Italy-UK Partnership

BUSINESS WORLD | 09 www.italchamind.eu computing power and insights to solve difficult problems. ICC: Speaking of future challenges, what will happen to FinTech in Europe after Brexit? PS: China and the US are the real powerhouses of FinTech innovation, even though Europe gave birth to relevant FinTech solutions, particularly in the space of payment providers and challenger banks. However, the economic fragmentation and the heavier regulatory burdens of the European continent are a clear disadvantage to local innovators. Innovation is favoured by easy access to consistent economic spaces and lean regulatory frameworks. Regulatory uncertainty and further economic fragmentation of a post-Brexit Europe would indeed add more complexity to the task of banks and entrepreneurs, on both sides of the Channel. ICC: We have been hearing of cryptocurrency for the past ten years. Do you think central banks will be open to give it a try soon? PS: The intervention of central banks and governments during the pandemic crisis has shown that banks are not anymore an efficient mechanism of money creation through their lending operations. This is due to low interest rates, high costs of capital and post-GFC balance sheet weaknesses. Central Banks will have to consider new mechanisms to transmit monetary policies, which makes Central Bank Digital Currencies (CBDC) a relevant opportunity to accelerate the transformation of bank architectures and their business models on digital, while allowing Central Banks to retain a central role in shaping the digitisation of finance. Besides, China is already challenging century-old banking frameworks by launching its own version of a CBDC to serve mainland and, possibly, offshore operations of their huge SME marketplace. The western world is playing catch up once again. Yet, CBDC shall not be confused with cryptocurrencies, like Bitcoins. They are not intended to be new speculative assets nor a replacement of fiat currencies, but a bridge between old and new forms of monetary interaction across banking and non-banking ecosystems. ICC: How do you think that the big financial Institutions should evolve to compete with the new digital giants? PS: Traditionally, banks have always been credit institutions adding intermediation services, like payments and wealth management. However, negative interest rates, high cost of capital and, possibly, CBDC disintermediation are reducing interest rate margins to the point that shareholder value cannot be generated sufficiently after the price for credit risk. Therefore, banks are progressively inverting their business model and focus on intermediation margins. Clearly, payments will be a very difficult battlefield, being already on the radar of big tech players willing to optimise their non-banking operations and strengthen client engagement. Instead, investment services and insurance operations are a more shielded due to more complex customer habits. However, intermediation margins are falling gradually, and financial products are commoditizing progressively, widening the breach for digital disintermediation. This competition intensifies banks’ fight for survival. Should banks decide to focus on volume-based strategy, they will end up fighting hand to hand with the big tech players, which have many more digital points with final clients. Therefore, they shall master a process called “banking contextualisation” and promote own ecosystems to service a large portfolio of banking and non-banking opportunities with digital platforms. This will be particularly relevant for SMEs and corporate clients. ICC: How long do you think Europe and UK will take to recover from the recent deep economic crisis? PS: The Great Lockdown has put the profitability of most firms under unprecedented stress. It has triggered a global economic downturn that endangers the very sustainability of entire industries, such as travel and hospitality. Facing elevated uncertainty, firms may be cautious. Reduced consumption and weaker business investment could drive the biggest immediate impact. Lower inventory accumulations could arise from supply shock and diminished demand. A dysfunctional global supply chain could weaken the economic outlook of developing markets and increase the risk of countries defaulting on their debts. The shape of the post-pandemic recovery will not be identical across industries and regional economies. And it could take a variety of forms, all influenced by the potential for future periodic lockdowns and growing political uncertainties. Therefore, it is still too early to say what the recovery will look like. ICC: What do you think will be the new technologies of 2021? PS: The post-pandemic world will see an acceleration of digital transformation, requiring business leaders to master the data-driven interconnectedness of ecosystems, applications, and economic domains. Managing hybrid multi-cloud will be an essential skillset to generate new value for clients, that turns into new revenues for innovative financial institutions. The adoption of Artificial Intelligence will also accelerate to strengthen digital security and foster frictionless user experiences. ·