking
ecosystems (i.e., Contextual Banking). On the other hand, well-informed banks
are investing to preserve the integrated provision of financial services for the most
communication-intensive activities. They are refreshing digital “merchant banking”
models and “trusted advisory” relationships, tailoring new solutions to engage clients
with more complex needs. Fintech innovation allows previously separate banking
verticals to be rebundled into stand-alone containers of services. The re-emergence
of merchant bank services and holistic financial advice is consistent with the
long-held view in the literature that relationship banking can survive competition by
increasing relation intensity (i.e., Conscious Banking).
Conscious Banking and Contextual Banking share business critical information
through cloud-based, open finance platforms, and enrich the communication with
clients with transparent, robust, and explicable artificial intelligence solutions. That
is why they correspond to the highest business value spaces on the “Banking Rein-
vention Quadrant”.
5.4 THE BANKING REINVENTION QUADRANT
Evolving bank business models on outcome economies, resolving the tension

between information and communication, requires overcoming the fears of aban-
doning the shore of established operational models, and all the products and services
rendered. In the dark of the new digital, financial and economic normal, only a
crisp and clear vision can guide all stakeholders in the transformation effort. Also
the regulators need to be aligned on the new digital strategies that will ferry the
whole industry to more sustainable shores. What is needed is a business map, and
a compass to guide the navigation. The map is the Banking Reinvention Quadrant
(BRQ) described in this book (Figure 5.7), and the compass pointing to the North
Star of higher business value is the theory of Financial Market Transparency (FMT),
as in Sironi [8].
5.4.1 The map and the compass

This map and its compass are the result of many years of the author’s personal and
professional research. Most of his career was spent at the intersection between finance
and technology, where the dividing line has now been blurred by fintech innovation.
The initial years (1997–2007) were spent in investment banking, leading
quantitative risk management functions. Dealing with mathematical modelling
and advanced economic capital estimates provided an enriched perspective on
HIGHER
BUSINESS
VALUE
CONTEXTUAL
ECOSYSTEM
BANKING
OUTCOME
OPEN
PLATFORMS
ECOSYSTEM
CLOSED
CONSCIOUS
BANKING
DIGITAL
OUTPUT
PRODUCTS
SERVICES
TRADITIONAL

BUSINESS
PUSHED PULLED
VALUE
FIGURE 5.7 The Banking Reinvention Quadrant
the essence of banking and financial markets, the economics of risk-taking, and
the asymmetrical nature of financial intermediation with clients. Banks are not
“technology companies”, not at all. Banks are, first and foremost, “risk management
companies” that leverage exponential technology to compete within regulated
environments by accessing better information and performing better communication.
No transformation strategy can be successful without a deep understanding of risk
management and business conduct principles.
The intermediate years (2008–2013) were dedicated to the creation of a fin-
tech venture, learning the beauty and the pains of innovation in wealth management.
Entrepreneurs always make assumptions about the competitive landscape, and the
preferences of target clients. Those assumptions must be based on a clear understand-
ing of the biological unveiling of information asymmetries. They shadow clients’
perception of value, and digital cannot shed the needed light without well-informed
investments in communication. Digital technology is the means, not the currency, of
value-generating interactions. Transparency is the currency, whose value clients can
appreciate and reward on a new financial services platform.
Recent years were spent in one of the largest technology companies in the
world, sharing views with a panoply of expert colleagues and CEOs at primary
financial institutions, service providers, and emerging start-ups. This provided a

global perspective on how new business models can leverage exponential technolo-
gies to compete on outcome economies, and comply with the prevailing regulatory
expectations.
These twenty-five years form the basis of the structure of the book and are syn-
thesised in the Banking Reinvention Quadrant to guide banks and fintech. No business
sailors can reach their destination via a straight route. They need to be agile and nim-
ble, often deviating from the target to gain speed, exploit the winds, and work out the
currents. Recognising the forces of nature and how they may help or hinder progress
is the first step (e.g., client expectations and digital readiness). Attuning to the ele-
ments is the second, whether they are water, wind, temperature or the shape of the
waves (e.g., regulation and competition). Mastering the crew and the boat is the last,
although by no means the least important (e.g., exponential technologies). Yet, pas-
sion and determination are not sufficient without a map guiding the ship towards the
business harbours of Conscious Banking and Contextual Banking. The BRQ brings
trust and clarity to the navigation amid the uncharted waters of digital innovation,
facing the new monetary, economic, and digital normal.
5.4.2 The information and communication quotients

The arrival of the outcome economy is the most drastic paradigm shift observable
in industrial history, because it ushers in a new era of “hyper-personalisation” and
hyper-contextualisation. Industrial products are much more detailed in the early
ideation phases, and will then evolve further to user contexts once in use. Advanced
outcome economies go hand in hand with the delivery of experience-based products
and smart services, and digital technology permits otherwise traditional offers to be
embedded in users’ ecosystems. Schaeffer and Sovie [9] represent this process on
the “Products Reinvention Grid” (PRG), a two-dimensional graph containing the
value space for industrial products and services. The BRQ re-edits the PRG to better
fit the specificities of financial services, products, solutions, and client needs. The
BRQ spaces of higher business value can be attained by differentiating investments
in the key banking drivers defining market power, which are information and
communication. That means calibrating the intensity of the Information Quotient
(IQ) and the Communication Quotient (CQ). The different combination between IQ
and CQ illustrates differentiated “value spaces”.
The Information Quotient is the “technology” axis and represents the trusted
intensity in the use of information, transforming client engagement out of products
and services, into the participation of enriched user ecosystems. Sliding along this
axis represents the level of openness in the use of internal and external data (e.g.,
open banking), shifting from traditional core banking to hybrid cloud architectures
to scale the participation of partners and complementors.
The Communication Quotient is the “business” axis and represents the trusted
intensity in the use of AI, supporting digital relationships and decision-making
with transparent, robust, and explicable algorithms. Sliding along this axis requires
transparency among stakeholder interests, and transforms the value-generating
interactions between banks and clients from offer-driven propositions (i.e., pushed
mechanism) to a demand-driven consumption along users’ journeys (i.e., pulled
mechanism). The rest of the book will discuss how to move an offer-driven industry
(i.e., most banking revenues, wealth management and insurance fees) on a demand-
driven technology (i.e., mobile).
There are four ideal value spaces on the BRQ. Traditional Banking and Digital
Banking operate on output economies. Conscious Banking and Contextual Banking
excel on outcome economies. Traditional banks occupy the bottom-left corner
of the BRQ. Leaving this space means embracing digital innovation to change
business models, in order to compete on the intensity of information, and that of
communication. This way, innovative banks are settling on various points of the
BRQ quadrant, which is not a discrete space but a continuum indicating the direction
of transformations.
As banks increase their IQ, the level of user engagement grows through a new
consumption of data, banks abandon output economies for outcome economies as
they transform from linear businesses to platform models. Typically, the first step
is to enrich existing distribution channels with services to justify transactions, until
clients can pay transparently for the services they receive, knowing that products are
just the means to achieve a set of goals. The IQ intensity indicates the shift from the
distribution of products (i.e., outputs) towards designing, selling, and supporting user
journeys focused on client needs (i.e., outcomes).
As banks increase their CQ, cognitive innovation improves the effectiveness of
the distribution channels (e.g., hyper-personalised marketing) until user engagement
can be increased transparently by enabling clients to self-direct, restricting human
relationships to where and when they are most needed.
5.5 FOUR BRQ BUSINESS VALUE SPACES
The Banking Reinvention Quadrant is not a discrete framework but a continuum

space to aid the representation of the strategies needed to succeed in the existen-
tial evolution of bank business models. Innovators can use the BRQ as a compass to
compare changes in the required mix of information and communication. Ultimately,
changing a business model means changing the way banks monetise on banking and
non-banking relationships, with their clients and across all platform users. As a gen-
eral rule:
■ Traditional Banking: clients buy a financial product, or make a financial trans-

action, with the intermediation of a bank employee.
■ Digital Banking: clients buy a financial product, or make a financial transaction,
supported by digital tools.
■ Conscious Banking: clients fulfil their financial, personal, and business goals
supported by digital access and enriched by human advice.
■ Contextual Banking: clients resolve a life (non-banking) problem faster and
better, thanks to frictionless and data-powered access to financial services.
5.5.1 Traditional Banking

Traditional Banking occupies the bottom-left corner. Business models are organised
linearly as distribution channels of financial products, opportunities, and services.
Banks continuously struggle to create new products and generate cross-selling oppor-
tunities in a world of declining margins. Due to the lack of sufficient size to retain
a competitive position, they are destined to close the shutters or aggregate. In this
deteriorating context, consolidation strategies to achieve scale on outdated business
architectures only force banks to run after cost/income ratios that cannot be tamed.
As products commoditise further, banks risk being disintermediated away, and
become utilities.
To stay relevant for their clients, IQ and CQ need to be intensified.
5.5.2 Digital Banking

Digital Banking corresponds to the early days of the fintech transformation, in which
most banks and start-ups did not yet understand the essence of platform economies,
nor the biological unveiling of information asymmetries. This space is dominated
by the concept of “data-driven banking”, that is infusing artificial intelligence and
fintech innovation into client journeys to reduce frictions and personalise offers. On
one hand, banks use internal and external data to better understand their clients and
optimise their distribution channels. On the other hand, they apply design thinking
to improve client journeys on digital, interacting with fintech firms on closed ecosys-
tems (e.g., sandbox and proprietary platforms). However, banks still remain anchored
to linear business models configured as distribution channels of products, whose mar-
gins are declining in the new financial, economic, and digital normal. According to
Accenture [10], global retail and commercial banks spent approximately $1 trillion
between 2015 and 2018 on attempts to transform their infrastructure, with a large por-
tion of that spend dedicated to enabling technologies, such as cloud and AI-powered
analytics. Yet, although most banks invested to build their “digital chrysalis”, very few
have emerged as “digital butterflies”, and harvest superior performance by evolving
their business model with the clear aim of making the shift to a different sort of bank.
Well-informed institutions have already started progressing further in their digi-
tal journey, along the IQ and CQ axis.
5.5.3 Contextual Banking

Contextual Banking is a deep reinvention of bank engagement models, centred on
“volume-based” propositions, via the invisible embedding of banking and financial
offers inside non-banking ecosystems. Contextual Banking is underpinned by a

Banking-as-a-Service architecture that embraces outcome economies at a very
high level, leveraging open finance to organise complex ecosystems and create
tremendous market value. In this ambitious scenario, banks have to decide if they
prefer to participate in a third-party platform, buy and optimise an existing platform,
or build a brand-new platform.
Contextual Banking platform strategies are happening now, particularly in
Asia, as demonstrated – among the many – by contenders like DBS and GRAB in
Singapore, Ant Financial and Ping An in China, the Bank of Baroda and SBI YONO
in India.
5.5.4 Conscious Banking

Conscious Banking is about the visible transformation of bank business models from
transactions to services, yet centred on “value-based” banking relationships. Open
banking showed the importance of sharing data to create new value propositions
which have now expanded beyond payments to cover all aspects of financial life.
That means embracing open finance to reinvent bank business models towards a dif-
ferent mix of interest rate and fee-based intermediation margins. On one hand, banks
increase their IQ by creating more open platforms capable of integrating value from
external providers, especially non-banking information that contributes to orchestrat-
ing the financial well-being of platform users. Banking-as-a-Platform architectures
interact with “closer ecosystems”, and curate banking innovation with fintech com-
plements. On the other hand, banks increase their CQ by investing to shift from
“data-driven” distribution models to human-centric “transparent intelligence”, which
means using transparent, robust, and explicable AI to support the content and breadth
of advisory relationships (i.e., conversational banking). Conscious Banking is not
about aesthetics or the dull marketing-led communication. Instead, it changes bank-
ing at the core of the tensions between information and communication, redefining the
mission of the financial services industry on uncertain markets. The theory and princi-
ples of Financial Market Transparency, as discussed in Sironi [8], provide Conscious
Banking with the necessary new anchor to value generation in the interaction with
client journeys, composed of personal, entrepreneurial, and financial goals. Clients
are aware that they engage in banking relationships but demand a single point of touch
which digital can consolidate by leveraging on open finance frameworks across all
assets, liabilities, and services.
Conscious Banking platform strategies are happening now, particularly in
Europe and North America as demonstrated – among the many – by Morgan Stanley
and Goldman Sachs in the US, or UBS in Switzerland.
5.6 CONCLUSIONS
This chapter discussed the new financial, economic, and digital normal emerging
in the aftermath of the Global Financial Crisis and accelerated by exponential
technologies. It introduced the Banking Reinvention Quadrant, which is a strategic
thought process for banks and fintech to succeed in such a complex landscape
dominated by platform economies. Using the compass of Financial Market Trans-
parency, the BRQ reinvents client engagement from distribution channels (i.e.,
outputs) to hyper-personalised relationships (i.e., outcomes). Only in this way can
the industry rebuild higher business value. To succeed, well-informed institutions
have to plan a coordinated change in information and communication to transform
architectures and business models. This is happening now, and cannot be sustainable
without a better understanding of the role that information asymmetries play in
financial services, which differs from other industries. Information asymmetries are
a double-edged sword in banking and financial markets. On one hand, they grant new
contenders the chance to compete on higher convenience and more transparency. On
the other hand, they are a barrier to entry, given clients’ difficulty in understanding
the difference between value and convenience when facing clever financial decisions.
Chapter 6 will address these hurdles.
■ The Global Financial Crisis signalled the end of an era of healthy margins,
positive interest rate drifts, and excessive risk taking. Repositioning bank
strategies in the new normal is the opportunity to transform with fintech
innovation and exponential technologies, enabling the final clients to take
centre stage.
■ The industry dispute about this necessary transformation cannot be
reduced to a debate about eliminating frictions in client experiences
operating inside linear models. Instead, the real core is the adjustment
of bank business models to comply – through technology – with the
prevailing economic conditions and adopt the emergence of platforms in
outcome economies.
■ Banks need to resolve the business and technical tensions between infor-
mation and communication on digital, which enables financial intermedi-
aries to exert market power. Information refers to core banking collection
and processing of “hard” data. Communication refers to the relevance of
relationships in shaping the way distribution channels currently work.
■ The Banking Reinvention Quadrant (BRQ) guides banks and fintech in
using the information and communication quotients towards higher busi-
ness value represented by Contextual Banking and Conscious Banking
platforms.
■ The communication quotient is the “business” axis, representing the inten-
sity of AI use to support the digital transformation of relationships.
■ The information quotient is the “technology” axis, representing the
transformation towards ecosystems and platform economies based on
open banking.
CHAPTER 6
Lessons Learned from
Fintech Innovation
The dogmas of the quiet past, are inadequate to the stormy present. The occa-
sion is piled high with difficulty, and we must rise – with the occasion. As our
case is new, so we must think anew, and act anew.
–– Abraham Lincoln, 16th President of the United States [1]
F intech innovation has dominated the headlines for a decade. A panoply of

start-ups besieged and weakened the banking industry but were not yet able
to conquer its fortress. At least for the time being. Three lessons learned can be
derived to succeed in the challenge. First, disruptive innovation is a step in the
process but not the end of the journey. The BRQ provides an intuitive grasp in order
to progress beyond low-cost and low-margin disruption and relaunch sustaining
innovation, thus generating higher value for clients and healthier margins for the
industry. Second, business-critical revenues originate inside client relationships
in marketplaces dominated by the offer side. Instead, mobile is the technology of
the demand side. The BRQ indicates how to compete on platform economies by
rewiring an offer-driven industry into a demand-driven technology. This requires
well-informed investments in information and communication. Third, unbundling
financial services into micro-services and stand-alone business offers is necessary
but not sufficient. The BRQ indicates the path to rebundle banking and non-banking
capabilities through transparent Banking-as-a-Service and Banking-as-a-Platform
architectures, and accelerates the emergence of successful Contextual Banking and
Conscious Banking strategies.
109
6.1 INTRODUCTION
The fintech ecosystem is a global community born around 2010 at the intersection
between exponential technologies and financial services to disintermediate brick-
and-mortar institutions. A panoply of start-ups has attempted to make inroads into
a traditional industry, transforming existing distribution channels of products and
services through mobile access. They have been competing with frictionless user
experiences and hyperpersonalised contextualisation. Nowadays, bed-and-breakfast
accommodation can be booked and paid without leaving a mobile app. Similarly, you
can buy a ticket for the Tube in London by using a smart phone instead of having a
physical ticket, tapping a credit card or fumbling in your pockets for spare change.
At the same time, what is spent can be rounded up to the dollar and the difference
invested automatically in a wealth management product.
According to CBS Insights [2], there are 16,000 fintechs worldwide, as of 2020.
By and large, they can be classified as neobanks, payments and processing, crypto
currencies, direct investing, robo-advisors, credit analytics, insurance, and lending
platforms. Fintech start-ups address further bank needs, in the attempt to make capital
markets more efficient, lower the burden of compliance processes, facilitate real estate
deals, streamline mortgage approvals, or reduce red tape. Between 2015 and 2020,
the top 250 companies raised almost $50 billion in aggregate funding over nearly 900
deals. Among the top 250, more than 50% were based in the US, 15% in the UK, and
8 in UK
38 in USA
3 in Germany 6 in China
2 in Japan and
South Korea
3 in Sweden
4 in India
3 in Brazil
2 in Australia
FIGURE 6.1 Fintech unicorns in 2020

8% in India. Sixty-seven of them gained the unicorn status, valued above $1 billion as
per latest funding rounds (Figure 6.1). Not only start-ups, but also technology giants
entered the competition like Alibaba, Google, Apple, and Amazon.
Notwithstanding the fast-growing user bases in many jurisdictions, the Business-
to-Consumer landscape proved extremely difficult for many start-ups. Facing the
hurdles to acquire clients at convenient prices, and the difficulties in monetising, the
fintech ecosystem largely morphed into a Business-to-Business (B2B) or Business-
to-Business-to-Consumer (B2B2C) marketplace. Yet, financial institutions were
substantially unprepared to onboard innovation beyond flattering proof-of-concept
discussions, with the lack of a clear vision about how to transform business models
on outcome economies. Turrin [3] reminds us that digital transformation programmes
did not always deliver on their promises, with few exceptions. Many innovation
labs looked more like “innovation theatres”, scouting for ideas without sufficient
understanding of how to integrate innovation, and lacking board-level commitment
to change the bank inside out. Essentially, the mindset of most banks remained
anchored to the linearity of the industry archetypes, and fintech ended up aspiring to
integrate a growing proportion of these linear models. Unfortunately, the attempts to
digitise existing distribution channels without recognising the non-linear foundations
of outcome economies in transparent financial markets did not permit – by and
large – the unlocking of sufficient value through technology, compared to the real
fintech potential.
Nowadays, the fintech ecosystem seems to have realised that a few faulty
assumptions constrained innovation into a narrow space, and they must be revised in
order to break out from the lower value spaces of the BRQ. They correspond to three
buzzwords and lessons learned: disruption, digital, and unbundling. First, disruptive
innovation is fascinating but what really matters is the way out of disruption into
more sustainable innovation. Second, the digital adaptation of users is accelerating
but there is a gap between how clients access mobile technology and how they
expect to consume financial services (i.e., the “pull-push” motivational gap). Third,
unbundling banking capabilities is a necessary precondition for success in digital but
business value can only be generated by knowing how to rebundle financial services
on banking and non-banking platforms, competing on outcome economies.
6.2 THE TRUE MEANING OF DISRUPTION

When it comes to fintech innovation, “disruption” has become a buzzword. Every
entrepreneur, venture capitalist and innovation lab is on the verge of disrupting some-
thing. Robo-advisors promised to disrupt wealth managers. P2P platforms promised
to disrupt credit institutions. Bitcoin exchanges promised to disrupt the world dom-
inance of the US dollar. There is a general misunderstanding about what disruption
truly means from the point of view of innovation theory. It is important to ponder this
terminology, and review what truly matters for disruption in banking and financial
markets, also with an eye on platform theory.
Clayton Christensen [4–6] defines disruptive innovation as a process through

which products or services initially take root in simple applications at the bottom
end of a market. Typically, they are cheaper and more accessible, as they are
not as good as the currently available products. Then, they relentlessly move
upmarket, eventually displacing the established competitors. Examples of disruptive
innovation are Kodak cameras compared to George Eastman’s simple “point and
shoot” Brownie cameras of the 1800s, and soon digital cameras compared to Kodak
photographic-film gadgets. Department stores like New York’s Macy’s disrupted
many small shopkeepers, and soon Amazon disrupted brick-and-mortar retailers.
The e-mail system disrupted the postal service, then chat rooms competed with
e-mail services. Instead, sustaining innovation refers to innovation that happens
on an incremental basis, often in response to customer and market demands, or
improvements in technology. It targets demanding, high-end customers with better
performance than what was previously available. Since it entails making better
products that could be sold for higher profit margins to their best customers,
sustaining innovation is typically adopted by established competitors as they
have the means to succeed. Examples of sustaining innovation are the Apple M1
processors compared to Intel x86, or the multiple versions of the iPhone. Platform
innovation integrates innovation theory, opening up for an exponential reset of the
economic playing field through the orchestration of outcomes across ecosystems
instead of the organisation of streamlined outputs. Platforms are game-changers
that not only displace established competitors, but also can displace established
industries. Fintech entrepreneurs overlooked two key elements in Christensen’s
theory. First, why disruption happens, or does not happen. This is not only due to the
products themselves but also a function of client readiness to embrace new offers.
Second, that only those competitors capable of avoiding disruption – and adopting
sustaining innovation – can truly succeed. This has clear implications for fintech
ecosystems, because they are asked to learn how to rebundle financial services
inside highly regulated outcome economies, then demonstrate sustainable value, not
just unbundle them by operating inside linear value chains (no matter how they are
digitised).
The game of disruptive innovation is composed of three main actors. First, there
are the incumbent institutions, competing for market share or monopolising existing
industries. Second, there are the start-up innovators, looking for a convenient entry
point into established industries to steer customers away. Finally, there are the
customers themselves, who decide (or do not decide) to embrace a disruptive offer
instead of following existing consumption habits. The devil is in the details. Disrup-
tive chances are typically maximised only when industries are saturated, that means
final users no longer understand the value proposition of established manufacturers,
distributors, or service providers. The attitude for change is minimised when users do
not see the incremental margin, or improvements, in existing offers; or they cannot
access it at convenient prices. This tension between technological prowess and

consumer perception shifts the focus from the technical aspects of digital offers to
the biological traits of “analog” clients, having to deal with the complexity of identi-
fying value in consuming financial services due to the biological unveiling of infor-
mation asymmetries. The author shares a personal story to exemplify this tension, as
in Sironi [7].
6.2.1 My Robo-advisor was an iPod

The author was a teenager when the first compact disc (CD) player was sold in Japan
by Sony in 1982. Music used to be listened to by placing LPs on the turntable, or
winding and unwinding music-cassette tape on cassette-players first developed by
Philips in 1963. The CD levelled up the music industry by setting higher standards,
and inducing fierce industry competition through sustaining innovation. A period of
spending on technology gadgets involved a large number of consumers, who bought
new appliances in order to achieve higher levels of sophistication. Within a decade
many households were fully equipped with advanced High Fidelity (Hi-Fi) compo-
nents, featuring equalisers, subwoofers, powerful amplifiers, and fancy headsets that
parents were willing to buy to reduce the noise late at night (Figure 6.2). Soon, indi-
viduals reached a peak point in consuming satisfaction, and in late 1990s they could
not possibly justify paying higher prices for a declining marginal improvement in
music quality. The author remembers considering buying fibre optic cables for a high
price in order to connect the various components of his Hi-Fi architecture, for a very
marginal improvement in music quality. The music market was saturated and was
ready for disruption.
Similarly, the investment management industry was enjoying a period of
sustained growth powered by high margins granted by so-called financial innovation.
Banks’ architectures were filled with a variety of investment products from the
simplest to the most complex, appealing to a varied set of final clients: retail
investors, high net worth individuals, municipalities, speculators. The author was
working in investment banking in the late 1990s, leading the quantitative risk man-
agement department of today’s largest Italian bank, overseeing the wave of financial
innovation made up of bonds, structured bonds, futures, plain-vanilla options, basket
options, snowball options, interest rate swaps, volatility swaps, credit default swaps,
collateralised debt obligations, asset-backed securities, so on. After the 2008 default
of Lehman Brothers, and the public uproar which followed and severely damaged
banks’ reputation, world regulators stopped understanding the value proposition
of such asymmetrical offers, asking for a redesign of financial intermediation in
the name of the financially unaware general public. As a consequence of tighter
FIGURE 6.2 Saturation of consumers’ needs
regulations and higher costs of capital (e.g., Volcker’s rules in the US, MiFID II in
the EU, RDR in the UK), banks’ appetite for financial innovation waned. In essence,
the demand side of the industry supply-chain saturated, guided by regulation.
Nowadays, financial products have been significantly simplified. The pro-
cess of simplification and commoditisation triggered a progressive reduction in
profit-making, in the lack of financial engineering to justify higher fees. For example,
over-the-counter (OTC) derivative markets were subject to significant change due
to the regulators’ requests for clear standardised OTC derivatives through central
counterparties, subjecting all derivatives which cannot be cleared to bilateral margin
arrangements, strengthened operational risk frameworks and increased capital
requirements. These changes were intended to increase transparency for the regu-
lators and the market participants, and reduce systemic risk of market operations.
Deloitte [8] estimated that the European Market Infrastructure Regulation (EMIR),
enacted in 2013, increased the costs for non-centrally cleared OTC derivatives
transactions more than twelve times the equivalent for centrally cleared OTC
derivatives (Table 6.1). These cost increases led the banks to review the products
they offered and withdraw from certain asset classes that were deemed to be too
costly. The continuous erosion of intermediation margins launched a widespread
industry debate on the definition of value-generation for clients, as in Ravezzi and
Sironi [9].
TABLE 6.1 Incremental costs in OTC derivatives trading

Additional costs Centrally cleared Non-centrally cleared
Initial margin 0.100 bps 0.500 bps

Capital charges 0.030 bps 1.200 bps
Compliance costs 0.136 bps 0.005 bps
Total additional costs 0.266 bps 1.705 bps
Back in 2001, Steve Jobs grabbed the chance of a seemingly saturated

demand-side for traditional products to launch the Macintosh version of iTunes
and the first Apple iPod (think of a robo-advisor), six years after the MP3 was first
introduced. The key selling point of the iPod was not better music quality compared
to existing CD players. The key fact is that the product was cheaper, more portable,
and certainly cooler than CD players. Those who thought that it was a phenomenon
only directed to young consumers, walking up and down the streets with white cables
in their ears, were proved wrong. The era of the Hi-Fi was over, the traditional way
of buying and listening to music was disrupted and changed forever (Figure 6.3).
Similarly, in 2010, the fintech movement started expanding in the US and spread-
ing across the globe. Robo-advisors and digital investment solutions were among the
FIGURE 6.3 Disruptive innovation

first fintech start-ups to be launched. John Stein founded Betterment in 2008, which
manages $22 billion as of 2020. Andy Rachleff founded the WealthFront in 2009,
which manages $21 billion as of 2020. The author of this book founded CAPITECTS
in 2008, centred around the Probabilistic Scenario Optimisation method, as in Sironi
[10], providing a B2B service of investment-analytics, then it was acquired by IBM
in 2012. Nowadays, the market share of US-based robo-advisors is 75% dominated
by big firms: Vanguard Personal Advisors Services leads with $161 billion of AUM,
followed by Schwab Intelligent Portfolio with $41 billion. The question on every-
one’s lips is: are robo-advisors any better than personal conversations with a financial
advisor, a private banker, or a bank official in a branch? Honestly, this question is
misleading. Robo-advisors are better in some respects and worse in others. They can
improve the user experience, at a fraction of the cost requested by traditional advi-
sory firms. On the contrary, they might lag on post-trading relationships, and they
might not truly differentiate in terms of investment products as model portfolios are
fairly commoditised solutions. The core of the story is that only when, and if, final
investors stop understanding the value proposition of traditional offers, will they then
be willing to flock en masse to robo-advisors. And this has not happened yet, also
due to the configuration of regulations and business practices.
Reflecting on the history of music technology, today Apple’s dependence on iPod
sales for revenue is very limited, as Cupertino entered a new wave of sustaining inno-
vation to release higher margin services and devices, such as iPads and then iPhones
until the launch of the Apple M1 processors in 2020, fostering convergence between
desktops and mobile technology (Figure 6.4).
FIGURE 6.4 Sustaining innovation

As Clayton Christensen states [4–6], disruption is not the goal and it cannot
become the status quo. Disruption is the starting point of a new journey of sus-
taining innovation for any company wishing to emerge out of disruption, leading
to a world of new sustainable margins. Apple managed to disrupt the Hi-Fi industry
when the industry was at its peak in terms of client acceptance and quality, it created a
new family of consumers who were previously unaware of the possibility offered by
different processes for the consumption of music, yet with lower quality. It then built
a platform to engage a large ecosystem around this disrupted marketplace to climb
up again the ladder of sustaining innovation, and enter the Wall Street hall of fame as
the first company to reach a market capitalisation of $1 trillion.
6.2.2 Sustaining innovation with Contextual and Conscious Banking

What does this tell us about the fate of banking? Digital trends are a mix of tech-
nology advances and changes in consumers’ behaviour, which facilitate the creation
of new entrants to compete with traditional firms. Robo-advisors are fintech which
have been attempting to downshift the advisory services that have always been the
apanage of private banking institutions. They started to target retail investors in need
of financial advice, but who were lacking the resources to pay for the human-based
services required. With an entry-level investment of circa $5,000, robo-advisors were
meant to appeal to low margin customers and mostly a very young clientele, whose
needs were not considered by traditional bankers, as they did not account for a large
amount contributed to their income statements. Yet, robo-advisors proved to be attrac-
tive solutions not only for low-income young customers, but mostly for affluent and
high net worth mature individuals, who were already accustomed to taking financial
decisions. Banks, already reconsidering their focus on wealth management opera-
tions, due to the increasing cost of capital in investment banking, yet challenged by
tighter market regulation, were quite shocked to see that the new entrants were threat-
ening their once dominant position, filling the headlines of newspapers and attracting
in a short time a considerable amount of venture capital money.
This is why robo-advisors can feature as disruptive technology, and accelerate the
banking industry transformation into simpler and low-income business models while
most institutions compete in a zero-price game. However, independent robo-advisors
have not yet replaced incumbents with the speed that many expected, indicating that
technology so far has been disrupting the wealth management industry from
within. According to Hearts & Wallets [11], although fewer than one in ten US
households uses robo-advisors, they represented $330 billion of the $43 trillion North
American wealth management market (Figure 6.5).
Not only are clients not easily seduced by fully digital wealth management offers.
Those willing to onboard might also find it impractical to offboard existing banking
relationships in favour of alternative offers – also human-based relationships – due
to the costs involved in changing and moving their assets (e.g., the fiscal impact on
moving retirement savings). Moreover, client stickiness in the banking industry is
US
ROBO-ADVISORS
NORTH AMERICA
WEALTH MANAGEMENT MARKET
FIGURE 6.5 The wealth management market in North America
not only due to the biological unveiling of information asymmetries, that reduces
the perception of value outside established and trusted relationships. It is also due to
protectionist practices that might prevent existing relationship managers to pitch for
clients when changing firms. For example, a few relevant US financial institutions
have left in recent years the 2004 “Broker Protocol” for broker recruiting, which is
an intra-industry agreement allowing advisors some leeway in taking client data with
them when they change firms.
Financial institutions would not want to corner themselves into lower-income
shops, yet this is what is happening. The question is how banks can learn to tier their
offers and serve a differentiated clientele with a variety of business models, all under-
pinned by digital enablement. Goldman Sachs provides an interesting example. The
US investment bank established a private wealth management division in the 1970s,
to serve ultra high net worth clients. In the late 1980s, Goldman Sachs also branched
into asset management to serve a growing market of pension funds and mutual funds.
With the arrival of David Solomon, who became CEO in 2018, Goldman Sachs started
making inroads into the lower segments of the clientele, launching a robo-advisor in
2021 to target the retail market. At the same time, it acquired United Capital in 2019
to offer a hybrid model of financial planning for a more demanding affluent clientele.
In essence, the value of technology mixes with the value of human relationships,
and morphs around the complexity of a differentiated and never standardised
clientele.
More than in any other industry, banks and fintech need to possess a clear vision
about what is next in sustaining innovation. It will not be enough to attempt to disrupt
centuries-old value chains with digital propositions conceived linearly as distribution

channels of products. Unbundling value chains and rebundling them into digital
value-chains clips the wings of digital business models. It is an attempt to rejig the
relationship through technology, instead of opening up the framework to compete
with exponential technologies and sustaining innovation on outcome economies.
So then, what would be the sustainable way out of disruption? How could banks
and fintech build long-term strategies to reset client relationships on better terms,
composed of a mix of human and digital? The answer is in the Banking Reinvention
Quadrant. In the same way that Apple learned how to become a platform, drifting
from output to outcome economies with smart phones and the Apple Store, so
financial intermediaries must learn how to attain higher value spaces on the BRQ,
and learn how to embrace Contextual Banking and Conscious Banking strategies to
build sustained and sustainable value.
The existential evolution of bank business models towards Conscious Banking
and Contextual Banking will provide well-informed institutions with a way out
of the industry impasse, while faced with regulatory expectations of sound and
risk-controlled business action that protects final customers and the system stability.
The tendency will be for solutions addressing the financial well-being of users
following their non-banking journeys made up of frictionless and contextualised
financial offers, as well as engaging them with tiered financial planning to price up
services to compete on more articulated added value propositions. These approaches
lead to sustaining innovation by addressing the “pull-push” motivational gap between
mobile technology and clients.
6.3 RESOLVING THE “PULL-PUSH” MOTIVATIONAL GAP
The banking industry goes back ages and has changed surprisingly little over the
years. While computerisation and, more recently, digitalisation, have transformed
the way transactions are processed and solutions are delivered, the needs of the
consumer remain fundamentally the same – help me save and invest, provide
me access to funds for larger purchases, and find me ways to make money, and
reduce costs along the journey. However, recent innovations have affected consumer
expectations on how and when they want solutions delivered. This corresponds
to the growing desire for frictionless access to their own money, instant payment
mechanisms, real-time insights into financial bets, and proactive advice. Despite the
fact that the incumbents lagged behind in user experience, fintech was able to besiege
the established banks but not yet conquer them. Client stickiness was revealed to be
stronger than expected. Why is that? The answer lies in the existence of a “pull-push”
motivational gap.
6.3.1 Digital is a pull technology

There is a relevant lesson to be learned about behavioural finance and digital adoption
emerging from the last decade of fintech innovation: digital is a “pull” technology
(i.e., a technology of the demand side), while many financial services operate as
“push” marketplaces, leveraging human relationships to succeed (i.e., banking is
an offer-driven industry). This is due to the special nature of the information asym-
metries that permeate financial services consumption models (Figure 6.6), based on
the relationship with final clients, irrespective of wealth, age, and financial literacy.
Households exhibit cognitive biases when it comes to the use of money, and do not
behave the same in dealing with financial service as in the consuming world where
they have more means to assess the value for their money. In essence, while banks
sell products, clients “inadvertently” buy relationships to help them make otherwise
canny financial decisions. Banking with a financial institution or any digital alterna-
tives is always based on trust.
The “pull-push” motivational gap is narrower in the field of symmetrical prod-
ucts (e.g., paying and borrowing), whose value clients can more easily understand.
Instead, the gap gets wider in the distribution of asymmetrical products (e.g., invest-
ment funds and life insurance). These are sold more than bought.
By now, fintech start-ups have learned the lesson well that fancy user experi-
ences are necessary, but not enough to change in order to ensure good consumers’
behaviour, or make clients willing to pay explicitly for the services rendered, however
frictionless they are made to be. This “pull-push” motivational gap makes it harder to
offer-driven
INSURE
INVEST
consumption model
PUSH
PULL
BORROW
PAY
demand-driven
min intensity of information asymmetries max
FIGURE 6.6 The pull-push motivational gap

extrapolate user behaviour starting from the experience of non-banking ecosystems,

because non-banking (e.g., Amazon or Alibaba) is largely a demand-driven market-
place. Consumers can more easily adapt their consumption habits to digital life.
Clearly, digital also brings many benefits to streamline the processes in finan-
cial services. However, while developing economies can address financial inclusion
with fintech as they focus on symmetrical offers (e.g., payment methods), digital dis-
intermediation of banking relationships is more complex in mature economies and
could trigger an unwanted exclusion effect because many households operate in a
“push” modality, that does not participate in more advanced banking services. In the
absence of FOMO distortions (e.g., Bitcoin trading), only truly self-directed clients
are comfortable enough to “pull” financial offers directly from the shelves of digital
marketplaces. This is the reason why the growth of first movers, as in the early days
of robo-advisors, was initially very promising but then faltered as they did not suf-
ficiently address, through their business design, the motivational aspects to engage
normal users beyond those who were already accustomed to investing. Instead, firms
like Vanguard and Charles Schwab grew faster on digital due to their stronger capabil-
ity to “push” digital offers and optimise marketing costs on their existing client base.
6.3.2 What is happening on Amazon?

Doing the grocery provides us with an intuitive example of how the “pull-push”
motivational gap works in banking, compared to non-banking. The author of this
book lives in Frankfurt, and travels every week to Milan where his family lives. His
duty is to do the grocery every Saturday morning. He goes diligently to the local
supermarket and “pulls” from the shelves all the desired products: milk, yogurt,
fruits, pasta. It happens that he sees an advertisement for a new beard shampoo,
featuring George Clooney. As Clooney is known as a good actor, he is encouraged
to buy the new brand which is “pushed” to him by very expensive marketing
campaigns. However, when he reaches the cashier and unloads his shopping trolley,
something like 95% of all the products he ends up buying are always the same,
weekend after weekend: milk is half-skimmed, yogurt is made with strawberries,
red apples are for the afternoon snack and spaghetti are rigorously number 12.
Grocery items are perceived as demand-driven, that is why the marketing industry
spends vast amounts of money on commercials. Users tend to believe they know
what they want. Therefore, they go searching online for specific items. For example,
nobody asks, “What is happening on Amazon?”. People might go to Walmart
just to take a walk, but they go on Amazon with a purpose, looking for a specific
pair of shoes, or a certain book (i.e., they “pull”, being demand-framed). Then
Amazon applies intelligent analytics to steer users’ attention to a certain brand
or item. This goes on 364 days a year. There is only one day when users are
largely pushed instead of attempting to pull, that is Black Friday in the US, or
November 11 in China. On those days many users go online looking for discounts,
not necessarily searching for a specific item, and can be more easily seduced by the
algorithm (they are more easily “pushed”, as they are more offer-framed). Pull-driven
marketplaces mean that users access digital with a purpose, like searching for a
specific product on Alibaba. However, very few households would Google for the
next investment fund or insurance policy. Instead, they would ask a friend, a banker,
or an advisor to give a recommendation. The biological unveiling of the information
asymmetry explains the anthropological source of the “pull-push” motivational gap,
reducing the ability to use information to close the gap, due to the lack of trusted
relationships.
6.3.3 The offer-driven business of banking

The “pull-push” motivational gap is the reason why the industry self-configured as
a distribution channel of financial products which are “pushed”. Providing advice
that helps clients to “pull” is a more complex business. The fact is that clients are
“sold” financial products, but the meta-truth is that many of them “buy” a fidu-
ciary conversation, a comfort zone in which to make financial decisions. This is
why hybrid models in which humans and digital tools cooperate are still more advan-
tageous in financial services. This does not mean that banks cannot digitise. Things
are starting to shift, due to artificial intelligence, which is becoming progressively
infused into most processes, leading to increased quality of the digital communica-
tion with the clientele. Should AI become truly conversational, digital will transform
from a “pull” technology into a powerful “pushing” mechanism. Then, the digital
touchpoint could start dominating the analog relationship also in banking. However,
this would not mean that AI will automate every decision, but that AI could dom-
inate relationships and conversations, provided it also becomes transparent, robust,
and truly explicable.
The progressive adoption of AI in the intermediation with final clients poses a
significant challenge for the compliance posture of a financial institution. The use
of intelligent algorithms increases the intensity of accountability to the level of the
Board. While human relationships can be limited internally by policies and frame-
works that are imperfectly executed, leaving space for regulatory arbitrage, algo-
rithms must work within the regulatory mandate from design to execution, since
they equate to immediate full responsibility regarding the accountability of the pro-
cess. Data and AI must be trusted in the continuum. This is the reason why the
progressive digitalisation of financial services would benefit from the theory and
principles of Financial Market Transparency (FMT) to be digitally sustainable, as
in Sironi [12]. Alternatively, point-in-time contextual engagement can find a way to
reduce the “pull-push” motivational gap by interacting with clients right from when
their financial and banking needs are for them more evident, throughout their com-
plete non-banking journeys. Also the contextualisation of intermediation must oper-
ate inside the regulations, thus must comply with transparency principles to remain
sustainably accountable.
Therefore, banks and fintech wanting to fend off competition, and succeed in
digital economies, need to make sure that business logic and the use of technology
will enable them to “push” inside a well-contextualised and transparent relationship

(i.e., Contextual Banking), or it enables clients to “pull” consciously inside trans-
parent relationships (i.e., Conscious Banking). This will not be possible until banks
and fintech treat innovation as a very narrow scope, inside output economies, instead
of innovating on outcome economies, remaining trapped in the tension between
unbundling and bundling.
6.4 REBUNDLING ON PLATFORM ECONOMIES
One of the mantras in fintech ecosystems has been the idea that start-ups are capable
of breaking banks by unbundling their services into leaner offers and more attractive
experiences. The author of this book has been advising start-ups and banks world-
wide on all issues related to digital business models and financial technology. He has
often highlighted that nobody can break a bank, for the simple reason that “banks are
already broken”.
When the author was a young student in early 1990s, he went to his bank
and asked for a credit card. He spoke to a banker in a branch and filled in a set
of Know-Your-Customer (KYC) forms. Years later, he was working in investment
banking and he went back to his bank branch to apply for a mortgage. He met a real
estate specialist and filled in a set of KYC forms. As he decided to found a start-up,
he visited his bank branch again, to ask for a loan. Given the multiple credit requests,
he was assessed by the chief lending officer, and filled in more KYC forms. Soon
after becoming an established professional, he met a private banker to invest some
money and was asked to fill in more KYC forms. Yet, the bank was always the
same bank.
Unfortunately, traditional banks tend to operate as different and separate busi-
ness units under the same brand and licensed umbrella. Client data is often saved
in duplicated and hard-to-reconcile databases, with reduced data portability from
one business function to another business function. This is one of the most com-
plex aspects of the existing core banking. Banks created technical architectures which
were not client-centric but business-centric, disseminating relevant client data inside
different data silos. Instead, digital transformation on outcome economies necessi-
tates abandoning the product centricity in every aspect of financial intermediation,
impacting the way different lines of business are remunerated, the way regulation is
enforced across industry segments and asset classes, the way business architectures
are redesigned on cloud platforms.
Typically, banks are organised like distribution channels of products. Their
financial offers target the typical needs of a segmented clientele with investment
products, treasury facilities, payment mechanisms, or life insurance contracts. These
client segments are “owned” by well-identified business units, such as retail banking,
private banking, and corporate banking. However, successful entrepreneurs are
simultaneously the clients of a corporate banker – for their business needs – and
the clients of a private banker – for their investment needs. Their needs overlap,
influence, and constrain each other in their personal financial equation, and that of
their families. Unfortunately, fintech ecosystems started morphing themselves in the
narrow business organisation of banks. People talk about pay-tech when thinking of
instant payments and digital wallets, wealth-tech when thinking of robo-advisors,
credit-tech when reviewing P2P marketplaces. Instead, innovators should only talk
about client-tech, or better still, human-tech, if they want to master the shift from
output economies, which are product-oriented, towards outcome economies, which
are client-oriented. They should discuss the emergence of human-centric platforms
operating with Contextual Banking and Conscious Banking perspectives. Human
centricity integrates the client-centric perspective, because of the motivational
aspects that characterise human relationships with money and finance. This will
resolve the incomplete expectations of “data-driven banking” and redesign business
logic, anchoring it to more robust approaches based on “data-enabling clients”.
6.4.1 From client-centricity to human-centricity

What does it mean to be human-centric on the platform economy? It means creating
digital platforms capable of aggregating the whole life of clients, made up of personal
aspects and ambitions, financial constraints and opportunities, business and economic
realities. The personal financial equation of an individual is not complex, and can be
exemplified as follows in Figure 6.7 (similarly, for any corporate clients).
Saving
Borrowing
Investing
Insuring
Earning Spending
Retiring
Donating
FIGURE 6.7 Personal financial equation

People work long hours and use traditional or digital tools to pay bills, for food,
and entertainment throughout the week. At the end of each month, what is not con-
sumed is saved. Savings can be used to invest in financial markets. Money can be
borrowed to buy a house. Retirement plans can be implemented, and extra wealth
can be donated to charities and environmental causes or transferred to future gener-
ations. The equation is fairly simple, if not for the fact that people might not have
all the money needed to optimise each bucket. Their preferences do not stay con-
stant over time, but change according to personal events (e.g., a new baby, health
conditions), social events (e.g., a pandemic), economic and financial conditions (e.g.,
collapse of financial markets, negative interest rates). Decisions have to be made, cer-
tainly not daily but throughout the year. Moreover, most people’s life is on the left
side of the equation, working and accessing payment methods for daily consumption.
As a matter of fact, this is where most of the core engagement of Contextual Bank-
ing can be found. Instead, most of the fintech offers and most asymmetrical banking
offers seem to reside on the right side of the equation. People are invited periodically,
not continuously, to ponder on them and interact. Such a “discreet” need for bank-
ing services makes banking engagement more complex to build than when clients
are engaged on non-banking platforms, like social media. Payments are somewhat in
between banking and non-banking.
Therefore, the key issue is to create fintech solutions that, using a hybrid of digital
technology and analog interactions, allow higher engagement with clients through-
out their life cycles, making their life journeys more convenient, in terms of accessing
services, making financial decisions, planning for the future. The real revolution is
to learn how to leverage artificial intelligence to digitise knowledge and increase
clients’ abilities to make difficult financial decisions, and price it as a service.
This is consistent with the idea that financial service organisations should contextu-
alise inside other non-banking industries, or turn themselves into holistic cognitive
platforms that allow the rebuilding of lost trust through a fiduciary relationship.
The main lesson we can take from the dot.com saga, and the amazing experiences
of the Chinese bigtech firms, is that only platforms win in digital economies in the
long term. Facebook is a platform for personal life, LinkedIn for business, Amazon for
shopping, Twitter for expressing and sharing. WeChat seems to become a “super app”,
that is the platform of all platforms. But, where is the platform for a user’s financial
life? Becoming a platform with real financial services innovation means attempting
to bundle clearly into a holistic and transparent advisory engagement all the existing
and “already broken” financial services, without the mix of complex cross-selling
attempts at flogging products, around a centricity which is built on human needs (and
their data).
Focusing on the left side of the financial equation, Contextual Banking strategies
emerge, as non-banking experiences underpinned by suitable Banking-as-a-Service
platforms that call in embedded financial services from the right side to create seam-
less experiences.
Focusing on the right side of the financial equation, Conscious Banking strate-
gies emerge, underpinned by a suitable Banking-as-a-Platform business architec-
ture that transparently provides planning capabilities to individuals and enterprises,
calling in life events from the left side to identify and organise goals, needs, and
opportunities.
6.4.2 Banking-as-a-Service and Banking-as-a-Platform

Banks need to generate new value for clients, which requires digital technology to
support innovative business models. With regard to explicit banking relationships, the
main puzzle is how to configure a shift from transactions, which are product-based
and generate output-driven revenues, to services, which are client-based and generate
outcome-driven revenues. Traditionally, banks have operated as distribution channels
of products, segmenting their organisations and offers across multiple business lines,
each of which is asked to optimise their manufacturing tasks or distribution models,
made up of a multiplicity of intermediaries needed to reconcile the various steps. With
the advent of digital technology, many institutions have been attempting to extend
their product-driven business models to mobile banking by interpreting digital as a
new channel. So did many fintech companies. This linear approach can work for
basic and symmetrical solutions only (e.g., account checking, payments or money
transfers) but not for the most valuable and asymmetrical financial offers, which are
more dependent on analog/human relationships.
Building a “digital bank” seems to be a logical strategy in the search for more
volume at lower costs. However, full digitisation of existing “distribution channels
of products” might be sub-optimal because digital is not a perfect medium to resolve
clients’ difficulty in self-directing their financial decisions. If banks offer $1,000
personal loans at zero interest rates on their apps, they can expect a huge number of
clicks. However, they will also face a substantial risk management problem. Instead,
if banks pitch for customers on their apps to invest $1,000 in a model portfolio
constructed by a Nobel laureate, they cannot expect mass market adoption (as
experienced by robo-advisors) because of the aforementioned nature of information
asymmetries. Banks could contextualise inside non-banking journeys to smooth the
motivational tensions, but be wary of disintermediation risks, should they not own
the platforms. Banks will have to fight head-to-head with bigtech companies on low
margins. Bigtech giants have many more digital touch-points and can more easily
win client engagement in the zero-price race.
This tension between volume-oriented product channels and value-oriented
banking relationships is reflected in recent fintech discussions about how banks could
adopt platform models to transform themselves in the digital era. Fintech consensus
has emerged internationally about the creation of financial hubs, which can aggregate
multiple banking offers into bundled solutions, servicing the financial needs of
families, or those of small and medium-sized enterprises. Challenger banks have
progressively developed their business models from pure current accounts or digital
payments to SME services or advice-based solutions. The key driver for success
resides in learning how to generate client “motivation to act” in consuming digital
services, enhancing client engagement after they are onboarded. Understanding the
engagement element is business-critical and precedes any data-driven aspects to
define the layout of the banking platform. Engagement is primarily built on trust,
thus on exclusivity. Instead, most user experiences are usually built on frictionless
convenience. Convenience is fundamental to success in the short term but can
commoditise very fast in the medium to long term. The reason for this tension
between engagement and experience is that individual clients consume asymmetrical
financial offers (e.g., loans) with lower frequency compared to symmetrical ones
(e.g., payments). This reduced interaction limits the capability of digital banking to
generate network effects due to the lack of an engagement anchor to deeper user
motivations. Contextual Banking and Conscious Banking platform strategies are
essential to meet and leverage user motivation, thus breaking out from the lower
value spaces of the BRQ, which are limited to unsustainable output economies.
They are not plug-and-play but require the adoption of new business architectures
underpinned by innovative operating models, and a substantial reskilling of the
workforce capable of increasing the information and communication quotients with
exponential technologies.
Two business architectures are emerging. They correspond to Banking-as-a-
Service (BaaS) and Banking-as-a-Platform (BaaP). BaaS allows banks and fintech
to be invisible, unbundling their capabilities to be contextualised inside third-party
user experiences, and generating value by removing frictions in user journeys.
BaaP allows banks and fintech to remain visible, and rebundle internal and external
capabilities to generate added-value relationships. BaaS and BaaP coexist within the
same operating model, being two faces of the same moon that integrates business
and technology postures. They allow cloud-native development experiences to
focus on speed to execute more than cost to manage business, thus achieving the
speed to design, test, and deploy new business models and solutions that attempt
to address the “push-pull” motivational gap on platform economies. They allow
fast modification and rectification of digital processes, based on instant information
and insights about client behaviour across the ecosystems of users. Clearly, speed
requires trust as lack of confidence generates attrition. This is the reason why banks
and fintech can unbundle and rebundle their capabilities to generate sustainable
innovation on platform economies only if they, and their clients, have full trust
in the use of data and analytics. This is the reason why transparency about data
sources, AI insights, stakeholder incentives, costs for clients, and consequences for
Contextual Banking Conscious Banking

Platform • the bank is invisible • the bank is visible
Strategy • frictions are removed • consciousness is generated
• new value is unlocked • hidden value is unlocked
Banking-as-a-Service Banking-as-a-Platform
Business
• capabilities are unbundled • capabilities are re-bundled
Architecture
• interactions are borderless • borders are open and controlled
cloud-based operating models

Operating improved developers’ experience
Model strong interaction between business, operations, and technology
optimise innovation speed (design, develop, test, release)
Digital speed is based on trust

Principles derived from transparency on data, AI, incentives, costs, consequences
FIGURE 6.8 Unlocking new and hidden value
the ecosystem is the foundational principle for business and technology to optimise
speed in digital transformations (Figure 6.8). Essentially:
■ Banking-as-a-Service architectures contextualise into adjacent ecosystems and

unlock new value that would otherwise be precluded, by intensifying the use of
open information.
■ Banking-as-a-Platform architectures unlock hidden value that is over-
shadowed by information asymmetries but can be revealed with higher
communication intensity.
6.5 CONCLUSIONS
Fintech ecosystems have been filled by a panoply of genuinely enthusiastic proposi-

tions to change banking and finance to service clients better. However, most start-ups
and bank innovation labs failed in two critical aspects. First, they were conceived
as output-oriented linear businesses, which do not fit well with outcome-oriented
platform economies. Second, they misunderstood the essence of information asym-
metries and the “pull-push” motivational gap that does not allow clients to see the
value of digital offers, beyond freemium models or heavily subsidised propositions.
Banking-as-a-Service and Banking-as-a-Platform architectures are the foundations
for new operating models to leverage exponential technologies and allow banks and
fintech to break out from the unsustainable linearity of existing value chains.
■ The fintech ecosystem is made up of a panoply of simple start-ups and a

growing number of unicorns.
■ Three lessons emerge from the last decade of fintech innovation. They are
about the essence of disruptive innovation, the nature of digital technology,
and the directing features of unbundling.
■ Disruption is maximised when clients are ready to embrace new products
as they no longer perceive the value of existing offers. Innovators captur-
ing the disruption moment need a strategy to move quickly into sustaining
innovation, thus making it endure.
■ Digital is a technology of demand. Instead, many financial services
are offer-driven, leveraging human relationships to succeed. This
demand-offer gap is a function of the biological source of the information
asymmetries. This creates a motivational gap in the use of digital-only
solutions, irrespective of clients’ wealth, age, and financial literacy.
■ Unbundling financial services is short-term because it does not unlock
sufficient value that clients are transparently willing to pay for. Only plat-
forms win on digital. Banks and fintech need to unbundle and rebundle
their offers using Banking-as-a-Service and Banking-as-a-Platform archi-
tectures and enforce Contextual Banking and Conscious Banking platform
strategies. Contextual and Conscious Banking address the motivational
needs of people to consume financial services.
■ Banking-as-a-Service architectures contextualise into adjacent ecosys-
tems and unlock new value that would otherwise be precluded, by
intensifying the use of open information.
■ Banking-as-a-Platform architectures unlock hidden value that is over-
shadowed by information asymmetries but can be revealed with higher
communication intensity.
CHAPTER 7
Competitive Factors for
the Future of Banks
If you can embrace agile setups, experiments, and constantly nurture a learning
culture, then you become adaptive and nimble, which means you can respond
a lot more quickly to opportunity and changes in the environment.
–– Piyush Gupta [1]
S uccessfully embracing platform economies implies a major shift in business

culture, operating models, and technology usage. It requires leadership, access to
mature ecosystems, a favourable business environment, user readiness, and forward-
looking regulation. New business architectures underpin a digital transformation,
promoting a cohesive alignment between business and technology that unlocks value
in the interaction among all internal and external stakeholders.
7.1 INTRODUCTION
Financial institutions have always been front-runners of spending on enterprise IT,
and they are still investing heavily in exponential technologies. As digital platforms
dramatically reshape many industries, most banks are pursuing large-scale change
efforts to capture the benefits of these trends, or simply to keep up with competitors.
However, it is no longer sufficient to adjust decades-old legacy systems. Technol-
ogy leaders should embrace “first principles” in design thinking, as in King [2], to
force a radical transformation and build new business architectures that can leverage
exponential technologies to foster value-generating interactions on open ecosystems.
Change is hard, and digital changes are even harder. A McKinsey cross-industry
survey [3] highlights that only 16% of respondents say their organisation’s digital
transformations have successfully improved performance, and also equipped them
131
to sustain changes in the long term. According to Accenture [4], global retail and
commercial banks spent approximately $1 trillion between 2015 and 2018 attempt-
ing to transform their infrastructure, with a large proportion of that spend dedicated
to enabling technologies such as cloud and AI. However, most of these efforts did not
deliver enough change for established institutions to reclaim the top spot. Essentially,
the core drivers by which financial institutions exert market power in the intermedi-
ation with clients were not fully understood, both on digital as well as in analog
relationships (i.e., information and communication). Therefore, the industry could
not consciously direct investments in information (i.e., core banking transformation)
and communication (i.e., new relationships and interfaces) to rewire the intermedia-
tion with clients on platform economies. Most banks and fintech remained confined
to the lower value spaces of the Banking Reinvention Quadrant.
This chapter focuses on the other internal and external factors that can assist
well-informed bankers and fintech entrepreneurs to attain higher business value on
platform economies. These factors depend on the vibrant nature of the business envi-
ronment, or the amount of red tape. They can be a function of the maturity of the
digital infrastructure, or the level of digital adoption in the customer base and the
wider society. They can reflect the regulatory context, enabling or constraining inno-
vation. They refer to the culture of the firm and the style of management, which both
play a significant role. In particular, the level of digital savviness in executive mem-
bers’ curricula is a critical success factor. According to Weill, Woerner, and Shah [5],
large enterprises where more than half the executive members had a clear under-
standing of the impact that emerging technologies could have on business success
over the next decade (developed through experience and education) outperformed
comparable companies without such curricula by more than 48%, based on revenue
growth and valuation. One of the key elements of success is the ongoing sharing of
this understanding across the entire management team. The challenge is that there
is a significant gap between supply and demand for digitally savvy leaders, which
seems to be particularly wide in banking. The study reveals that only 12% of top
team members in financial services are sufficiently digitally savvy.
7.2 THE FINANCIAL SERVICES ENGINE

Financial institutions need to change, but the existing incentive models seem to create
a gap between the interest of internal stakeholders and that of their clients. “Changing
the bank” is a complex and expensive process and has been attempted a few times
in recent decades but with a very different focus compared to today’s revolution,
which sees platform competition emerging from outside the banking club. Traditional
approaches have previously operated according to two principles aimed at enhancing
operational efficiency: functional excellence and the uniqueness of resources.
■ Functional excellence corresponds to the belief that efficient firms would gen-
erate value for both customers and shareholders (such as faster origination pro-
cesses, bundling of services into one-stop shops, and new distribution channels
such as online offers). Yet, in an accelerating digital world, customers might not
truly differentiate among these “linear” improvements, which do not necessarily
result in higher personalisations and frictionless consumption.
■ Uniqueness of resources corresponds to a competitive hedge (e.g., a portfolio
of better customers, broader risk diversification on the balance sheets, access
to more information, or richness of the product catalogues). Once more, while
banks might benefit, customers would not truly perceive the value, and would
not reward larger banks’ capability to take on many different services, compared
to local and smaller providers, especially facing the compelling proposition of
bigtech platforms.
Melnick, Nayyar, Pinedo, and Seshadri [6] already reflected on the need for a
richer organisational focus, more centred on customers to anticipate, discern, and
respond to their needs in a way that could be unique and difficult to imitate. Their
work formalised the emerging mindset shift towards customer-focused processes,
and the corresponding tension between internal efficiency goals and flexibility of
front-end design. They anticipated the corresponding tensions between information
and communication in financial services. However, their work was still confined to
linear value chains operating in output economies. As such, they restricted the anal-
ysis to a closed business environment made up of four endogenous factors that must
be carefully designed to create customer-focused value: strategies, services, systems,
and measure of success.
Instead, outcome economies need to gain a broader vision of corporate strategies
and a clear understanding of the changing exogenous conditions which are acceler-
ating due to the digital transformation in client habits. This invites a revision of both
internal and external leading factors (Figure 7.1).
Leading external factors:

■ Refreshed regulatory frameworks and sandboxes are needed to facilitate digital
transformations.
■ Access to vibrant and competitive ecosystems tend to increase innovation.
■ The availability of capital at risk permits longer-term business expectations of
financial performance on platform economies.
■ The maturity of the digital infrastructure accelerates adoption rates and the cre-
ation of added-value solutions.
■ A high level of users’ adaptation to hyper-digitised services lowers the cost of
acquisition and increases the availability of data.
Leading internal factors:

■ New leadership capabilities allow institutions to clearly communicate vision and
motivation, supporting constant progress towards outcome economies.
■ A shared sense of purpose across the organisation is required to foster higher
collaborative standards and adherence to positive business conduct and outcomes
(e.g., environmental, social, and governance (ESG) sustainability).
DIGITAL
INFRASTRUCTURE
DIGITAL
SOCIETY
EFFECTIVE
VISION WAYS OF
WORKING AND
DIGITAL
COLLABORATING
ECOSYSTEM
LEADING CUSTOMER-
FOCUSED
EXTERNAL BUSINESS
FACTORS ARCHITECTURE
CAPITAL OPEN CULTURE

SENSE OF
AND
PURPOSE
INNOVATION
LEADING
INTERNAL
FACTORS
REGULATION
FIGURE 7.1 Internal and external leading factors for digital transformation
■ New ways of working and collaborating allow operating model agility, workforce
interaction with intelligent automation, and secure and effective remote working
whenever necessary to give a better work-life balance.
■ A transparent and collaborative culture is underpinned by transparent interac-
tions and data sharing, within the organisation and across the ecosystems of
reference.
■ A cloud-based business architecture oriented to client engagement enables
Banking-as-a-Service and Banking-as-a-Platform models to leverage trusted
open data and AI at scale, powering non-linear business models and transporting
banks and fintech from output to outcome economies.
Different combinations of these factors can make digital transformations easier

or harder. Based on a similar categorisation, IMF researcher Xue Liu [7] investigated
the “external factors” that could support banks’ digital progress when facing
reduced competitiveness post-GFC. Empirical evidence suggests that more advanced
digital ecosystems, a better business environment, stronger digital infrastructure
(e.g., affordable and high-quality internet networks), and advanced credit market
regulations have a positive impact on the level of digital transformation in financial

services. Internet adoption, digital know-how, and investment in R&D are all highly
correlated with the growth of digital services. Interestingly, the research suggests
that the age factor (e.g., the proportion of millennials and post-millennials) is
not decisive for digital transformation. This seems to be in line with this book’s
insights about the biological unveiling of the information asymmetries, and the
lower than expected propensity to consume more asymmetrical financial offers in
a self-directed modality. Also, competition from the non-banking sector seems to
act as a constructive rather than disruptive force for the technological progress of
the banking industry. As Liu suggests, this implies the importance of building an
enabling environment for fintech firms and bigtech.
7.3 EXTERNAL FACTORS AFFECTING DIGITAL

TRANSFORMATIONS
Financial institutions can decide how to build or acquire their business architec-
tures, which business model to try, and how to partner for innovation. However, there
are external factors that could also matter and do not fall under direct management
control. They can be classified in the quality of the ecosystems, the regulatory require-
ments, the availability of capital, and the digital maturity of the technical and social
environment.
7.3.1 Digital infrastructure

The fourth industrial revolution is based on increasingly open and free data that
powers the interaction among individuals and businesses on digital platforms. The
penetration of mobile technology is a key enabler for the digitisation of financial ser-
vices, together with fast and reliable internet connections. While both China and the
US seem to be moving swiftly ahead with 5G, China exhibits multiple competitive
advantages that will further accelerate the growth of its digital economy once 5G
network connections are fully deployed. According to SCMP [8], although China’s
internet penetration rate is only 60% compared to 89% in the US, its sheer scale
means almost three times the number of internet users as in the US. In mobile pay-
ments, the gap is even wider (Figure 7.2). Instead, the European Union has more than
450 million mobile subscribers, but its infrastructure is fragmented and still striving
to consolidate into a “single digital market”.
7.3.2 Digital society

A digital society inclined to engage with fintech offers emerges from the confluence
of different elements, such as overall digital literacy, acceptance of digital payments,
population age, and use of digital identities.
The digital literacy of the consumer base is an important factor, particularly for
the development of digital payments and banking services directed to non-corporate
Internet Mobile Internet Mobile Payments
Chinese
population 829M 817M 583M
1.4 B 60% 58% 42%
US
293M 268M 62M
population
89% 81% 81%
329 M
FIGURE 7.2 Internet penetration in China and the US
individual clients. Digital payments are key to creating branding, trust, and engage-
ment. Higher levels of acceptance of digital payments should pave the way for faster
adaptation to more fintech offers. Here, China is again leading the way. While in
2019, the counter value of US mobile payments reached $160 billion, in the same
year, people in mainland China spent almost $40 trillion through mobile technology.
The 2020 pandemic outbreak accelerated the digital adaptation in the western world,
which is still playing catch-up.
Typically, younger populations in developed and developing countries exhibit
higher levels of digital literacy, which should correspond to faster adaptation to fin-
tech offers. However, this expectation could be mitigated by other elements, such
as lower available income and biologically anchored information asymmetries. The
recent history of robo-advisors reveals that they attract a wealthier and older popula-
tion compared to the cohort of millennials they were originally aimed to target.
Also, the digitisation of identities should remove frictions in the creation of a
digital society that interacts with fintech offers. The Indian UIDAI’s Aadhaar identity
project is a massive repository of the biometric, residential, and banking data of Indian
citizens, granting a digital proof of residence to almost 90% of a 1.3 billion population
in 2020. Aadhaar-based payment solutions can prove to be a way to connect excluded
segments of society in the realm of digital banking and financial services.
7.3.3 Digital ecosystems

Intensifying competition is pushing banks to accelerate the digital transformation.
The fast development of bigtech would certainly force banks to prioritise the adoption
of fintech offers and exponential technologies. A vibrant start-up ecosystem can be a
threat, or an opportunity to source new ideas, to buy innovative services or to develop
new solutions in partnership. Clearly, for a seller to sell, there has to be a buyer who
buys. A large number of fintech are Business-to-Business players, and their ambitions
have to correspond to a financial services sector that already proves itself histor-
ically capable of embracing new technologies. In this regard, stronger and larger
digital ecosystems tend to attract and increase know-how, facilitating up-skilling and
reskilling of the financial services workforce. At the same time, consumers’ inertia
might prove hard to shake in well-served and established markets, making underde-
veloped jurisdictions potentially more adaptive to fintech innovation, compared to
developed financial centres.
7.3.4 Capital at risk

A vibrant fintech ecosystem is nurtured by access to risky capital in the form of busi-
ness angels, the funds of venture capital, or private equity. This seeds business ideas
at higher rates, and permits the growth of new competitors capable of moving beyond
all stages of growth. When it comes to putting private money on the table, Wall Street
is still the uncontested leader globally. According to KPMG [9], global fintech invest-
ment was $105 billion in 2020, the third highest year on record, despite a significant
drop compared to $165 billion in 2019. Notwithstanding the pandemic uncertainty,
$76 billion went into fintech investments (including over $54.5 billion in merger and
acquisition (M&A) deals), $20.5 billion in venture capital (VC) investments, and
$1 billion in private equity (PE) investments. Instead, overall fintech investment in
the Europe, Middle East, and Africa (EMEA) region dropped from $61.5 billion in
2019 to $14.4 billion in 2020, driven by the lack of mega M&A deals. Payments
firms and challenger banks drove the largest deals in Europe. Total investment also
sank in Asia to a six-year low of $11.6 billion. China saw $1.6 billion of investment
in 2020, a decline that reflects the maturity of the mainland payments market which
is dominated by a small number of bigtech as well as the ongoing regulatory changes
indicating increased supervision of fintech and bigtech industries.
7.3.5 Regulation
Overall, international regulators are progressively taking an approach based on
controlled experimentation, promoting sandboxes and standards to protect con-
sumers like the European PSD2 and Open Banking in the UK. As a matter of
fact, digital-oriented regulation can be a competitive factor across jurisdictions.
Financial services tend to exhibit high levels of spatial concentration. According to
Palmberg and Palmberg [10], their high degree of spatial concentration emphasises
the importance of local embeddedness, networks, face-to-face communication,
knowledge spillovers, and spatial proximity for the organisation of the industry.
Yet, the digitisation process is transforming the talent landscape and the possibility
for a modern workforce to work from anywhere, reducing the power of major
financial centres, such as the City of London and Wall Street. Financial innovation
(e.g., structuring of products) is leading the way to fintech innovation (e.g., enable-
ment in technology), offering progressive jurisdictions the chance to increase their
competitive stance. In particular, the Monetary Authority of Singapore has been
extremely proactive in fostering a regulated and collaborative environment that
promotes fintech innovation, education, and know-how, as well as an opening for
the application programming interface (API) economy and digital banking. Other
countries initially took a more open approach, only clamping down when they saw
fraud emerging or consumer protection issues, as happened in China.
Overall, the way a firm’s regulatory posture, leadership, culture, and techni-
cal capabilities are defined is what makes the real difference for banks and fintech
competing on platform economies, facing enabling or disabling factors in their juris-
dictions and across markets.
7.4 INTERNAL FACTORS ENABLING DIGITAL

TRANSFORMATION
The shift from outputs to outcome economies transforms the concept of client centric-
ity. The client is not the centre of an insights-driven distribution channel of products,
in which hyper-personalisation tends to maximise marketing value and not neces-
sarily transparent value for clients. Instead, clients must be the core beneficiaries of
business value on platform economies. This can only create positive network effects
that can be rewarded in a positive feedback loop that generates competitive advan-
tages. The competitive digital culture of innovative banks and fintech needs to stay
constantly open to continuously nurture new business models and ideas. A digital
culture and strategic know-how must turn into enabling business architectures, which
balance the continuous tension between business leadership and technical leadership
that must act as one. Ultimately, they are one on digital platforms.
7.4.1 Digital leadership, strategy, and culture

Business leadership is the art of motivating co-workers, partners, and suppliers to act
to achieve a common goal. Strategy and culture are among the primary levers at busi-
ness leaders’ disposal. On one hand, strategy offers a formal logic for the company’s
goals and orients people around them. Well-informed digital strategies identify the
most appropriate routes to break out from the lower value spaces of the Banking
Reinvention Quadrant, leading to the higher value spaces of Contextual Banking and
Conscious Banking. On the other hand, culture expresses goals through values and
beliefs, and guides activity through shared assumptions and group norms. Nurturing
a digital culture goes beyond the day-to-day acts of doing digital work. It involves the
continuous exploration of how digital tools can interact with humans to create better
outcomes, operating within an ethical sense of purpose. A sustainable digital cul-
ture translates into a governance framework that places transparency, robustness, and
explicability at the core of any digital interactions to generate trust, which is the most
important currency exchanged in financial services. For banks and fintech to succeed
in the platform economy, their digital leaders have to be effective, transparent, open
and innovative, customer-focused, and purposeful.
■ Effective leadership gets the scope of the business right and learns how to com-
municate strategic ideas about the company’s future, market challenges, and a
common mission shared with the workforce. Leaders must communicate a story
which is about everybody’s journey towards new business models that strive
continuously to generate higher business value, building a timeline that is both
ambitious and meaningful.
■ Purposeful leadership seeds the terrain of a cultural mindset that keeps all stake-
holders engaged to act as a team, anchoring corporate action to ethical behaviour.
Leading with purpose anticipates regulation and mitigates compliance concerns,
as it anchors corporate behaviour to a well-balanced act that protects clients’
interest and that of the ecosystem (e.g., ESG sustainability), while rewarding
shareholders with sustainable returns.
■ Collaborative leadership allows organisations to overcome their fear of change.
New ways of working accelerate business transformation when information and,
in particular, data are readily and transparently accessible, both internally and
externally, with security and minimum friction. On platform economies, the com-
mon corporate goal of otherwise divided business units is no longer about selling
or cross-selling outputs, but creating integrated outcomes for clients, based on
frictionless and hyper-personalised experiences and interfaces.
■ Open and innovative leadership emphasises innovation as a state of mind,
enforcing tolerance for failure and constant onboarding of new ideas. It is culture
made into practice that allows innovative firms to thrive.
■ Customer-focused business and technical leadership merges business and
technology visions to capture growth and opportunities from the strategic
deployment of exponential technologies. Designing a competitive governance
framework that places the client at the centre of corporate action requires trans-
parency, robustness, and explicability in all technical and business processes.
This is the foundation of open and secured business architectures operating on
hybrid cloud platforms and infuses internal and external trust in the use of data
and insights.
7.4.2 New business architectures and operating models

Customer-focused business architectures and operating models are the backbone
of platform companies that want to be agile and nimble to continuously adapt to
new client demands, market changes, or uncertain economic conditions. Quite
often, business and technology leaders seem to have diverging missions inside
established organisations. They might be asked to respond to different questions.
BUSINESS
TECHNOLOGY
FIGURE 7.3 Business and

technology shared mission and
operating model
Technology is often about efficiency and costs, business is usually about higher
growth. Nowadays, it is clear that digital success is underpinned by a compelling
business vision as much as an open architecture that is jointly secure and flexible,
which adapts in a continuous process of business and technical “evolve-ability”.
Facing the fourth industrial revolution, business strategy is about technology, and
exponential technologies is about new business models to unlock value. The two
visions should merge into one (Figure 7.3) or at least, in complex organisations, find
a fruitful balance.
It is the symbiosis between business and technical leadership that allows a
break-out, trusting the transformation from closed operations to open finance (i.e.,
open and secured cloud-based ecosystem interactions), from product channels to
intelligent communication with clients (i.e., leveraging trusted open data with AI at
scale), from output-centric business models to outcome-driven client engagement
(i.e., evolving from linear business models to platform strategies).
7.5 CONCLUSIONS
Banks and fintech must overcome similar hurdles to succeed in the platform
economies, facing a complex shift from outputs to outcomes and intensifying com-
petition from bigtech platforms. The entrepreneurial mindset of CEOs, CIOs, and all
decision-makers is key to promoting a transformed culture. “First principles” design
thinking should guide organisations to leverage new business architectures and
exponential technologies towards higher business value on the Banking Reinvention
Quadrant. Understanding the business environment, and the evolving regulatory
framework, will position and competitively leverage the emerging platform strategies
of Contextual Banking and Conscious Banking. They are presented in Part III of
this book.
■ Transformations are hard, and digital ones are harder.

■ Notwithstanding substantial investments, bank efforts to transform busi-
ness architectures have delivered less gains than expected.
■ The real mechanism by which financial institutions exert market power
in the intermediation with clients was not understood, and relates to the
biological unveiling of information asymmetries.
■ Success depends on internal and external factors.
■ Internal factors are related to new leadership models, a cultural shift in
the organisation mindset, purposeful collaboration among stakeholders,
cloud-native business architecture supporting open innovation in com-
pliant and secured environments for development and production, and
new business models evolving banks and fintech from output to outcome
economies.
■ External factors are related to refreshed regulatory frameworks, digital
ecosystems, available capital at risk, digital infrastructure, and a digital
consumer base.
■ Business and technology should act as one, as they are one.
■ When supported by open and secured business architectures, banks and
fintech can break out from the lower value spaces of the BRQ, and execute
winning strategies based on Contextual Banking and Conscious Banking.
PART
Three
Leading Platform
Strategies
SUMMARY OF PART THREE
Part Three presents the emerging platform strategies of Contextual Banking and
Conscious Banking.
First, the opportunity to eliminate frictions from client journeys makes banking
contextual. Contextual Banking is a volume-based platform strategy centered on
“information” that makes banking invisible to reveal new value in the orchestration
of banking and non-banking ecosystems.
Second, the high-level complexity in information management that characterises
Contextual Banking is linked to the theory and principles of Financial Market
Transparency. FMT indicates how to make architectural uncertainty endogenous to
the open finance infrastructure, and achieve system antifragility. Similarly, the high
level of complexity in communication that characterises Conscious Banking is also
linked to the theory and principles of Financial Market Transparency. FMT indicates
how to unveil hidden value in banking relationships by resetting our understanding
of how financial intermediation really works, and the implication for the antifragility
of both micro- and macro-levels.
Third, Conscious Banking emerges as a value-based platform strategy centered
on “communication” that allows banks and fintech to remain visible in front of clients,
knowing that client fees are progressively dominating the revenue mechanisms while
product fees are squeezed in a race to zero prices.
145
CHAPTER 8
Contextual Banking
Friction will be the biggest killer of bank revenue in the next 10 years.
—Brett King [1]
O pen banking and open finance frameworks underpin one of the deepest shifts
in bank business models through technology, pushing advance institutions and
innovators to embrace platform economies with Contextual Banking strategies. On
one hand, bigtech firms are progressively contextualising financial services inside
non-banking ecosystems. They primarily need to add value to core platform interac-
tions to fend off competition and continue to grow. The opportunity to make financial
services frictionless leads to making them contextual. On the other hand, providers of
financial services are also chipping away at platform economies. Cloud-native pay-
ment providers are moving swiftly, competing with banks and bigtech or focusing
on specific segments of non-banking industries. Incumbent banks are also making
inroads into other industry journeys, despite cultural and regulatory constraints. They
need new business architectures that synergise security and resilience with openness
and flexibility. Platforms are continuously developing non-linear businesses, which
demand a radical change in mindsets from both business owners and IT departments.
8.1 INTRODUCTION
Digital platforms are blurring the boundaries between industries, enabling captive
user experiences in a process of progressive hyper-contextualisation that integrates
the multifaceted needs of clients. Financial services are also affected. Client interest
gravitates increasingly towards non-banking digital offers, which eliminate engage-
ment frictions, embedding components of financial intermediation. For banks to be
147
conquered, new contenders do not have to become banks or act in the same way.
The biggest erosion of incumbents’ market power stems from the contextualisation
of financial services inside other user journeys. Ultimately, people do not buy a
mortgage, they need a mortgage to buy a house. People do not buy a credit card,
they need a credit card to make payments. Financial services are a means, not
a destination. Together with technology, they enable clients to fulfil, or attempt
to reach, personal and business objectives that pertain to non-banking domains.
Detaching financial services from a human-centric and goal-oriented perspective
is bound to create systemic distortions in the generation of value, as epitomised
by the Global Financial Crisis that boxed financial institutions inside a low-margin
value space. Banks largely lost sight of their mission to serve clients, and took
centre stage in business relationships through a continuous process of optimisation
of their distribution channels of financial products. Many fintech also embraced a
faulty perspective, fusing client-centricity with hyper-personalised marketing offers,
remaining confined in the lower-left space of the Banking Reinvention Quadrant
made up of Traditional Banking and Digital Banking strategies (as defined in this
book according to the linearity of their business models and operations).
Banks and fintech can break out through exponential technologies, shifting
the business focus from output to outcome economies. There are two development
paths ahead. One is Conscious Banking, which unlocks hidden value by augmenting
clients’ ability to make well-informed financial decisions. The other is Contex-
tual Banking, which unlocks new value by eliminating frictions in non-banking
ecosystems to win on convenience, making financial offers consumable right at
the point and moment of decision. Conscious Banking and Contextual Banking
are complementary and not mutually exclusive. They share technological elements
through Banking-as-a-Service and Banking-as-a-Platform architectures, and related
operating models. Yet, they correspond to very different business strategies because
of the different mix and intensity of the information quotient and the communication
quotient (Figure 8.1).
The process of contextualisation into external user journeys is inscribed in the
growing tension between the evolving role of information (i.e., core banking) and
the emerging power of communication (i.e., interfaces). Core banking infrastructure
and related information-based services have become a high-cost low-margin utility.
Today’s information-based operation models, characterising traditional banking and
digital banking, are no longer sustainable when faced with the complex relation-
ship between costs and revenues. New business architectures are needed to break out
and operationalise outcome-oriented business models at a fraction of existing costs.
This implies opening data borders securely, extending the use of client information
and accessing alternative data points to augment client insights. The architecture of
incumbent institutions is characterised by data silos, which emerged over time as
banks expanded their business focus into adjacent financial services and progressively
optimised product-driven value chains. The distinction along lines of businesses pro-
moting different products to overlapping client sets generated the multiplication of
HIGHER
BUSINESS
VALUE
CONTEXTUAL
ECOSYSTEM
BANKING
OUTCOME
OPEN
PLATFORMS
ECOSYSTEM
CLOSED
CONSCIOUS
BANKING
DIGITAL
OUTPUT
PRODUCTS
SERVICES
TRADITIONAL

BUSINESS
PUSHED PULLED
VALUE
FIGURE 8.1 Contextual Banking on the Banking Reinvention Quadrant
data architectures, in which client data is contained inside product silos in order to
make linear match-making more efficient. Although effective in a product-driven
vertical environment, this leads to a high level of inefficiencies and ineffectiveness
on client-driven horizontal environments, making monolithic core banking largely
incompatible with the necessary agility to succeed on platform economies reorganis-
ing and following client journeys holistically. Therefore, when financial institutions
migrate their business architectures from monolithic environments to hybrid cloud
platforms, they must blur the business and technical lines across products and across
clients (Figure 8.2).
This core banking transformation corresponds to an upward and rightward shift
on the BRQ. Increasing the information quotient (IQ) means the creation of an open
banking framework in which data is shared promptly and securely. This is a pre-
condition to fruitful participation in any platform-based ecosystems. Increasing the
communication quotient (CQ) means deploying AI at scale, not only to attain higher
operational efficiency but also to win the race of hyper-personalisation. Essentially,
Contextual Banking allows financial institutions to unlock new value on core
banking utilities and compete head-to-head with cloud-native firms monetising
on entire ecosystems instead of low-margin transactions.
Client continuum
Client journeys
OUTCOME ECONOMIES
BaaP Brands
Conscious Contextual
Banking Banking
BaaS
Financial Institution
OUTPUT ECONOMIES
LoB 1 LoB 2 LoB 3
products products products
processes processes processes
clients clients clients
Cloud continuum
MONOLITHIC SYSTEM OF
OPEN ARCHITECTURE
RECORDS, INSIGHTS, ENGAGEMENT
FIGURE 8.2 A new architectural perspective
8.2 COMPETE WITH OPEN BUSINESS ARCHITECTURES
Banks are institutions operating under a banking licence that authorises them to col-
lect funding from clients (e.g., deposits) and transform short-term liabilities into
credit exposures on longer maturities (e.g., loans, mortgages, and letters of credit).
As regulated entities, they need to fulfil a set of requirements that span from know
your customer (KYC) obligations and anti-money laundering (AML) verification to
the measurement and management of adverse selection risks to meet capital ade-
quacy standards. They also provide intermediation services like payments, trading
execution, investment management, or insurance. Operations have always been con-
figured inside output economies as linear distribution channels of products. Banking
channels are increasingly challenged by digital platforms. Products and services can
be standardised and unbundled into micro-services, or containerised utilities. They
can be digitally embedded into external contexts made up of non-banking ecosystem
interactions (as represented in Figure 8.3).
This increased level of openness is changing the competitive landscape. On
one hand, external contenders are moving from the outside in (from right to left,
in Figure 8.3). They are embedding financial services inside the digital life of
customers, connecting with “banking needs” while banks become invisible. This is
what banking contenders like Ant Financial and Amazon progressively do. On the
other hand, banks can proactively orchestrate non-banking ecosystems in the attempt
CONTENDERS
BUSINESS
MODEL
FINANCIAL INSTITUTIONS CHANGE
PRODUCTS COMPONENTS INSIGHTS CONTEXTS / ECOSYSTEMS
INVESTMENT TRADING INTELLIGENT FINANCIAL

LOANS AML MOBILITY
PRODUCTS EXECUTION AUTOMATION WELL-BEING
BANKING
LICENCE INSURANCE CREDIT BEHAVIOURAL
ACCOUNT KYC REAL ESTATE EDUCATION
CONTRACTS SCORING ANALYTICS
PAYMENT RISK
MORTGAGES PAYMENTS LOAN MGMT HEALTH CARE TRAVEL
PROCESSING ANALYTICS
OPEN BUSINESS ARCHITECTURE
FIGURE 8.3 Open business architectures

to compete from the inside out on platform economies, directly or in partnership

(from left to right, in Figure 8.3). This way, they can reach clients where they are
making their core digital journeys, outside physical and digital premises of financial
institutions. A set of advanced institutions are building on this strategy, such as DBS
Bank, the State Bank of India, Ping An, and Shanghai Pudong Development Bank,
among others.
It is not only the competitive landscape which is changing but the nature itself
of competition. Unbundling linear banking services to rebundle them linearly on dig-
ital would be a short-term strategy due to the progressive compression of margins,
and the hurdles posed by the “pull-push” motivational gap. Outcome-oriented inno-
vation is happening at the intersection between banking and non-banking, changing
the way clients consume products and services, and pay for them. Business mod-
els must change significantly for banks to break out from the existing constraints on
open business architectures. This implies a change in business incentives and man-
agement habits inside established organisations, forcing C-level decision-makers to
navigate uncharted waters. They would typically analyse operating models break-
ing them down into multiple components, exploring new technologies and methods
to increase efficiency in the making and orchestration. Many considered the digital
transformation a way to lift and shift existing operations onto the cloud without any
substantial changes in the nature of client engagement. They identified value gener-
ation in the enablement of digital access to the same services and products on newly
designed apps. The misunderstanding of the current shift towards outcome economies
is restricting them to low value spaces on the BRQ, no matter how seamless and
advanced the user experience is. Instead, branches do not go digital, they largely
become invisible. The business perspective of such an offer-driven industry has to be
inverted. Clients and their needs become the starting point, wherever they are in their
journey. Banks and financial markets are removed from the centrality of operating
models. Without this change in perspective, open banking initiatives will not deliver
on their appealing promises.
Open banking is a standardised – sometimes regulated – practice that grants
third-party providers open access to banking, transactions, and other financial
data. Contextual Banking leverages open banking to unlock new value on plat-
form economies. Open banking principles and methods correspond to a technical
design-thinking logic that rebuilds the foundations of secured cloud architectures,
and grants options of greater financial transparency to account holders and their new
service providers.
8.3 FROM OPEN BANKING TO OPEN FINANCE
European markets entered a new era of increased transparency in 2018, as the

Revised Payment Services Directive (PSD2) became applicable in the European
Union. The European Commission conceived the PSD2 regulation as a level playing
field to harmonise consumer protection and the rights and obligations for payment
providers, paving the way for banks to adopt data-sharing technical standards to
increase pan-European competition, also from non-banks. In response to Brussels’
requirements, originally released in 2015, the Competition and Markets Authority
(CMA) ran an investigation into the UK retail banking market. The resulting report
concluded that incumbent banks were operating in an oligopolist market, and that
customers deserved secured options to compare the deals they were getting from
their banks. Consequently, the CMA ruled in 2016 that banks had to open their appli-
cation programming interfaces (APIs) and grant third parties access to customers’
bank account data to either collect transaction information or to make payments
(Figure 8.4). Essentially, banks were asked to start “opening the framework” to
favour healthy competition and enable customers to receive new financial services
and products from regulated third-party providers which had to onboard users’ data
safely and promptly, without having to reveal login details. Customers would always
be in control of what transaction data they chose to allow access to, and they would
be free to stop access to their information at any time. Pragmatically, the CMA set
up the Open Banking Ltd as a private body funded by the UK’s nine largest current
account providers, and tasked with delivering the APIs, data structures and security
architectures that would allow customers to share their financial records. In essence,
open banking is the UK version of the PSD2. While the introduction of open banking
standards only applies locally to the nine largest banks in UK, the rollout of PSD2
affects all payment account providers operating within EU borders.
Nowadays, “open banking” has become synonymous with safe and secure
data-driven interactions between banks and any third-party service providers. As
data-driven interactions started encompassing broader datasets, beyond account
and payment information, regulators and market participants started using the term
“open finance”. Open finance includes wealth management, investment manage-
ment, insurance, treasury operations, factoring and lending among the many services
offered (Figure 8.5).
The creation of innovative networks that provide access to open finance APIs
comes at a time when open source software, co-creation and co-development on cloud
computing form the future of architectural and application design. The collaboration
among creators and users of APIs is based on modular and standardised develop-
ment frameworks for them to build with trust in each other, resulting in faster speed
for development and innovation. Speedy and innovative institutions started building
competitive advantages based on new capabilities to easily and quickly distribute
their APIs. As such, the major open banking initiatives focused on the creation of
platform marketplaces where micro-services could be shared, improved, and quickly
distributed across a community of interested parties intersecting non-banking sup-
ply chains. Financial institutions progressively learned the relevance of opening their
architectures to compete with other banks, with bigtech firms, and new fintech con-
tenders, by adopting three open banking approaches: inward opening, outward open-
ing, and reorchestration.
CONTENDERS
BUSINESS
MODEL

LOANS AML MOBILITY
BANKING
PAYMENT RISK
OPEN BANKING THIRD PARTIES
FIGURE 8.4 Banking and non-banking infrastructure: open banking

CONTENDERS
BUSINESS
MODEL

LOANS AML MOBILITY
BANKING
PAYMENT RISK
OPEN FINANCE THIRD PARTIES
FIGURE 8.5 Banking and non-banking infrastructure: open finance

■ Inward opening. Banks started to enrich digital banking propositions embed-

ding account aggregation features inside their mobile apps, allowing intelligent
analytics to ingest client information across multiple banking relationships, to
improve budgeting and saving rates. This approach is geared to increase client
use of digital banking apps, fostering branding and improving upselling of prod-
ucts inside omni-channel distribution frameworks.
■ Outward opening. Banks started deploying fully-fledged API marketplaces to
serve fintech and other third parties willing to consume their capabilities “as a
service” (e.g., BBVA API Market). This way, banks can embed themselves in
other banking and non-banking solutions although they do not own the contex-
tualisation of their capabilities, and rely on transactions and API pay-per-usage
schemes to monetise on technical investments.
■ Reorchestration. Banks started creating innovative digital platforms like “super
apps”, directly or in partnership, orchestrating user ecosystems that contextu-
alise their capabilities inside non-banking journeys. Thus, they can find ways
to monetise on entire ecosystems, instead of focusing only on transactions and
volumes.
To meet a growing open banking need, fintech and service providers started
proposing a variety of operating models that interact or compete with incumbents’
initiatives. They address different aspects of the digitisation of banking infrastructure
and/or client journeys. Compared to open banking platforms that allow third par-
ties to access and share data, only granting visibility rather than creating financial
products themselves, BaaS providers (e.g., Solaris Bank) offer a modular access “as
a service” to a suite of banking capabilities, products, and components, based on a
banking licence. Open banking platforms and BaaS platforms seem to be common
offers more in Europe than in the US, due to a stronger regulatory push. In com-
parison, US banks tend to interact with more restricted BaaS offers, typically only
focused on middleware components.
8.4 CONTEXTUAL BANKING
Contextual Banking is possibly the biggest shift in bank business models through
technology since modern retail banking was conceived, and technology started trans-
forming the industry. The first relevant case of innovation that became possible due to
the advances in telecommunications dates back to 1872, when a wired money trans-
fer was accomplished by Western Union – a formal telegraph service turned into a
financial services company. It was June 1967, nearly one century later, when the first
automated teller machine (ATM) was activated by Barclays Bank in London. Peo-
ple were soon freed from the need to visit a bank branch during opening hours to
access their money. Since then, cash points have filled the streets, credit cards pushed
their ways into a world of paper and coins, and online banking forced a rethinking
of retail branches. Yet, it is the invention of the smart phone that triggered the deep-
est transformation in banking operations. Mobile technology did not solely pave the
way for contactless payments. It created new opportunities for fintech and bigtech
to disintermediate access to banking services, embedding them inside customer jour-
neys. Bankers and financial products used to be the centre of the engagement with
clients. Nowadays, clients are progressively taking centre stage, transforming the
context itself of the banking relationship. Essentially, financial services became a
participant in the broader context of consumers’ life, and a key digital component
to unlock value inside outcome economies. Frictionless user experiences dominate
context-driven engagement, whose convenience and ease clients recognise (albeit not
always pay for). Ultimately, these elements direct motivation in platform participa-
tion in such a way that banking is no longer an event but a more fluid and seemingly
“unconscious” activity.
King [2] observes that the opportunity to make processes frictionless leads
into making them contextual. The banking part of purchases and other events
ceases to have a separate existence and is reimagined on the platform economy
by firms like Uber, Grab, Square, or Amazon. Simplicity pays out in physical life.
Similarly, the lowest-friction experience will be the most widely adopted on digital.
While frictions have always been an “opportunity” for middlemen to justify fees
on output economies, they will be a significant killer of bank revenues operating
digitally. On outcome economies, the elimination of frictions is a necessary action
but not a sufficient condition to survive and excel. According to King [2], the strategic
enabler of Contextual Banking is a mindset shift about the essence of most banking
processes. Bankers have to reimagine their business on digital, knowing that the
“product thinking” of linear banking models will be eclipsed. To innovate, they
must get back to “first-principles” design thinking. Essentially, this means tearing
up the old blueprint, and confronting the job afresh with modern capabilities in
mind. Making banking invisible does not mean that services are no longer there but
that they cannot be thought and paid for in isolation. Banking becomes invisibly
embedded inside someone’s digital experience to be revealed right at the most
important time of decision-making. As the world goes digital, King envisages that
most products and services will be replaced by more engaging and frictionless
embedded experiences (Table 8.1).
Contextual Banking requires and forces banking to become simpler, and makes
banking accessible from outside the regulated banking perimeter. The rise of in-app
purchases demonstrates that consumers want to stay within the channels they are in
to complete any transactions, rewarding with fidelity all elements that allow them
to check out faster. Contextual commerce is a straightforward example. According
to Avionos [3], social media contextualisation is an active e-commerce channel,
more effective than leveraging world-famous influencers. Sixty percent of consumers
have never purchased a product promoted by a celebrity or social influencer, but
more than half of consumers (55%) have made a purchase through a social media
channel, such as Facebook or Instagram. Notwithstanding, it is one thing to design
TABLE 8.1 Brett King’s list of typical bank products that could disappear
Financial products or services Replacing embedded experiences
Credit Cards Contextual credit access

Overdraft Emergency credit access
Current Accounts or Debit Cards Mobile wallets
Savings Accounts Behavioural savings tools
Personal Loans In-store payment options advice
Mortgages Home purchase assistants
Car Loans Subscriptions to car sharing
SME Accounts AI-driven accounting, tax and payments
Business Lines of Credit Predictive cash flow analytics
Life Insurance Longevity and after-life management
Health Insurance Health optimisation and monitoring
Term Deposits Robo-advisors
Mutual Funds Robo-advisors with net worth managers
Foreign Exchange Services Global wallet add-in
“first principles” to embed financial services as a way to streamline non-banking

processes. It is another thing to leverage non-banking ecosystems to distribute
financial products linearly. In this regard, banking contextualisation poses a series
of specific regulatory concerns because frictionless experiences, although welcome,
could generate negative side effects. Two elements make commerce contextualisation
different from contextual banking: (1) the timing of gratification, and (2) the nature
of the frictions. This can be clarified with an example that compares e-commerce
with investing.
8.4.1 Removing ex-ante frictions without increasing them ex-post

The author of this book enjoys shopping on Amazon for desirable goods. Once, he
searched for a red Armani tie that would be a good look for an upcoming book sign-
ing in Milan. Soon in his shopping trolley, he appreciated the possibility of paying
in the app and checking out safely, expecting to receive the parcel within 24 hours
via Amazon Prime. Buying provides instant gratification. When experiences become
frictionless, embedding payment solutions inside e-commerce journeys, gratification
is just one click away. It sometimes happens that products bought do not correspond
to intended preferences. When the author’s wife made a poor comment about blue
being a better colour for a formal event, there was no alternative but to return the tie.
Normally, products can be returned as frictionlessly as they were bought. A parcel
pick-up can be booked with a few clicks, while money is refunded automatically.
In the world of commerce, frictions can be removed before and after the moment
of decision and consumption. This might not be the case in financial services. Hav-
ing money to invest requires careful thinking and should not be made on impulse.
Thanks to digital technology, investment funds can be one click away on social media
platforms or financial superstores. Removing ex-ante frictions might lead to an
increase in ex-post frictions, without a clear understanding of clients’ risk capac-
ity and awareness to make a transaction. In fact, investment gratification does
not usually happen at the moment of “buying” an investment fund but is delayed
days, weeks, months, even years, when the investment returns hopefully materialise.
Should the stock market plummet, unhappy investors cannot return the assets and
money cannot be refunded. Therefore, particular care should be made to remove
ex-ante friction in the distribution of asymmetrical banking products, to avoid gener-
ating ex-post friction in client relationships. This could affect the financial health of
clients, and the reputation of service providers.
As another example, “Buy Now Pay Later” (BNPL) eliminates multiple
e-commerce or e-payment frictions by embedding quick credit approval at the point
of sale. Essentially, BNPL merges the decision to pay with the decision to borrow.
Removing the “technical frictions” from the point of sale has a positive value, there
is no doubt. However, removing “behavioural frictions” from the moment of sale can
introduce negative value, leading to damaging compliance concerns if set outside
the context of a person’s financial situation. BNPL practices must be mitigated with
holistic appraisal of consumers’ credit situation across lenders that might not be
picked up by traditional credit scoring methods. The regulatory frameworks need
to be refreshed and transparency enforced on incentives, costs, and consequences
of Contextual Banking like any other activity involving financial intermediation, as
advocated in Sironi [4].
Contextual Banking competition moves in two alternative directions. On one
hand, bigtech companies embed financial services at speed to streamline user experi-
ences (i.e., outside-in), eliminating frictions to enrich their digital value propositions.
On the other hand, financial institutions launch non-banking platforms to win alter-
native ecosystems (i.e., inside-out), and stay relevant on outcome economies when
facing final clients.
8.5 BIGTECH GRAVITY
Financial services are a complex industry that touches almost every aspect of mod-
ern economies. Payments are the basic infrastructure for any commercial relations
between banked and unbanked populations. Lending allows companies to grow and
people to work on their goals. Insurance mitigates risk-taking, protecting people’s
and companies’ financial well-being. As financial services go digital, it is no surprise
that digital platforms feel strongly incentivised to integrate these capabilities into their
solutions. Eliminating financial frictions increases trust, adds value, and helps them to
improve conversion rates. They can fend off competition by continuously motivating
users to participate with trust in their ecosystems. Certainly, bigtech are making many
inroads into financial services but asking if Facebook, Amazon, or Walmart want to
become a bank might not be the right question. They can take the route of getting
a banking licence, as Grab did from the Monetary Authority of Singapore in 2020.
However, the core of the tender is how Facebook, Amazon, and Walmart can stay dig-
itally relevant in highly competitive outcome economies. Frictionless payments are
not solely about tactical experiences. They are a strategic engagement mechanism, a
must have while people’s life merges online and offline. Unbundled banking capabil-
ities fulfil an existential search for deeper contextualisation into user journeys, ring
fencing user interactions at the lowest possible cost and with the highest speed to add
more value and expand further.
8.5.1 Facebook experience vs. WeChat engagement

Facebook and WeChat are very powerful yet different social media apps, both cham-
pions in their respective core markets but also competing in fast-growing developing
economies. The author of this book uses both platforms to promote his literature in
English and Mandarin (Figure 8.6).
The quality of the Facebook experience is generally good: the mobile screen
is ergonomically filled with key and captive elements that attract users to interact
and buy the books. Instead, posting on WeChat is a more mechanical experience.
Images are smaller, lots of valuable space is not used, uploading longer videos was
not available until recently. Possibly, Facebook excels in user experience compared
to WeChat. However, WeChat seems more competitive than Facebook because it
ENGAGE EXPERIENCE
FIGURE 8.6 Engagement vs experience

excels in platform engagement. WeChat learned how to leverage payments to enable

Chinese users with something more essential than posting news and pictures, that is
sharing money with red envelopes along with messages, paying for goods, or run-
ning small businesses on mini-apps. Chinese digital prowess was built on embedded
financial services’ capabilities (i.e., core banking information), and making it work
hand-in-hand with digital communication (i.e., interfaces).
It is communication that drives engagement, but it is banking information
that makes it essential for people who share value-generating interactions. Bank-
ing capabilities make non-banking network effects less contestable.
Given the new embedded, yet strategic role of banking capabilities in
non-banking ecosystems, core monetisation of Contextual Banking platform strate-
gies might not be sourced directly from banking transactions. Platform economies
are not an alternative distribution channel for financial products. Instead, platforms
tend to change the nature of banking relationships because they are centred on client
contexts outside banking and financial market contexts.
8.5.2 Amazon’s platform philosophy

The progressive contextualisation of banking services inside the Amazon market-
place is not intended to generate new banking-related revenues but to support the
core business. Seattle has experimented with the contextualisation of multiple compo-
nents of banking architectures in the last two decades, tweaking them to be embedded
inside the interactions between merchants and consumers (e.g., Amazon Pay, Ama-
zon Cash, Amazon Protect, Amazon Lending, and Amazon Allowance). The focus
has never been building a bank that serves everyone but – if anything – building a
bank for Amazon itself. With this in mind, CBS Insights [5] identified three pillars
of the Amazon strategy: payments, cash deposits, and lending.
■ Payments. Safe and secure payment experiences generate trust and motivation
to interact on e-commerce platforms. Alipay and WeChat Pay demonstrate that
payment solutions need to merge online and offline experiences to stay competi-
tive. So does Amazon Pay, being a payment network and a digital wallet for both
online and brick-and-mortar merchants.
■ Cash deposits. Frictionless payment methods intersecting with people’s reliance
on cash are needed to onboard large populations in developing markets who do
not use banks, where Amazon is competing with Chinese contenders. Amazon
net sales outside the US have been growing steadily, and pivoted towards markets
like India and Mexico. In 2020, “non-core” markets represented almost 38% of
all international revenues, double the relevance in 2014 (Figure 8.7).
■ Lending. Amazon has been explicit about its desire to build a lending arm to
specifically target small and medium-sized enterprises (SMEs). The first solu-
tion to help SME sell more was launched in 2011. In 2018, Amazon partnered
with Bank of America to issue loans on a pre-approved invitation-only basis and
extended the partnership portfolio to Goldman Sachs and ING in 2020.
Amazon Int'l CORE Amazon Int'l OTHER

80 62%
Net Sales in $ billion
60 64%
67% 38%
70%
40 76%
82% 80% 36%
33%
20 30%
24%
18% 20%
0
2014 2015 2016 2017 2018 2019 2020
FIGURE 8.7 Annual net sales of Amazon outside the US
Amazon’s strategic acceleration in the process of banking contextualisation can

be truly understood only looking at its profitability. The Amazon Annual Report
[6] indicates that marketplace revenues accounted for 88% of full year revenues,
while a staggering 59% of operating income was produced by AWS cloud services
(Figure 8.8). Indeed, Amazon is a powerful marketplace and Jeff Bezos is obsessed
with client experiences. However, cloud services emerge as the real money maker on
top of merchant and consumer services. Contextual Banking capabilities add thrust
to client-centric services and unlock the value of Amazon cloud services. Contextual
Banking adds an extra layer of big data collected online and offline that strengthens
cloud-native predictive analytics sold to third parties.
Amazon’s business philosophy centres on three focal points: customers, mer-
chants and cloud users (Figure 8.9).
12%
41%
Operating
Revenues
Income
59%
88%
MARKETPLACE
CLOUD SERVICES
FIGURE 8.8 Amazon revenues and operating income breakdown,

FY 2020
subscriptions subscriptions
LOGISTICS LOGISTICS
FRICTIONLESS FRICTIONLESS
PAYMENTS PAYMENTS
SKU
SEARCH &
SELECTION
COMPARE
CONSUMER MERCHANT
MODULAR
REVIEW RELATIONSHIP
FRICTIONLESS PERSONALISED
REFUNDS LENDING
COMPUTING
DATA CLOUD
USER
ANALYTICS
subscriptions
FIGURE 8.9 Amazon’s platform philosophy
■ Marketplace customers. Amazon was born as a buyer-centric platform. Most of

the revenues originate from buy-sell transactions and subscription fees. Having
customer needs at the centre means surrounding them with a digital layer made
of intuitive ways to find the best products for the right prices. Once the tight
connection between buyers and sellers is established, customers expect to check
out securely, safely, and trustworthily. This is the digital layer on which bank-
ing contextualisation starts. Embedding financial services increases the chance
that a customer search will be converted into a transaction. Frictionless experi-
ences reinforce user motivation (e.g., paying with voice through Alexa) or make
it relevant (e.g., enabling underbanked or unbanked populations to transact with-
out having a bank account, just needing an internet connection and a printer).
The post-sales layer orchestrates the next set of services. Amazon logistics are
the realisation of the e-commerce dream, although a very expensive component
to operate globally that dents operating income. Products can be shipped and
tracked, they can be returned and money quickly refunded. Finally, Prime fees
are the balancing layer that builds loyalty and stabilises revenues. Subscribers are
rewarded with access to music, movies, and other services that make the Amazon
experience “ultimate”.
■ Marketplace merchants. Merchants look for an efficient way to sell their prod-
ucts on the internet. Although the buyer experience was initially the core focus,
Amazon quickly added a set of services to optimise the interactions with mer-
chants, thus logistics. Merchant-centricity starts with a suite of services to let
them organise, connect, and manage inventories. Once past the organisational
aspects, merchants find a Contextual Banking layer that helps to manage their
financial relationships with customers (e.g., one click payments for fast conver-
sion rates and collection of money) and within their business ambitions. Amazon
and its banking partners can fulfil merchants’ funding needs at convenient rates.
Amazon owns a substantial amount of hyper-personalised data about merchants’
inventory, turnover, and strategies to assess idiosyncratic credit risk with more
accuracy than any main street bank.
■ Cloud users. The renowned API’s memo by Jeff Bezos made no secret about
his obsession with cloud computing and data-sharing, not only customers. Open
and well-designed cloud architectures can manage complex operations, from
match-making customers and merchants, to payments, refunding, and logistics.
However, the cloud is not just the underlying enabler of the digital platform. In
Amazon’s case, the marketplace becomes the enabler for unlocking the commer-
cial value of cloud services and the suite of predictive analytics, in an impressive
feedback loop that continuously nurtures value for customers, merchants, and
cloud users.
Amazon demonstrates that Contextual Banking merges with non-linear business

strategies and prowess in technology to unlock new value on outcome-oriented plat-
form economies.
8.6 FINANCIAL SERVICES FIGHT BACK
While bigtech companies are progressively contextualising banking services to

increase value and interactions in their own ecosystems, banks and other financial
services institutions are also pressing on to compete. Cloud-native payment providers
were among the first to learn how to break out of the linear value space occupied by
digital banking. The comparison among the market capitalisation, or private equity
evaluation, of the top 500 global banks, payment providers and fintech unicorns
indicates there is a clear trend towards a shift of power (Figure 8.10). Payment
providers are moving towards the upper-right corner of the BRQ.
8.6.1 Cloud-native payment providers are also chipping away

bank revenues
PayPal CEO Dan Schulman revealed in a 2021 call with Wall Street analysts that
PayPal aspires to become the world’s next banking “super app”, offering a set of
integrated features that once would have required a series of different apps. Similar
Global Banks Payment Firms Fintech

100%
75%
50%
25%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
FIGURE 8.10 Percentage share of market evaluation among top 500 global banks,
payment providers and other fintech
Source: The Economist [7].
to Alipay in China, these would include tools for payments, shopping, financial ser-
vices, and even new forms of digital identification. The announcement highlights the
heightened battle for the consumer’s wallet that is occurring between banks, bigtech,
and fintech players like Stripe, Square, and Affirm. Each of these players wants to
dominate user payment experiences wherever they occur, online as much as offline.
As reported by Marous [8], Schulman explained that:
What a super app wants to do is turn all of those separate apps into a
connected ecosystem where you can streamline and control data and infor-
mation between those apps, between the act of shopping, the act of paying for
that, and then you have this common platform and common data that allows
machine learning and artificial intelligence to kick in and give personalised
recommendations to those consumers.
In other words, it all comes down to using insights to drive recommendations

and eventual shopping, payments, and overall financial activity. Consumers benefit
because of the ease of engagement, and the potential value of streamlining how money
flows from one financial application to the other. This is where budgeting tools,
reward schemes, and alternative payment options immediately come into the picture.
While PayPal sees Contextual Banking as a way to expand its financial services
footprint, and compete head-to-head with bigtech “super apps”, other fintech
are embracing new platform strategies to contextualise financial services inside
more specific ecosystems. For example, Square, the financial services and mobile
Others
13%
YouTube Music
Spotify
5%
34%
Tencent Apps music

12% streaming
Q2 2020
Amazon Music
15% Apple Music
21%
FIGURE 8.11 Percentage of music streaming worldwide,

Q2 2020
payments company founded in 2009 by Twitter CEO Jack Dorsey, announced its
intention to acquire a majority ownership stake in Tidal in 2021. Jay-Z’s music
streaming service is a smaller competitor of Spotify, Amazon Music, and Apple
Music (Figure 8.11). The deal rationale comes down to a simple idea about how
Contextual Banking can help resolve the chicken-and-egg dilemma. Fintech inno-
vation could be used to support artists’ work. In return for their success, positive
network effects would attract larger fanbases to the music platform. In Dorsey’s own
words: “New ideas are found at intersections, and we believe there’s a compelling
one between music and the economy.”
Starting from what Square Cash App was able to do for sellers and individuals,
supporting artists in their most critical financial and business needs would motivate
them to participate in Tidal’s ecosystem. Contextual Banking platform strategies are
not pursued to steer profits away from banks. This would be a likely result, not a strate-
gic scope. Instead, they would add value to a music ecosystem made up of emerging
artists, building the platform that supports them at every point in their career, assisting
them in their creative journeys. As indicated in previous chapters, platforms succeed
when they generate – on aggregate – more value for the ecosystem than the value
retained by the sponsors. Financial services can be a low margins business, but there
is no doubt they can add value to platform users.
8.6.2 Ping An’s investment philosophy

Payment providers are the natural hyper-scaling businesses on platform economies.
Although margins are shrinking internationally, with geographical differences
opposing a more price sticky US market versus a contracting European margin
landscape, according to McKinsey [9], global payment revenues have been rising
steadily over time, providing cloud-native firms with good headwinds and space for
strategic long-term investments.
The muted financial performance of banks often precludes them from long-term
thinking. In particular, “first principles” platform design is a game-changer that
requires CEOs to navigate uncharted waters for many years before they can harvest
the benefits of transformation. Also, bank boards of directors are not always
equipped with sufficient expertise about advanced information technology and
first principle platform thinking. Yet, this is needed. First of all, launching and
activating a platform can be expensive, as providers typically subsidise one side of
the ecosystem for years before they find a way to monetise. Second, CEOs need
to be careful about the way they intend to monetise on ecosystem interactions.
Focusing on financial services transactions (i.e., outputs) seems an obvious route but,
as discussed in previous chapters, it is often revealed to be a dead end on platform
economies. Platforms are not the next distribution channel of financial products
and solutions. In most cases, contextualisation is not a way to build volumes but
a needed mechanism to add value to users, motivating them to trust and interact.
Cross-selling and upselling, which are difficult strategies in output economies, are
all the more difficult in outcome economies and are replaced by “cross-engagement”
in most advanced platform games. Moreover, regulations might not always allow
financial institutions to generate revenues outside their licensed perimeter, limiting
incumbents’ direct entrepreneurial actions. A multi-year business plan is required
that transparently aligns stakeholder interests, risk appetite and expectations to grant
platform providers sufficient time to perform. This is the case of the Chinese insurer
Ping An, which found a way to merge non-linear online economies with more linear
offline services.
Jessica Tan, Co-CEO of Ping An, was crisp and clear in a 2019 CNBC inter-
view about Good Doctors strategy and investment philosophy. Ping An Good Doc-
tors was officially launched in 2015 as a mobile platform that handles a variety of
online health care services. Aimed at gaining trust with convenience and expertise, it
orchestrated a communication bridge between doctors and patients. Currently, it has
established several key business segments: online medical services, hospital referrals
and appointments, health management, and wellness interaction services. In addition,
it connects individual consumers with health care resources and insurance agents. As
of the end of 2020, the number of registered users of the platform reached 373 million,
an increase of 57.6 million or 18.3% from the end of 2019, while the number of active
users had surpassed 67 million. In a continuous process to refine operations and boost
user engagement, the company launched “Online Comprehensive Medical Care” in
2020. Addressing medical accountability and transparency in medicine quality as the
core platform proposition, the platforms directly and successfully address the pain
point of “trust” between doctors and patients. As discussed in previous chapters, trust
is the core engine of platform engagement. Asked about the financial strategy of Ping
An Good Doctors, Jessica Tan commented:
The profile of tech companies is usually exponential as opposed to linear,

right. So, you tend to invest a lot in the beginning because what you invest
in are people and technology, and these things are quite fixed. So, as the
volume scales up, naturally you get the benefits. So, we usually have four
stages for all tech companies [of the Ping An Group]. It is very clear at which
stage they are in. Stage one is about proving value propositions. Second
stage is about traffic and volume. Good Doctor is in Stage 3 where it’s about
revenue – we want them to have a good revenue growth because it shows that
people are willing to pay for their services. So, good quality revenue before
then, finally, they are in the profitable stage, which is the fourth stage.
In essence, the Ping An Good Doctors platform strategy is a multi-year

innovation effort made of four stages (Figure 8.12): (1) build trust and engagement
(value propositions); (2) allow free access and build volume (positive network
effects); (3) start selling (build revenues monetising on trust and interactions); and
(4) consolidate (reach profitability).
Ping An is not the only financial institution engaged in this journey, though one
of the most renowned inside and outside China. Asia hosts a variety of different use
cases, some of which are discussed below.
8.6.3 Banking orchestration of non-banking ecosystems

Incumbent financial institutions are also starting to move towards higher value spaces
of Contextual Banking, making inroads into non-banking platform economies.
Asian institutions seem particularly incentivised by the presence of a very large
unbanked and underserved population which only Contextual Banking platform
strategies can help to onboard at scale. This is also facilitated by the high level
Consolidate to
Reach Profitability
Sell to
Motivated Users
Free Access to
4
Build Volume
Build Trust &
Engagement
1 2 3
FIGURE 8.12 Ping An’s investment strategy and platform stages
of digital adaptation in consumer habits and expectations. It is worth reviewing

some indicative examples, which correspond to three types of orchestration:
(1) consumer-oriented platforms (e.g., DBS Bank); (2) platform re-engineering of
value chains (e.g., the Bank of Baroda); and (3) hybrid marketplaces with embedded
financial superstores (e.g., the State Bank of India).
DBS Bank was already occupying a higher value location on the Digital Banking
space, having invested significantly in the end-to-end hyper-digitalisation of its
operations. In the first phase of the contextualisation journey, DBS not only launched
a fairly comprehensive development API platform, but focused on the creation of
distinct marketplaces leveraging key non-banking partners in a significant attempt to
change and adapt the business model to the digitisation of lifestyles. Since 2017, the
Singaporean bank has launched a car marketplace, a platform solution for electricity
contracts, a real estate digital play, and a travel solution. “DBS Car Marketplace”
is a platform that intends to facilitate transactions consisting of car purchases,
loans, insurance, and credit card applications as well as purchase of car-related
accessories. “DBS Electric Marketplace” allows consumers to seamlessly switch
to new electricity retailers. “DBS Property Marketplace” comes with Singapore’s
first home financial planner that services first-time home buyers, determining their
“affordability” price range based on their monthly cashflow, calculated from both
their CPF and cash deposits. The marketplace aims to facilitate end-to-end paperless
transactions, from cheque-free payments to digital documentation, but also provides
all the essential services buyers need to settle into their new homes by partnering
with service providers (e.g., utilities, internet and TV services, renovation, cleaning
and moving services). Last but certainly not least, “DBS Travel Marketplace”
was launched in 2019 to be a hassle-free, one-stop travel solution for frequent
travellers. In a recent interview with IBM [10], DBS Bank CEO Piyush Gupta
highlighted that:
If you can embrace agile set-ups, experiments, and constantly nurture

a learning culture, then you become adaptive and nimble, which means
you can respond a lot more quickly to opportunity and changes in the
environment.
Similarly, Indian government-owned Bank of Baroda launched “Baroda Kisan”

in 2019, an agri-digital marketplace that intends to shift client engagement from dis-
connected and fragmented value chains to a connected and synergetic ecosystem in
India. The digital platform is designed to cater to farmers’ nonbanking needs, includ-
ing weather forecasts, crop conditions, the moisture levels of the soil, information on
crop worms, market prices, and special crop-related consultation. Further, it intends to
contextualise banking capabilities integrating a digital wallet into the user experience,
while helping farmers with inputs related to the purchase of different products, agri-
cultural equipment on rent, consultancy services, and innovative financing options
for the sale of their produce.
Essentially, community banks are usually constrained to regional operations

as they are born to interact linearly with specific supply-chains. Exponential
technologies enable them to transform the primary relationships with the industrial
district they serve to become community platforms. Once they operate as digital
platforms, they can stretch their borders and target similar ecosystems in different
regions. Well-designed Contextual Banking allows local banks to become borderless
and compete against larger institutions.
The State Bank of India (SBI) took a different route, creating an interesting
fusion between a financial superstore and a non-banking marketplace. SBI is the old-
est commercial bank in the Indian subcontinent, founded in 1806, controlled by the
Indian government since 1955. In 2017, it launched a digital app named “You Only
Need One” (YONO), an integrated digital banking platform that wants to enable users
to access a variety of financial and other services such as flight, train, bus and taxi
bookings, online shopping, or medical bill payments. SBI formed a vision of some-
thing more than a digital bank. It envisioned a comprehensive online platform to
move from the lower spaces of the BRQ, and evolve into a “super app”. According
to IBM [11], SBI’s strategy is based on four pillars: (1) digital-first design think-
ing; (2) bundled financial experiences; (3) an online non-banking marketplace; and
(4) end-to-end (E2E) digitisation. First, well-inspired design thinking embraces “first
principles transformation”. Business focus evolves with digital technology around
novel business approaches and incentives, and a renewed sense of purpose in the
intermediation with clients. Second, client centricity means that the client is number
one. As Jeff Bezos dictated in his API memo, digital transformation starts inside the
organisation. The interest and incentives of all business units have to be reconciled
to create a frictionless and seamless journey for clients, whatever they might need,
at any point in time. Third, client motivation is to be addressed right from the start.
The creation of a non-banking marketplace, as in the case of SBI, could provide the
needed symmetry to create “affinity” between clients and the new banking platform.
This is the contextualisation layer to stay digitally relevant in all key segments of
the personal and business life of users. Finally, only the end-to-end digitisation of
everything in banking, from processes to customer journeys, can generate value at
affordable costs.
8.6.4 The platform of platforms

First, platform movers tended to target individual ecosystems, and build solutions
around well-defined life journeys and business needs. Nowadays, the industry is
coming to realise that platform economies are about holistic views of participants to
generate sufficient value that motivates them to engage frequently, and increase value
generation exponentially. Contextual Banking platform strategies must be based on
open business architectures capable of developing from the start. They need to expand
continuously to onboard disparate services inside the same hyper-personalised
engagement model. All services are accessible by the same final user who buys a
house, who might book for holidays, who rents a car, or grows a business. Traditional
firms, attempting to build a platform fulfilling the digital ambitions of business
younger omni-intelligent connections older
omni-businesses
omni-users
FIGURE 8.13 The platform of platforms
units separately, would not be on the right track of innovation. This makes platform
strategies a complex business model to justify inside traditionally compartmentalised
firms. CEOs need to invest for long-term transformation and value creation, bundling
the client vision of internal business units with that of external industries. This is not
about short-term results, but long-term pain to make ultimate gains.
As such, Contextual Banking succeeds only if digital engagement embraces
numerous aspects of user life. Monetisation strategies are maximised when applied
to the whole ecosystem instead of underlying transactions. The more journeys clients
can do on the same platform, the higher the value and motivation they receive.
These platforms would be designed on a three-layer principle (Figure 8.13): omni-
intelligent connections, omni-businesses, omni-users.
■ Omni-intelligent connections. The cloud-native heart of the platform complies

with “evolve-ability” principles right from the start. Banks often start the digi-
tal journey, and platform thinking, targeting specific and more innovative busi-
ness units. This might inadvertently add elements of architectural “localisation”
that have to be properly recognised to avoid creating data and compliance silos.
Instead, the heart of the platform has to be business and user agnostic, still mod-
ular, and flexible to accommodate different regulatory expectations. Intelligent
workflows drive the back-end. An intelligent network of connections leverages
data and AI to permit a frictionless engagement among clients and merchants.
More intelligent connections add more business requirements, more use cases,
more client journeys, more value.
■ Omni-businesses. Users are motivated to participate according to the level of
curation, convenience, and ongoing usefulness. Adding value to digital business
means, first and foremost, helping them in their process of intermediation with
their respective customers. Bundling a variety of retail and corporate businesses,
especially in the SME segment, provides merchants with a digital space that
leverages a process of “cross-engagement” to meet clients. This would be the
merchant-centric layer for retail and corporate banking contextualisation.
■ Omni-users. Client centricity spans the borders of individual industry journeys,
and benefits from hyper-personalised holistic rebundling. The client is always
the same, whichever services are required, needs, age, wealth, and preferences.
This would be the customer-centric layer for banking contextualisation.
The Shanghai Pudong Development (SPD) Bank came up with a definition of this
process in a strategic White Paper about open finance co-created with the author of
this book. They named it “Panoramic Banking” and co-presented it at the Ant Finan-
cial conference in 2020. Panoramic Banking sets out the principles and technical
methods to leverage open finance towards the highest value spaces on the Bank-
ing Reinvention Quadrant, made up of platform of platforms (i.e., “super apps”).
This platform strategy addresses the joint needs of consumers and enterprises by
building an ecosystem of participating businesses that can better connect and service
their costumers jointly. Panoramic Banking elevates design thinking about Contextual
Banking to embrace holistic ecosystem points of view, in which banking becomes as
invisible as possible. The layer of omni-intelligent connections is the critical element
from an architectural perspective.
The “platform of platforms” architecture can be extended to embrace all aspects
of a digital economy because society, economic systems, and financial markets
are all interconnected platforms. Therefore, the omni-intelligent connection layer
can be conceived as the foundational layer of the digital architecture of an entire
economy. Should this reside outside the private sector, and be managed as a service
by a governmental or independent agency? Clearly, it must leverage digital IDs,
private and public data exchanges, and the enforcement of privacy. In this regard,
the Chinese government already seems to be thinking in terms of a “platform of
platforms”, as indicated by the recent barrage of regulations on big tech companies,
the accelerated implementation of the Central Bank Digital Currency, and the
implications of the Personal Information Protection Law (PIPL). The European
GDRP regulation is enforced in a decentralised way with ex-post verification.
Instead, the Chinese PIPL requires that all data is processed by central agencies,
featuring a centralised enforcement with ex-ante verification capabilities. While
the Chinese authorities might not possess the only solution to the architectural
design of a digital economy, and the underlying omni-intelligent connection layer,
they seem to be already thinking non-linearly in terms of interconnectivity among
different platforms. Instead, the western world is more fragmented, and still seems
to think linearly without a clear debate and a well-articulated strategy that can
address all the critical implications of the digital platformisation of everything.
Non-linear strategic thinking is required at the highest level of governments and
regulatory bodies, because the architectural perspective of a “platform of plat-
forms” might well correspond to the definitive realisation of the Fourth Industrial
Revolution. As such, only the hyper-transparency on any financial and economic

interaction, advocated in this book, coupled with the protection of privacy for users
and citizens can make the Fourth Industrial Revolution an inclusive and liberal
platform revolution.
Conceiving and building such a holistic architecture implies the ability to
manage uncertainty on platform interactions, operational resiliency, cyber-security,
appropriateness of user behaviour, cloud-native software release cycles, and regula-
tory updates. The cloud-native and AI-powered layer of omni-intelligent connections
needs to perform all operations resiliently at the edge of chaos (i.e., under conditions
of fundamental uncertainty) because the contextualisation of banking capabilities is
executed across ecosystem interactions characterised by continuous “movement” of
users and context.
How to deal with fundamental uncertainty in architectural and business construct
will be discussed in Chapter 9, linking Contextual Banking and Conscious Banking
through the principles and theory of Financial Market Transparency.
8.7 CONCLUSIONS
Banks and fintech operate in an increasingly competitive environment. Lowering
interest rates, increasing costs of capital, product simplification, and digital interme-
diation are changing the profitability of traditional operations and their corresponding
digitally linear memes. Open finance generates new value from information-driven
core banking systems, through a process of banking contextualisation into external
non-banking ecosystems. Increasing the intensity of the information quotient with
cloud-native open architectures, and augmenting the communication quotient
with artificial intelligence at scale, help established institutions and cloud-native
competitors to break out towards higher value spaces of the Banking Reinvention
Quadrant, dominated by Contextual Banking platform strategies.
■ Banks and fintech can break out from lower-value BRQ spaces by leverag-
ing exponential technologies, and shifting the business focus from output
to outcome economies.
■ Contextual Banking is possibly the biggest shift in bank business models
through technology since modern retail banking.
■ Banking products and services can be unbundled into micro-services, or
containerised utilities, and embedded into external client contexts made
up of non-banking interactions.
■ The opportunity to make processes frictionless leads into making them
contextual. Banking becomes invisible to be revealed right at the most
important time of decision-making.
■ Banking contextualisation happens from the outside-in: bigtech need to
eliminate frictions to increase added value of platform interactions.
■ Banking contextualisation happens from the inside-out: financial institu-
tions launch non-banking platforms to gain alternative ecosystems, and
stay relevant for final clients on outcome economies.
■ Contextual Banking platform strategies eliminate ex-ante frictions, but
must avoid generating ex-post frictions. In contrast, Conscious Banking
elimination of ex-ante frictions also inhibits frictions ex-post.
■ Panoramic Banking (e.g., superapps) occupies a very high value space
of the BRQ, as a holistic platform of platforms that complies with a
three-layered design: omni-intelligent connections, omni-businesses, and
omni-users.
CHAPTER 9
Foundations of Financial Market
Transparency
The edge of chaos is the constantly shifting battle zone between stagnation and
anarchy, the one place where a complex system can be spontaneous, adaptive,
and alive.
— Waldorp, author of Complexity [1]
T he opening of bank architectures to borderless value-generating interactions can

be resiliently sustainable only if technology leaders understand how to cope with
system uncertainty. Contextual Banking platforms need to remain secure, yet operate
in very nimble and adaptive ways facing dynamic business environments. At the same
time, the opening of client relationships based on regulatory transparency requires
business leaders to understand the real nature of information asymmetries. Con-
scious Banking platforms need to stay “biologically” anchored to generate value in
transparent markets. It is the ability to make uncertainty endogenous to architectural
design and open reference theory, underpinned by the theory and principles of Finan-
cial Market Transparency, that allows banks and fintech to move out from lower-value
spaces on the BRQ, and build a new engagement mechanism generating value that
clients are transparently willing to pay for accessing it.
9.1 INTRODUCTION
Contextual Banking and Conscious Banking platform strategies are characterised

by a high level of openness, which introduces elements of complexity that cor-
respond to the interconnectedness of digital and human ecosystems. The former
deals with complexity in information management, as it wants to intensify the
information quotient inside open ecosystems. The latter deals with complexity in
175
communication management, as it wants to intensify the communication quotient

within transparent relationships. The Financial Market Transparency (FMT) frame-
work guides innovation efforts in this complex realm, reconciling the tensions in the
use of exponential technologies, in the engagement with clients, and in regulatory
adherence. Failing on one of these aspects would upset the whole generation of
sustainable platform value. Instead, anchoring the action of business and technology
leaders to the biological micro-foundations of the FMT (i.e., the client’s relationship
with fundamental uncertainty in personal, business, and financial life, and the irre-
versible time element of financial decisions) provides the thrust to unlock business
value through technology facing the intrinsic instability of open cloud architectures,
and that of financial markets. Banks and fintech have to cope with both instabilities
(i.e. uncertainties), and treat them endogenously to make their architectures
and their clients resiliently anti-fragile. This is sustainable value. Unsurprisingly,
simplicity in business processes, product design, data, and AI enables more robust
and explicable interactions across the network. Therefore, transparency favours
simplicity to deal endogenously with uncertainty (Figure 9.1).
FMT drives Contextual Banking to promote transparency in the information
layer that supports open banking interactions, leveraging on simplicity and design-
ing resilient Banking-as-a-Service platforms that deal with high levels of system
uncertainty. At the same time, FMT drives Conscious Banking to promote trans-
parency in the communication layer, leveraging on product simplicity and increasing
the financial consciousness of anti-fragile clients and ecosystems having to deal with
fundamental uncertainty, as part of digital-driven trusted advisory and mer-
chant banking relationships.
This chapter refers to FMT principles to reveal the theoretical foundations
that bridge the action of technology and business leaders inside outcome
economies. Banks and fintech need to symmetrically open the respective reference
FINANCIAL MARKET
TRANSPARENCY
CONTEXTUAL CONSCIOUS
BANKING BANKING
COMMUNICATION
INFORMATION
TRANSPARENCY (incentives, costs,
(data and Al solutions)
consequences)
MICRO-SERVICES SIMPLICITY PRODUCTS
DIGITAL RELATIONSHIP
UNCERTAINTY
ARCHITECTURE ARCHITECTURE
(endogenous treatment)
(resilience) (antifragility)
FIGURE 9.1 Contextual and Conscious Banking

systems to break out from the bottom-left value spaces of the Banking Reinvention
Quadrant. On the one hand, they are asked to open computing architectures, aban-
doning closed monoliths and transforming operations with new operating models
enabled by hybrid cloud environments. This only unlocks new value at the holistic
intersection with adjacent non-banking industries. On the other hand, they are asked
to open the mainstream economic theory to the endogeneity of fundamental
uncertainty, and build new relationship models that reduce micro-level asymme-
tries inside client ecosystems. This only differentiates against low-cost hyper-
scaling competition and unlocks all the value which is hidden inside the system, also
at the macro-level.
9.2 CONTEXTUAL BANKING AND ARCHITECTURAL RESILIENCE
Contextual Banking platform strategies allow banks and fintech to reinvent every-
thing, from operating models to technical architectures, from the ways banking prod-
ucts are built and packaged to the way consumers pay for them. From a technical
perspective, cloud platforms must comply with principles of high “evolve-ability” to
remain flexibly robust while coping with fast changes in business environments and
high technical stress. Facing uncertainty, business and technology cannot simply be
two coordinated faces of the same moon. Hopefully, they can overlap on the same
bright side to work successfully with agility and speed.
On the technical side, architectural design and testing must consider uncertainty
the norm, and not the exception. Chaos engineering is a discipline that corresponds
to the opening of architectural design mindsets that allow experimenting on a
software system “in production”. The approach is intended to build confidence in the
system’s capability to withstand turbulent and unexpected conditions. The idea was
formalised by Greg Orzell [2] at Netflix, the US content platform and production
company, founded in 1997. While overseeing Netflix’s migration to the cloud, Orzell
had the idea of addressing the lack of adequate resilience testing by setting up a tool
that would cause breakdowns in the environment used by Netflix customers. Orzell
wanted to move out of a development model that assumed “stability” and embrace a
model in which “instability” was considered to be inevitable. This change in mindset
was meant to drive developers to consider built-in resilience as an obligation rather
than an option. By regularly “killing” random instances of a software service with
a series of tools known as “monkeys”, which could deliberately inject failure into
their services and systems, it was possible to test a redundant architecture to verify
that a server failure would not noticeably impact customers. As reported on Netflix
Tech Blog [3]:
The Freedom and Responsibility culture at Netflix doesn’t have a mechanism

to force engineers to architect their code in any specific way. Instead, we
found that we could build strong alignment around resiliency by taking the
pain of disappearing servers and bringing that pain forward. We created
Chaos Monkey to randomly choose servers in our production environment
and turn them off during business hours. Some people thought this was crazy,
but we couldn’t depend on the infrequent occurrence to impact behaviour.
Knowing that this would happen on a frequent basis created strong
alignment among our engineers to build in the redundancy and automation
to survive this type of incident without any impact to the millions of Netflix
members around the world. We value Chaos Monkey as a highly effective
tool for improving the quality of our service. Now Chaos Monkey has
evolved. We rewrote the service for improved maintainability and added
some great new features. The evolution of Chaos Monkey is part of our
commitment to keep our open source software up to date with our current
environment and needs.
Banks face similar technical challenges in cloud architectures. They have to

calibrate the control and compliance frameworks to the need of flexibility and
“evolve-ability” to support fast-growing and ever-changing operations. Compared
to established institutions, the most advanced fintech had the advantage of starting
from zero and building their business architectures from the ground up. For example,
Starling Bank has been recognised for making the right steps in building its open
architecture. Greg Hawkins [4], Starling’s former CTO, described how the fintech
leveraged both principles of “simplicity” and “evolve-ability” in 2016, while
implementing the core banking system on cloud.
From this moment onward, forever, you know your system is not vulner-
able to a certain class of problems. See how powerful those choices can
be? Especially if you made them as early as Starling Bank did. Even more
importantly, from this moment, you are by default building a system in a way
that expects this failure condition, not just paying lip service to it. You have
removed the temptation to discard it. You’ve squeezed the abyss of ignor-
able . . . The longevity of the regime of chaos is something that deserves
comment. I said “forever” and yet the experience of some is that their for-
ays into chaos have been immune-rejected before they’ve even got going.
The culture has been unable to shift to the point where the true cause can be
seen behind the rampaging monkey. This happens when people have come to
accept the fragility of their systems as a fact of life. Cultures evolve, priori-
ties shift, engineers are reassigned, architectures grow and evolve, scale hits,
pandemics change the world around us. There is still a bit of code, running
today in Starling’s production environment, which does the simple thing.
There has never yet been a chaos team. That code is everyone’s responsibil-
ity, but it’s been running for over four years. It has been maintained, fixed,
moved, and its importance is known and respected.
Chaos engineering takes the approach that regardless how encompassing the test
suite is, once code is running on enough machines and reaches enough complex-
ity, errors are going to happen. Since failure is unavoidable, why not deliberately
introduce it to ensure the systems and processes can deal with the failure?
This approach in architectural design corresponds to a similar mindset shift

appearing in the re-engineering of outcome-oriented relationship models. Clients
are empowered to make financial decisions being fully aware that market failures are
unavoidable because they are made aware that fundamental uncertainty is the norm in
financial markets, not the exception. Mediated by Conscious Banking platforms, they
can learn how to remain anti-fragile through financially conscious decision-making.
This is a key “architectural” pillar of new value-generating business models emerging
in financial services.
9.3 CONSCIOUS BANKING AND FINANCIAL ANTIFRAGILITY
Conscious Banking platform strategies reinvent all the steps of client relationships,
anchoring business model transformation to the emergence of trusted advice in wealth
management and merchant banking. Banks and fintech are invited to abandon the cen-
tricity of financial products, and the self-referential narrative about financial market
dynamics, to embrace holistic perspectives on client journeys made up of asset and
liability management decisions in the attempt to fulfil personal, entrepreneurial, and
financial outcomes. The reasons for this change in perspective are rooted in the real-
isation that reference theory, which modelled established business models remuner-
ated through distribution channels of financial products, has led to the annihilation of
industry value. Instead, value can be regenerated by undocking the business from
the narrow business spaces that are anchored to an incomplete reference theory.
This has confined financial intermediaries to a faulty interpretation of reality and an
incomplete understanding of the real nature of information asymmetries, which are
linked to the reality of endogenous uncertainty that digital platforms are asked to
disintermediate. The substantial inadequacy of the reference theory became clear in
2008 with the near collapse of the financial system. Lehman Brothers is the real-life
Chaos Monkey that an illusionary stable banking system was not able to cope with.
9.3.1 Breaking out from mainstream reference theory

Facing the US Congress in a 2008 public hearing, former Federal Reserve (FED)
Chairman Allan Greenspan admitted that policy-making mistakes were made in the
belief in a wrong theory, leading to the Global Financial Crisis:
I made a mistake in presuming that the self-interest of organisations, specif-

ically banks, is such that they were best capable of protecting shareholders
and equity in the firms . . . I discovered a flaw in the model that I perceived
is the critical functioning structure that defines how the world works.
Greenspan’s radical candour might exonerate him from responsibility, but

accountability cannot be reduced forever by normatively removing the theoretical
problem. Instead, a positive theory is required to re-build the whole financial system
on more reasonable foundations, enlightening the journey towards higher business
value spaces on the BRQ.
An incomplete interpretation of core information asymmetries, which char-

acterise financial market intermediation, contributed to the increasing complex-
ity of financial markets in a fairly unbounded dynamic. The implicit moral ten-
dency of governments and regulators, revealed by the progressive market absorption/
annihilation of the central bank “systemic put”, culminated in the “too big to fail”
approach. Post-GFC regulatory action intensified, reflecting a post-traumatic feeling
of criticism about the inadequacy of a financial theory based on alleged investor ratio-
nality, the associated hypothesis of efficiency, and the resulting market failures. The
recent barrage of new European regulations forms part of this change in the refer-
ence framework. In particular, the European MiFID II discloses – via transparency
requirements – the “sapiens” frontier of clients, who need to be protected, and the
role of any banking relationships, which have to be forged transparently in clients’
and investors’ best interests.
The rude awakening of 2008 forced the financial services industry to face a
two-fold reaction. On the one hand, behavioural finance gained a new academic
thrust in the search for a response to the behavioural problem of intermediaries and
investors, qualified as irrational. Notwithstanding the relevant insights, the approach
has dealt only partially with the central issue that is essentially biological, having
focused on the idea that the apparent investors’ irrationality could be returned
to a rational state once cognitive biases had been exposed. From a neurological
perspective, it would be like attempting to halve a human brain in order to suppress
its supposedly “emotional” side. On the other hand, regulators had to face industry
failure of self-regulating capacity. Signs of stress had already emerged in the 1990s,
with a repetition of crises increasingly more systemic until the epilogue of the sub-
prime mortgage bubble. The strengthening of regulatory safeguards generated an
intense debate because of the skyrocketing costs of compliance. Instead, the deep
anchoring in the causality of the crisis to reference theory might not have been fully
discussed and understood.
The FMT biological micro-foundations (i.e., fundamental uncertainty and
irreversible time) emerge as the necessary starting point for a more reason-
able theory that designs the Conscious Banking platform around people’s lives.
Only an institutionalist approach allows rethinking of a theory of financial market
dynamics disenchanted by the search for efficient stability but aiming, instead, at
greater systemic antifragility on outcome economies, mediated by novel financial
services platforms. A theoretical change paired with regulatory action is the required
step to uncouple the industry mindset from efficiently inefficient output economies,
thus allowing for sustainable digital transformation. Therefore, the institutionalist
approach is required to anchor the current process of digital transformation of busi-
ness models to investors’ biology (i.e., financial intermediation as a means to deal
with fundamental uncertainty in personal, financial, and business life) from which
that of markets can be derived, also responding to the adaptive markets’ hypothesis
in Lo [5]. This remunerates shareholders by generating and sharing sustainable value
for clients in a transparent advisory regime. Ultimately, regulatory transparency has
fostered a deeper and holistic understanding of markets’ biology, and let a “more
reasonable” and positive theory emerge, guiding the business transformation in a dis-
rupted social, economic, and digital landscape.
In 2008, the industry faced a bifurcation of existing strategies, which led either
towards a race to zero price competition, or to the search for transparency-driven
competitive advantages. On one hand, some financial institutions were entrenched
in a last-ditch defence of current relationship models, which are centred on the
assumption of rational agents’ behaviour, fully efficient information, and instan-
taneous price dynamics that are supposed to be independent. Instead, the latter
are often influenced by herding and self-referential (i.e., opaque) generation of
information. Therefore, the advent of full regulatory transparency (i.e., the reduction
of opacity) applied to distribution channels of products and their marketing to clients,
still designed to conform with mainstream reference theory, has only accelerated
the compression of business margins, and led to the search for an efficient digital
scaling on low-cost volumes only (e.g., passive investing). On a larger scale, this
trend can produce more endogenous instability because intermediaries become
more concentrated in increasing complexity. On the other hand, opening financial
markets to a business vision that leverages on content (i.e., transparent information
and communication) allows clients – the real drivers of business value – to reclaim
centre stage in any relationships based on Conscious Banking engagement. In
fact, regulatory transparency reveals the fundamental uncertainty of the system
stability, behind any attempts of arbitrage. Only dynamic management of financial
relationships on a decision-making space mediated by time (the irreversible element
of human behaviour) can make sense of investment goals and purpose (as in the
financial planning of client life styles), making investors aware of the generated
value of the Conscious Banking platform and willing to pay for accessing it.
9.3.2 Opening the reference system to fundamental uncertainty

There is an emergent scientific awareness in finance about the fundamental ontology
of uncertainty, and the epistemological journey underpinning regulation. They are
strictly connected, as revealed by a deeper reading of the European MiFID II in
Ravezzi and Sironi [6]. In the attempt to address the problem of information
asymmetry, higher regulatory transparency has started to reverse the market-
to-investor balance of power in favour of final investors. This regulatory-induced
transparency process has unveiled the biological micro-foundations of financial
markets (i.e., fundamental uncertainty and irreversible time), and allows under-
standing the real source of information asymmetries. This can produce dynamics
of antifragility across the entire financial ecosystem, by connecting micro (i.e.,
value-generating interactions on the Conscious Banking platform) and macro
behaviour (i.e., the impact on the whole financial services industry, and the broader
economic platform globally). Institutional transparency generates a professional
ethic from the awareness that market efficiency and financial stability cannot be
achieved only deontologically as a function of counterparties’ rational actions
(also admitted by Allan Greenspan). In fact, rationality can be neither sufficient
nor effective in dealing with the problem of managing fundamental uncertainty,
because the common definition of rationality is only consistent with a “closed” space
of events (i.e., deterministic probability). Instead, the future is “open” as it is made
up of potentially infinite scenarios caused by agnostic probability, which investors
attempt to understand “locally” and “temporarily” (i.e., Bayesian probability). Con-
sequently, the FMT introduces a new concept of probability causation that underpins
the sustainability of Conscious Banking relationship management and risk manage-
ment techniques. Having failed to derive the causation of probabilities from market
history, therefore from self-referential subjective views, the causation of fundamental
uncertainty can be derived from a neurobiological approach to revise the needed
probability measure (i.e., Omega as defined in Chapter 10), and allowing entropy on
the irreversible time to deal locally with financial and non-financial information.
What is the neurobiological anchor? The mechanism by which natural evolution
equipped homo sapiens (i.e., the client) to face decisions “under certainty” through
mechanic deterministic approaches is granted by the cerebellum. The little brain is a
major structure of the hind-brain of all vertebrates that is responsible for coordinating
voluntary movements. Instead, rationality (i.e., the left side of brain) allows homo
sapiens to make decisions “under uncertainty” only in combination with its “emo-
tional and imaginary capability” (i.e., the right side of brain) in a symbiotic interaction
(Figure 9.2). Nature has equipped homo sapiens with much more radical rationality to
cope with radical uncertainty. This is human intelligence, thus consciousness. Facing
extreme uncertainty (in life and on financial markets), the attempt to solve the survival
problem by making “probabilistic” assumptions – on mistaken attempts to reduce
fundamental uncertainty – could appear reassuring to economic agents. Instead, it
often is revealed to be an illusion, given the persistence of collapses of these rational
visions of the world. Artificial intelligence would not be exempt from that. The only
theoretical peg, “mediating” financial market dynamics or dissolving the infor-
mation asymmetry, derives from integrating our neurobiological understanding
of fundamental uncertainty dealing with information along the concept of irre-
versible time related to personal and financial goals. This is what characterises
Words Imagination
Mathematics Intuition
Linear thinking Feeling
Logic Holistic thinking
Facts Arts
Coordination of goal-driven
and spontaneous movements
FIGURE 9.2 The human brain

the reality of human history, in the continuous journey from life to death. And from
this, the centrality of holistic goals-based planning approaches emerges in defining
the intensity of the communication quotient in the BRQ.
Building Conscious Banking platform strategies on these biological micro-
foundations launches relevant macro-economic consequences that involve all
players inside and outside the financial services industry. Currently, economic
theory integrates the central bank “systemic put” ex-ante, by means of an ex-ante
attempt to dominate the drift. Consequently, central banks face the ex-post anni-
hilation of their attempts in the “collapse” of market prices, which reveals only
ex-post “realised” uncertainty. Instead, the theory and principles of Financial
Market Transparency invert the perspective. Fundamental uncertainty is treated
endogenously and is integrated ex-ante in decision-making processes. Conse-
quently, uncertainty can be mitigated ex-post by means of more reasonable (i.e.,
“anti-fragile”) market prices, derived from radically-rational FMT decision-making.
From a quantitative perspective, this is consistent with a decision-making framework
grounded ex-ante on agnostic risk-neutral simulations, which leads to “realised”
antifragility ex-post. As it appears, the main fault of mainstream reference theory
was to keep Knightian uncertainty outside its micro-foundations, while keeping
inside the framework the systemic put (i.e., the drift) excercised by the last-resort
institutions (i.e., central banks and policy-making). This must be fixed. It is a
novel understanding of how fundamental uncertainty relates to homo sapiens’
emotions in financial decision-making over time (underpinning the “pull-
push” motivational gap) that helps the financial services platforms to find an
anti-fragile solution to the human problem (i.e., goals) of a financially enabled
survival, the search for a better quality of life, and the attempt to fulfil personal
ambitions with money.
This understanding of how regulatory transparency can turn investment relation-
ships into a competitive advantage, based on real value generation for investors, resets
the economic foundations of financial services on more sustainable revenue streams,
improving ecosystem antifragility. It also revises the currently emerging perspective
on what the contribution of exponential technologies should be to unlock added value
in the field.
9.4 EMPIRICAL EVIDENCE TO OPEN PLATFORMS

AND REFERENCE SYSTEMS
Learning how to base a theory on open systems – thus open platforms – can rea-
sonably guide financial services in the digital transformation of their business mod-
els. This transformation is anchored fundamentally and empirically to the reality of
human decision-making, overcoming the pitfalls of neoclassical and behavioural the-
ory. Improved understanding of open-based (i.e., uncertainty-based) frameworks has
enabled this more scientific and rigorous approach to rectify mainstream reference
theory. In this regard, broader empirical evidence has already proved all the systemic
limitations of closed decision-making frameworks.
Nobel Prize laureates Banerjee, Duflo, and Kremer worked to integrate funda-
mental uncertainty in their search for development policies to better address world
poverty. In economics, they adopted “randomisation” because they subject social
policy ideas to randomised control trials as would be done in testing a drug, or a vac-
cine. As in medicine, for example, a population could be divided into two groups,
and administered a “treatment” to one group but not to the other (e.g., access to
micro-finance with a fintech solution). Because of the randomness, large enough
groups will have the same proportion of old and young, single and married, happy
and sad, making up for any possible source of experimental confusion. If, at the end
of the study, one group turns out to have changed (e.g., become wealthier), then a
cause and effect relationship can be assumed to exist or not about the “treatment”.
There are other statistical ways to connect cause and effect, but none as transpar-
ent and free from ex-ante expectations. The FMT allows assessing and dealing with
subjective ex-ante expectations based on incomplete assumptions of homo economi-
cus. Instead, it uses a more reasonable verification of investment decisions, adopting
heuristics based on agnostic, and risk-neutral simulations of future returns. As these
are core elements of financial services platforms, Conscious Banking takes a similar
approach via transparent “what-if” analysis on the wealth allocation framework, sup-
porting investors to make decisions under uncertainty. At the same time, the biological
micro-foundations of financial markets can emerge to unlock the sticking points in
the policy-making framework.
With regard to investment strategies, the research of Biondo, Pluchino,
Rapisarda, and Helbing [7] explores the role of randomness in financial markets.
They are inspired by the beneficial role of noise in many physical systems and in pre-
vious applications to complex socio-economic environments. Their studies compare
the performance of some of the most used trading strategies in predicting the dynam-
ics of financial markets for different market indexes, with the goal of comparing
them to the performance of a completely random strategy. Not surprisingly, empirical
evidence shows that – on a large temporal scale – trading algorithms, based on the
past history of the time series, underperform a purely random strategy. This latter
is much less volatile, although traders have occasionally the chance to be successful
inside small temporal windows. In this respect, a purely random strategy represents
a costless alternative to more expensive financial advice, being at the same time also
much less risky, if compared to the other trading strategies. This result, obtained at
a micro-level, can have many implications at the macro-level for interpreting the
dynamics of real markets. Random strategies could play the role of reducing herding
behaviour over the whole market, since bandwagon effects would probably fade
if agents knew that financial transactions do not necessarily carry an information
role. On the other hand, central bank intervention would produce two simultaneous
results by randomly buying and selling financial assets. From a micro point of view
(i.e., individual investors), intermediaries and final investors would suffer less with
asymmetric information, as they are conscious of a “fog of uncertainty” created by
the random investments. From a macro point of view (i.e., financial system), the
consequential reduction of herding behaviour would allow eventual bubbles to burst
when they are still small and less dangerous. Similarly, micro and macro financial
consciousness of radical uncertainty are the core added-value outcomes of financial
services platforms based on financial market transparency.
Staying on the bursting of financial bubbles, Corgnet, Cornand, and Hanaki [8]
investigated the pitfalls of traditional decision-making theories, such as expected
utility theory or prospect theory, the bedrock that modern economics is built on, see
Kahneman and Tversky [9]. In their work, they eliminated any assumptions about
how emotions affect decision-making as they are typically and only considered
side effects. According to traditional theory, investors are supposed to be guided
by an objective and purely statistical assessment of the profitability of the assets.
On the other hand, the emotions felt when making a decision do affect the way to
assess an asset, conforming to the “risk as feeling” concept as in Loewenstein, Hsee,
Weber and Welch [10], and the “affect heuristic” hypothesis as in Slovic, Finucane,
Peters and MacGregor [11]. Essentially, they designed a novel tail-event experiment
to assess both investors’ behavioural and physiological reactions, showing that
investors who observe the tail event without suffering losses tend to decrease their
pricing of the asset subsequently. By contrast, loss-averse investors who suffer tail
losses tend to increase their bids. This response is especially pronounced for those
who exhibit a strong emotional response to tail losses. Their work demonstrated the
key role played by emotions in influencing investors’ response to tail events. Finally,
investors who exhibit high anticipatory arousal, as measured with electrodermal
activity, posted lower bids and were less likely to suffer tail losses and go bankrupt.
They also achieved higher earnings when tail events occurred frequently. Clearly,
these findings align with the relationship-centred framework of the Conscious Bank-
ing as they contrast with the common view that homo economicus should silence
emotions in investment decision-making, accepting full delegated automation of
their decisions (i.e., robo-advisors), which is often considered the role of artificially
intelligent algorithms.
In recent work done by Ole Peters in close collaboration with the late Nobel
laureate Murray Gell-Mann, economic models are shown to assume ergodicity. That
is, the average of all possible outcomes of a given situation informs how any sin-
gle agent might experience it. However, that is often not the case in the real world,
which renders many economic and financial predictions irrelevant in real life. In those
instances, the maths underlying the theory of thermodynamics can be used to model
outcomes using a “correct average”. Most importantly, by taking aim at expected util-
ity theory, Peters explains that when we make decisions, we conduct a cost-benefit
analysis (CBA) and try to choose the most appropriate option by discovering bad
deals. Conscious Banking is based on a biologically anchored CBA process of finan-
cial decision-making, which is in line with Peters’ criticism of mainstream refer-
ence theory. This avoids the misunderstanding about irrational behaviour and human
biases. Instead, it generates the financial consciousness of individuals, thus whole

ecosystems through network effects are based on consequentialist ethic.
The empirical evidence provided in scientific attempts to open the reference sys-
tem is reflected in the theory and principles of Financial Market Transparency. This
robustness inscribes Conscious Banking platform strategies in a broader epistemo-
logical attempt to change our understanding of how financial markets work in reality
and build on it.
9.5 CONCLUSIONS
Platforms allow banks and fintech to reimagine the management of uncertainty and
unlock business value for all participants in the ecosystems they orchestrate. The pro-
cess of opening needs to be underpinned by robust theoretical foundations, which are
provided by the theory and principles of Financial Market Transparency. On the one
hand, simplicity reduces opacity inside financial transactions and business processes.
On the other hand, fundamental uncertainty is the norm on financial markets and in
complex systems, and cannot be eliminated on open architectures. Only by replacing
stability with antifragility, as a more reasonable technical and financial goal, can allow
digital architectures and business models to be redesigned to compete resiliently on
outcome economies, and generate value that clients are transparently willing to pay
for accessing it.
■ Architectural design and testing of cloud platforms must consider uncer-

tainty the norm, and not the exception. “Chaos engineering” is a discipline
that corresponds to the opening up of architectural design mindsets that
allow experimenting on a software system “in production” by regularly
killing random instances of a software service with a series of tools known
as “Chaos Monkeys”.
■ Lehman Brothers is the real-life Chaos Monkey that an illusionary stable
banking system was not able to cope with.
■ Contextual Banking focuses on digital architectures. It embeds trans-
parency in the information layer of open banking that supports network
interactions, leveraging on simplicity, and learning how to deal with high
levels of system uncertainty.
■ Conscious Banking focuses on business architectures. It embeds trans-
parency in the communication layer, anchoring financial intermediation to
the awareness of open futures, leveraging product simplicity, and increas-
ing the financial consciousness of clients – and that of the ecosystem – to
deal with fundamental uncertainty.
■ The theory and principles of Financial Market Transparency open up the
reference system to fundamental uncertainty and the needed radical ratio-
nality to deal with it.
■ Empirical evidence has demonstrated all the systemic limitations of closed
frameworks, supporting the action of technology and business leaders in
the process of opening up established business models and architectures to
succeed on platform economies.
CHAPTER 10
Conscious Banking
I made a mistake in presuming that the self-interest of organisations, specifi-

cally banks, is such that they were best capable of protecting shareholders and
equity in the firms . . . I discovered a flaw in the model that I perceived is the
critical functioning structure that defines how the world works.
— Allan Greenspan [1]
T hefinancial services industry is opening up the theoretical system to address busi-

ness and digital transformation within outcome economies. The generation of
sustainable value at the micro-level of the investors’ ecosystem intersects the global
ecosystem as part of an holistic architecture made up of “platforms of platforms”.
To succeed, new micro-foundations need to emerge that disclose and reconcile the
gap between homo economicus and homo sapiens. This reconciliation occurs on new
outcome-oriented platforms. On these platforms, the homo economicus side of each
client is enabled to consume financial services through a symmetric intermediation
process that remains human-centric. At the same time, the homo sapiens side of each
client is anchored to a deeper sense of purpose in the banking relationship (i.e., environ-
mental, social, and governance goals). Well-informed banks and fintech are currently
industrialising these platforms with the aid of exponential technologies. They are start-
ing to unlock transparent value by linking in the network – through a consequentialist
ethic – the level of financial consciousness in individuals involved in a newly orches-
trated ecosystem. These platforms are the “biological mirror” of the consciousness of
the ecosystem, linking consumers and providers through transparent value-generating
relationships. The result will be an increasing macro-level antifragility of financial
markets, which appears to be more reasonable than searching for an illusory stability in
189
the presence of fundamental uncertainty. Increased reasonability, or radical rational-

ity, in financial decision-making is the ultimate scope of a transparent, technologically
enabled platform in financial services. In this way, policy-makers, financial institu-
tions, fintech entrepreneurs, investors, and their algorithms can learn how to establish
value-generating interactions on platform economies made of reduced information
asymmetry. When discussing “consciousness”, reference is made only to the scientific
advances in cognitive neuroscience (i.e., neurobiology).
10.1 INTRODUCTION
Conscious Banking platform strategies correspond to the most advanced design of

current industry attempts to strengthen client relationships, based on democratised
wealth management and advisory frameworks. Trusted advice is the new core
of the banking relationships (i.e., platform) that aggregates inside “commu-
nication” all “information” about clients and their needs, the dynamics of
financial markets, the availability of banking services, the added value of
non-banking offers supported by engagement models that can price “all in”
the trusted advisory relationships. In the search for value when facing zero price
competition, client journeys can be organised inside visible banking relationships
through goal-based financial planning techniques aimed at increasing the financial
well-being of participants. Essentially, traditional investment relationships expand
to encompass the whole balance sheet of individual clients, leveraging Banking-
as-a-Platform architectures to link all banking and non-banking aspects of user
journeys. This process is introduced by the deep imbalances of the previous industry
structure that became unsustainable in 2008. Notwithstanding the unprecedented
institutional search for stability at all costs, financial markets and economic systems
are still exposed to periodic collapses and can never return to “business as usual”.
Unorthodox central bank intervention and increasing regulatory action do not seem
sufficient to save the macro-framework without a change in perspective.
The new starting point can be found in the theory and principles of financial mar-
ket transparency (FMT), which inspires Conscious Banking platform strategies, and
presents a more reasonable understanding of financial markets, based on elements
that make homo economicus conscious like homo sapiens. FMT uses Occam’s razor
to identify scientifically new biological micro-foundations, which disclose the gap
between homo sapiens and homo economicus. In doing so, it opens the theory to
redefine the meaning of money, investing, value, and performance. It recognises the
endogeneity of fundamental uncertainty on which they lie, and industrialises an advi-
sory process that generates value by addressing the real “biological” peg of informa-
tion asymmetries. This transparently resets the communication layer with clients, thus
the core design of human and digital interfaces, overcoming the inability of the infor-
mation layer to generate value by injecting more intensity, as instead, is the case of
Contextual Banking. Our relationship with money is largely emotional because homo
sapiens biology faces fundamental uncertainty in all decision-making processes, in
the framework of the irreversible time. Consequently, emotion cannot be excluded!
Indeed, homo economicus is an incomplete view of homo sapiens. The distance

between the two is reflected in the gap between mainstream economic theory and
reality, which is too often reflected in the gap between what digital innovation
does and what humans need, instead. Ultimately, this is reflected in the “pull-push”
motivational gap that Conscious Banking platform strategies want to address. This
over-simplistic view of a world composed of the actions of homo economicus has also
overly influenced economics, leading to a misleading debate about “reasonability”
and “irrationality”, and the claim of generating digital value by enforcing more “ra-
tional decisions”. It has also mistakenly influenced the general public’s expectation
of the prowess of AI. Most importantly, this dualistic approach has overshadowed
the relevance of “reasonability” (i.e., “sapiens”) in financial decision-making. Only
reasonability (i.e., radical rationality) would allow homo sapiens to survive in the
presence of imperfect information, which is reality, also with the aid of AI. This “rea-
sonability” makes homo sapiens radically rational ex-ante, and homo economicus
radically fouled ex-post because the former survives in uncertainty – thanks to Con-
scious Banking – while the latter does not survive any financial crisis – as in existing
output-oriented banking relationships. In FMT terms, reasonability corresponds to
radical reasonability ex-ante and ex-post, when facing fundamental uncertainty in the
framework of irreversible time. Therefore, the biological micro-foundations iden-
tified by the FMT (i.e., endogenous fundamental uncertainty and irreversible time)
free homo sapiens from academic captivity. The financial services industry has also
been kept captive by unsustainable business models, and currently is attempting to
transform itself using exponential technologies. More reasonable theoretical grounds
enable professional intermediaries to revise core business assumptions and the scope
of fintech innovation, to generate value for clients on more transparent and digital
financial markets. Also, regulators and central banks, the ultimate chief magistrates
of our financial ecosystem, can anchor policy-making efforts in the light of financial
market transparency. This responds to Clayes, Demertzis, and Papadaia’s [2] recom-
mendation that central banks should consider how to embed fundamental uncertainty
in the banking platform. The same light and the same micro-foundations can also
guide the increasing adoption of artificial intelligence in economics and financial
decision-making in such a way to be transparent, robust, and explicable. AI cannot
eliminate uncertainty. As AI looks backwards, it cannot make investment decisions
radically rational, because common rationality can only be evaluated ex-post. Instead,
it can support building transparent Conscious Banking platforms (Figure 10.1),
contributing to the value-generating process, if founded on the same reasonability of
radical rationality, that means the biologically “sapiens” micro-foundations.
The concepts of fundamental uncertainty and irreversible time are defined in
Sironi [3], and here taken for granted. They are the biological micro-foundations
of a more reasonable theory of financial markets, according to which regulators,
financial institutions, and investors can open up the system of reference to make
anti-fragile financial decisions on Conscious Banking. The empirical evidence about
FMT antifragility provided in scientific attempts to open up the reference system
can be found in Chapter 9. This inscribes Conscious Banking platform strategies
HIGHER
BUSINESS
VALUE
CONTEXTUAL
ECOSYSTEM
BANKING
OUTCOME
OPEN
PLATFORMS
ECOSYSTEM
CLOSED
CONSCIOUS
BANKING
DIGITAL
OUTPUT
PRODUCTS
SERVICES
TRADITIONAL

BUSINESS
PUSHED PULLED
VALUE
FIGURE 10.1 Conscious Banking on the Banking Reinvention Quadrant
in a broader epistemological attempt to change our understanding of how financial

markets work in reality and build on it. This is the most illuminating contribution of
the book, as it reveals the real forces underneath the progressive redesign of the finan-
cial services industry. It makes continuous reference to the theoretical foundations in
the recognition that the mindset shift required can only be embraced if the founda-
tions of platform theory are made new to correspond to the idiosyncrasies of financial
services. This way, readers can recognise and master for themselves the elements of
disruptive novelty in the actions of well-informed financial institutions, which have
already embarked on this journey on the BRQ.
The chapter is organised around five strategic messages.
First, financial consciousness is discussed as a financial concept, which takes
radical rationality as the centre stage of investment decision-making at the micro-
level. This theoretical step reveals the ultimate scope of a transparent financial ser-
vices platform that generates antifragility in the ecosystem as a more reasonable goal
than illusory stability at the macro-level.
Second, the essence of the existential shift of bank business models, recen-
tred on transparent advisory relationships mediated by Conscious Banking, starts to
emerge as a feasible goal. Conscious Banking platforms let consciousness emerge
in the banking sector, springing positive network effects that unlock hidden value,
strengthening the links between clients and banks, making them less susceptible to
bigtech competition. This allows an alternative route to Contextual Banking, and
industrialises new revenue models that are no longer confined to the attempts of
hyper-scaling transactions in a race to zero prices, but geared towards the sustainable
generation of value unlocked by technology inside visible banking relationships.
Third, the real added-value role of exponential technology is revealed as over-
coming the tensions between information (i.e., core technology) and communication
(i.e., relational interfaces). At the same time, the theoretical system of reference is
kept open to unlock transparently the FMT value on a business architecture which is
spared from collapse.
Fourth, the concept of holism is introduced to review the theory of digital
platforms with a human-centric perspective. This is permitted by the epistemolog-
ical opening of a more reasonable financial theory based on the FMT biological
micro-foundations, and by the transparent contribution of digital technology to
extend the human mind and not replace it.
Last, the cost-benefit analysis is the communication engine of the Conscious
Banking platforms, underpinning the financial consciousness function as the core
mechanism by which value can be transparently generated, communicated, shared,
and understood by bankers and clients. Thanks to a consequentialist ethic, positive
network effects on the entire ecosystem spring from these novel value-generating
interactions – inside banking relationships orchestrated by the platform. They transfer
financial consciousness from the micro-level (i.e., investors and intermediaries) to the
macro-level (i.e., the financial system), and vice versa. In return, antifragility becomes
the radically rational purpose of the financial services open system that is a world
platform.
10.2 MICRO AND MACRO ANTIFRAGILITY ACROSS

ECOSYSTEMS
Professional intermediaries need a new platform to generate value for clients in the
process of financial decision-making, and be remunerated for it. In the outcome econ-
omy, the value-based outcome of the intermediation process can be assessed inside
relationships, shifting the focus from product-oriented transactions to the increas-
ing “Financial Consciousness” of participants’ journeys. Financial Consciousness
corresponds to the axiological value for investors. When discussing consciousness,
reference is here made only to the scientific advances in neurobiology represented in
Tononi [4] and Dehaene [5]. The capability to define what value truly is on transpar-
ent markets orchestrates a financial services platform that can demonstrate value to
the client, thus monetise on clients’ willingness to pay for accessing it.
10.2.1 Value generation at the micro-level investors’ ecosystem

The Conscious Banking platform guides the empirical assessment of value-generation
as a function of four operational cornerstones, which FMT defines as Beta, Alpha,
Gamma, and Omega. These cornerstones substantiate the “holistic advisory value”
of on-going investment relationships that underpin the competitive advantage of
transparent business models facing digital disintermediation. Exponential technology
can be leveraged to plug in advanced heuristics, and operate them inside a suitable
and appropriate wealth allocation framework to engage transparently with clients.
Entirely logically, on the fundamental FMT variables of irreversible time and
fundamental uncertainty it can be derived that:
Financial Consciousness = f(Beta, Alpha, Gamma, Omega)
in which:
■ Beta corresponds to the unnumbered market factors by which financial inter-
mediaries attempt to build short-lived local arbitrages in investment decisions.
These are nothing but synchronised expectations of the professional agents that
feed the product-related aspects of the Conscious Banking platform (i.e., finan-
cial products and market views).
■ Alpha corresponds to temporarily local attempts of investment arbitrage between
factors, which are experienced with respect to the time horizon of each investor
goal. This generates the initial, yet-to-be-completed correspondence between
markets and clients on the Conscious Banking platform (i.e., the personal, busi-
ness, and financial goals).
■ Gamma corresponds to the understanding of the interdependency among dif-
ferent priorities of clients’ goals, which is revealed as a full journey projection
through the ongoing interaction with financial intermediaries on the Conscious
Banking platform (i.e., the advisory process).
■ Omega corresponds to the simulation and understanding of cost-benefit ratios
for investors (the micro-effect) in relation to the ecosystem (the macro-effect).
This is the most important unit value shared through core value-generating inter-
actions between clients and intermediaries on the Conscious Banking platform.
Therefore, this is the core component for monetisation (i.e. the cost-benefit
analysis underpinning the client’s decision-making).
Clearly, professional intermediaries can find their custom solutions for the
generation of financial consciousness on competing and differentiating Conscious
Banking platform strategies. Ravezzi and Sironi [6] provide a comprehensive review
of the emerging business models underpinned by the FMT and leading to the
industrialisation of the Financial Consciousness cornerstone (Figure 10.2). This
can be found in the process of business transformation and value propositions of
financial institutions like UBS and Morgan Stanley, which redefined their business
models and created advisory platforms that rebalance the weight of the offering
side (i.e., product-oriented value chains) with the centricity of the demand side (i.e.,
hyper-personalised Goal-based Investing frameworks).
CLIENTS
macro-level
OPEN REGULATORY ENVELOPE antifragility
OPEN TECHNOLOGY architectural

CLIENTS
antifragility
micro-level
OMEGA antifragility
CLIENTS
GAMMA
ALPHA
CLIENTS
BETA
• views • saving • priorities transparent unlock hidden Financial
• products • education • events cost-benefit value with Market
MARKETS • solutions • housing • advice analysis transparent Transparency
CLIENTS
• insights • retirement engagement

• services • donation
CLIENTS
non-financial experiences NON-BANKING
ESG
open future, agnostic simulation engine network effects holistic interaction
FIGURE 10.2 The Conscious Banking platform

10.2.2 Value generation at the macro-level financial ecosystem

From a regulatory perspective, the generation of financial consciousness on the
ecosystem is highly relevant. Regulators have been forced to become aware of the
problem of safeguarding the system in its entirety, as a consequence of the Global
Financial Crisis in 2008. Regulatory reaction aimed at searching for an aggregate
sustainability, capable of resilience with respect to the potential weakness of indi-
vidual financial institutions (solved via bail-in and capital buffers to reduce systemic
complexity). However, stability is not a sustainable goal in the presence of funda-
mental uncertainty, which cannot be measured by common techniques nor can it be
eliminated. To use a metaphor, we should be talking about building a compliance to
protect investors’ interests, knowing for sure that the terrain is seismic: earthquakes
cannot be eliminated; only the damages can be minimised. From this awareness,
antifragility emerges as a more reasonable systemic goal instead of stability.
Regulators have to consider the “biological” behaviour of homo sapiens under
conditions of uncertainty to properly understand the functioning of financial markets.
Their neurobiology is the true agent involved in the real process of intermediation and
negotiation. As a matter of fact, the hypothesis of rational expectations would be valid
only under localised conditions of risk, which is a closed system free from uncer-
tainty. This can be temporarily true, even though deceptively, if all agents believe in
the same convention, rule, or policy which would make uncertainty endogenously
useless. This would still leave a gap open between the subjectivity expressed by the
agents and reality itself. Consequently, homogeneity would not be reality for each
individual agent. Instead, the beliefs of intermediaries and investors are intrinsically
heterogeneous. Then, only increasing their consciousness of endogenous uncertainty
through the Conscious Banking platform can link them all in an anti-fragile network.
As a result, antifragility comes from their “consciousness of instability”, which is
always present because uncertainty cannot be eliminated ex-ante. This acceptance is
key to modelling financial market dynamics in a more reasonable way, and creating
a new transparent platform to operate financial relationships with the help of digital
technology.
Regulatory stress-test requirements are aimed at extending the framework and
eliciting a more transparent appraisal of the subjectivity and incompleteness of
risk-management estimates. Similarly, the investment heuristics of the Conscious
Banking platform are aimed at generating value with respect to users’ cognitive open-
ing (i.e., level of financial consciousness), which increases investment antifragility.
The cost-benefit analysis (CBA) approach (i.e., Omega) allows endogenous funda-
mental uncertainty, which is the norm on financial markets, to be reconciled with the
need of subjective expert opinions, however refined, evidence-based, or induced by
AI analytics. The whole system can stay consciously anti-fragile only if it can reduce
ex-ante the reliance on the “systemic put”, by undocking this belief in subjective
risk-premium drifts. Essentially, investors’ openness to uncertainty overcomes
instability via a reduction of entropy because of the improved “consciousness”
generated by transparent relationship management, either human-based or digitally

provided. As agents operate on a transparent platform, consequentialist ethics
drive positive network effects to increase antifragility, at both the micro-level (i.e.,
investors) and the macro-level (i.e., the ecosystem) because of an increasing level
of consciousness that can be transferred from individual investors’ behaviour to
financial markets, and vice versa.
Transparency requirements – not to mention hyper-transparency – are the main
lever in regulatory hands to monitor the ex-post mutualisation of the “systemic put”
on the platform. This comes from the recognition that taxpayers’ costs have become
unsustainable “inside financial markets”. Radical transparency about fundamental
uncertainty conforms with the requirements of higher fiduciary standards (i.e., the
regulatory-induced consequentialist ethic), departing from the deontological ethic
(i.e., dogmatic) associated with the previous theoretically closed system. This conse-
quentialist ethic – corresponding to Adam Smith’s invisible hand [7], and the work of
Tort [8] – induces a behavioural transformation of the economics of intermediation
anchored only on transparent value-generation.
10.3 UNLOCKING HIDDEN VALUE IN THE ECOSYSTEM
Knowing that agents are deeply heterogeneous, professional intermediaries are

often “price-makers” when faced with the cognitive and behavioural weaknesses of
non-professional investors characterised by low levels of financial education, which
are typically “price-takers”. This asymmetrical relationship between the propositions
of the industry and the knowledge and experience of final investors – which is part of
the European MiFID II client profile – have traditionally determined the prevalence
of distribution channels, whose remuneration follows the transactions of financial
and insurance products, or the approval of loans and mortgages. In the absence
of adequate compliance safeguards, ex-ante and ex-post, the potential conflict of
interest has resulted in operational distortions. Currently, these compliance controls
have become extremely burdensome, affecting cost/income ratios of financial
institutions whose muted financial performance is already weakened by a complex
macro-economic environment. The rebalancing work of new legislation, which
is not yet complete, tends to conflict with operational structures. These were
consolidated historically by a stratification that, in many cases, lost causation and
interdependency because of the lack of theoretical micro-foundations connected to
reality. Compliance costs can also destroy value if they do not translate into industry
value-generation in line with a deeper “regulatory” purpose. This is always the
case if regulatory action is not anchored to a corresponding theory aligned with the
purpose, and traditional theory is not. Potentially, final investors’ cognitive biases
could also turn regulatory transparency into a distorting tool, should novel financial
services platforms fail to unlock clearly the true added value for investors.
This business difficulty of defining transparent and sustainable revenue models

has historically led the industry to self-organise. Intermediation was remunerated by
acting self-referentially on the estimation of risk factors, the price of products, and
that of transactions. As a consequence, the intrinsic opacity of the industry cost struc-
ture impacted market prices and realised performances. Having lost gravity with the
efficiency promised by mainstream reference theory, the system collapsed with the
vision attached to the old theory. Sooner or later, any investor journey will collapse,
if not anchored transparently to real costs and uncertainty. Therefore, regulation is
asked to facilitate a new “transparent” understanding of price dynamics that over-
comes their self-referentiality. The previous causation of prices on industry costs can
now be linked to market dynamics based on investors’ decision-making, asked to cope
transparently with uncertainty by means of investment goal-setting inside the holistic
wealth allocation framework. This allows financial services platforms to face the full
accountability in terms of the real value generated, or not, in transparent ways.
As a consequence, current regulatory action is no longer confined to an admin-
istrative sphere but enters the governance of the industry, orienting towards a change
in profitability models. Former European Central Bank (ECB) Chairman Mario
Draghi [9], answering a journalist’s question about the potential of negative rates
to force the collapse of the financial system, highlighted instead “the need to adjust
bank business models to the digitisation of financial services”. The emphasis is
on business models. Existing business models based on transactions are hardly
sustainable without hyper-scaling digitally the centrality of financial contracts that
embed the opacity of prices and performances at increasingly lower margins. This is
why these models are losing ground in the attempt to win them over the provision
of services, based on the centrality of client needs when facing transparent market
prices. That is to say, the business models shaping the financial services platforms
are transforming from distribution channels of products to channels of new
content and relationship services with families and small- and medium-sized
enterprises, which have to prove value for investors transparently. The effects of
highly expansionary monetary policy and strict prudential banking regulation, which
are causing a progressive contraction of the interest margin on lending books, are
certainly not unrelated to this transformation, particularly after the pricing of risks
in terms of cost of capital.
Consequently, this greater importance of “remunerated” advisory rela-
tionships mitigates the progressive erosion of intermediation margins based
on transactions on products. It defines a way out of the business model impasse,
facing intensified competition from fintech, bigtech and low-cost offers (i.e., the
so-called “vanguardisation”). An unfiltered adoption of exponential technologies
fulfils the search for higher productivity, only it is based on lower costs for clients.
The flooring to zero revenues for the intermediaries would force scapegoats to be
found. Sooner or later, the hidden opacity of hyper-scaled business models will meet
the reality of regulatory enforcement depending on jurisdictions (i.e., SEC charges

on Robinhood in 2020). A reputation can evaporate faster than the time to build it.
Instead, building with digital technology a transparent platform on a biological
(human-centric) perspective emerges as the only viable solution for a financial
industry capable of unlocking sustainably higher margins, if directed to increase
consciousness with the transparent integration of uncertainty.
In a digital attempt to scale on transparency by lowering the cost of transactions,
financial firms and regulators presume that artificial intelligence allows a convergence
towards a new equilibrium. Once prices become transparent because of regulation,
once clients are enabled (also via digital technology) to recognise the value of the ser-
vices, then they could be tempted to consider a return to the hope of price efficiency,
hence to a closed-rational and timeless system. However, the uncontrolled rush to
volumes supported by an efficient downward digitisation process is potentially intro-
ducing more systemic instability, then further collapse, due to market concentration.
This could happen even though regulators’ control would be potentially maximum, in
their hope for stability. The races to hyper-volumes are never anti-fragile and are not
fully sustainable journeys. Fortunately, this way of using exponential technologies is
not the only road that can be travelled.
10.4 EXPONENTIAL TECHNOLOGIES ON TRANSPARENT

MARKETS
Digital technology can accelerate the simplification of bank business models and con-
tributes to lowering their margins, based on the remuneration of transactions (i.e., vol-
umes). The aforementioned SEC enforcement actions on best execution of products
and prices indicate that tout court digitisation of distribution channels can accelerate
the nullification of product-centric business value in transparent markets for bankers
and advisors. In this context, regulatory transparency and enduring macro-economic
conditions (e.g., zero to negative interest rates after the annihilation of the “systemic
put”) reinforce a significant tension between the traditional revenue-generating cen-
tricity of financial products and the needed shift to fee-based advisory relationships.
10.4.1 Generating value with transparent AI

Boot, Hoffman, Laevan, and Ratnovski [10] argue that “superior information
and communication enable financial intermediaries to exert market power”. As
previously mentioned, they research how information (i.e., data collection and
processing) and communication (i.e., relationships and distribution) are affected by
digital innovation. On the one hand, the authors recognise that adoption of digital
technology accelerates the emergence of incentive problems in the race towards
zero prices. In the lack of a different mechanism to generate client value outside the
distribution channels of products, this would lead to zero margins reducing inter-
mediaries’ ability to serve large segments of the less affluent clientele. On the other
hand, the reliance on “hard information” increases competition and lowers costs by
leveraging intelligent automation with AI methods, like natural language processing
(NLP) and machine learning (ML). “Information” underpins the functioning of core
banking operations, centred on credit approval and Know Your Client authentication.
AI creates opportunities to reduce the cost of these workflows, streamlining the “ad-
verse selection” process. Bigtech firms have learned to use alternative data to facilitate
“instantly informed” decisions and streamline credit approval on their platforms. Yet,
the opaque prowess of digital disintermediation, and the far-reaching consequences
of decoupling Taleb’s [11] “skin in the game” from the incentives of originators,
resulted in increased regulatory oversight in the lack of transparency on systemic risk
(e.g., the suspension of Ant Financial IPO by the People’s Bank of China in 2020).
The use of technology has to be subject to the same regulatory requirements
mandated for human activities. Any financial services platforms must be made
transparently accountable in terms of understanding of incentives, costs, and
potential consequences on users and ecosystems, avoiding any attempts to bypass
skin in the game requirements with technology. Otherwise, this would add further
instability through the hyper-concentration of digital network relationships.
The reliance on “hard information” – formatted or unformatted – needs to be
carefully considered, not only because it could accelerate the pro-cyclicality of
the economic and financial trend through the homologation of decision-making
behaviours. Most importantly, relying on artificial intelligence’s “inside information”
using experimental data collected in the past, searching for a universal modelling of
a phenomenon where the physical and mathematical reference models are unknown,
would be an attempt to return to the hope of efficient price discovery. It would be
a brittle return to a closed-rational and timeless system through technology. In the
reality of fundamental uncertainty, AI models are also exposed and can break,
because past and present data (thus prices, and bigdata) do not possess all informa-
tion. Model approximation cannot be fully eliminated in the attempt to “learn from
the data”. AI models can only react faster to ex-post realised uncertainty through
reinforcement learning mechanisms, looking for a balance between exploration (of
uncharted territory) and exploitation (of current knowledge), but not necessarily
making it endogenous to the decision-making framework. That is where and why
AI needs a consciousness layer to build endogenous uncertainty and to cope with it.
This is what makes the difference between AI and real biological intelligence.
The role of digital innovation in “communication” has been studied less that the
role of “information”, but it will be the real pivot for determining the future structure
of the financial services industry. This is in line with the research contribution of
the FMT, which shapes Conscious Banking. The only way to generate transparent
value “inside relationships”, that clients are willing to pay, is the institutionalisation of
a transparent communication process based on holistic goals-based analysis, operated
across hyper-personalised and interdependent mental accounts. This is where digital
technology intersects the creation of a transparent financial services platform in the
attempt to integrate the use of bigdata but avoiding the temptation to close up the
system.
In the field of investment management, AI has been used to automate investment
decisions based on instant access to unstructured and semi-structured data. However,
Smith [12] investigated AI modelling under conditions of uncertainty, which is the
norm on financial markets, reminding us that human decision-making takes place in
the physical context of the human being. Failing to recognise how humans make deci-
sions under uncertainty would not save AI from being fragile. Still, neurobiology is
the path to follow, however rigorous the computations over assumptions of innumer-
able spaces of future possibilities. Just as economics had to learn how to investigate
human decision-making outside the idealisation of homo economicus, also AI has
to stay transparently inside the reality of homo sapiens to examine decision-making
outside idealised abstractions of bigdata completeness and the hypothesis of closed
rationality, referring instead to the hypothesis of radical (open) rationality.
Therefore, the biological micro-foundations of Conscious Banking emerge via
the FMT as a suitable guidance to anchor most advanced AI modelling for investment
management through the same lens of reasonability (i.e., radical rationality). Clearly,
transparent, robust, and explicable AI provides a powerful advantage to overcome
the computational speed of homo sapiens’ capacity limitation. This is applicable
to the large context of problems which are assumed logically and probabilistically
solvable, also when human experts are ultimately available to override this “deci-
sion support system”. Instead, over-reliance on AI algorithms applied on open sys-
tems such as investment decision-making on financial markets must be carefully
evaluated, given the need to integrate how to cope with emotions at the micro-level
(i.e., investors’ decisions) and the macro-level (i.e., policy-making and central bank
intervention).
10.4.2 Opening up the reference system with technology

With regard to emotions and communication, Tuckett [13] in the Conviction Narrative
Theory (CNT) places emotions in the context of decisions under radical uncertainty.
He argues that humans construct narrative representations about the future and invest
emotionally in these narratives to sustain actions when facing uncertainty. Essen-
tially, emotions would provide a biological foundation upon which convictions can
lead homo sapiens to actions (e.g., the decision to hold onto an asset while mar-
kets tumble). Under uncertain conditions, the strength of homo sapiens seems to be
the ability to continually adapt and remain open to derive new convictions, despite
being unaware of the probabilistic distribution of future events. Inside investment

relationships, largely based on communication, narratives are a double-edged sword.
They allow intermediaries to open up the decision-making framework of individual
investors facing uncertainty towards the realisation of their goals and those of their
community. They could also empower them to close it with self-referential opac-
ity, based on subjective industry estimates. This is why only the FMT allows homo
sapiens to deal ethically with emotions in the recognition of uncertainty, avoiding
the attempt to eliminate it inside communications made opaque by narratives geared
towards the “fear of missing out” (FOMO). As AI takes on new conversational roles,
its evolution has to be considered, paying attention not only to those aspects replac-
ing human decision-making (e.g., intelligent classification of documents), but also
whenever AI contributes to the narratives integrating human decisions.
With this in mind, artificial intelligence can find a transparent role inside
“communication” to contribute to unlocking the technological value of the plat-
form. Regulatory openness to instability (e.g., bail-in instead of bail-out) can dis-
orientate investors, and their advisors, if financial services platforms do not evolve
theoretically and operationally towards Conscious Banking. Technology is asked to
create a common level playing field that helps to peg industry remuneration to demon-
strated and perceived generation of transparent value for clients. Essentially, the use
of exponential technologies “inside the communication of human-centric rela-
tionships” has to refer to the generation of content and methods that support
the heuristics needed to improve financial consciousness, however it is mediated
by digital tools. The use of exponential technologies solely to achieve hyper-scale on
volumes in transparent markets would condemn the industry to a race to zero value.
In the integration of homo sapiens’ analog components, technology must not forget
that anti-fragile value and consciousness are first and foremost “sapiens”. Indeed,
product transactions could now be executed directly by clients themselves on digital
channels or delegated to low-cost robo-advisors. Digital technology is very power-
ful in enabling the evaluation of the cheapest equivalent option. What follows for
the financial services industry in order for it to stay relevant and generate value, is
the need to progressively evolve bank business models from product-centricity
to human-centricity, transforming the industry value proposition from transactions
(i.e., selling products) to transparent and holistic advisory services.
The wealth allocation framework, as in Chhabra [14], leads this strategic
repositioning, which can be enhanced by artificial intelligence in the provision
of hyper-personalised holistic representations that also integrate adherence to
systemic goals (e.g., ESG) and generate impact, thanks to increased financial
consciousness. These goals derive from the definition of broader objectives (UN
Sustainable Development Goals), according to a logic which is symmetrical to the
goals of individual investors (survival, quality of life and ambitions). Unbearable
cumulated costs hidden by “efficiently inefficient” market price mechanisms were
first described in the Limits to Growth modelled by Meadows, Meadows, Randers,
and Behrens III [15]. Meadows et al.’s salient message was that continued growth in
the global economy would lead to planetary limits being exceeded some time in the
twenty-first century due to pollution and depleted resources, most likely resulting in
the collapse of the population and economic system. Clearly, homo sapiens claimed
they would overcome this collapse thanks to intelligence attached to opening the
system via consciousness. Yet, collapse could be avoided with a combination
of early changes in individual agents’ behaviour, institutional policy-making,
and technological innovation that corresponds to the scope of financial market
transparency on the financial services platform. The novel ESG-based interpretation
of the platform, which integrates fundamental uncertainty embedding long-term
impact analysis on ecosystems, allows the “reverse action” of the homo sapiens
(i.e., Adam Smith’s invisible hand) to deal with such price “misalignments”. Clearly,
this fundamentally modifies the traditional axiology and lets emerge the transparent
sustainable suitability of fiduciary standards.
The accessibility of relational services to non-professional investors at lower
costs, facilitated by exponential technologies, is a necessary precondition to generate
systemic value under a regime of full regulatory transparency, while finding scala-
bility outside volumes. This awareness also revises the current fintech mindsets that
search for disruptive innovation only, which does not really personalise, but risks
a further and even faster homologation towards the null value of “closed systems”.
Instead, a path to sustaining innovation can be found by opening the “system” of
relationships in a sustainable way, also aggregating data holistically.
10.4.3 Integrating clients’ emotion with a transparent heuristic

The traditional systemic closure in the management of prices based on the hypothesis
of efficiency, as in Fama [16], can no longer find a fundamental response inside
the process of price discovery, with or without the use of artificial intelligence.
Regulatory transparency has already revealed that the mechanism of market prices
can be efficiently inefficient, based on the elegant formulations of the Modern
Portfolio Theory (MPT) and the Capital Asset Pricing Model (CAPM). And the
climate debate has also unveiled the fragile foundations of mainstream economic
theory, based on incomplete data and faulty assumptions of rationality. Therefore,
only the hyper-personalisation of goals and the reconciliation of a commoditised
asset space with a personalised liabilities framework, facilitated by digital technol-
ogy, can allow investors to stay heterogeneous and free to act accordingly, which
is fundamentally the ultimate scope of advice. This geometry also overcomes the
limitations of behavioural finance approaches, in their attempts to take investors back
to the hypothetical condition of a homo economicus operating in a closed system,
via digital nudges and modified utility functions, as in Thaler and Sunstein [17]. On
the contrary, the new platform accepts the use of transparent heuristics to help homo
sapiens cope with uncertainty. Radical rationality is needed to cope with fundamental
uncertainty via consciousness as the real valuable “nudge” for homo sapiens. It
is not restricted to digital nudging and decision-making automation, claiming that
homo sapiens could become homo economicus. Instead, a transparently designed
financial services platform can open the system in the same way heuristics
can open the human mind, which outright optimisation fails to do. This is the
“emotional” value-based superiority of homo sapiens that artificial intelligence is
asked to integrate, not replace. As such, the use of artificial intelligent must comply
with principles of transparency, antifragility, and explicability.
10.4.4 Opening the AI envelope to stay radically rational

There is much discussion about the lack of transparency when it comes to algo-
rithms. Robbins [18] argues that, rather than regulators requiring AI to be transpar-
ent, they should focus on constraining AI and the machines powered by AI within
micro-environments – both physical and virtual – which would allow these algorithms
to realise their function while preventing harm to humans. In the field of robotics, this
is called “envelopment”, that is, a closure of the reference system to allow for con-
trolled use of technology. On this note, Floridi [19] helpfully highlighted the concept,
claiming that robots will be successful when “we envelop micro-environments around
simple robots to fit and exploit at best their limited capacities and still deliver the
desired output.” Using Floridi’s dishwashing robot as an example, a relevant problem
would emerge in the lack of proper enveloping of a robotic washing machine powered
by AI. For example, facing novel scenarios (i.e., realised uncertainty, as inputs are not
precisely defined and constrained), the machine learning (ML) algorithms might not
be capable of performing consistently. As such, a MacBook left on the kitchen table
after dinner might be mistakenly seen as plate to be washed. Similarly, enveloping
driverless cars in well-constrained spaces – such as airports – might accelerate the
use of AI technology as the space of events that the algorithms would have to deal
with is “more constrained”.
This is not so simple outside confined environments, such as driving on public
roads. Taken to the extreme, we could decide to adapt the environment we live in
to comply with the “closed-form” needs of algorithms, raising the possibility that
the world becomes a place that reduces our autonomy in that we will have created a
world in which we are forced to adapt to the environment needed by machines. Could
this be the case of financial services? Was not this the case of mainstream reference
theory and behavioural finance in their enveloped idealisation of homo economicus?
Are walls finally destined to fall when transparency will let any conflicts of interest
emerge (e.g., price-making, and embedded fees of transactions)? Already, value has
moved out of products inside relationships, as relationships let clients identify value
via emerged consciousness.
Although enveloping is a coherent approach when applied with foresight and

guidance to prevent adapting humans to the needs of machines, it is paramount
to remember that financial markets cannot be enveloped apart from regulatory
frameworks. Stock exchanges are not abstract “ring-fenced” marketplaces made up
of prices, but the reflection of human expectations about the future. As such, the
biological micro-foundations of the FMT call for the opening up of the reference
system instead of its closure to avoid collapse, because uncertainty cannot be made
exogenous by any means of theoretical or regulatory envelopment as it is constantly
endogenous. Uncertainty is the norm in finance, not the exception. Only radical
transparency allows the financial services platform to become anti-fragile, coping
with fundamental uncertainty thanks to Conscious Banking platform strategies.
10.5 THE SCIENTIFIC SHIFT FROM REDUCTIONISM

TO HOLISM
The gap between homo sapiens and homo economicus that Conscious Banking
reduces to generate value can be discussed and reconciled scientifically, in accor-
dance with the current and progressive shift in multiple fields of scientific research
from reductionism towards holism (as exemplified in Figure 10.3). Natural sciences,
one of which is biology, have gained deeper understanding of the complexity of
reality by means of holistic approaches, favoured also by a parallel progress in
The whole is the

sum of the parts
The whole cannot

be reduced to the
sum of the parts
FIGURE 10.3 Reductionism and holism

theoretical physics. From the perspective of advanced analytics, the reductionist

elements of machine learning are also being integrated by deep learning, which better
conforms to holism. From a digital perspective, although cloud-native micro-services
are reductionists in nature, their use on human-centric business platforms opens up
IT architectures to holistic redesign. Hierarchical systems (i.e., organisations) are
reductionists in their search for controlled equilibrium and efficiency. Instead, agile
decentralised systems capable of self-organisation are more holistic, because they
let fundamental uncertainty generate solutions simply by allowing interactions cope
with the attempt to define goals.
Client goals are defined on consciousness, which is equivalent to investor prior-
ity. Similarly, economic theory, financial models, and financial services platforms are
asked to become more holistic to represent the complexity of today’s reality, knowing
that the various elements of globalised ecosystems are largely interdependent, as
we are reminded by Meadows [15]. Information theory and general systems theory
provide us with elements of holistic interconnectedness, freeing economic theory
from its traditional reductionist and incomplete approach, based on efficient
conventions, which seem to have become a source of social instability in itself,
given their inability to model complexity. According to Say [20], the convention
of infinite resources is distorting commodity prices, whose consequences on the
state of the economy are presented in the more recent public work of Jean Marc
Jancovici discussing how these blind spots are generating today’s social tensions.
In this regard, only a mindset shift which allows for the concept of finite resources
can clarify the causality level of the system with its capacity to grow or stagnate
due to energetic dependency. These are the reasons why the FMT corresponds
to a non-commutative holistic geometry, which integrates the human concept of
irreversible time in contrast to reductionist models, which are largely atemporal and
cannot deal with systemic crises or changes in regime.
10.5.1 Conscious Banking platforms on the edge of chaos

Therefore, the theoretical opening generated by holism is a necessary theoret-
ical step to deal with the target antifragility of financial services, as they can
reside – endogenously – in a state of non-equilibrium as it is for financial markets. In
terms of agents’ expected behaviour, being human or driven by artificial intelligence
algorithms, closed rationality is a collapsing reductionist assumption which becomes
secondary as soon as we recognise that the interactions between human agents
and reality are necessarily based also on emotions and imagination to cope with
fundamental uncertainty, as in Damasio [21]. This corresponds to radical rationality.
Transparent financial services platforms can open the reference system, and cre-
ate financial consciousness among the agents to enforce ecosystem-wide “skin in
the game”. As a matter of fact, transparency is the real “invisible hand” that allows
complex systems to live on the edge of chaos, which is, according to Waldrop [22],
the “constantly shifting battle zone between stagnation and anarchy, the one place
where a complex system can be spontaneous, adaptive, and alive”. Traditionally, the
“systemic put” (financed by taxpayers’ money and monetary supply) corresponds to
an unsustainable neo-classical attempt to reduce fundamental uncertainty by closing
the economic system. Unfortunately, the “systemic put” is losing its grip augmenting
the risk that next time the “enough” of Mario Draghi [9] might not be enough. That is
why keeping the system open by making uncertainty endogenous to decision-making
is beneficial at the micro-level (i.e., investors) and the macro-level (i.e., ecosystems),
transparently based on its biological micro-foundations. Transparency finds a solu-
tion to the dissipation of the “systemic put”, and reveals responsibility in causal terms.
In this context, it is the depth of the GFC itself which has created the conditions to
attempt this necessary reanchoring of agent actions to new foundations derived from
agent-based modelling, as in Bookstaber [23].
In behavioural terms, there is a fundamental link between homo sapiens’ biology
(i.e., the neural network of the ultimate agent) and the complexity management of a
financial ecosystem.
10.5.2 Augmenting the human mind with technology

The continuous conscious relationship between the human brain and reality is the
source of system opening, springing the concept of open-mindedness (i.e., conscious-
ness), which deviates from the process of closure on individuals. Human conscious-
ness cannot be closed by means of the right side of the brain rationality, because
it is dynamically under construction through an imaginative process on fundamen-
tal uncertainty derived from the left side of the brain. The whole rational apparatus
does not intervene alone and cannot be otherwise, because the process cannot be
identified by a classic probability measure (frequentist/historical, or Bayesian). Sim-
ilarly, Demaria [24] identified in the movements of entelechy and anti-entelechy an
imaginary and exogenous process, that means a process that is not identifiable by
probability measurement. Taleb [11, 25, 26] described it with the concepts of a black
swan and antifragility (i.e., the hedging of a black swan effect). While exogenous
in Taleb, the FMT makes this process endogenous via the concept of agnostic prob-
ability founded on radical rationality. This only allows an anti-fragile system to be
created that protects the investors’ ecosystem, by defining a probabilistic fair level
playing field where causation is found via multi-period stochastic simulations, as in
Sironi [27]. It follows that rational financial optimisation forced to adapt to a “limited
perimeter” (i.e., the CAPM and the MPT) or rationality (i.e., neoclassical economic
theory) is due to generate unfavourable decisions and the endless collapse of the entire
ecosystem, due to the inability to account for unforeseen long-tail events.
Therefore, digital technology and artificial intelligence do not replace the
decision-making process of homo sapiens but can be a potential augmentation “mir-
ror” of the human mind in the light of the FMT biological micro-foundations. Clearly,
machines are becoming more autonomous, and perform quicker computations than
homo sapiens. However, this happens at a cost corresponding to the consumption of

energy, which is notably higher than that of the neocortex. This FMT holistic logic
of radical rationality goes beyond rationality but stays inside closed reality, thanks
to transparency, and faces the problem of the generation of transparent value for a
sustainable business model.
10.6 THE CORE ENGINE OF CONSCIOUS BANKING

PLATFORMS
The FMT corresponds to a theory of financial consciousness, which underpins the

construction of Conscious Banking platforms, which bear long-term competitive
advantages and differentiating appeal compared to bigtech solutions. The FMT
value is a general system based on an understanding of relationships with
ecosystems, with goals, with money. This becomes truly evident in the presence of
transparency, when all costs and benefits appear clearly. Transparent relationships
generate value, thanks to the concept of time, because it is time that builds
relationships progressively (e.g., reaching a goal thanks to investment management
over time in order to hedge fundamental uncertainty).
10.6.1 Value-generating interactions based on cost-benefit analysis

What is the value generated by a Conscious Banking platform that clients are transpar-
ently willing to pay for accessing it? Certainly, the measurement of value described
in Mazza [28] requires an answer to a problem raised in the incompleteness theorems
of Gödel [29], with respect to an open system. The algorithm allowing the measure-
ment (i.e., Omega) must be provable, refutable or “reasonably” interpretable (that is,
greater than closed rationally). The endogenous integration of fundamental uncer-
tainty in the decision-making mechanics of the financial services platform, and its
formalisation on irreversible time, allow all agents to act “reasonably” as radical
rationality within the system is made transparent. Therefore, the ontology of relation-
ship value orchestrated by the financial services platform resides in its openness to
investors’ objectives and needs through saving, investing, or borrowing. The more
open the investment relationship is (i.e., holistic lifestyles), the more profound it
needs to become, the more value it generates transparently for investors. This indi-
cates the need to bundle financial services offers in terms of analysis of holistic
“financial well-being”. Digital technology can facilitate this, aggregating and fil-
tering information inside and outside financial services, to unlock the transparent
value. For example, digital platforms allow onboard users outside banking relation-
ships to participate in non-banking journeys, prospecting banking clients before a
visible banking relationship is established.
The measurement of value also requires addressing all ethical issues. The FMT
axiology is based on a consequentialist ethic, which abandons the previous deonto-
logical approach and accesses a new goals-based axiology that starts by prioritising
investor goals. The FMT measure of Omega transparently anchors the behavioural
framework to investors’ costs, while the consequentialist ethic creates behavioural
value by generating consciousness, also discussed in Hommel [32]. Investment
decision-making is guided by the financial services platform within homo sapiens’
reality, instead of by idealism about homo economicus. The consequential ethic is
the axiological counterpart of a pragmatic approach that allows investors to
evaluate decisions in the real world and not the ideal world. In the real world,
the hierarchy of good corresponds to a hierarchy within their being, thanks to
goals, anchored to investment costs through the cost-benefit measure.
Historically, the theory of value has been characterised by “closed” economic
approaches which entropy condemned to be disproved: Karl Marx centred it on work,
Milton Friedman focused on profit that remunerates for risk, neoclassical economists
provided an interpretation based on subjective utility functions. The socialist vision
collapsed. Friedman’s vision collapsed with the GFC and the climate crisis. Subjec-
tive utility functions are closely rational transcendental micro-foundations mainly not
operational today. Instead, the FMT axiology is scientifically and empirically based
on cost-benefit analysis (CBA) to fulfil homo sapiens’ needs and achieve investment
goals (including positive and negative externalities), which become understandable
and verifiable components of the financial services platform. Cost-benefit appraisal
has often been used to facilitate supervisory and political action with respect to
welfare economics, given the need to integrate the point of view of different and
often conflicting groups. On an individual level of investment practice, it corresponds
to a CBA method that integrates advisory fees and trading/product costs with respect
to temporally local attempts at arbitrage. Regulatory transparency (e.g., MiFID II)
and digital access to information are placing the stream of investment costs and
their related potential benefits inside the CBA approach, asking professional agents
to better relate agnostic (reasonable) ex-ante cost-benefits to ex-post evidence.
Consequently, regulatory adoption of CBA allows the definition of a framework
which enables investors to understand uncertainty by discussing potential benefits at
both the individual and ecosystem level from their personal perspective, conforming
to an agent-based modelling.
By means of analogy with the land rent theory of Ricardo [31], all the costs
made transparently visible to final investors can be described as conventionally
accepted annuities to guarantee the maintenance of the financial ecosystem. This
could be largely accepted only if the financial services industry remains “institu-
tionally anchored” with the aim of helping investors reach their goals, together
with those of the ecosystem which investors would decide to follow (i.e., the
UN Sustainability Goals). These “institutional anchors” benefit the investor and
the ecosystem. Consequently, the biological micro-foundations underpinning the

financial services platform allow value generation to be fundamentally anchored, at
the micro-level and the macro-level. On the contrary, regulatory transparency would
only speed up the race to zero margins and to collapsing visions of the world, in case
of absence of any goals-based management technique for investors. Therefore, the
FMT industrialises the application mode of a new anti-fragile axiology for investors,
and a financial services industry otherwise facing progressive commoditisation.
10.6.2 Open up the risk management engine to the conscious image

of endogenous uncertainty
Sustainable value requires costs to be reduced and/or benefits to increase. Only oper-
ating on costs is short-lived – though appreciated – because investors would
end up seeking zero costs if they do not understand the benefits they are sup-
posed to receive. Therefore, a strategic effort has to be made on the benefits side.
This is why goals-based management – based on agnostic, risk-neutral simulation
of returns – is a fundamental anchor of financial behaviour. Most likely, in the pro-
cess of cost comparison the benefits are perceived as monetary equivalents of clients’
preferences. For example, the European MiFID II investor profile, reinforced by a
multi-variable suitability framework, has been designed to monitor recommendations
ex-ante and performance ex-post. Ex-post measurement against a goal is straight-
forward, but ex-ante analysis is trickier because it requires dealing with probability
functions which must free themselves from collapsing historical patterns (i.e., fre-
quentist probability) and/or self-referentiality (i.e., Bayesian probability).
That is why probabilistic simulations must be agnostic (i.e., open to uncertainty)
and risk-neutral (i.e., free from systemic put). This is the corresponding stop gap
“envelope” of an open system and this is the radical rationality making conscious-
ness emerge well before having to face otherwise numbing graphical representations
(Figure 10.4).
Uncertainty can take the form of an information process based on memory, gen-
erating high-entropy imaginary scenarios (e.g., bootstrapping maximising entropy on
a time series). Most importantly, it can be conceived as a set of prudential “imagi-
nary scenarios” which include entelechian events (i.e., black swans). Agnostic prob-
abilities become a fair level playing field for comparing and understanding invest-
ment opinions made by subjective professional estimates (i.e., risk management)
and anti-entelechian hedging strategies (i.e., uncertainty management). The pruden-
tial regulation on insurance (i.e., Solvency II) seems to be a good starting point for
the industry to tackle the CBA value-based test on the FMT-based financial services
platform. Previously defined, Omega is the probability of returns requested by each
investor with respect to the probability of not obtaining the required returns – sought
by Keating and Shadwick [32] – net of all costs associated with a proposed invest-
ment solution compared to the existing one. Scenario analysis allows investors to
better understand the ex-ante value, considering the whole probability distribution of
demand side return expectation
subjective
views
agnostic and transparent simulation of financial markets
agnostic / fair
playing field
offer side estimated drift
self-referential
estimates
FIGURE 10.4 The view of the demand side, view of the offer side, and the agnostic view of
the markets
returns (agnostically, thus opening up to uncertainty), and eventually underpinning

investors’ preferences about the ecosystem (i.e., ESG). Opening the ESG to scenario
simulations will anchor the financial industry to probabilistic results, avoiding the
incompleteness of greenwashing representations stemming from deterministic rating
approaches.
Essentially, the transparent advisory relationship that promotes financial
well-being and is organised around goal-based wealth management principles
and techniques through human and digital interfaces, encompassing banking
and non-banking elements, generates financial consciousness. The Goal-Based
Investing (GBI) holistic framework based on agnostic probabilities, as in Sironi
[3, 27, 33] and Ravezzi and Sironi [6], is the transparent envelope that allows the
unfolding of financial consciousness.
The FMT ontology of value is based on relationships, so is the Conscious Bank-
ing platform, which facilitates the opening of the system – and the global financial
services platform – across a variety of personal goals and needs while managing
quantitatively investments and debt also with the use of AI. Only open elements,
technology, things, or ideas can last longer in a dynamic process of transformation.
Old technologies are always replaced by innovation. So is theory. So is, sustainably,
a transparent Conscious Banking platform.
10.7 CONCLUSIONS
The financial services industry is in the midst of an ocean of tensions and opportuni-
ties due to depleted macro-economic conditions, a disrupting digital landscape, the
transformation of society and new expected consuming and investment behaviours.
A novel understanding of the biological micro-foundations of investment decisions,
thus financial markets, creates an institutionalist approach based on transparency.
This industry-changing approach generates anti-fragile dynamics by the mutualisa-
tion of fundamental uncertainty, which is permitted by increasing financial conscious-
ness in the framework of irreversible time. This view of financial markets is said to
be “biological” because it is linked to the true nature of human agents, and dilutes the
epistemological constraints of neoclassical theory and behavioural finance thanks to
the opening up of the reference framework.
The Global Financial Crisis collapse of market prices was evidence of unre-
solved tensions in the reference theory. Market collapse resulted from unbearable
cumulated costs built by the financial system with regard to reduced value-generation
for investors. Yet, Sironi [3] unveiled with the FMT a new axiology in which value
can be transparently generated by new human-centric business models, supported
by well-constructed exponential technologies outside information and inside com-
munication, unlocking value. As such, also the role of digital technology needs to
be anchored to the biological micro-foundations of Conscious Banking, helping in
the generation of value for investors and the ecosystem. Artificial intelligence is not
simply asked to hyper-scale existing business models in a race to the nullification of
value, but to contribute transparently to the institutionalisation of a relationship-based
framework that unlocks value by increasing the financial consciousness of individu-
als, and that of the ecosystem.
■ Homo sapiens regains the centre stage in the theory, and on the Conscious
Banking platform, which was mistakenly seized by homo economicus.
■ Closed rationality is understood to be insufficient in our confrontation with
reality, because it is verified ex-post. A more radical concept of rationality
is needed to cope with reality ex-ante.
■ Irreversible time overcomes timeless deterministic probability.
■ The self-referential hypothesis of market efficiency does not hold true in
the presence of fundamental uncertainty.
■ Antifragility becomes a coherent systemic goal for regulators and policy-
makers, rather than financial stability tout court.
■ Agnostic and risk-neutral probabilistic simulations of returns allow the
industry to loosen the current and fragile methodological anchor to unsta-
ble drifts and risk premia, thus reducing information asymmetry and pro-
tecting against the “systemic put”.
■ Heuristics (what-if) overcome the limitations of portfolio optimisation in
investment decision-making via transparent Conscious Banking platforms.
■ Financial well-being – based on Goal Based Investing (GBI) tech-
niques – emerges as the practitioners’ anchor that guides business model
transformation and the content of relationships on the Conscious Bank-
ing platform, knowing that efficient frontiers cannot integrate survival
scenarios and personal ambitions.
Concluding Remarks
N ow more than ever, technology is reshaping the future of financial services. Estab-
lished institutions stand at the digital epicentre of a tectonic fault depicted by
the Banking Reinvention Quadrant, which represents the new business value land-
scape of financial services that, in many ways, has been unchanged for centuries.
Deep within the crust of the BRQ, the progressive digitisation of everything and the
new normal emerging from the GFC are colliding against consolidated economic
interests. This seismic activity corresponds to a tension between information (core
banking utilities) and communication (disintermediation of relationships and inter-
faces). This is not just unsettling the business landscape but is also creating new
minerals, a process known by scientists as flash evaporation. Contextual Banking
and Conscious Banking platform strategies are the resulting gold mines enriching the
fault zone. They allow financial institutions to break out and conquer higher-value
spaces on the BRQ, when facing intensified fintech and bigtech competition. Con-
scious Banking platforms are communication-intensive. They leverage exponential
technologies and transparent relationships to unlock value, assisting clients and inter-
mediaries to consciously manage financial lifestyles. Contextual Banking platforms
are information-intensive. They leverage open finance and exponential technologies
to eliminate frictions in non-banking ecosystems, embedding invisible services into
the user journeys of other industries.
On the digital side of this fault, fintech start-ups have been building new business
models for a decade in an attempt to compete with banking operations. They have
focused on mobile access, price convenience, and seamless journeys leveraging data
and AI to engage clients by captivating user experiences. Many fintech companies
have already expired, and many more will die like a bee after expending its sting.
That is the nature of start-up ecosystems. However, the real contenders are already
emerging from the innovation landscape and are likely settling in as new leaders.
Jaime Dimon [1], the JPM Chase CEO, offered his blunt assessment of the forces at
play and the threat posed by fintech during a conference call with investment analysts:
Absolutely, we should be scared shitless about that. We have plenty of

resources, a lot of very smart people. We’ve just got to get quicker, better,
faster . . . As you look at what we’ve done, you’d say we’ve done a good
job, but the other people have done a good job, too.
215
216 Concluding Remarks
In particular, Dimon pointed at the tight competition in the world of payments,

citing a list of global competitors, such as PayPal, Square, Stripe, Ant Financial, Ama-
zon, Apple, and Google among the names the bank needs to keep an eye on. What
started as a fight between David and Goliath (i.e., fintech vs. incumbents) is now
turning into a battle between Goliath and Goliath as bigtech companies have joined
the ranks of cloud-native contenders to chip away more revenue from the banking
industry, incrementally. Bigtech are accustomed to aggressive platform strategies.
They are seizing the opportunity to remove frictions in client journeys, contextualis-
ing financial services inside outcome-oriented propositions, which progressively are
replacing linear and digital distribution channels of financial products. The banking
business has always been and will always be about relationships, facing the biological
unveiling of information asymmetries. In a post-pandemic world of accelerated dig-
ital adaptation of client expectations, bigtech digital touch points start occupying the
product-focused relationship space between clients and banking capabilities. In this
way, they not only accelerate the transformation of banking operations into regulated
utilities, but are also learning how to address regulatory compliance to fully disinter-
mediate the banking charter on most transactions. Ultimately, contextualisation is a
process that transforms financial services operations into an invisible mechanism of
non-banking journeys. Once zero prices are reached, Contextual Banking platform
strategies will likely strip product-focused financial intermediation of its bankers and
banking frameworks, justifying the costs of capital and the operations on the optimi-
sation of external ecosystems.
On the economics side of this fault, the consequences of the Global Financial
Crisis are seemingly permanent. Regulators and central banks have realised that
the GFC was not an event, but the revelation of deep system imbalances that are
rooted in a faulty theory about the functioning of financial markets. Interest rates
are structurally low and negative in core developed economies. Regulatory costs are
significantly high and continuously increasing as new risks emerge, also from the
digitisation process. The application of digital technology in back-end processes
is eliminating most professional intermediaries, offering banks the opportunity
to simplify their products and processes in a spasmodic search for radical cost
reduction. Traditional banks are linear businesses: this process of simplification
generates a further contraction of their margins, which cannot be countered with
linear models of digital banking. As the prices that clients face approach zero,
a renewed understanding of trusted relationships emerges disenchanted from the
product-focus and recentred on the financial well-being of clients, as the differenti-
ating turnkey element in banking competition. Bankers find a new sense of purpose
for their relationships in the theory and principles of Financial Market Transparency.
Transparency guides their action in relation to clients, society, and the environment in
order to master the “hyper-digitisation” of everything, adding to platform economics
the analog value to the holistic “hyper-personalisation” of clever financial decisions.
Conscious Banking platform strategies reset the mission of banks and fintech on
Concluding Remarks 217
platform economies, focusing holistically on client outcomes instead of outputs,

targeting financial consciousness as the real asset intermediated with the clientele.
Today’s business world is noisy and changing fast. It is not easy to discern a
rationale in a seemingly irrational age and provide a consistent reading of digital
innovation and all the disruptive forces which are sweeping through the industry.
Ultimately, CEOs must learn the importance of opening up their organisations across
business units, and redesign their business architectures as part of open ecosystems.
The fourth industrial revolution is a data-driven platform revolution. To succeed, the
stakeholder incentives of banks and fintech must be realigned with platform eco-
nomics, guided by the BRQ to shift business models transparently from outputs to
outcomes.
There is no business innovation without a strategy for innovation, which this
book, in a very humble way, has attempted to help craft. Innovation and progress
happen at the intersection of many things. Working at the intersection between finan-
cial services, technology, and economics research is an incredible experience, which
requires patience and imagination because business leaders, digital masterminds, and
academics still have different skill sets and priorities, and use a different vernacular.
Most of the book is based upon the experience gained in my career. It was written dur-
ing the pandemic lockdown, stealing time from my family and friends. I am indebted
to all of them for the patience and support demonstrated during this lengthy process
of research and writing.
The book spells out a vision for the future of banks and fintech on platform
economies, in which transparency unlocks value for clients, stakeholders, and society
in a more symmetrical and inclusive economic system. Change is never easy. Facing
the fourth industrial revolution and the power of technology, only transparency on
costs, incentives, and consequences will allow digital innovation to turn change into
progress.
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3. Netflix (2016) Netflix Chaos Monkey upgraded. Netflix Tech Blog. https://netflixtechblog
.com/netflix-chaos-monkey-upgraded-1d679429be5d
4. Greg Hawkins (2021) The abyss of ignorable: A route into chaos testing from Starling
Bank. InfoQ. https://www.infoq.com/articles/chaos-testing-starling-bank/
5. Andrew Lo (2017) Adaptive Markets: Financial Evolution at the Speed of Thought.
Princeton, NJ: Princeton University Press.
6. Maurizio Ravezzi, and Paolo Sironi (2018) MiFID II. Value Generation for Investors.
London: Risk Books.
7. Alessio Biondo, Alessandro Pluchino, Andrea Rapisarda, and Dirk Helbing (2013) Reduc-
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as feelings. Psychological Bulletin, 127(2).
11. Paul Slovic, Melissa L. Finucane, Ellen Peters, and Donald G. MacGregor (2007) The
affect heuristic. European Journal of Operational Research, 177: 1333–1352.
10 Conscious Banking
1. Allan Greenspan (2008) 2008 Financial crisis and the Federal Reserve, Day 1, Part 1.
https://www.c-span.org/video/?292886-1/2008-financialcrisis-federal-reserve-day-1-
part-1
2. Gregory Clayes, Maria Demertzis, and Francesco Papadia (2020) Challenges ahead for
the European Central Bank: Navigating in the dark? European Parliament’s Committee on
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4. Giulio Tononi (2021) Integrated information theory. https://en.wikipedia.org/wiki/
Integrated information theory
5. Stanislas Dehaene (2021) The global workspace theory. https://en.m.wikipedia.org/
wiki/Global workspace theory
6. Maurizio Ravezzi and Paolo Sironi (2018) MiFID II. Value Generation for Investors.
London: Risk Books.
7. Adam Smith (1776/2008) The Wealth of Nations. Oxford: Oxford University Press.
8. Patrick Tort (2017) L’effet Darwin: Sélection naturelle et naissance de la civilisation.
Paris: Seuil.
9. Mario Draghi (2019) ECB press conference, September 12, 2019. https://www.ecb
.europa.eu/press/pressconf/2019/html/ecb.is190912 658eb51d68.en.html
10. Arnoud Boot, Peter Hoffmann, Luc Laeven, and Lev Ratnovski (2020) Financial inter-
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11. Nassim Nicholas Taleb (2012) Antifragile: Things That Gain from Disorder. New York:
Random House.
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13. David Tuckett (2011) Minding the Markets: An Emotional Finance View of Financial
Instability. Basingstoke: Palgrave Macmillan.
14. Ashvin B. Chhabra (2015) The Aspirational Investor. New York: Harper Business.
15. Donella H. Meadows, Dennis L. Meadows, Jürgen Randers, William W. Behrens III (1972)
The Limits to Growth: A Report for the Club of Rome’s Project on the Predicament of
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20. Jean-Baptiste Say (1803) Trait d’économie politique. www.institutcoppet.org/jean-
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21. Antonio R. Damasio (2017) L’Ordre étrange des choses: La vie, les motions et la fabrique
de la culture. Paris: Odile Jacob.
22. M. Mitchell Waldrop (1992) Complexity. The Emerging Science at the Edge of Order and
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25. Nassim Nicholas Taleb (2007) The Black Swan: The Impact of the Highly Improbable.
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29. Kurt Friederich Gödel (1931) Über formal unentscheidbare Sätze der Principia Mathe-
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32. Con Keating and William F. Shadwick (2002) A Universal Performance Measure. London:
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Gamification. Hoboken, NJ: Wiley.
Concluding Remarks
1. CNBC (2021) Jamie Dimon says J.P. Morgan Chase should absolutely be ‘scared s—less’
about fintech threat. https://www.cnbc.com/2021/01/15/jamie-dimon-saysjpmorgan-
chase-should-absolutely-be-scared-s-less-about-fintechthreat.html?utm
term=Autofeed&utm medium=Social&utm content=Main&utm source=
Index
3-Month Interbank rates 93 architectures 150

5G 135 innovation 139–140
open banking 154
access fees 61 open finance 155
affect heuristics 185, 201–203 openness 150–152
affiliate fees 60 resilience 177–179
AI see artificial intelligence artificial intelligence (AI) 115–118,
Alibaba 73 121–123, 199–204
Alipay 44 AT&T see American Telephone and
Alpha 194 Telegraph
Amazon 42–43, 71, 73–74, 121–122,
161–164 BaaP see Banking-as-a-Platform
American Telephone and Telegraph BaaS see Banking-as-a-Service
(AT&T) 18 bail-outs/bail-ins 94
analytics 116 Bank of Boroda 169
Andreessen, M. 17 Banking Reinvention Quadrant (BRQ)
Ant Financial 46, 72–73 3–5, 101–106, 109
anti-trust regulation 71–73 3-D view 82
antifragility 179–186, 193–196 axes 103–104
cost-benefit analysis 207–209 Conscious Banking 192
empirical evidence 183–186 Contextual Banking 149
macro-level 194–196 value spaces 104–106
micro-level 193–194 Banking-as-a-Platform (BaaP) 4,
radical rationality 203–204, 206–207 100–101, 126–128
and transparency 205–206 see also Conscious Banking
API see application programming Banking-as-a-Service (BaaS) 4, 100–101,
interface 125–128
App Store 25 see also Contextual Banking
Apple 24–25, 115, 116–117 banks
application programming interface (API) API economy 62–65
economy 49, 54 branch closures 96
banks and fintech 62–65 business models 89–108
complementors 55–56 capital adequacy 95–98
consumer fees 59, 61–62 central 91–99
consumer incentives 60 client stickiness 117–118, 119–123
free use 59 competitive factors 131–141
monetisation 56–60, 62–65 consolidation 96–97
open finance 153–156 corporate strategy 131–141
227
228 INDEX
banks (Continued) cost of capital 90

digital services 104, 105 “evolve-ability” 140
Euro STOXX Index 94, 95 financial intermediaries 99–100
external leading factors 133, 134, Global Financial Crisis 89–98
135–138 human-centricity 98–99, 124–126
financial intermediaries 99–100 interest rates 93–94
financial services engine 132–135 openness 150–152
Global Financial Crisis 89–98 Quantitative Easing 92–98
history of 89–91 rebundling 123–128
human-centricity 98–99 return on equity 94
internal leading factors 133, 134, value spaces 104–106
138–140 see also Conscious Banking; Contextual
in non-banking ecosystems 168–170 Banking
old paradigm 132–133 Buy Now Pay Later (BNPL) 159
oligopoly judgement 153
“push-pull” motivation gap 119–123 capital
rebundling/unbundling 123–128 adequacy 95–98
recapitalisation 93–94 at risk 137
return on equity 94 cost of 90, 93–95
traditional 104, 105 recapitalisation 93–94
transparency 80–83 capitalism, emergence of 16
trust 44–47 CAPITECTS 116
value chains 31–33 CBA see cost-benefit analysis
value spaces 104–106 central banks
see also Conscious Banking; Contextual Quantitative Easing 92–98
Banking systemic put 92–95
Bell, A.G. 18 Chaos engineering 177–179, 205–206
Beta 194 Chesbrough, H. 51–53
bigtech, service competition 159–164 chicken-or-egg dilemma 39–42
BNPL see Buy Now Pay Later China 43–44, 71–72, 73, 135–136
boundary spanners 53 Christensen, C.L. 27–28, 112
branch closures 96 client stickiness 117–118, 119–123
BRQ see Banking Reinvention Quadrant closed innovation 51–53
bundled value chains 21 cloud-native payment providers 164–166
business analytics 116 CMA see Competition and Markets
business architectures see architectures Authority
business leadership 138–139 CNT see Conviction Narrative Theory
business models 89–108 collaborative leadership 139
architectures 139–140, 149–152 Collison, J. & P. 46
Banking Reinvention Quadrant communication
101–106 AI-formed narratives 201–202
Banking-as-a-Platform 126–128 tension with information 99–101
Banking-as-a-Service 125–128 value of 118
catch-22 95–98 Communication Quotient (CQ) 3–5,
central banks 91–99 103–104
communication/information tension community banks/platforms 170
99–101 compact discs 113
Index 229
Competition and Markets Authority PayPal 164–165

(CMA) 153 Ping An 166–168
competitive factors for banks 131–141 platform of platforms 170–172
complementors 55–56, 76 Square 165–166
computing revolution 16–17 WeChat 160–161
Conscious Banking 4, 65, 100–101, Conviction Narrative Theory (CNT) 201
117–119, 189–212 corporate strategy 131–141
antifragility 193–196, 203–209 capital at risk 137
artificial intelligence 199–204 digital literacy 135–136
BRQ positioning 192 “evolve-ability” 140
concepts 105, 106, 126 external factors 133, 134, 135–138
cost-benefit analysis 196, 207–209 internal factors 133, 134, 138–140
empirical evidence 183–186 leadership 138–139
exponential technologies 198–204 old paradigm 132–133
financial consciousness 193–196 operating models 139–140
Financial Market Transparency regulation 137–138
179–186 cost of capital 90, 93–95
goal-based investing 209–210 cost-benefit analysis (CBA) 196, 207–209
hidden value 196–198 CQ see Communication Quotient
holism 204–207 culture 138–139
platform 195 curation 62, 76–77
radical rationality 203–204, 206–207 customer-focus 139
sustainable value generation 209–210
transparency 196, 198–204 DBS Bank 169
consolidation of banks 96–97 derivatives trading 114–116
consumer fees 59, 61–62 development platforms 25–26
consumer incentives 59 digital banking 104, 105
consumer needs saturation 113–114 digital infrastructure 135–136
content acquisition 60 digital literacy 135–136
Contextual Banking 4, 65, 100–101, digital platform ecosystems
117–119, 147–173 APIs 56–60, 62–65
Amazon 161–164 communication/information tension
architectural resilience 177–179 99–101
architecture 149–152 complementors 55–56, 76
bigtech competition 159–164 governance 67–83
BRQ positioning 149 innovation 29–31
business architectures 150–152 monetisation 56–62
cloud-native payment providers monopolisation 71–74
164–166 negative externalities 74–76
concepts 105–106, 125, 156–159 non-linearity 24–25
Financial Market Transparency 176, openness 49–66
177–179 outcome economy 23–24
friction removal 157–159 “pull-push” motivational gap 119–123
non-banking ecosystems 168–170 rebundling 123–128
open banking 152–156 stakeholders 76–77
open finance 153–156 transformative potential 136–137
payment services 157–159 transparency 67–68, 78–83
230 INDEX
digital platform ecosystems (Continued) open 4, 153–156, 155

types 25–27 and technology 90
value constellations 19, 21–22 financial antifragility 179–186, 193–196
digital transformation cost-benefit analysis 207–209
external leading factors 133, 134, empirical evidence 183–186
135–138 macro-level 194–196
internal leading factors 133, 134, micro-level 193–194
138–140 radical rationality 203–204, 206–207
digital value chains 21 and transparency 205–206
dimensions of transparency 82 financial consciousness 193–196
disintermediation 2 financial intermediaries 99–100
disruption 27–31, 111–119 Financial Market Transparency (FMT)
distribution channels 31–33 3–4, 175–187
Dorsey, J. 165–166 antifragility 193–196
Draghi, M. 97, 197 Conscious Banking 179–186,
Drucker, P. 17 189–212
Contextual Banking 176, 177–179
EachNet 43 cost-benefit analysis 196, 207–209
eBay 43 exponential technologies 198–204
ecosystems 17–22 hidden value 196–198
transformative potential 136–137 holism 204–207
see also digital platform ecosystems radical rationality 203–204, 206–207
effective leadership 139 reference system opening 201–202
embedding payment services 157–159 sustainable value generation 209–210
EMIR see European Market Infrastructure transparent AI 199–200, 203–204
Regulation financial services engine 132–135
emotions 185, 201–203 fintech
enhanced curation 62 API economy 62–65
ergodicity 185–186 Banking-as-a-Platform 126–128
Euro STOXX Bank Index 94, 95 Banking-as-a-Service 125–128
European Market Infrastructure Regulation capital at risk 137
(EMIR) 114 disruption 111–119
“evolve-ability” 140, 178–179 human-centricity 124–126
ex-ante frictions 158–159 innovation of 90–91, 109–130
exponential technologies 18–19, 22, numbers of 110–111
29–31, 198–204 onboarding 117–118
external leading factors for transformation “pull-push” motivational gap 119–123
133, 134, 135–138 rebundling 123–128
externalities 74–76 robo-advisors 115–118, 122
sustaining innovation 117–119
Facebook 30, 40, 54–56, 75, 160–161 transparency 80–83
facilitative jurisdictions 64 trust 44–47
FarmVille 55–56 unicorns 110–111
FED put 92–95 value chains 31–33
feedback 32, 54 first industrial revolution 16
finance FMT see Financial Market Transparency
history of 89–91 fourth industrial revolution 15, 17
Index 231
free use APIs 59 closed 51–53

frictionless experiences 157–159 communication/information tension
functional excellence 132–133 99–101
disruptive 27–31, 111–119
Gamma 194 “evolve-ability” 140
gatekeepers 53 of fintech 90–91
Gates, B. 18 fintech 90–91, 109–130
GBI see Goal-Based Investing inbound 51
GDP of countries vs. companies 71 open 51–56, 77
Global Financial Crisis (GFC) 89–98, operating models 139–140
179–180 outbound 51–52
Goal-Based Investing (GBI) 209–210 outcome economies 23–24
Goldman Sachs 118 platforms 30–31
governance 37–38, 67–83 sustaining 27–28, 30–31, 112,
banks and fintech 80–83 116–119
negative externalities 74–76 theory 27–29
openness 76–77 third-parties 38–39, 55–56, 77
power and responsibility 68–71 innovative leadership 139
and regulation 71–74 Instagram 56
transparency 67–68, 78–83 Intel-NTT partnership 40
Greenspan, A. 92, 179 intellectual property (IP) 51–53
interest rates 93–94
hidden value 128, 196–198 intermediaries 99–100
history of finance 89–91 internal leading factors for transformation
holism 204–207 133, 134, 138–140
homo economicus vs. homo sapiens internet penetration 135–136
190–191 Intrade 42
human augmentation 206–207 invisible services 127
human-centricity 98–99, 124–126, 139 inward opening 156
hybrid platforms 26–27 iPod 25, 115
IQ see Information Quotient
IBM PCs 18 iTunes 24–25
inbound innovation 51
India 63, 136, 169–170 JustDial 41
indirect monetisation 60
industrial revolutions 15–17 Know-Your-Customer (KYC) 123
information, tension with communication Kogan, A. 75
99–101 KYC see Know-Your-Customer
information asymmetry 2, 74–76,
120–121 leadership 138–139
Information Quotient (IQ) 3–5, 103–104 Lehman Brothers 91
infrastructure 135–136 LIBOR, three month rates 93
open banking 154 linear businesses 23, 24, 28
open finance 155
innovation machine learning (ML) 199–204
architectures 139–140 macro-level financial consciousness
boundary spanners 53 194–196
232 INDEX
market capitalisations 71 inward opening 156

market saturation 113–114 market-driven jurisdictions 64
market-driven jurisdictions 64 outward opening 156
marketing 39–40, 42–43, 60, 121–123 prescriptive jurisdictions 63
marketplaces 26, 42–44, 71–74, 120–122 reorchestration 156
marquee adoption 41 reviewing/implementing
Meetup 77 jurisdictions 64
micro-level financial consciousness Revised Payment Services Directive 62,
194–196 152–153
Microsoft DOS 18 open business architectures 150–152
ML see machine learning open finance 4, 153–156, 155
mobile internet 135–136 Open Graph 75
monetisation 30, 37–42 open innovation 51–56, 77
APIs 56–60, 62–65 attributes 52–53
chicken-or-egg dilemma 39–42 boundary spanners 53
complementors 55–56 complementors 55–56, 76
consumer fees 59, 61–62 platforms 53–55
consumer incentives 60 research and development 51–53
indirect 60 open leadership 139
openness 56–62 openness 40, 49–66
and trust 37–39 API economy 49, 54, 55–60, 62–65
user engagement 61–62 architectures 150–152
monopolisation 71–74 banks and fintech 62–65
Moore’s law 16 complementors 55–56, 76
mortgage-backed securities 91 empirical evidence 183–186
Motif Investing 32–33 governance 76–77
motivating users 37–39, 119–123 innovation 51–56, 77
music industry 24–25, 113, 115 monetisation 56–62
user engagement 61–62
N26 46 OpenTable 41
negative externalities 74–76 operating models 139–140
Netflix 177–178 Otto, L. 16
network effects 30–31, 37–39 outbound innovation 51–52
networks outcome economies 1–2, 15–34
and innovation 30–31 disruption 27–31
and value chains 18–22 innovating 23–24
new value unlocking 128 non-linearity 24–25
non-linearity 24–25 open business architectures 150–152
NTT 40 platform types 25–27
takeaways 31–33
Omega 194, 207–208, 209 output economies 1, 22–23
omni-businesses 171–172 outward opening 156
omni-intelligent connections 171 over-the-counter (OTC) derivatives
omni-users 171, 172 114–116
open banking 4, 62–65, 152–156
facilitative jurisdictions 64 partnerships 40, 76
infrastructure 154 pay-as-you-go 59
Index 233
payment services R&D see research and development

cloud-native providers 164–166 Rachleff, A. 116
embedding 157–159 radical rationality 203–204, 206–207
PayPal 41, 164–165 randomness 184–185, 205–206, 209–210
piggybacking 40–41 real rates 93–94
Ping An 166–168 rebundling 123
platform challenge 38–39 recapitalisation 93–94
platform innovation 29–31 referral fees 60
platform of platforms 170–172 regulation 2
platform revolution 17 Competition and Markets Authority 153
platform theory 13–83 competitiveness 137–138
chicken-or-egg dilemma 39–42 monopolisation 71–74
ecosystems 17–22 Revised Payment Services Directive 62,
and innovation 27–29 152–153
non-linearity 24–25 reorchestration 156
openness 49–66 research and development (R&D) 51–53
outcome economies 15–34 resilience, Contextual Banking 177–179
transparency 67–83 resource uniqueness 133
trust 35–48 responsibility, and power 68–71
types of platforms 25–27 Return on Equity (ROE) 94
value constellations 19, 21–22 revenue sharing 60
platforms Revised Payment Services Directive (PSD2)
chicken-or-egg dilemma 39–42 62, 152–153
creation 37–42 risk as feeling 185, 201–203
development-type 25–26 risk management 209–210
feedback 54 robo-advisors 115–118, 122
hybrid 26–27 ROE see Return on Equity
innovation 29–31
monetisation 37–42 SaaS see Software-as-a-Service
open innovation 53–55 saturation 113–114
payment services 157–159 SBI see State Bank of India
“pull-push” motivational gap 119–123 scaling 18–19
rebundling 123–128 Schulman, D. 164–165
transaction-type 26 Schwab, K. 17
vs. ecosystems 19–22 second industrial revolution 16
power and responsibility 68–71 secular stagnation 93–95
prescriptive jurisdictions 63 Shanghai Pudong Development (SPD) Bank
providers 76 172
PSD2 see Revised Payment Services Shopify 73–74
Directive siloes 31–32
“pull” technologies 120 single value chains 20–21
“pull-push” motivational gap 119–123 Software-as-a-Service (SaaS) 60
purposeful leadership 139 SPD Bank see Shanghai Pudong
“push” marketplaces 120–123 Development
Square 165–166
QE see Quantitative Easing stakeholders 76–77
Quantitative Easing (QE) 92–98 Starling Bank 178
234 INDEX
State Bank of India (SBI) 170 banks and fintech 80–83

stickiness, clients 117–118, 119–123 Conscious Banking 196, 198–204
strategic invisibility 4 dimensions 82
strategy 138–139 and governance 67–68, 78–83
Stripe 46–47 and trust 42–44, 45
super apps 164–166 transparent AI 199–200, 203–204
sustainable value generation 209–210 transparent heuristics 203
sustaining innovation 27–28, 30–31, 112, transparent visibility 4
116–119 trust 35–48
systemic put 92–95 banks and fintech 44–47
chicken-or-egg dilemma 39–42
Tan, J. 167 in China 43–44
Taobao 43–44 and marketing 39–40, 42–43
Tayenthal, M. 46 and monetisation 37–39
tech companies vs. world platform creation 37–42
economies 71 and transparency 42–44, 45
technical leadership 139
technological revolution 16 Uber 29–30
technology UIDAI see Unique Identification Authority
business model integration 140 of India
definition of 27 unbundling 123
finance interrelationship 90 uncertainty 179–186, 184–185, 205–206,
value of 118 209–210
telephone networks 18–19 unicorns 110–111
thematic investing 32–33 Unique Identification Authority of India
third industrial revolution 16–17 (UIDAI) 63, 136
third-party innovation 38–39, 77 uniqueness of resources 133
three month LIBOR rates 93 United States, internet penetration
three-dimensional transparency 135–136
space 82 user engagement
Tidal 166 monetisation 61–62
tiered fees 59, 61–62 motivation 119–123
too-big-to-fail 96–97 users 76
traditional banking 104, 105
transaction costs 32 value
transaction fees 59, 61 hidden 128
transaction platforms 26 holistic 207–208
transformation new 128
external leading factors 133, 134, value chains 19–22
135–138 banking 31–33
internal leading factors 133, 134, bundled 21
138–140 digital 21
transparency 4, 67–83 disruption 29–31
3D space of 82 single 20–21
and antifragility 205–206 value constellations 19, 21–22
Index 235
value generation WhatsApp 57

cost-benefit analysis 207–209 WiFi 40
sustainable 209–210 world economies vs. tech
transparent AI 199–200 companies 71
Vestager, M. 71
visible services 127 Xi Jinping 72
Walia, H. 32 YONO see You Only Need One

wealth management, robo-advisors You Only Need One (YONO) app 170
115–118
WealthFront 116 Zuckerberg, M. 54–55, 75
WeChat 160–161 Zynga 55–56
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Library of Congress Cataloging-in-Publication Data

Names: Sironi, Paolo, author.

Cover Design: Wiley

Set in 10/12pt TimesLTStd by Straive, Chennai, India

About the Author xxix

5.5 Four BRQ business value spaces 104

6.1 Introduction 110

7.1 Introduction 131

7.3.4 Capital at risk 137

8.1 Introduction 147

9.1 Introduction 175

10.1 Introduction 190

10.6 The core engine of Conscious Banking platforms 208

Concluding Remarks 215

EMBEDDED BANKING EXPERIENCES1

BYE-BYE PRODUCTS, HELLO EXPERIENCES

WHEN BANKERS ARE NOT BANKERS ANY MORE

1. This is an excerpt from [3].

“STICKY” PLATFORMS REIGN SUPREME

PLATFORMS TRY TO CAPTURE OUR TIME BY PROVIDING US

PAYMENT PLATFORMS AS SUPERAPPS

1. This is an excerpt from Chapter 16 of [1].

CLARITY ON REINVENTING BANKING

Innovation and transformation are a multi-dimensional duo whose impact

DIGITAL PLATFORMS ARE EATING BANKING

IMPLICATIONS OF THE PLATFORMIFISATION OF BANKING

BANKING-AS-A-SERVICE IS THE NATURAL, LOGICAL, AND

THE BANKING INDUSTRY’S CINEMA PARADISO MOMENT

TRAVELING DOWN MEMORY LANE

SHARE PROSPERITY SHAPED BY DATA

JAMIE DIMON MIGHT WANT TO TURN TO PAOLO

About the Author

and can be embedded in users’ journeys to foster personalised interactions (e.g.,

THE BANKING REINVENTION QUADRANT

FIGURE 0.1 The Banking Reinvention Quadrant

CONTEXTUAL AND CONSCIOUS BANKING PLATFORM

ORGANISATION OF THE BOOK

■ Part I Foundations of Platform Theory

PART I FOUNDATIONS OF PLATFORM THEORY

FIGURE 0.2 Organisation of the book

PART II REINVENTING FINANCIAL SERVICES

Part II focuses on financial services and fintech innovation.

PART III LEADING PLATFORM STRATEGIES

simplicity of products and processes, and embedding uncertainty in the design of

We stand on the brink of a technological revolution that will fundamentally alter

T he fourth industrial revolution is about platforms and exponential technologies,

1.2 PLATFORMS AND ECOSYSTEMS

79.8% Other Amazon 4.2%

FIGURE 1.1 Composition of the S&P 500, early 2020

single pairs multiple pairs

FIGURE 1.2 Telephone networks

positive network effects across the programmers’ ecosystem, which resulted in an

■ Single value chains. Value is generated by stand-alone interactions between buy-

BUNDLED VALUE CHAINS DIGITAL ECOSYSTEM

yes Output value is in the Outcome value is in the

Output value is in the linear Output value is in the digital

FIGURE 1.3 Value permutations between platforms and ecosystems

Digital ecosystem platforms exponentially leverage positive network effects

1.3 INNOVATING FROM OUTPUT TO OUTCOME ECONOMIES