Why will fintech make the world safer?

As founder and CEO of Soisy, Pietro Cesati made time to write a book and provocatively entitled it “Manifesto of a bank without the bank“. To better understand his position and the world of the marketplace lending, which it is primarily dedicated to, we met and interviewed him.

In your book you explain in what ways fintech will make the world safer. How will that be?

In short, by eliminating the risks of banking crisis. Banks are at the core of our economy and have been one of the elements that have enabled our society to progress in recent centuries. Unfortunately, they have one weakness: their business model is fragile and periodically generates heavy banking crisis that have serious consequences for on both the economy and society (just think of the still evident effects of the 2008 crisis.
One of the main innovations of fintech is the marketplace lending, or lending between privates, which divides the role of the bank over a multitude of people who finance loans, thus eliminating the single point of fragility represented by the bank.
A good example of what happens in a crisis if risks are distributed can be found in the bursting of the dot.com bubble in year 2000. The size of the bubble was huge, but the consequences for the economy as a whole were limited, because risks were very distributed and banks scarcely involved. When the real estate mortgage bubble exploded in 2008, the consequences were much more serious, because this time banks were involved.

Marketplace lending: how does it work and what advantages does it give to customers and shareholders?

Marketplace lending introduced the concept of the platform to the financial world, just as Airbnb has done in the world of tourism. Airbnb does not own the homes it offers for rental, but simply puts owners in touch with tourists interested in renting them. Similarly, marketplace lending platforms do not own the money they lend, but merely put investors who want to lend them in touch with applicants who need a loan. For investors it is a way to get higher returns than the market (for example Soisy gives returns between 4% and 8%). For borrowers it is a way to have an efficient, transparent and, usually lower cost, service.

But the most interesting part is that all this is possible because the marketplace lending aligns the interests of customers and shareholders more easily, while banks face a trilemma: the impossibility to satisfy customers, shareholders and regulators at the same time. Considering that in this historical moment, with the effects of the 2008 crisis still visible, they are focused on regulators and shareholders, those who suffer most are the customers.

Marketplace banking: what is its definition and what are the benefits it gives to customers and shareholders?

Another of fintech’s new features is the creation of companies that offer very specialized services, with a great ability to work together offering all the services of a traditional bank in a harmonious way. Marketplace banking is this mixture of specialization and collaboration in offering services to clients, which could lead to the emergence of real marketplaces specialized in integration and not in the production of different financial services. In this way, clients can benefit from high quality services resulting from the extreme specialization of those who develop them, but also from the convenience of being able to access to different services in a single place.

Are the increasingly frequent alliances and synergies between banks and fintech in your opinion changing the end customer’s perception of the world of banking and finance?

I don’t find bank-fintech alliances so frequent and I don’t think that the ones there have changed the perception of customers. In general I find that banks are still not very interested in fintech and slow in deciding how to approach it. However I see a slow improvement growing, with increasing customer focus, which will inevitably drag the banking sector towards fintech in the long run. This is good, because collaboration is one of the pillars of the digital world.

We will only be able to say we have brought the fintech revolution to the heart of finance when the entire industry asks itself how best to solve customer problems and how to do so together with the rest of the ecosystem.

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Author: Tudor Sava

5 Marzo 2020