The AI Revolution in Banking: Transforming Financial Services in 2025

By Startuprad.io | Published: April 10th, 2025

💡 Management Summary

In this article, we explore how AI is transforming financial services through insights from Paolo Sironi, IBM thought leader and expert in banking innovation. From hyper-personalized banking to regulatory AI frameworks, this is your essential guide to banking's future in 2025—especially in the DACH region.

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🧠 The Evolution of AI in Banking 2025 and Beyond

According to Paolo Sironi, we are moving beyond digitalization into the communication age of AI.

“Digitalization was about putting services online. AI allows us to communicate with customers, anticipate needs, and offer proactive solutions.”

From Digitalization to Personalization

AI analyzes vast datasets to personalize user experiences in real time. This capability helps banks remain competitive and drives deeper customer relationships.

The Communication Age of AI

Chatbots, voice assistants, and AI-based advisors are becoming frontline channels for client interaction—streamlining support and building scalable customer trust.

🔍 Key Areas of AI Impact

AI in Retail Banking

AI assists with fraud detection, automates services, and provides predictive financial advice. 24/7 chatbots boost customer service while AI product recommendations improve revenue.

AI and SME Banking

SMEs in the DACH region benefit from faster loan approvals, cash flow forecasting, and more efficient underwriting—all powered by AI.🔗 Learn more: Explore AI strategies for SME banking

AI in Capital Markets & Swiss Wealth Management

AI drives algorithmic trading, risk profiling, and portfolio personalization. Swiss firms are leading in deploying robo-advisors to support bespoke financial advice.🔗 Learn more: How AI enhances Swiss wealth management

AI for Risk & Regulatory Compliance

Real-time data analytics are reshaping compliance. Austrian banks are pioneers in building AI governance frameworks to tackle issues like bias and explainability.🔗 Learn more: How Austrian banks lead AI compliance

🔮 The Future of Banking with AI

Ethical AI & Governance

As banks scale AI, they must balance innovation with trust. Transparency, auditability, and ethical design are key for sustained success.

Predictions for 2025

• Hyper-personalized customer journeys

• AI-first onboarding and digital support

• Regulatory AI sandboxes in DACH countries

• Hybrid advisory models using GenAI

📘 Bonus: Download the Strategy Cheat Sheet 2025

Want to turn insights into action? We've condensed the key takeaways from our conversation with Paolo Sironi into a 1-page, high-impact Fintech & Banking Strategy Cheat Sheet. It’s designed to help founders, fintech leaders, and banking strategists stay ahead of AI-driven change in 2025 and beyond.

👉 Download the cheat sheet here: https://docsend.com/v/z2z6w/strategy2025

Full Outlook

Find the full outlook here: https://www.ibm.com/thought-leadership/institute-business-value/en-us/report/2025-banking-financial-markets-outlook

❓ People Also Ask

What are the benefits of AI in banking?Efficiency, fraud detection, risk reduction, personalized experiences, and better compliance.

How does AI improve customer service?Through chatbots, predictive analytics, and AI-powered advisors available 24/7.

What are the challenges of AI in finance?Bias, explainability, data privacy, and algorithmic governance.

📢 Listen to the Full Interview with Paolo Sironi

🎧 Available on all platforms:

• Spotify: Startuprad.io on Spotify

• Apple Podcasts: Startuprad.io on Apple

• YouTube: Startuprad.io YouTube

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🔍 Automated Transcript

Narrator Dorsey Jackson [00:00:05]:

Welcome to startuprad.io, your podcast and YouTube blog covering the German start up scene with news, interviews, and live events.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:00:20]:

Hello, and welcome, everybody. This is Joe from startupbreak.a0 coming to you today with another subject matter expert. When Paolo says his first words, most people will recognize him. Paolo again. You most likely don't need an introduction, but I'll I'll I'll still I'll still do it because we we're growing like crazy. I welcome you back to my podcast. You are the most frequent guest on Startuprate.io. You are a thought leader in the world of fintech and banking.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:00:52]:

You're a trusted expert in the intersection of technology, banking, and capital markets. With years of experience at the forefront of banking innovation, Paolo's insight are shaping the future of financial services. Today, we'll be discussing his latest research at the IBM twenty twenty five banking and capital markets outlook and how it will influence the next generation of financial strategies. Paolo, welcome again to my show.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:01:17]:

So with such an introduction, I have to start with the the right foot. To everyone wherever you are in the world.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:01:27]:

As we are at the start of a new era in banking and capital markets, one question dominates. How will emerging technologies like AI blockchain and digital currencies shape the financial world in 2025 and beyond? Today, we are diving deep into the IBM twenty twenty five banking capital markets outlook with one of leading voices in in fintech and banking transformation. Stay tuned to discover what the future holds for financial institutions, investors, and entrepreneurs alike. And we also may tell because most people are listening to this. Your name tag also say The Bankers Bookshelf, so you're also podcaster there.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:02:07]:

Yes. I am. I'm following, your inspiring, episodes. So The Bankers Bookshelf is the opportunity to have, on the show the most interesting, book authors and researchers that are helping us to understand the present of banking and its fintech future. So happy for you to also attend our episodes, but we can share some key insights here, with you, Jorna. So this is a wonderful podcast. I'm always happy to get back. You know, this is amazing.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:02:37]:

So let's make it happen.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:02:38]:

Happy to come over for recording to you. Paolo, in your recent research with IBM, you highlighted the growing importance of AI in banking. How do you envision artificial intelligence reshaping the landscape of banking and capital markets in 2025?

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:02:54]:

Well, there's nothing new. Right? So just to say that it's becoming important. Let's put it into perspective. So maybe this, helps to understand where the industry is effectively leaning to. If we go back, fifteen years ago, say at the start of the global financial crisis, which is always an important moment in time in the history of banking, back then, banks realized that, they cannot operate the way they were operating before because their capability to generate revenues was much more reduced, I guess, before there were a few excesses. And so there was also the time when digitalization started that the iPhone was invented in 02/2007, more or less. So we saw a growing trend of people be more inclined to use a website or even start using a phone for doing some basic bank transactions. So for the bank's was, you know, Brandon to say, hey.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:03:49]:

Let's close branches. We rationalize because we can push some of those activities on a website and then on an app. But in essence, that didn't change the way banking was working. It was primarily a lift and shift of a branch on a digital architecture, which in many cases meant more investments in cloud computing and APIs to power up banking in a different way, not in the premises of a branch, but mediated by technology piece. So that I would call digitalization of right. Of course, at the very beginning, banks were like, can I use cloud or not? Regulatory is alert that maybe that's important, so they started doing it. Banks realized that just, having an app or a phone or a a nice website, that doesn't mean that clients are comfortable in navigating through. So they started thinking we need to personalize that.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:04:41]:

So we move from an age of personalization sorry, digitalization of flight into an age of personalization. And how do you personalize and use AI? So they started using machine learning in particular to, in a sense, manage the SEOs, so to create the content more relevant for the client, to streamline the processes, make onboarding a bit easier, less, clumsy. So that's a period where AI starts entering, the banking scene, in in variety of fields, but in particular there when you have to do banking activity on mobile, when to you do a bit more automation, you need to simulate the processes. But still, you know, that was not enough to shift a lot of important operations from a face to face branch onto the digital app. Now if generative AI is famous for something, it's about communication, language. So I think that now we're entering the stage where we had years where we had digitalization to call us a key theme, years when we started talking about personalization, and we could use AI machine learning in that respect. But now it's about communication in many cases. So how can you transform the way you effectively talk to clients as well, I would say, the way you talk inside the organization.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:05:57]:

And that is where AI has now more capabilities to transform the way banks operate because up to the past was sort of a linear approach in terms of plugging in an algorithm here and there where you could grab some value. Now you can rethink the way effectively everything works inside the bank and in front of the customers.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:06:18]:

Actually, it, as you said that, it kind of reminded me we first talked about cloud. Yes or no? Crypto. Yes or no? Now we're talking AI. Yes or no? And it was always a slow approval by the regulators, and then the banks went in more or less over time.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:06:36]:

And there's quite of misunderstanding there. They come to the surface with time. We could have seen then at the very beginning, the strong of push of narratives around, but we see that. That. And if you think about cloud, cloud is not what many expected to be the economic model of cloud that doesn't hold, through in in many cases. Now private cloud can do as much as public cloud, and so I don't know what the apperscares are thinking. Actually, I see the trying to move on prem. If you like, you compare to the propositions before.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:07:09]:

Lots institutions realized that with growing volumes, you know, the thing was not, operating as expected. So it's an abracal mix. The crypto world as well, of course, there was a lot of fantasy and excitement, and there is still for the pure crypto world, but now we're leaning towards a different aspect, which is around the regulated space with the CBDCs and the stable coins. So it's it's it's more like going there where it is traditional, though with technology instead of taking a direction where it is, like, completely revolutionary, right, but out of, the mainstream. Some of these elements have been, if you if you like, digested inside the system as well. That's true. But it's very different from the early stages, proclamations of, if you like, total, decentralization and transformation. And with AI, maybe it's the same.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:08:00]:

Right? So we are going through phases to understand exactly what it does, what it can do, what it can do. It's so easy to get wrapped into a hype that doesn't help, anyone by by a few. AI AI, however, is different from the previous two because AI started in the nineteen fifties. So it's a longer track record, okay, in terms of, usage and understanding. Even before generative AI, AI was already part of banking. It was just talked, maybe with less emphasis from the general public compared to what it is today. And, what is happening is now the technology is becoming more accessible and more flexible, which typically is important when technology starts, unfolding real value for transformation because it cannot be just rigid. So it needs to be adaptable in a sense.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:08:53]:

Now that adaptability is not, risk free. It requires a professionality. It requires a good risk management approach. It requires platforms and architectures to execute it. And that's where we will see the differentiating elements. It's not about who has the best AI, but it's about who has the best way of using AI, which is a different type of investment in a tea It's becoming more open source. It's multimodal. It's, multimodal.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:09:22]:

So so that's the story. But for a long while, we thought about the best AI is, the the best institution. It's the best way to use it. It's not the best.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:09:32]:

I actually totally agree with you. We talked about, like, the the the the new technologies going into the old ways. What came to mind is the tokenization of securities that is currently ongoing. And I also thought about, application of AI. Basically, it's a nightmare for a bank because you have to keep track on all the AI agents you have there. They're working there because not one agent from one department and an agent from another department, do something like crazy shifting money back and forth in the billions on seconds basis and then and then you have a big vest. Nobody wants that. Be before we get too far for our audience, for our listeners, how are you how are you or your company preparing for a ice roll in the future? Feel free to share your thoughts on LinkedIn or Twitter or let's connect.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:10:22]:

No. I think that, you hit the bottom of, a propeller into the future. You talked a lot about agents. Agent TKI is coming as well, but not yet there, you know, to have that the complex system that operates, through agents. But that's another interesting evolution of, of technology, which is getting more and more, prone to make decisions which are unstructured, that they're not part of a defined rule set and take responsibility for that, which could only be dreamt about years ago. Now it's becoming effectively a reality where people want to engage, you know, down the road, into to that, type of configuration is another story, but effectively, this is happening as well.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:11:07]:

When I was thinking about how a bank could use AI, of course, what came to mind is, like, a lot of manual tasks done in the background. But then a lot of banks would need new systems where agents could access. Plus, you need to kind of a controller of all the AI agents, make sure they all work properly. You need to document them. You need to monitor them. So I'm not too sure if, like, there's a huge win in efficiency there. What are your thoughts on that?

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:11:40]:

Cool. It's another it's another key point here, the way you measure it, but also what you want to do with that. Because if you don't unleash new value, you know, it's a it's a little some game in essence. Right? Or is that you reach a floor, so you you cannot expand further. So the point is, how can you do it and not just simplify what you're doing, but then to create something new? Because that's where you justify most of the investments. If you look at the the cost structure of banks, so the total operating expenses, I give a number which is about banks worldwide, and there could be differences bank by bank or across regions. From 02/2007 until 2024, the cost the percentage of cost that banks had to spend for people, which is a good cost, salaries and benefits, went from 50 to 54.6%. The percentage of expenditures in technology that can come went from 6%, a bit down to 6.6%.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:12:40]:

So the amount of cost allocated to the workforce, increased over time, notwithstanding all of the investment technology. There are a few reasons for that, but that tells you that essentially banking is a people business anyway. And if you want to get benefits out of, automation with AI, Regent Tech AI, you always need to ask yourself, how do I also augment the employees to do something more or something different? Because if you don't put both elements into the right perspective, you may not justify the economy model anyway, for the good and for the bad. Right? So that is, I believe, the most complex things that bankers have to do because they not only have to innovate what they're already doing in automatizing it because they have to change it, automatize it in a way. But they have to imagine how to do things differently, okay, or new things. And, you know, you really have to think after the box. But, hey, we have hundreds of banks worldwide. You know, thousands of people working on that.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:13:33]:

I'm sure that, here and there, we see good ideas popping up.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:13:37]:

Mhmm. We've spoken quite frequently about neobanks and fintech startups disrupting traditional banking models. What trends in 2025 do you see that will allow these fintech players to continue to challenge incumbent banks? And where do you think established players need to innovate?

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:13:56]:

That's me a lot. Because, end of last year, in September, October, I published a new research dedicated to banking for small and medium enterprises, commercial banking. Putting on the side is all entrepreneurs, which are more like retailers, so small and medium enterprises. Revenues, maybe hundred million in places like Brazil. Why does this excite me a lot? Because, this is where the competition between bank and new bank is intensifying in the next five years. And there's a reason for that. The last, seventeen years were about retail markets, which are overly commoditized. And there to move the needle with technology, you really need to get into larger volume.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:14:44]:

That's why Revlon is to have more and more clients. New bank got hundred million customers in Brazil, and it's still growing. So you need to get to a very large scale to get up all the benefit in retail markets with this type of transformation technology. So it's not for all. Corporate banking is not for every player. It's really a relationship on a few. And, capital markets, again, is for a few banks that have, you know, the shoulders to basically do trading and, you know, become more prominent in the entirely volatile space. But small and medium enterprises are everywhere in every country, in Germany, in Italy, in Brazil, in Brazil, in Portugal, in in China, in in Australia.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:15:25]:

And they were not served, that well by banks or banks could not invest in transforming their services, so the fintech, in the past years for a few reasons. Because all of these, clients, the SMEs are very different. You have a restaurant. You have a dentist. You have a lawyer. You have a travel agent. So for the bank or the fintech to talk to these communities is complicated because you have pockets of communities, different ecosystems, which have different problems that pop up at different times in the economic cycle, which have different ways of reporting their numbers and their data. There's no structure.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:16:02]:

So the cost to serve in banking for the SMEs is the highest across, the group of clients. Now given the latest two, three years, advances in the AI capabilities, I think that now we're at the point where that problem can be more easily tackled because with the combination of traditional generative AI, now you can basically have new means to systematize the process of onboarding and understanding these ecosystems. And therefore, lowering the cost to serve, which can be passed to the clients in terms of a lower lending rate, making the bank more competitive or different time more competitive without, consuming the prudentiality. Okay? Because giving away for free has never been a a good idea and you see clearly, you know, the mark of the cases and so on and so forth. So now given the fact that AI made a leap in terms of capabilities, especially with the larger language models, and the fact that that segment of the market is where the cost of service is the highest in banking, any dollar invested in the transformation of the business can generate the biggest benefits of the highest return on investment. But two, three years ago, I guess, was too early, so it was not, yet possible. So the economic model was not working. And then last but not least, these companies are, like the, you know, three t p in the gold miner that are forced to suffer when there's an economic downturn.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:17:34]:

So, of course, they tend to be riskier. And now is where the opening of a lot of ecosystems through the API economy allows to ingest new data in the risk management model, even just with a traditional with traditional machine learning model that might allow to better risk manage the positions, with these, ecosystems that are varied, and they need to engage a bit more on digital compared to what is happening so far. So even in that front, I think, because of the API economy spreading around banking more than in the past five years of open banking, getting open finance, now things are possible. They were not possible before.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:18:13]:

Mhmm. When you could been talking about the capital markets, what I had in mind would used to be called, for example, Flow Monster. So some research, big banks with big organizations where it doesn't make a difference if you have $2.03 additional billions flowing through a day, but they generate additional profits for their talk about economies of scale. That kind of leads me through the capital markets transformation. The capital market sector has faced various challenges over the last decade according to IBM's outlook. How are emerging technologies expected to impact investment strategies and asset management by 2025?

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:18:54]:

So when we talk about asset management, we need to tell us, also a bit of the truth about, capital markets. So this is an industry where few people pretend to know too much about the future and know nothing because fundamental uncertainty is a structure of the market. And a lot of people, all of us, are afraid not to know anything about the future, but we know enough to be prudent in essence. Right? It's just that in the necessity of positioning, all, you know, financial markets, capital markets, a little market because in the end, even pension funds, you know, are for there there is. There is a way narratives are created, their opinions are generated to talk to people. Now the question it becomes, do you have now a better capability to predict the future because of technology? That's not the point. I think you're not getting into more predictions. You can have more capability to compete algo to algo, which is a different than predictive.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:19:50]:

But you still have the same old problems to basically position yourself in terms of understanding market. What is changing, however, to me is the following. As everything that happens in the upper space of capital markets needs to boil down into a conversation that has to be had with a client and that needs to make a decision about their investing. It's the capability to better inform people about how they can make their decisions in a world that is very uncertain, testing the hypothesis, right, and creating more easy, conversations, right, to grasp that can transform the way we are building, the virus beds in capital markets. So that is where I see the biggest transformation, happening. For the rest, of course, modeling is always handbook. What matters there is that the model, of the bank that has a bigger shoulders, it becomes a dominant border because it's paid for pricing, and everybody else is, is a price taker. But I think that would be for banks and business, as usual.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:20:49]:

We're not going to crack, if, like, the market. We have just one case of somebody that apparently solved the market. We don't know yet how we did that, whether we did that. Renaissance Technologies will be interesting to to learn more, but we don't know much about that. But for the rest, I think that the structure itself doesn't change. But what can change is the way people can access and advisers can talk to people, right, for a lower cost. They might transform the way they ask, basically, to tap into opportunities in capital markets there for changing, if you like, the average hour of, the 30.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:21:27]:

Mhmm. We talked about the person who sold the market. I'm very sure there are a handful of projects out there in the world where somebody is trying to train an AI to think like Warren Buffett.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:21:38]:

Well, Warren Buffett did not solve the market in a sense. There was more, renaissance technology, but Warren Buffett as well was very risky. Now Successful. You see, it's it's very different process. What you can make a lot of money, because you have, you're very concentrated in your bets. You can lose a lot of money because you're very concentrated in your bets. And then overall, in a long time, if you buy the market, more or less, you know, you are there. So Warren Buffett is an example where he was very specific in his bet, which could be very risky.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:22:12]:

But, it's a it's a very complex thought process. It doesn't conform with, frequency trading or automated trading in that respect. It's and and again, if you look if you try to imagine what's beyond the curve, not knowing what will be on the data, you try to measure something which is not in the data. Then data may inspire you, but it gets your intuition to go beyond that. And and that's very hard to be replicated, whether it can be replicated.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:22:44]:

For our audience, what changes do you think AI and blockchain will bring to the investment space? Drop your comments below the episode to let us know what you think. Paolo, we'll be back after short ad break. Paolo, Hey, guys. Everybody welcome for coming back. We're still talking to Paolo Signore, thought leader, podcaster, and awesome person here on StarofRay.l, plus the most frequent guest. Now we get into, unfortunately, a little bit the boring but necessary part of this, the regulatory and risk management in AI. What AI and automation transformation? How do you foresee regulatory frameworks evolving to assure that AI powered systems in banks remain secure, ethical, and compliant?

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:23:43]:

I never I never thought that risk management is boring. Maybe a regulation could be. But whenever I completely forgot

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:23:52]:

you are a former risk manager. I'm so sorry.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:23:55]:

Lot of work to do and and stuff. It can also be fun. And now you know why it's not boring? Because being based on data and data is always corrupted. So, you know, you can get get entertained, you know, every day with with something new, new problems popping up that you have to resolve. So but, it's a very important question because, this question contains, the solution to most of the problems. Let's start saying this. In the nineteen nineties, CEOs of banks used to say that, every one of their employees was a risk manager, because risk management is the core business of a bank managing the bank's risk or the risk of the clients. Now I'm saying every risk man every banker must be an AI risk manager.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:24:42]:

That means it needs to understand how to manage the risk of AI, also the risk of AI, but how to manage these algorithms or this new way of working. And why is that important? I was actually talking to the global CIO of one of the top 10 banks in the world, a few days ago. And, we're asking the question, how do you pull pull this thing to scale AI enterprise wide in a financial institutions? And basically said, well, is there an interpretation of the role of the crawl and the risk management area? Because, AI being an algorithm, that's about validating the algorithms. We're not creating the confidence that the algorithm can be used and deployed, right, in a business process. And the confidence is to be higher and higher the more the business process is, highly relevant. Typically, whenever you touch a client is one of the most relevant, okay, model. And so because in the past, the old risk management infrastructure was based on validation of defined algorithms. Think about Bazel two, Bazel three, Bazel 26, which is a log a large set of rules that stick together.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:25:50]:

Then you run them, you test them, and then you can validate them, you know, what they're doing, and they can prove that basically they do what they're expected to do. And that's a lengthy process, but it's very focused. With AI instead, it's not that you validate one AI. You have hundreds of different use cases in utilizations of that AI that needs to be understood and validated where the data is used in slightly different forms, where the reactions and the positioning of the algorithm is, differing from what you might expect. So how do you transform the risk management into function that interacts in the continuum with the process? Now if I now think about the regulators that is looking at all of these, the biggest challenge that they have is that they need to start understanding that the risk management function and the validation function needs to get transformed. It's not anymore a process where you define the rules, things happen, and then you revalidate when what happened, conform with those rules, and so the algorithm also performed. It has to be more in the continuum, which poses a a problem of independence, right, of the various functions. But the point then is, therefore, what are the platforms and architectures that would enable to make this renewed interpretation of the risk margin function that interacts with the way technology now asks you to basically interact with the problem or the opportunity that is different from the past.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:27:11]:

So I was very, very inclined to try and understand how many banks are now making those investments in a way that they can position themselves more capable of embracing this change anytime it happens, being strategic, in their, approach to to AI and to generative AI. And what I found is that only 8% of the banks worldwide, have a more strategic perspective and approach to the deployment of the latest advances in AI. 70% of the banks wants to do it, but I'm very tactical. That means that they start here or there where there's more interest or some money on the table. And that's not enough because it will not enable them to build that risk management culture that differentiates. In fact, what I saw is that it's not about the the biggest banks versus the smallest banks. It's about the banks with a certain culture compared to banks without their culture. And the culture, big or small, is is complex to build, right, and to, if you like, promote in an organization.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:28:16]:

So so that's that's my answer to your question. That's how the regulators should change, but that is exactly where you find the the solution to the problem, not because you have a compliance that makes sense, but because you have a culture based on this new interpretation risk management that enable you to tap into what the technology can enable you to do with transparent comfort.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:28:39]:

In your research, you mentioned digital currencies, central bank digital currencies will play a big role in reshaping the financial ecosystem. Can can you give us, like, a very small wrap up? What what are you thinking forward from here?

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:28:54]:

Well, it means like I have in Europe, at least for the European audiences said that in September, October, they will define the remaining, shape of the road map. Okay? So on whether and how basically, more how the weather they will go ahead. So so there are serious discussions in terms of the creation of CBDCs. Some of them have been created, not totally successful. Right? But, there is a need at the moment of experimentation. The only thing that I believe is to be considered here is the following. If you look at what the Brazilian data with the PIX, which is an instantaneous framework that will evolve at some point into CBDCs but is not, They got massive adoption in a few years because they just resolved the real problem with simple technology in essence. Okay? That was the first thing to allow anyone to use system payments, you know, to bring their security and clarity in the transactions.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:29:53]:

CBDCs are a bit overengineered as far as I see. So every time it is overengineered, that has the harder time to to fly. So still have to see where, you know, the ambitions map, the simplicity needed to operate these things on a very large type of infrastructure. The Americans now are moving in the directions and no city receives, but a separate car. So it's interesting to see how they are positioned, and they are all still positioning. Right? Positioning is moving, but it's not executing in full. But I think the 2025 is the year where, we will get clarity on, on this, at least across The Atlantic in the perspective, the European versus the the North Americans.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:30:37]:

Also topic we've been talking about, years before, embedded finance is another trend highlighted in your your report. There's a growing integration of banking services into nonfinancial platforms. How will this change the cons how consumers and businesses engage with those financial product?

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:30:59]:

Okay. So, embedded finance is an important element of transformation. It is not a one size fits all in terms that, not all of the banking services can be easily or seamlessly embedded into a non banking conversation. And it's not about technology. It's about the way effectively people deal with, uncertainty around the consumption of certain financial instruments. And it's not because people are not capable, need to be wired. It's just structurally solved biologically speaking. So it has been an opportunity for banks to say, what we have now can be consumed at the time and in the moment and in the location of need.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:31:44]:

And that remains particularly relevant for types of payments, the need of money like lending, and sometimes also insurance, some products, and some investing. What I think is happening is that it's not enough to have a platform that allows your banking capabilities to be consumed by somebody else to be successful a business case that make a lot of sense. So when I interviewed, the head of open banking of the major players in the world, that's what they basically said. They said we're moving from a transactional perspective into the realization that what matters is that use case. So it's different way of selling the technology from a bank to a non bank player. But also we saw banks effectively investing to orchestrate ecosystems, and that has been growing in the last five years. Not only DBS attempted, they made five of these. We have Chinese banks doing so, but also Bradesco with the Agro that takes care of 50 of the Brazilian economies, tries launched it two years ago, successful making it road into that type of business and then thinking how to expand to different ecosystems.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:32:55]:

So we have State Bank of India with Diono, which is a marketplace for retailers that now is aggregating, SMEs, so the merchants into the platform. Both of them created an an external entity to operate the platform, but, that build the platform. Okay? So that's interesting. One thing that I want to say here, which I believe is important, I was talking to the head of a very large bank. I just don't wanna mention it. They launched a few months ago a platform for the supply chain of SMEs. And, the platform is intended to allow the SMEs to trade the one with the other. Now, of course, there was a around the table excitement where we heard about that in terms of your competing on payments.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:33:40]:

Right? Because every time people transact, right, that's where you make the money. But the response was no. The point is not the payment. The point is my role is to lend as much as I can, keeping their risk under control. Okay? But to do so, I need to have data. So can I better understand the ecosystem? If I have that ecosystem to be a digital so that I can go back to the CEO of the bank and to his manager and say, hey. Now maybe we have a way of understanding everyone at the context of the ecosystem. So we are more, if you like, comfortable in doing that business online.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:34:11]:

So you see, the value of these non banking platforms, not necessarily is the non banking transaction, but maybe what it enables you in terms of risk management to do your more traditional business in a more substantiated way. So that I found very interesting. I always say that, it is the opportunity to, basically, embed that to eliminate the friction that makes the banking embedded to generate new value. The The the definition of banks are fit tech or part of economies. So when I say new value, I mean, new value is on the transaction somewhere else. And that is an example that I just like to share. And I see bankers more and more bankers are understanding this. It's a steady long term process, but it is happening.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:34:55]:

Mhmm. It talk talking about mentioning here. I have one more question for the role of AI and wealth management for you, and then I'll just hit a few highlights of the topics you'll be talking about so that people need to go to read your research. And, of course, we'll link the report down here in the show notes. I I also do have taken some notes. We'll link your research. You'll link the profile, a lot of your books, your podcast, banker's bookshelf, plus your SME research that you just mentioned here. And now let us get to the last question I'll be asking you, the role of AI in wealth management.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:35:36]:

Looking ahead, how will AI and generative technologies impact wealth management, especially yeah.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:35:45]:

Especially?

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:35:46]:

Especially for individual and small to medium enterprises.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:35:50]:

Okay. So a very broad definition here, but let's say that in the wallet management space, you have, the need of, creating the products. Okay? And there's a lot of compliance around the debt. So I do believe that now there are possibilities to better streamline and systematize the way a lot of this documentation is prepared and orchestrated. It doesn't mean that the banker is out of, the equation, but, the capability the bankers have to perform and to systematize that documentation is effectively documented. And that's where I see, lot of, basically use cases being deployed by institutions that are prominent in the well management space. There will be a time where there would be more effective communication. I think it will still take some time for that.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:36:37]:

But at least in terms of, Latin against the compliance burden, there is an opportunity right now. Mhmm.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:36:44]:

And, of course, as promised, I'll hit some of the other highlights you have in the research report, sustainability and ethical innovation in fintech, future investment trends, role of digital transformation in banking, global banking insights and regional differences, and emerging risks in fintech. As we're wrapping up this insightful discussion with Paolo, we want to hear from you. What are your thoughts on the future of AI and banking? How is your business preparing for those technology technological shifts? Let us know in the comments below or connect with us on LinkedIn or Twitter using the hashtag banking 2025. Paolo, your last words, please go ahead.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:37:31]:

I published in 02/2019, launched in the off world economic forum and a week before in China as a preview, the financial market transparency theory and principles. So transparency builds trust. Not only transparency is a matter among people, but definitely is an issue with technology. And I'm not surprised that, most of, the business people are asking AI to be extremely transparent. So there is a principle that we all need to look at. So if the algorithm is transparent in the incentives, first of all, and and therefore in the, if you like, a positioning of the conversation with the clients, which brings with itself then cascading down, different elements that can be on the bias, on the erase and whatever. So so that multiplicity of elements. But the question is, how did you embed the principles of transparency in your technology process? There is a reverse effect now because by looking at technology and asking technology to be upper transparent as it should, I see the bankers looking at themselves and therefore are reviewing the way they position themselves in front of the client, you know.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:38:55]:

Because the moment you ask technology to replace what you do and be very transparent, they basically declare the incentive of the system. So there is a very interesting, if you like, reverse effect as I as I called it. So I'm I'm looking closely at how this, this evolves because that is a key turning point in the transformation of the business models that is essential, especially when you want to use technology. And that's the reason why I published the financial market transparency theory as a positive theory that enables to look at the markets differently, and is positive theory because it can be transformed into business model. And I discussed those business models in my latest book, Banks and Fintech on Platform Economies, looking at contextual banking and conscious banking and better finance and advisory platform. So it all is consequential. So really, by asking it to be transparent, we have as a reverse effect, if you like, an opinion about how transparent we've been they've been as bankers. And from there, a new business model can be generated the way that value is created for everyone in the ecosystem, not just for the bankers.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:40:04]:

Amazing closing words, Paolo. As always, it was a pleasure talking to you, and maybe next time we talk, you're the host and I'm the guest on your podcast.

Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:40:13]:

Okay. Welcome.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:40:15]:

Great. Have a good day. Bye bye.

Narrator Dorsey Jackson [00:40:23]:

That's all, folks. Find more news, streams, events, and interviews at www.startuprad.io. Remember, sharing is caring.