Issue 02 July 2021 FinTech Talks Semi-annual publication MAGAZINE

Fintech Talks: journey Shaped by cloud: the Insurtech: is it overhyped? OIM 21 – 3rd Edition: around the world brand-new way for Banks The final question on Investments Management Vision of the future from to manage risk on Cloud what is shaping the future Symposium speakers around the world A FinTech Story of insurance Our insights Page 06 Page 18 Page 22 Page 26 MagazineFinTech title goes Talks here | Magazine| Section titleIssue goes 02 here

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ISSUE 02 • JULY 2021

06 08 10 FINTECH TALKS: JOURNEY BRAZIL EMBRACES BUSINESS DIGITIZATION: FROM AROUND THE WORLD OPEN BANKING PHYSICAL TO DIGITAL IN UAE by various speakers by Bruno Diniz by David Jegerson 12 14 16 COVID-19 CHALLENGES ISRAEL DRIVES SCREEN LIFE BALANCE IN FOR AFRICA FINTECH GROWTH SMART WORKING AGES by Lexi Novitske by Moises Cohen by Samantha Ghiotti 18 22 26 SHAPED BY CLOUD: THE BRAND-NEW WAY INSURTECH: OIM 21 – 3RD EDITION FOR BANKS TO MANAGE RISK ON CLOUD IS IT OVERHYPED? INVESTMENTS MANAGEMENT SYMPOSIUM by Luca Giuratrabocchetta by R. Sacchi, M. Bertini, A. Greco by various speakers

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FinTech Talks Magazine: looking towards the future

A quick introduction in this next chapter of the FinTech Talks Magazine

PAOLO GIANTURCO BUSINESS OPERATIONS & FINTECH LEADER AT DELOITTE CONSULTING ITALY

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Last year has taught us an important Change can be daunting. However, it can be understood, controlled lesson. Things change, landscapes and turned into a mean to reach new goals and objectives. This was evolve and what we thought was the aim of the 3rd Investment Management Symposium, organized certain can be overturned in the by SIAT and Deloitte: understand De-Fi - the next big disruption in drop of a dime. Digital evolution Financial Services – and how even traditional players can learn and evokes not only fast but also take advantage of it. inevitable change. However, along with the change came even more New generations are even more interested in this new instruments to adapt and overcome decentralized world, but it does not mean traditional players don`t difficulties. play a role in it. Even if the means change, the ability of those institutions to act as trusted advisors for their customers will It’s the ability to drive and govern change that makes the be the same, regardless them being boomers or millennials. Financial Technology field so exciting. The ability to adapt, turn The only requirement is the willingness to look towards the future, adversities into opportunities, that lies at the core of each and embrace its challenges and the opportunities that come along. every visionary. Speaking of the future, the magazine you are reading provides a This is what we were looking for in our Fintech Journeys around glance into two of the most fascinating innovations that will shape the world. In one of the most difficult year for FSI – and for the Financial Services in the near future: Cloud and Insurtech. I hope whole world – we searched for inspiring stories coming from the point of view of our experts will act as an inspiration to foster different geographies, to explore how the financial services world new ideas and drive innovation. has mastered the disruption brought by the pandemic. What we discovered were incredibly innovative ways, aiming to build a Once more, I wish you to enjoy the reading! different future and close the gaps that were creating inefficiencies and inequalities. – Paolo Gianturco

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FinTech Talks: journey around the world

A decade ago, many companies could gain competitive advantage by embracing innovations that were already underway. That was the past. Today, to stay ahead of the game, companies must work systematically to detect innovation and new possibilities. During the event, for the first time fully digitalized, guests from different regions have introduced different point of views, giving us hints from their experiences and helping us to answer to the question: how can we sense and act upon a future that remains unclear?

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01 Brazil embraces Open Banking

Our FinTech journey around the world takes us to: BRAZIL

BRUNO DINIZ MANAGING PARTNER AT SPIRALEM

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Bruno, what is the state of play in Open Banking in Latin America as far as today?

Latin America has come a long way since the last few years to the place we are now. Lot of things happened in terms of regulatory changes, technology advances and in the FinTech initiatives, in the Region.

The 2020 was a particular special year, specifically because of the Pandemic that brings acceleration of many different FinTech initiatives such as new Banks rising, digital wallet and alternative landing that allow people to access to capital they need, specifically in times like this.

Can you identify the main changes have you seen in Brazil?

I believe the Country was able to implement three significant changes:

① Pix, the Brazilian instant payment system, something that comes up in November of 2020. The new system enables immediate transactions, such as money transfers and payments, including bills, within up to ten seconds.

② Regulatory sand boxes take place in March 2021. We have three different regulators in Brazil: Insurance Regulator, The Central the banking as a service phenomenon. This ability and capacity Bank, and our local SEC (Securities and Exchange Commission) to create new ages of change embedded in the FinTech, it’ s really which together aim to encourage innovation projects in the something that can help driving financial inclusion here in Latin financial market. America. So, we have many companies, and they are all fighting for ③ Open Banking Regulation. The first version delivered in a share of the market which is embedded finance that also got the November 2020 with the goal of full implementation by October opportunity of leverage this change in terms of financial inclusion. 2021. The project is a very ambitious and it consists of the sharing We are going to witness people to start using digital Financial of data, information, and services by financial institutions to third Services. It’ s a time of change here and I believe that we just got parties. a shortcut doing this pandemic through a new reality in Latin America. Would you tell us some interesting cases recently developed? Many people that did not even have a chance to use any kind of digital Financial Service got a chance to do so with different I have some examples from both the FinTech and Banks, but I think approaches. I think it’s a very interesting opportunity for the many things we are going to see in the future. population here in Brazil to start really understanding this new world of technology in digital financial services and have the culture → PicPay is a FinTech digital wallet, grown from around 15 million and start using it from different FinTech or even Banks. clients to more than 30 million clients during the Pandemic. They really took the opportunity that came along with. There were some So that was massive and very important in terms of transformation, interesting features in the wallet, for example donations. They I believe that the Pandemic in one way or another accelerated this put their QR code to send and donate money to people. PicPay whole process to our much faster environments and to financial also afforded some important alliances, state governments and inclusion as well. I believe that we have this opportunity here to governments of the city, in order to distribute financial aids to the make something really special in the Region. population. → Caixa Economica is a Brazilian government-owned bank, and What makes Brazil financial environment so special? it was responsible for distributing financial weight in a national scale. Doing so they managed to open more than a hundred million You know FinTech also grew in India during this time, but they grew different accounts. stronger here Brazil. We got the 3rd place in terms of the Countries that received mega dials with our investments that are up to more What is the social effect of FinTech in Brazil? than a hundred million dollars. So that really shows that Latina America is a hotspot in terms of opportunities in the Emerging We used to have huge gaps in terms of financial inclusion and that Latin Markets, lots of opportunities for foreigners to come here is something I wish we are going to solve. There are some trends and for locals to create new things they like to impact the Region as that gather good timing on what is happening in the Region, as a whole.

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02 Business Digitization: from physical to digital in UAE

Our FinTech journey around the world takes us to: UAE

DAVID JEGERSON EVP HEAD OF CUSTOMER EXPERIENCE AND PLATFORM DEVELOPMENT AT THE NATIONAL BANK OF FUJAIRAH

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Can you share some data about the business digitization?

Just to give you date I just collected 67% of the merchants try to have a new approach. 67% of the merchants hit from the Covid in 1 or 2 weeks they switch completely their business from physical to digital. At least more than 65% stopped completely to accept cash in the store.

What’s factor makes this possible?

Thanks to the fact that the ecosystem is open to the business, the government and the plans and programs that are already placed. Many physical areas that are open for the business with different regulation are open for different experimentation. They got a lot of sandbox, especially from the FinTech. That helped a lot. The velocity on which they shift their business model, differentiate this region from others because of the kind of ecosystem. The UAE is considered one of the most important hubs for the startup, for any companies that want to set the headquarter here, for the facility to manage the company and easily access in different region like south Africa, the Middle East or south Asia.

What is your most important experience David, what are the peculiarity of UAE? during the last year? This Region has many peculiarities compared to the other ones; Despite the Covid, one of the most important experience that I had first of all it is a young Region. If you consider, UAE has just 10 in the digital space last year was the building and launch of a new million people and the entire Middle Est is 450 million, the most community platform for targeting SME. It is called NBF connect. important is that in UAE 50% of population is under 25 years old, We develop in a very agile kind of way, with a team developing so very young population and the dynamicity of this region is real physically in the same place following the agile guidelines, with peculiar. the business in the team and with the marketing too. Having a connection with the community of SME to understand what the What has been the main challenge Covid bring to UAE? feedback they can have. Last year the Covid brought a lot of big challenges especially for How has the Covid affected the project? the merchants: for 1 or 2 weeks when the lockdown started, they experienced zero purchase in the store. No one tried to pay with When we reach March we stopped, really switching completely cash because they did not want to touch the cash and they wanted from physical to working remotely and then being connected with to pay contactless. Everyone was ordering online so you can the community virtually. Working daily with them and having their imagine that in just 2/3 weeks after the lockdown happened the feedback not just in few workshops as we did before. The platform big challenge was how the merchants - and the small businesses is completely an open platform where not just the bank like NBF - could manage this kind of shifting in digital business. After the but also other kind of players, payment services for example first 2/3 weeks they started to manage, resettle the business can be in and find a completely open ecosystem of participants. and operations, few of them started to scale, leveraging on the Working directly with the community daily they can follow their experience of players (like Deliveroo) that were taking care of feedback and advice. the last mile delivery. They really increase the volume in terms of efficiency. We saw that many of them have funds for scaling That is why we said that we co-create the platform with them. operations and they had the opportunity to find investors. They Working remotely is like having an entire community virtually all really took the challenge to scale their business. together in the same place and interacting with them, asking them what they think about the design of a specific thing, and we can say What has been the key for success? now that they build completely their own platform because they wanted, they designed, and we developed what they wanted. There is a matter of knowledge that is not, of course, something that you can create in a snap. Merchants that succeed have had the We can say that pushing everyone in remote has pushed in knowledge in how manage the marketing online, how manage the reversing the way in which we are being and doing the things. brand in digital space, how things are working in the online space. Instead of pushing the develop of the platform in one way, from How all the experience from the consumer is different in the online the bank to the Market, thanks to daily interactions and having the space. How they can really ensure the best experience. Now we are complete community of a hundred people in the team virtually, we seeing many merchants, many small businesses doing well, they have pulled by the Community. We can be sure to develop really are taking the challenge thanks the fact that many players, many what they wanted, and this is the only way to do it. I think that payments gateway are being managed in region. would be the way to do and build something very useful for the market in the future. 11 FinTech Talks | Magazine Issue 02

03 COVID-19 challenges for Africa

Our FinTech journey around the world takes us to: AFRICA

LEXI NOVITSKE MANAGING PARTNER AT ACUITY VENTURE PARTNERS

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What are the main trends in Africa during the Covid period? Do you think have some companies gained benefits from remote working? We saw lot of positive trends that happened during the Covid environment. Digital solutions really took off. On a financial services I think the Major Enterprise customers over technology companies perspective we saw lot of people shifting to digital processing like the banks and the insurance companies; they were able to because they could not go in presence to a local market but also a move a lot of the adoption of products through their system. For lot of quest from local government to use digital solutions and for the first time companies had a lot of their departments working example, the government waves on mobile Money transactions. from home that instead of sitting for hours in traffic, they were There was also a lot of opportunity for local craft, because of the working from their home offices and connecting to digital solutions massive disruption in supply trading imports. to reach their clients and works around and looking to meet their own needs. Why do you think the cross-board tread has increased? What are the main success cases after COVID-19? I think you saw an interesting dynamic where cross-border trade within the African Countries also increased a bit because of the Actually, there were a lot of success cases in the environment. slower import coming from across the Border. The higher prices Allover companies outperformed during COVID and especially were impacted by local currency depreciation and the increased the companies operating in the Payment Sector, for the reason cost of those imports as well. That really helped a lot of different I mentioned earlier. An interesting use cases that showed an technology platform that enable those cross borders solutions. incredible trend over the past year is a company called LAMI. In Leading company that are doing well and even some insurance an environment with a lot of uncertainty this company enables products that are backpacking a solution as well. customers to have an embedded insurance in range of products.

How do African employees handle One of the companies we invested this year manages payroll the remote working circumstance? and salary lending as a lot of major companies had a part of their workforce working off-site and had to manage their workforce I think we did see still a little bit of disparity continuing between the remotely. What is interesting about this platform is that they not rich and the poor and between the connected and disconnected. only manage payroll insurance, but they provide also additional Infrastructure across Africa continues to be a major hard-on. value, to help companies to manage the employee base, to pay Businesses were encouraging their employees to work outside but insurance bill, to pay rent and even electricity and this could be many people that were quite poor and could not move around, done all through a digital platform. they did not have resource and income. This negatively impacted ability of consumers to spend. An indirect trend related to covid environment, because of an incredible volatility in local currency pattern across the world is the up taken popularity for the already popular Cryptocurrency sector.

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04 Israel drives FinTech growth

Our FinTech journey around the world takes us to: ISRAEL

MOISES COHEN CO-FOUNDER & CHIEF BANKING OFFICER AT THE FLOOR

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What are the outcomes of 2020 for Israel?

2020 was an extremely challenging year for all of us. Business side we did not have a slowdown in the ecosystem in fact we had record numbers around exits, IPO’s, Spaxs, Unicorns, as usual this sectors Flourishing during Stressful situation.

What are the Israeli key trends in 2020?

If I have to point out the 5 key trends from last year I would select:

① Israel confirmed itself as an innovative country and a fast mover in the Fintech Sector

② Cyber Nation Israel was famous for cybersecurity before Covid-19 Challenge, but there was an increasingly demand over last year for cloud security, fraud prevention etc... that made the investments during last year explode. (3bn dollars, +72% increase vs 2019)

③ IPO as Spaxs, become the preferred exit strategy for founders against M&A, and as we see last year the number of IPO’s multiplied by 5vs 2019 (from 2 bn Dollars to 10bn Dollars)

④ Israeli Item sector was already one of the key factors to the Israeli economy representing the 50% of the exports and 15% of the workforce but because of Covid the overkey sectors like hospitality and tourism completely crashed so the weight of sector now is a huge part of Israeli economy. Also, the recent peace agreement with Emirates and Bahrain had fintech and Cybersec as pillars of this agreement, this is a huge opportunity for the region to become the Silicon Valley of middle east and north Africa

⑤ Israel after 20-30 years of trying has been transitioning from a startup nation to a scale up nation, we are now the #1 in the world for the number of unicorns per capita, we started with a huge number of unicorns in the fintech stage like Tipalti, Rapyd, Avant. We also saw other rounds of 100 million dollars, last year we had more than 20 rounds for 100 million dollars or more, not something we see in Israel in the past. Company like Biocatch or Pagaya and others are acquiring other fintech abroad. The beauty about this effort is the collaboration between banks and FinTech from one side, startups, purposing their solution, What’s made Israeli Fintech sector mature? from the other side. In this environment financial institution are becoming more flexible and are innovating their proposal looking The Israeli FinTech ecosystem was born in 2010 with some for the correct trade-off between taking external solution to FinTech developing antifraud solution. 5/6 years ago, we had the accelerate and developing inner solution to differentiate. majority of FinTech moved from a B2C Model to a B2B, moving from competition, to collaboration, and this is one of the key What are the main challenges for your company? differentiators between Israel FinTech ecosystem related to others in the world. In our company we have worked hard in 2020 to streamline a world value proposition for financial institutions during the current A couple of years ago also started the shift from niche to platform, situation. We have been delivering a full E2E SaaS platform to our companies get more sophisticated moving from niche to a full E2E banks to help them discover and optimize their full technology platform, and the result of that helped Israel to move now from a stack or vendors and identify the best solutions in the market to startup Nation to a scale up Nation. meet their challenges.

In FinTech the key demand we saw last year from financial In our company, we have been purposing our offering to a full institution are different (Customer Onboarding, E2E lending E2E SaaS Platform to easily discover the best and most promising processors, Cloud Security, Working from home, Fraud prevention, FinTech companies globally and in parallel optimize their current etc). Many companies in Israel have been changing their solution technology stack. We have been doing this with a joint effort of to meet this new demand, (55% of the Israeli startups) and 26% ours teams working globally and serving 6 of the largest banks in changed their full offering. the world.

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05 Screen Life Balance in Smart Working Ages

Our FinTech journey around the world takes us to: SINGAPORE

SAMANTHA GHIOTTI DEPUTY CHIEF EXECUTIVE OFFICER AT SINGLIFE

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How did Covid affect Singapore ecosystem? What are the main differences in working methodologies since the Covid 19 diffusion? From an overall ecosystem perception, there were some areas of acceleration and deceleration as in other markets. It would be All over the world we’ve seen the explosion of digital coordination unsurprising to know that the digital distribution channel was platform (e.g., Zoom. Teams...) putting everybody on screen one of the most affected Market. In Singapore we had a strict every moment, every day, and creating a sort of retooling of Lockdown in term of face-to-face activities, for just over 8 weeks core activities usually done in face 2 face manner. The use of since the beginning of April and the environments was regimented coordination Platform also brought a reconsideration of working partly because of prior experience during the SARS breakout a from home policies also in Singapore (poorly developed compared decade ago, so there were existing protocols from the government, to Europe). put in place immediately as the COVID situation evolved. Since the beginning of April there was no face-to-face activity and interaction Working from home also caused the convergence of life outside of allowed anywhere in the island, so most businesses in requiring a work and life inside of work on the same screen, bringing to light a strong face to face interaction had a strong decrease in business, new phenomenon: a shift between “Work life Balance” to “Screen and some of these never recovered the previous level. Some Life Balance”. companies with digital distribution capabilities re-focused their energy, resources, and activities on their distribution channel. Working from home created a lot of problems in different The digitally natives’ companies, like Singlife, had instead a boost, environment for example in the real estate sector. Another of the bringing a significant uplift in mobile platform engagement. least glamorous implications of home working in Singapore is a significant sign of mental illness for work partly because the strong These results were also facilitated from the mobile penetration ethics of work developed in Asia and in Singapore. in Singapore, the largest mobile penetration market in the world outside of China, especially for the e-commerce ecosystem where What is a practical success case brought by Covid? basically, Millennial Generation no longer uses the laptop for online purchasing. Covid 19 facilitated a shift between customer habits between Intermediary distribution (90% before Covid) and a direct In this part of the world, everything happens on mobile platforms, distribution 10% before Covid), and a complete overturning so the mobile conversation platforms, after covid they become through mobile acquisition after Covid (10% for intermediate also more central for customer communication, document distribution and 90% direct distribution) exchange (also contracts) that in a European context is a little bit an anathema.

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FinTech Stories Shaped by Cloud: the brand-new way for Banks to manage risk on Cloud

“Cloud isn’t just about Cloud. It’s the enabler to a broader business transformation, leveraging agility and cost efficiency to manage risks and amplify business value in the Financial Services Industry.”

LUCA GIURATRABOCCHETTA CLOUD FOR FINANCIAL SERVICES LEADER AT DELOITTE CONSULTING ITALY

Banking, one of the most regulated sectors, is increasingly A very promising field for Cloud adoption appears to be Market adopting cloud in its operations, demonstrating trust in Risk management: a high-demanding, heavy-workload task that cloud security and reliability. stresses and puts at test banks’ IT assets, but nonetheless is vital A trend that is expected to grow even further following the to assess broad risks for both pricing and regulatory purposes. In pandemic aftermath and the surge in digital services demand order to discover untapped possibilities, we explored the market imposed by the “new normal”. Bank executives are consistently assessing how international players are managing risks on Cloud, turning to Cloud in order to maximize operational efficiency understanding the most pressing needs of the market to offer the and optimize IT costs but Cloud possibilities can go far beyond Cloud solution that could solve one of banking main pain point. that. Leveraging Cloud’s unique capabilities of infinite scale and elasticity, banks can reinvent their core services to revolutionize business as usual.

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WHY CLOUD FOR BANKING? rate; banks executives turn confidently to Cloud to increase resiliency by introducing fault tolerance at application component Cloud computing is a model for enabling ubiquitous, convenient, level. On the other hand, Cloud provides the tools to respond on-demand access to a shared pool of configurable computing to the growing digitization of the customer experience, enabling resources that can be rapidly provisioned and released with disruptive technologies as RPA, AI, ML and blockchain and minimal management effort or service provider interactions. As allowing big data analytics capabilities. Through application such, Cloud provides unlimited scalability, lower capital expenses rationalization and Service delivery efficiency made possible and enhance security and resilience better than an on-premises by a well-governed Cloud adoption, we estimate a 10-15% data center, whose capabilities are fixed (walls…) and require high increase in new applications development per year with a maintenance and unbearable capital budgets. significant reduction of the time to market for new products and services. To picture such a complex scenario, let’s imagine the traditional data center as local power generator inside the company’s On top of these considerations, Cloud adoption is a business premises: an expensive, demanding and not reliable solution decision. Meaning that the technological upgrade should always to power up a production plant used until the beginning of XX serve the business goals and offer the capabilities needed to century. When the electricity networks were built, companies achieve its objectives. An example is the digital transformation disposed the local power generators and plugged their machines program promoted by Deutsche bank in partnership with one to the network. Energy started to be produced in power plants and of the main Cloud Service Provider (Google). As Bernd Leukert, distributed across the countries; therefore, company didn’t have Deutsche Bank’s Chief Technology, Data and Innovation Officer to buy or build their small power plants, producing locally their and Member of the Management Board said: “we have a strategic own electricity with all the costs involved by maintaining a power partner that will accelerate our technology transformation, enable generator. They could just tap in the network and pay only for the us to use data more intelligently and provide a flexible and safe power they needed. environment for us to quickly deliver new products and services”. His words highlight that the Cloud transformation program of Cloud works in the same way: every company can leverage Deutsche Bank comes as a part of a wider plan, aiming to offer Amazon, Google or Microsoft computing power instead of new services and enhance customer experience and not as a mere building and maintaining its own hardware and facilities. In technological upgrade. this way, it is able to lower its IT costs, get compute power on- demand and access to cutting-edge capabilities such as Artificial For all these reasons, Cloud found its perfect fit in many digital Intelligence with a small investment. Data Analysis becomes transformation programs adopted by banks, especially cheaper and faster and new capabilities can be deployed quicker, regarding Risk management. For example, a Nordic Bank enabling the company to answer to new business questions. designed and implemented a Hybrid cloud approach to evolve its Risk metrics calculation system. Market data remain on-prem, “Cloud provides unlimited scalability, ensuring security and regulatory compliance, while scenario simulations run on Cloud, leveraging the scalability and great lower capital expenses and enhance performances ensured by Cloud assets. On the other hand, a security and resilience...” global bank is experimenting a Cloud infrastructure development that will substitute the old on-prem reporting apps to improve scalability and performance while meeting regulatory requirements FINANCIAL SERVICES SHIFT TO THE CLOUD such as the Consolidated Audit Trail (CAT) regulation. Ultimately, an Investment Bank is undergoing the most radical transformation Cloud adoption has been steadily increasing over the past decade of its risk management system: the project uses a IaaS solution, and it is currently at an all-time high across all industries with that assigns to the Cloud provider the managing of the underlying Financial Services leading the pack with an outstanding 90+% infrastructure, leaving the bank with increased performance and of Cloud adoption. But why are Financial Services shifting to the ability to focus on the improvements of the app. This is a Value- the Cloud? at-Risk application (VaR), one of the most complex applications for Risk management: VaR cross-checks vast amount of data to Cloud adoption is mainly driven by the business need to improve indicate the probability of the portfolio not losing more than a the ability to respond to market conditions and opportunities, certain amount of money over a fixed time period. An application to expand products and customer-base as hardware upgrade that needs a great amount of power, which can be achieved easily cycles shorten, making legacy solution no longer viable to meet through Cloud, boosting the app performance while containing the regulations focusing on real-time and data-driven reporting. costs. Therefore, 40% of banks are adopting Cloud to “Automate and Streamline processes”, while 31% of banks are doing so for “Cost “Cloud found its perfect fit in many Reduction and Efficiency”. digital transformation programs adopted Reducing risk posture is the second great driver for Cloud by banks, especially regarding Risk.” adoption. As Cloud Service Provider are maturing and offer increasingly holistic and secure services at an unprecedented management.

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RISK MANAGEMENT ON CLOUD However, given the nature of the Cloud, the scope of a Risk Management Transformation program should focus not only When addressing risk management we should consider that on the technological side but also consider regulatory and it consists in very demanding but often extremely infrequent organizational matters. When migrating to the Cloud, topics processes. Risk management software are stressed for a very like encryption of data and the location of the data center where short period of time (e.g. closing period, end of month, …) and the data will be store need banks’ undivided attention. Today the then remain idle for weeks. Same thing happens for a DR recovery largest Cloud Service Providers offer outstanding security levels solution – paramount to respond and quickly recover from a critical and provide Data Centers within the national bordersin many disruption such a natural disaster or a ransomware attack. DR countries, to comply with regulatory matters on data residency. systems on-prem are made of a battery of servers that requires power, hardware upgrade and maintenance, only to be used for For what concerns organizational change, Cloud affects many few months per year, usually when the IT department wants to run internal process and obliges the workforce to adapt to a new some tests. way of doing things. During the implementation of several Cloud Transformation programs, we noticed that organization that were It is clear that the main features of the Cloud fits perfectly into able to communicate the change to their workforce were the most this use case. The on-demand services provided by the Cloud, successful in their Digital Transformation programs. Companies along with its elasticity and scalability, are perfect to manage should ask themselves how can they communicate effectively demanding and yet infrequent workloads. Instead of paying the Cloud strategy and roadmap across the organization. for a whole Data Center and then using its full capabilities for Establishing a Cloud Center of Excellence (CCoE) could well serve a limited amount of time, Cloud allows enterprises to scale up the scope. A CCoe acts as a centralized governance function and their computing power when needed and then scale it down acts within the organization to exploit securely and efficiently the when the system is not being used. Therefore providing a huge overall cloud strategy and provide governance through policies savings on fixed operational costs. and modern management tools, as well as gather and disseminate cloud best practices. CCoE is a great organizational construct The same applies to a Disaster Recovery solution, having a backup to ensure that the entire organization is aligned on the Digital infrastructure running on Cloud can be much cheaper than using a Transformation goal, understands the benefits of the projects and physical data center. A Cloud solution can run at minimum capacity works together towards the common objectives. and then scale up only in case of disaster, while a backup Data Center on premises consumes just as much resources as the main Applying a well-architected, carefully planned cloud migration data center – if used as a hot-site recovery – or takes time being can ensure a brand new way to manage risks, ensuring operational if switched off until a disaster occurs. savings between 10% and 25% over the legacy system thanks to increased operational efficiency, application rationalization The second main priority when addressing Risk management and improved services delivery efficiency. But, most of all, transformation are performances and innovation. Cloud Cloud can become a boon for an enhanced data management capabilities can be exploited to achieve this kind of goals focusing culture, applying business intelligence to the vast amount of data on microservices to overcome the constraints of on-prem processed by banks, to extract and examine precious information, infrastructure and using reporting automation to manage respond quickly and even anticipating market trends, therefore the most simple yet time consuming processes and enhance ensuring outstanding services for its own customers and positive business agility. Finally, Platform-as-a-Service (PaaS) offerings business results. are the right solution for companies that want to focus on innovation. In fact, Platform-as-a-Service allows to build and run “Cloud allows enterprises to scale up application without the complexities of setting up the underlying infrastructure. Thus, the IT department can leave the more their computing power when needed complex tasks to the Cloud Service Provider, focusing on the faster and then scale it down when the system delivery of innovative services. The upsides of this solution are well proved and tested on the market as 34% of banks are adopting is not being used.“ Cloud using Paas Model to be more competitive.

Once the what is clear, we can focus on the how. Usually, migrating to the cloud the whole workloads at once is not the best way to proceed, as it can cause disruption in the business continuity. An incremental solution is the best fit to ensure performances and security, starting small and using an iterative approach to reach quick wins and then address the most complex workloads. An example we have seen in a number of projects at banks around the world is to movie infrequent Batch processes first and then migrating the most complex workloads one at the time, leaving the core processes as the last ones.

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06 Insurtech: is it overhyped?

New technologies are significantly changing insurance market dynamics, in terms of customers’ needs, expectations and ways of connecting with Insurance Companies.

ROMANO SACCHI OPERATING MODEL TRANSFORMATION PARTNER & INSURANCE INDUSTRY LEADER

MAURIZIO BERTINI OPERATING MODEL TRANSFORMATION PARTNER

ALESSANDRO GRECO OPERATING MODEL TRANSFORMATION DIRECTOR

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Artificial Intelligence, Machine Learning, IoT and Digital Platforms claims. By using advanced telematics services, the app analyzes are some of the new technological paradigms that are significantly data collected on the cloud and sends useful notifications for safe changing insurance market dynamics, in terms of customers’ driving, provides insights to help detect possible accidents and needs, expectations and ways of connecting with Insurance allows to prevent risky driving behaviors. Companies. So far the big question is “Is Insurtech overhyped?” D-rive Go App is a solution proven to be efficient in tracking driving behavior and providing services with added value (public transport, Insurtech is shaping the future of insurance: the majority of our parking, discounts on gas stations, etc). Push notifications of clients and leaders of insurance industry sees Insurtech as part of driving suggestions (feedback) can reduce the loss ratio, especially their digital transformation plan. Key insurance players who have for new drivers. successfully exercised their due diligence, do not see Insurtech as hype, but understand how it supports their business goals and → INSTANT INSURANCE AND PEER TO PEER ambitions. Deloitte has recently partnered with one of the emerging platforms It is not a question of whether Insurtech will elevate the insurance for the development and integration of both Instant and Peer2Peer industry, but simply a question of when. The word “Insurtech” itself models. The selection of partner platform was driven not only is widely used, but the concept behind it is not overhyped. by its proven flexibility and versatility, but also by the proprietary Embracing Insurtech is key to move towards the next generation patents on Artificial Intelligence, Blockchain and Geolocation of mobility, for purchase policies, to perform underwriting technologies. Another important advantage of this solution is evaluations, for claims experience and many more, but it cannot the possibility to be delivered in “White Label” mode and be fully serve as a “quick fix”. Deloitte effectively supports its customers customized by the Insurance Company, while operating on cloud to by developing concrete solutions, using Insurtech, with concrete reduce application maintenance cost. business advantages: Key benefits of Instant insurance and Peer2Peer can be considered: → MOBILITY Thanks to telematics, it is possible to develop algorithms that ① Brand image and Customer engagement improvement due to support the correct profiling of policyholders and help in the increased interaction between the Customer and the Insurance development of new products. The basic idea is to evolve towards Company. a “risk unit” pricing model that allows insurance companies to ② Increased sales volume and portfolio diversification (new build Subscription or Usage Based policies. Below, is the main product development and new prospect clients). Instant Insurance information that create added value in subscription phase: and Peer2Peer solutions can also be implemented as an additional sales channel for the agency network leveraging on these solutions ① Policyholder standard profiling: coverages; ZIP Code / Province to launch new “life style” products (e.g. bikes, sport, travel) and the / Region of insured person or vehicle owner; Age of insured person acquisition of new target customers. or vehicle owner; etc.; ② Trip data: Weather conditions, traffic ③ Reduction of “non-virtuous” behaviors: the solution motivates condition, road condition, etc.; ③ Driving Behavior: acceleration, the Customer to act in a conscious and virtuous way (e.g. safe deceleration, cornering, over limit speed, etc.; ④ Mileage & Crash: driving, conducting a healthy lifestyle). mileages, number of crashes, etc. ④ Better knowledge of customers’ habits and behaviors and consequently the real risk profile. Deloitte has developed D-rive GO, a mobile app using telematics ⑤ Enabling new services by connecting the APP to IoT devices services, which collects and analyzes driving data to better forecast capable of detecting behavior, biometric data, etc.

INSURTECH

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→ ONSITE AI • Digital Loss Assessment: leveraging on AI engine and Machine Deloitte has developed OnSite AI solution in collaboration with Learning algorithms to assess damages with the aim of reducing Google Cloud to support commercial property underwriters the claim settlement time and improving reimbursement accuracy. in collection, verification and assessment of properties during The solution can also be applied to audit expert and repair the underwriting process, a typically expensive, hard to acquire networks results in terms of estimates accuracy aimed to improve accurate data and time-consuming task. network monitoring and technical performance. • Automated claims management: automating administrative The solution can be described as a data ingestion and task within claim management processes with RPA / RCA solutions standardization engine with the capability to learn: the micro (e.g. semantic engines for understanding and routing incoming services architecture allows us to create a modular “one stop shop” documentation, etc.). for required data, to continuously integrate and leverage new data • Digital Payments: boosting up digital payment solutions sources for business operational insights. based on SMS / WhatsApp / e-mail without the need of banking OnSite AI key functionalities are the following: information to speed up the payments.

• Data Standardization: It ingests insurer’s unstructured and The value of adopting a digital claims operating model includes: structured data from customers and brokers, allowing automated feature extraction. • Customer experience improvement by reducing E2E claims • Data Enrichment: continuous updated with new data providers; lifecycle this provides enrichment in addition to submission related data. • Reduction of the average claims cost by decreasing • Triaging properties: prioritize individual properties in the administrative and expert network costs portfolio based on the data quality and risk profiles of the • Availability of a timely and also accurate damage assessment properties and highlights the ones that require attention. powered by AI engine • Self learning capability: inclusion of a feedback system • Greater effectiveness in monitoring the repair network gained by adopting AI technologies to learn and improve utilizing user input. ex-post massive audit

→ DIGITAL CLAIMS The benefits described above, are becoming more relevant in As Deloitte, we identify a set of five solutions on digital claims terms of technical performances consolidation, especially in designed to improve customer experience, gain operational markets characterized by negative Motor premium collection and efficiency and technical performance. The E2E Motor Digital strong pressures on pricing. Claims Journey consists of:

• Digital Claims Prevention: acting on prevention to minimize the probability of claims occurrence by push and custom notifications to be integrated with CRM, APP, Telematics, IoT solutions and wearables. • Digital FNOL: introducing platforms for Web / mobile claims reporting (e.g. Motor: online accident report; Property: video-appraisal).

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25 FinTech Talks | Magazine Issue 02

07 OIM 21 – 3rd Edition Investments Management Symposium

A multi-disciplinary analysis to understand decentralized finance impact, valuable opportunities and possible risks

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Opening Quotes

SPEAKER SPEAKER PAOLO GIANTURCO MARCO MIONE BUSINESS OPERATIONS & FINTECH LEADER FINTECH TEAM MANAGER DELOITTE CONSULTING DELOITTE CONSULTING, VICE-PRESIDENT - SIAT

COVID-19 represented the biggest health emergency since the Nowadays we see a “third generation” of Blockchain rising. post-war period, with far-reaching repercussions on both the real Technology is not only a mean to secure transfer of value between economy (the Eurozone closes 2020 with -7.8%, Italy -8.3%) and the two parties, as it used to be; it also becomes a mean to create financial markets (FTSE -8.9% in the period March-June 2020). decentralized platforms to develop new applications – the so- called “DApps”. Consumer needs and habits have undergone profound changes that are here to stay. The digitization of school and work has In June 2021 there were 3549 active apps with 147k daily unique accelerated enormously, as has the growth of e-commerce. users and 6310 smart contracts. From January 2021 to June the Consumers have begun to limit their movements: social number of DApps has slightly decreased while the users have relationships have moved online, but instead of closing in on remained stable, around 4 million, after having almost doubled in themselves, people have become more sensitive to environmental April touching 7 million. and social sustainability. 66% (2342) of DApps are dedicated to DeFi, divided into the following categories: 51% Decentralized Exchanges - 32% Farming - All this has had an impact on the Wealth Management industry, 11% Lending - 3% Derivatives - 3% insurance although the pandemic has not changed trends and challenges that were already clear from 2015: Users focus especially on DEXs (76%) and farming (15%).

→ First, new generations of investors that require putting the “experience” at the center of the relationship with the Client.

→ Secondly, there is the Science- vs Human-based Advisory theme, which requires rethinking a Holistic and Goal-based Advisory and introducing data-driven decision-making processes.

→ Last but not least, the regulatory issues, the pressure on margins, the entry of new competitors, macroeconomic changes and finally the demographic shift.

So we can say that the COVID 19 crisis has been an opportunity to reinforce the awareness of companies on these issues and underline the urgency to start a transformation path.

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The tradition players have a large amount of data. What do Italians think about sharing their data? Unlocking Insights on Surprisingly about the 55-60% of Italians allows sharing his data (for example social profile, investments, payments, bank) among DeFi and Finance Trends different sectors. This trend is not a consequence of particular regulation (as PSD2 does), so we suppose it will arrive in the next future a new law to manage the Wealth management.

How does DeFi affect the investment world? SPEAKER LAURA GRASSI Today it’s not totally explained what is DeFi, there are many DIRECTOR OF THE FINTECH & INSURTECH OBSERVATORY - different definitions. For now the DeFi is linked to Ethereum (but POLITECNICO DI MILANO this may change in the future) and some initiatives are being born about asset management. Laura, what is happening in the investment environment and what is the future of innovation? What will be the innovation trends?

Today when we talk about innovation in investments or asset I can see 5 innovative trends: management we are drove by some models as Betterment. We ①. Business Models, there are many of them but no one is yet the have to consider that Betterment is born in 2008, far away from major and the most common used now. So this one can’t be the last and the more innovative model. ② New competitors, competition is coming from different sectors, Our researches shares that today, we have in the world: one of them is the DeFi → 885 startups working on investments and asset management ③. Centrality of data, it will be more and more important for targeted to B2C or B2B. So, even if we often quote the same model Companies to analyze data and to understand clients. It will allow as Betterment we have to know that there are many others. them to know their needs and to exploit the potentiality of sharing → 19,3 billion dollars of funds totally raised ④. Sustainability ESG, the sustainability will join to the social → 21,7 million dollars on average of funds raised purpose to allow a better life for people, a better economy Most of traditional startups are based in US, while the more throughout investments and financial culture innovative are based in China. ⑤. Regulation, it could be the boost for innovation if it is not only devoted to control and compliance In your opinion, are there some alternative players showing up in the investment environment?

There are many iper-traditional players (for example the automotive producers) that since 2019 are working on some offerings about asset e wealth management. Their purpose is to involve their large amount of consumers in the investment environment.

What kind of player do Italians prefer to entrust their savings?

The Italians prefer the traditional players (for example Banks) above all. Our researches show that: → about 70% will continue with traditional players → about 30% would like to add some innovative players (es. Startups, smartphone vendors o supermarket) to traditional ones, even with a less amount of savings. This means that innovative players are still considered as a try.

Have you noticed some differences among different age groups?

No, there are no such differences among Millennials, GenX or the richest part of population.

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Our Body, our choice? How the body influences How do preferences our (financial) decisions develop?

SPEAKER SPEAKER DAVIDE BULGARELLI MARCO PIOVESAN PRESIDENT SIAT DIRECTOR OF THE CENTRE FOR EXPERIMENTAL ECONOMICS UNIVERSITY OF COPENAGHEN & UNIVERSITÀ DI VERONA

Finance is heading towards a new era and future comes with There is the need to find a way to bring the investor to uncharted possibilities. How SIAT’s new projects are going understand where and how to invest. One of the issues we to explore how Investors (as well as common people) react have heard about is the generational shift: the different to these new opportunities and risks? approach to finance between generations. It is important to understand the mechanisms behind these different SIAT aims to accompany the world of finance in its new phase preferences and therefore the different decisions of young of growth by taking up the challenges that the future holds. In people: all these years we have achieved great results and organized initiatives that have contributed to creating important steps We are all different: we are from different generations, we live forward in the world of finance and economics. This year we want in different countries, we do different things, we make different to make a further step by dedicating ourselves to a very innovative decisions, and as a result, we have very different lives. Each experiment: to analyze how and through which pathways the preference in fact determines a choice and therefore an outcome. microbiota, the intestinal flora and the immune system contribute This can be very positive from a certain point of view, leading to to influence the economic and financial choices of an individual. multiculturalism. However, there can be inequalities and conflicts. This diversity of preferences and choices produces completely The project is carried out thanks to partnerships with important different outcomes: inequalities in income, wealth, but also in terms researchers from interdisciplinary realities such as the University of health, in social networks (some people are more connected of Côte d’Azur, the Italian Institute of Technology, the University and interdependent, others more isolated). It is also important College of Cork, the Charité - Universitätsmedizin Berlin (Center to understand whether these inequalities depend on people’s for Neuroscience Research) and the German Institute for Human choices and how much on circumstances. Nutrition (DIfE - Leibniz Alliances). What types of preferences are we talking about? In disciplines such as Neuroscience, Economics and Psychology there has been in the past an intense research activity focused on The economist observes three types of preferences: understanding the internal (brain circuits, genetics) and external ① Social Preferences: how much we keep and want to spend for (stress, nutrition and environment) mechanisms responsible for ourselves and how much we want to keep and what value we want decision-related mental processes. to build up for our loved ones in the future. ② Temporal Preferences: How much we are willing to invest for In recent years the attention has instead turned to a third factor the future. “the gut microbiota”. It will be very interesting to analyze how ③ Risk Preferences (how much we are willing to invest) intestinal nutrition and its interaction with the immune and central Each person is characterized by three variables that can be nervous systems can affect the attitude to risk of professional positioned on the axes of a Cartesian plane creating a three- traders, who by their very profession are more inclined towards dimensional space. The combination of these three variables risky behaviors, compared to Asset Managers, who instead have a creates those differences that we see and that lead to very much more moderate attitude to risk. different decisions and therefore to very different results, and that therefore lead to the positioning of people at different points With the project “SocioBiome: food as the mind’s engine”, which within this space. involves the microbiota, it is now possible for the first time to extend these studies to humans. A fascinating challenge that demonstrates once again how the desire to investigate and experiment is part of SIAT’s DNA. continues on next page →

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Is it possible to quantify these preferences? • Socio-economic background is important • The effect of cognitive ability is unclear: smarter children do not These preferences are key to explaining all kinds of choices handle risk differently we make in our everyday lives: choices we make in school, employment and wages, savings and investments we make, → Social preferences: educational achievements, health conditions. Moreover, these • Children become more generous with age but efficiency and preferences are studied using laboratory methods and can well meritocracy matter most for adolescents predict the choices we make in various fields including criminal • Preferences are malleable: the more generous children are activities.Being able to quantify people’s preferences, having the • Girls are more generous, boys look more for efficiency data of these preferences, generates the possibility of extracting • Socio-economic background is important these preferences, feeding them to algorithms that can replace • Evidence of “favoritisms” within a group us in the daily choices to be made about our purchases and investments. → Time preferences: • Patience increases with age in children How is this information collected? • Mixed evidence on the effect of gender • Socio-economic background is important: children from more These preferences are collected by means of ad hoc surveys: affluent families are more patient, which explains the transfer of Global Preferences Surveys (GPS). wealth between generations; they make better choices throughout An attempt has also been made to measure the preferences their lives, which leads to them having a better life of various populations in order to explain whether different • Patience is malleable and interventions can have an impact on preferences can determine the economic growth of entire behavior in the long term countries. By submitting questionnaires to individuals and taking into account the individual preferences of people in different In general, when children are young they are very focused on states, the results show why there are economic differences themselves and the present. As they grow older they develop risk between countries and states. In addition, not only differences preferences, but they take very different trajectories. It is important between countries: there is a lot of preference diversity even within to study them and take into account individual preferences, to the same country. understand their heterogeneity in order to understand why we have such different societies and to help everyone make better Measuring children’s preference in the first years of life (5/7 decisions. years), monitor it and then measure it also after 18 years, when they become adults, is one of the starting ways for carrying out these analyses. This is done by submitting not only questionnaires but also ad hoc games in which children have to make decisions and based on these decisions they can win a small economic Continuous innovation return (tokens that can be exchanged for school items to buy), thus providing them with an incentive to obtain as many and new players in the tokens as possible. The choices must be easy, fun; they must be opportunities for them to learn how to make decisions. market and in the world of finance The questions we try to answer to elaborate our analysis are: → How are these preferences formed and how do they differ with age? → What is the role of parents, teachers, and friends? → What influence do social norms, education, culture have? → Can we intervene in children’s preferences (e.g. to educate SPEAKER them to take risks, to help them be more social, more cooperative, MANUELA MACCIA to make it easier for them to find work, etc.)? How? When, at what CHIEF INVESTMENT OFFICER DI BNL-BNP PARIBAS age? Analyses are carried out in schools. Continuous innovation and new players in the market and in the What are some main results you have already world of finance. obtained from these analyses? What will this industry look like in the coming years? The following results were found for each type of preference: Collaboration/integration, in the financial world, makes sure to → Risk preferences: accelerate and refine processes. The financial institution, with • Older children less risk seeking, more conservative its regulated and strong security role, will remain central and • Girls more risk-averse a common link if it is able to open up to these new forms of • There are similar preferences in parents and children innovation.

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From this point of view, since the crisis, clients who have private assets and wealth have a different attitude than the ambition that young people have towards new forms of investment, and that perhaps, in the near future, will become more mainstream, but that Are we headed towards today, the processes and investment logics linked to large assets, remain exclusively in a traditional context even if, post-Covid, they a “post-dollar” world? are more innovative. In fact with respect to:

Asset Allocation, it has been seen that today there are two/three approaches that are being integrated to institutional logics (cash, bond, equity), such as, sectors related to environment, rather SPEAKERS than innovative or related to real economy. This has led us to DAVIDE CAPOTI – CEO,ROCKET CAPITAL INVESTMENTS discover how finance, intertwined with these ESG issues, lowers LUCA BOIARDI – CEO,THE CRYPTO GATEWAY performance risk and increases, in a gradual and sustainable way, returns in the long term. This new dimension defined as “third Davide, in your opinion, are we heading towards dimension” attracts potential new investors, maybe young ones, a “Post-Dollar” world? What are the main technological who orient their savings towards a sustainable way. innovations in these years?

Private Assets, who, with huge patient capital, are now looking for It is always difficult to give updates related to this area, due to its more attractive returns and performance linked to the world of the dynamism and its continuous evolution. In the last 2 years we real economy. have seen the phenomenon of “Decentralized Finance” which has already become the antithesis of traditional finance. In addition, the regulatory and fiscal framework has initiated a “first democratization” of the asset class that turns out to be purely of In 2020 the total value locked on smart contracts amounted to professional clients and obviously difficult to access for affluent about 1bn $, today after 1 year and after a global pandemic, this assets. value amounts to about 60-70bn$ locked and about 100bn$ are invested daily in the decentralized and distributed finance. In this respect, European legislation has begun to regulate since These numbers are very small compared to centralized finance, 2017, arriving in Italy around 2018/2019. Certainly, steps forward which offers similar instruments, but through regulated financial will have to be taken in future years and perhaps by accelerating institutions (e.g. Coinbase, Celsius) which hold about 340bn$, but the regulatory process. The theme of taxation or tax advantage they are very important numbers, a sign of a growing trend in the may be a way forward to take full advantage of these patient coming years. capitals in the real economy. The main feature of Decentralized Finance is also its ease of access Is the key to innovation, in Italy or in Europe, by younger users, a generation not constrained by traditional the introduction of lines of change in the company finance, but with a broad knowledge of new technologies and this or the continuous process of change? new way of investing. With some players it is possible to open a deposit account, request loans and purchase insurance products, “Agile”. Undoubtedly, the fact of having a smart, agile methodology easily and in a few minutes, a timing totally different compared to that is focused on innovation and change makes it possible to the traditional banking paradigms. communicate to the new generations. However, the Customer Experience has to evolve and to do that, all the teams that have What are the main insights regarding investment reference with the customer have to evolve because with the management and from the point of view of a fully digital evolution, they are the first ones asking to approach the digital ecosystem like that of Singapore where you bank and the investment in a simple, revisited, personalized way have been working for several years? and therefore streamline the products and processes “Personal touch, digital rich”. Singapore is a completely different environment, everything is completely digital and tracked. Singapore today represents the first Is progress being made to bring women hub in the world focusing on Fintech, with a specific regulations into the world of finance? to support it.The Monetary Authority of Singapore, is the only monetary authority in the world to have regulated all aspects Yes, the role of women is growing in the world of finance and one relating to cryptocurrencies (Since 2019 with the Payments Service of the dreams is to be able to select a resume with no name and no Act, later turned into law). gender. What matters are the skills and how the person responds To contextualize the importance of the Fintech phenomenon in to change and innovation in their environment. Singapore:

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→~ 40% of Asian Fintechs reside in Singapore; makes this capitalization process easier, because Smart Contracts →~ 80% of Financial Institutions operating in Singapore are are transparent and everyone can see what’s inside them. Fintechs; Therefore, I do not need to prove that I can repay my debts: I can → In 2020, 4 banking licenses were approved for the opening of as just deposit a collateral and the platform will automatically know many digital banking institutions; the collateral’s value at any time. This is how lending platforms such → Largest Asian investment banks, DBS for example, opened desks as Aave or Compound work. for the sale of Cryptocurrencies to their clients. Building on top of that, it is possible to create other services In general, Asia now represents the reference point for the such as a credit scoring system for addresses, the “user name” development of Fintech in the world. They issued $ 400 million that is used when interacting with a Smart Contract, in order to a year in grants, divided into different categories based on the understand how it behave in the past and how much it will be sustainability of technology. They also introduced a corporate reliable in the future. form (variable capital company), a specific corporate structure for Fintechs. In parallel to the lending domain there is the exchanging domain, used to trade a token with another one. As we have seen before, Trying to imagine the innovations for the next few years, it will be the process happens without any intermediary: the Smart possible to have financial institutions, with their advantages and Contract manages the exchange according to its programming. regulations, but capable to offer technological and decentralized The way a Smart Contract is programmed is transparent because products following the innovations of the market. is completely Open Source and anyone can see how a Smart Contract has been coded. Luca, there are many ways to define DeFi: could you please drive us towards these definitions as well as the risks, the Why this approach would work better than Coinbase or Binance? opportunities and the limits of this “Brave New World”? First of all, it doesn’t rely on a third-party to provide the service, thus eliminating the problem of custody and the risk of third-party The meaning of “Decentralized Finance” can be found right in default. Moreover, disintermediation removes the risk of a single the name itself. It is the capability to provide and use financial point-of-failure that comes with centralized services. services at the same time, while traditional Finance allows only regulated and authorized entities to grant credit to the users. A decentralized exchange is made by two parts: a trader – Every DeFi player can perform one or the other function, that who wants to make the trade – and a liquidity provider. In the interact using a disintermediated and decentralized platform centralized world, liquidity is granted by Market Makers. In the using Smart Contracts and Blockchain. The latter works as an DeFi world, instead, there are Liquidity Pools. Liquidity Providers infrastructure, providing a technical platform, security and uptime. are encouraged to participate in a liquidity pool because the more On the other hand, the Smart Contract works as a software that traders will use it the more they will see their fees growing. The process and distributes value, in place of all the intermediaries that system is very effective because the trend to use Liquidity Pools makes traditional finance slow and complicated, such as Banks or is constantly growing and so are the perspective of a rich fee for Lenders. Liquidity providers.

Millennials and Gen X are losing interest in the Finance domain. Using a decentralized infrastructure eliminates fixed costs typical That’s why the hyper dynamic, gamified world of Decentralized of traditional finance – custody, security, insurance, infrastructure Finance could be able to catch the attention of this audience, maintenance and upgrade. This is the result of using Blockchain succeeding where traditional players have failed. In addition to that, to guarantee both infrastructure and security, while scalability decentralization is a very effective way to protect the users’ privacy is determined not by Market Makers but by every player in the and this makes it even more attractive. market.

Still, DeFi has limits. It’s an industry that is born only few years I would like to stress out the importance of composability too. ago and became mainstream only last summer in the so-called Programming on Ethereum allows integrating a DApp with all the “DeFi Summer”. The bubble generated one year ago burst quickly, other DApps available. Therefore, I can combine a lending app with but proved what DeFi is capable of: that’s the reason why all the exchanging features to create an automated Marging Trading app. metrics related to DeFi never stopped growing bigger. Let me tell you about my personal experience. Once I started to Would you mind offering us some examples to understand trade in the DeFi domain, I couldn’t go back to the Centralized better how the DeFi world works? world. When you enter the DeFi world and you witness its capabilities – if you are able to understand the risks – it is very One of the fundamental pillars of DeFi is the credit/debit line – difficult to go back. the capability to grant credit to whoever is able to offer a sum as a collateral. The “on-chain” world (the one based on Blockchain)

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talking about the management of people’s money. The figure of the financial advisor can be compared to that of the doctor: there is a fundamental fiduciary relationship. I have heard a But the institutional buy- lot about concepts like “leveraged”, “long” or “short” but these are very high complexity investments, only a low percentage of side: what do they think? customers can make these operations so complex and risky. The challenge is therefore that of regulation. It will be necessary to have on one side, that of the traditional finance, the ability to understand and exploit this new trend, but on the other hand to reach compromises in terms of regulation, exposure to risk and SPEAKERS transparency of both investment and tax; DAVIDE BULGARELLI – PRESIDENT SIAT ② Liquidity: we saw the last open market 13 years ago, when we LUCA ANZOLA – HEAD OF MULTIMANAGER & ALTERNATIVE did not even know what cryptocurrencies and FinTech were. In INVESTMENTS, FIDEURAM ASSET MANAEMENT SGR that market, the liquidity was gone because the only thing people PAOLO BIAMINO – PRODUCT DEVELOPMENT & MANAGER wanted was money in the hand, not in cryptocurrencies. In March SELECTION, EUROMOBILIARE ASSET MANAGEMENT SGR 2020 I would have expected bitcoin to take off and instead it lost 30% because in fact it is liquidity and liquidity moves from Risky Davide, is traditional finance going towards its extinction asset to non-Risky asset. So, we still have to wait, for more recently due to all these DeFi innovation coming? we start to hear about tapering, rising rates, signs not promising;

③ The investment side: I like to understand why a security While I physically represent old finance, I have been following all its goes up or down, what are the fundamental reasons behind innovations for years. the variation. This we can determine for everything: for raw materials, for currencies, for rates, for shares and bonds. As for Banks were born in the 1400s - in 1406 the Banco di San Giorgio in cryptocurrencies, however, there are no fundamental reasons, Genoa and in 1472 the Monte dei Paschi - and have survived to the other than those linked to the flows in acquired-sale that explain present day. Also, it is true that meteorites extinguished dinosaurs, the enormous volatility linked to these tools. but sharks have survived and are 400 million years old. So neither the devils of Brera nor the wolves of Wall Street but sharks. That In conclusion, I believe deeply in this change and I am sure that said, even sharks are turning into sustainable and ESG compliant financial institutions are working very well to be able to support entities and so let’s say there is a basis for doing some. these changes.

Addressing the issue from the asset managers’ point of view (from What about you, Paolo? what is your opinion on alternative our point of view), telling what is our real experience in managing currencies and investments in cryptocurrency compared to client portfolios, is complicated. traditional investments?

As a manager of a well-known banking group, I can’t invest I would like to start by separating the concept of bank into two in cryptocurrency and so the only investment in this kind of components: the bank as hardware and the bank as software. technologies that I am allowed to make is on blockchain. As asset managers we have to assess the risk of the investment, which is an → When I talk about hardware, I refer to all those aspects of important assessment to make. Ultimately, we are risk managers as bureaucratic management (opening of accounts, management well and so we have to assess the underlying in which we are going of payments, etc) that characterize the traditional bank. Many to invest. of the innovations we hear will be taken over by the banks and in the discussion between the centralization, and therefore Luca, given your consolidated experience in traditional the confirmation of the central role of the bank in a more asset management, what is your opinion on alternative technologically, and the technological decentralization that we hear currencies and investments in cryptocurrency compared so much today, I am convinced that both will coexist because for to traditional investments? banks today creating efficiency from this point of view is a reason for life; The world is changing and these new technologies are radically revolutionizing it. Pointing out that this change is incontrovertible, I → With the concept of bank as software, instead, I refer to what I am however not so sure that this change will be fast essentially for do. One of the pillars on which financial management is based is three reasons: a law, the “Prudent man rule” which was written around 1830 by a Boston judge, is a rule for which saving management underlies the ① Regulations: the new technologies are increasingly highlighting decision to make choices that are motivated and based on clear the bureaucratic aspects behind traditional investment. However, rules. After all, when you manage someone’s money, you take an some dynamics are necessary, let us not forget that we are obligation of means, not necessarily an obligation of results, so the

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means that are used must be clear. This speech led the financial alternative investments, and I believe that interest in the world management to be an activity that has at its center a high intensity of absolute returns can return today because if the volatility, of work intended as relationship and human intervention with as I expect, increases, there will begin to be more and more respect to capital. uncertainty. The wisest choice an investor can make is to plan a long-term portfolio building by diversifying it into more than one As far as cryptocurrencies are concerned, the managed savings instrument so as to have different silos of risk and return. industry began to really talk about it between 2017 and 2018 as a result of the bitcoin explosion. This event was classified by the Going back to cryptocurrencies, I believe that they too can traditional asset management industry as a speculative bubble become alternative investments, but only when they will be more because some ingredients there may be: innovative technology, dependent on economic fundamentals. We walked the path of exponential price growth but also and above all an interest from illiquid because it was a brick that was missing in the range of offer. a number of operators and individuals who had never actually been interested in finance. At the time I began to wonder what the What about you, Paolo? fair value of bitcoin’s arrival might be and I replied that fair value should depend on the current spread and on the expectations of I agree with what has been said, I would just like to make the future spread of this medium of exchange and value reserve. a couple of comments. The first concerns the allocation of By making some incredible assumptions, I managed to give prices private customers and high net worth individuals to alternative for Bitcoints that could also be in the area as a fair value of arrival investments and private markets. Surely, there is a potential around 50,000. The problem, however, is determining the discount interest, in reality at a systemic level the percentage of exposure rate to be applied with a view to volatility and all related security of these subjects in Italy is still close to zero. So we’re much lower issues. The point of reflection is that until 2017, it could be assumed than the percentages that are thought to be consistent in strategic that the demand related to cryptocurrencies was essentially allocation and in other countries around the world. From this point speculative in nature, now things are changing. The prospect of of view, there are at least three impediments: cryptocurrencies being adopted as a means of exchange and reserve of value or other uses is becoming more concrete. ① Regulatory framework that for this kind of asset (including cryptocurrencies) limits the possibilities of placement and restricts Finally, I want to separate the concept of blockchain with the potential audiences. It sets very high minimum investment limits. concept of cryptocurrencies. The blockchain is to cryptocurrency ② The prudence of banks, which view the security of investment as the invention of the internet is to email. By this I mean that for segregation on non-regulated markets very conservatively me it is not unlikely that the blockchain will have an impact as it ③The risk management system, which has traditionally been had the internet 25 years ago, its value is invaluable. On the other geared to the very short term and therefore to daily liquidity, is hand there is the virtual currency which is a first application of this somewhat difficult to move towards the long term. In the case of protocol. as often happens in new technologies it is much easier cryptocurrencies, in particular, it would be difficult to consider to predict the success of the new technology in the future than to the daily volatility compared to the volatility that one might have if guess what will be the application of true success. instead one shifted the reasoning to the very long term.

Considering that the technological innovation does not only As for the asset allocation issue and the potential interest today to concern cryptocurrencies, remaining on a somewhat more insert alternative assets, we come from a state of the world that advanced but nevertheless concrete investment frontier, was established in financial terms after the great crisis of 2008 that what do you see as an alternative investment than the was characterized by three aspects:: dollar? Luca, let’s start with you → Economic growth in many cases moderate but still positive → No inflationary pressures or even deflation risks Currently the market is characterized by low rates, compressed → Financial repression volatility and spreads substantially underground. This condition leads to see alternative investments with great interest, perhaps In a world characterized by these three pillars, the investor’s even too much, we must not forget that they are complex ideal allocation has been purely liquid market oriented. It is not investments that require a deep knowledge both from the client obvious that this state of the world will continue in the future and, and from the consultant. In 2016 in Italy we were the first to in particular, of these three pillars, what could give way first is the develop a Private Debt platform dedicated to private markets. inflation that is openly being discussed in the financial world. If the The underlying concept is that investing a portion of the portfolio context were to change and especially if we were to move to an (10-15%) in the long term keeps investors away from the trap of inflationary context, it could actually change the music and create behavioral finance to sell or buy by doing trading and thus allows more room for this kind of investment. Whether they are hedge the investor’s money to work for 10/15 years. This change of logic funds, certain private markets or possibly cryptocurrencies that allows for greater stability and less sensitivity to the short cycle. some see as an alternative value reserve compared to gold. This instrument was successful because we made it ours and it was something that was missing in Italy. However, there are few

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35 FinTech Talks | Magazine Issue 02

Lately we talked a great deal about “new normal” and “next normal”, about “revolution”, “change” and “disruption”. But what FinTech Talks does the future hold? Our journey around the world told us an important lesson. When change occurs, we need to find a new balance. And that is not an easy thing to do. Pandemic and lockdown – for example – told us the importance not only of the economic and productivity aspect, Closing but also the importance of mental and physical well-being. As in personal and professional life, balance is important also in the financial services industry. Innovation without any constraints can turn valuable opportunities into ungoverned disruption. Remarks That’s why Decentralized Finance looks so scary to many. That’s why the opportunity of automation and decentralization that comes with Smart Contracts should be balanced by the actions of regulators. On this behalf, Singapore is a beacon for Fintech globally: as we saw in our journeys, there regulation drives CONTACTS innovation and not the other way around.

PAOLO GIANTURCO I strongly believe that this is the only way to turn change from a BUSINESS OPERATIONS & FINTECH LEADER disruptive, negative force – as many see De-Fi and crypto field – AT DELOITTE CONSULTING ITALY into a positive, valuable evolution for the whole landscape. [email protected] So, what future holds for us? We will discover it in the VI Edition of MARCO MIONE our FinTech Talks, which is set on October 7th, 2021. Save the date BO EMINENCE & FINTECH CHIEF OF STAFF and join us for valuable insights on the future of FinTech. AT DELOITTE CONSULTING ITALY See you next issue! [email protected]

– Paolo Gianturco

THANK YOU!

Notable mentions for their contribution in giving birth to this first edition of FinTech Talks Magazine goes to the FinTech, Brand & Communications, Clients & Industries and Pursuit Center of Excellence teams.

A special thank you to: Michele Chiaramondia, Francesca Dalla Vecchia, Alessia Pettinari (Pursuit Center of Excellence Team), Marco Mione, Eleni Koumpli, Alberto Maccan, Francesco Cirica (Business Operations & FinTech Chief of Staff), Angela Mariani, Rosa Arentino, Federica Crozzolin, Alberto Puma, Gianluca Sapio, Chiara Sharon Trespoli (OMT Operating Model Transformation)... and to everyone who contributed to this issue! 36 FinTech Talks | Magazine Issue 02

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