Simon Paris, CEO of financial-software provider Finastra, speaks with Global Finance about the advantages of open-source tech and how partnering is necessary for financial institutions to innovate.
Global Finance: How does your “app store” approach to open APIs benefit you and your clients? Is Finastra offering a new model for engaging with third-party fintechs?
Simon Paris: It’s a renewed model. The model has been very proven out in other areas. Think about the iPhone compared to the Blackberry. Blackberry had 8,000 developers in the proprietary system, while Apple had 800,000 developers, most of whom were not on the payroll, and 1.5 million applications. We’re emulating that without being proprietary. So, to whom do we look for our inspiration? We’re looking at the Apple model and the Salesforce model, as well as the Uber, Airbnb, Ping, Alibaba and Tencent models, all of which are very interesting.
GF: Is it difficult for larger institutions to innovate, given their sunk costs in legacy infrastructure?
Paris: I am 100% with you. Whether it’s an irony or evident, the fastest-moving institutions are the smallest because they do not suffer from the fallacy of choice.
GF: How can banks innovate better?
Paris: There are a few crude realities. One is that the cost-to-income ratio will have to get down to the 20s or 30s at a maximum. There’s no way to evade it, [and it] will be radical, particularly outside of the US. You are already on a journey to much better cost-to-income ratios. What is going to be much, much harder will be the change management. Banks will need to realize that they will have to distribute products and services that are not theirs, which will be a much bigger mind shift, with which people will struggle.
GF: Even for the big guys?
Paris: Maybe especially for the big guys. Ralph Hamers—until recently the CEO of the ING Group and soon to be CEO of UBS—previously said that if you believe in customer-centricity and customer experience, then you must be willing to put them first and provide them with products and services—even if they are not yours. You may also need to do a little bit of self-cannibalization, even if it is your income stream. If someone’s going to eat you, it might as well be yourself.
Take complex corporate loans or syndicated loans as an example. If you are Bank of America, and I’m J.P. Morgan, we cannot see each other’s positions. Yet we may want to move in and out of those complex roles as we adapt our exposures. What happens right now is that we will send each other something like 150,000 faxes in the final month of the financial quarter and top it off with emails and phone calls. It’s prone to operational risk and is a nightmare. We’re looking at ways to see each other’s positions in real time, take out a vast amount of human activity, and take away all of the operational risks. We could go further and tokenize the loans, securitize them and trade them electronically for the first time. Take complex corporate loans or syndicated loans as an example. If you are Bank of America, and I’m J.P. Morgan, we cannot see each other’s positions. Yet we may want to move in and out of those complex roles as we adapt our exposures. What happens right now is that we will send each other something like 150,000 faxes in the final month of the financial quarter and top it off with emails and phone calls. It’s prone to operational risk and is a nightmare. We’re looking at ways to see each other’s positions in real time, take out a vast amount of human activity, and take away all of the operational risks. We could go further and tokenize the loans, securitize them and trade them electronically for the first time.
