Breaking Banks Europe: Episode 249: The Bankers' Bookshelf: Banks and Fintech on Platform Economies: Contextual and Conscious Banking

In a recent episode of The Banker's Bookshelf, Paolo Sironi and Panagiotis Kriaris engaged in a thought-provoking discussion centered around the future of banking, based on Sironi’s latest book, Banks and Fintech on Platform Economies: Contextual and Conscious Banking. This insightful conversation explored how emerging trends such as contextual banking (aka, embedded finance) and advisory platforms are set to reshape the relationship between banks and their customers.

As Sironi and Kriaris highlighted, the traditional banking model is evolving rapidly in response to the rise of digital ecosystems and the platform economy. The shift from product-centric banking to customer-focused, data-driven models means that banks must now provide greater value by embedding themselves into their customers' digital lives. This article explores the key points of their discussion.

Defining Embedded Finance and Conscious Banking

Sironi opens the conversation by defining the two main concepts at the heart of his book: contextual banking and conscious banking. Contextual banking refers to the integration of financial services into non-financial platforms, enabling customers to access banking services within their day-to-day activities without leaving the ecosystem. This seamless integration makes financial services “invisible,” removing friction from the customer experience. On the other hand, conscious banking focuses on the advisory role banks can play by offering tailored financial advice, helping customers make informed decisions about their financial future.

In Sironi’s view, contextual banking creates opportunities for banks to provide value by reducing inefficiencies and offering financial services at critical moments within a customer's journey—whether they are shopping online or using an app to manage their business. Conscious banking, however, goes beyond transactions by addressing the "knowledge friction" that customers face in making complex financial decisions. Here, banks can leverage technology to offer personalized advisory services that help customers make more informed investment and financial choices.

Kriaris echoed this by emphasizing that banks can no longer afford to operate solely as product providers. Instead, they must transition to service providers that help customers achieve their financial goals more effectively. The traditional banking model, where products such as loans and mortgages were the core offering, is being replaced by a model focused on delivering outcomes and experiences for customers.

Contextual banking: Beyond Infrastructure to Customer Ownership

One of the key dilemmas banks face when it comes to contextual banking is deciding whether to remain as back-end infrastructure providers or to take a more proactive role in owning the customer relationship. Sironi and Kriaris discuss how the success of embedded finance lies not just in the technology but in how well banks can navigate this choice. Banking-as-a-Service (BaaS) has made it possible for financial services to be integrated seamlessly into non-financial platforms, but banks must decide whether they want to remain behind the scenes or take a more prominent, customer-facing role.

Kriaris points out that many banks struggle with this transition because excelling in embedded finance requires a different set of capabilities. Traditionally, banks have excelled at risk management and maintaining customer relationships, but embedded finance demands a deeper understanding of technology, platforms, and data analytics. This is particularly true when it comes to using alternative data for risk assessment and underwriting, a topic that Sironi elaborates on with examples from his recent research.

Sironi shared a specific case from Brazil, where a major bank launched a marketplace that connects merchants with consumers. Initially, the focus was on lowering transaction costs, but the real value, as the bank discovered, lay in the data generated by these transactions. By collecting more granular data about ecosystem participants, the bank could improve its risk management processes, allowing for better lending decisions. This example illustrates how embedded finance, when done correctly, creates value not just by reducing friction but by enabling banks to harness data for more intelligent, personalized services.

Conscious Banking: Shifting from Products to Relationships

If embedded finance focuses on reducing friction and integrating banking into digital platforms, conscious banking revolves around deepening the relationship between banks and customers. In this new paradigm, banks move away from pushing products and focus instead on helping customers navigate complex financial landscapes. According to Sironi, conscious banking aims to eliminate the “knowledge friction” customers face when making decisions about their financial future.

In the past, banks derived profitability from selling financial products like mortgages or investment accounts. However, in the post-financial crisis era, financial products have become increasingly commoditized. Customers now have access to a wealth of options and often struggle to see the unique value each bank offers. Conscious banking addresses this by shifting the focus from products to advisory services—helping customers achieve better financial outcomes through tailored advice.

Sironi compares this shift to the rise of passive investing versus active investing. As the financial industry evolved, active managers who traditionally charged higher fees saw their value diminish as passive strategies gained popularity. Similarly, banks that cling to a product-centric model may find themselves struggling to compete. Instead, they must position themselves as trusted advisors who help customers make informed decisions. This shift requires banks to build advisory platforms powered by data and technology, which allow for scalable, personalized services at a lower cost.

Kriaris highlighted the importance of this shift, particularly for small and medium-sized enterprises (SMEs). Historically, banks have struggled to serve SMEs profitably because they lacked the data and tools to assess their needs adequately. However, with advancements in data analytics and segmentation, banks now have the opportunity to offer more tailored services to SMEs, which make up a significant portion of global economies. Conscious banking allows banks to move beyond basic banking services and offer value-added solutions that help SMEs grow and succeed.

Technology as the Enabler: Data, AI, and Platforms

Throughout the conversation, both Sironi and Kriaris emphasize the critical role that technology plays in enabling both embedded finance and conscious banking. In embedded finance, the ability to collect, analyze, and act on data is essential for providing seamless, integrated services within non-financial platforms. Whether it's using AI to assess credit risk or leveraging cloud infrastructure to provide real-time services, technology allows banks to meet customers where they are, delivering the right service at the right moment.

Similarly, conscious banking requires banks to harness the power of data and AI to offer personalized advice. As Kriaris points out, banks must move from a one-size-fits-all approach to a more nuanced, segmented understanding of their customers. AI-driven platforms can help scale these advisory services, ensuring that banks can provide tailored advice at lower costs, serving more customers effectively. By positioning themselves as trusted advisors rather than mere product providers, banks can differentiate themselves in a highly competitive market.

Banking’s Role in the Platform Economy

As the discussion between Sironi and Kriaris illustrates, the future of banking lies in how well financial institutions adapt to the platform economy. Embedded finance offers the opportunity to integrate banking services seamlessly into digital ecosystems, reducing friction for customers. Conscious banking, meanwhile, allows banks to build deeper relationships by offering personalized, advisory-driven services that help customers achieve better financial outcomes.

In Banks and Fintech on Platform Economies: Contextual and Conscious Banking, Paolo Sironi outlines a compelling vision for the future of banking—one where financial institutions must rethink their role in a rapidly changing world. As banks navigate the challenges and opportunities presented by embedded finance and conscious banking, their success will depend on how well they leverage data, technology, and customer relationships to create value in the platform economy.

The conversation between Sironi and Kriaris underscores that this transformation is not just about adopting new technologies—it's about redefining what it means to be a bank in a digital, interconnected world.

?? Watch the full episode here: https://youtu.be/kqjPh2Wc8xo

Get the book: https://www.amazon.com/-/pt/dp/1119756979/ref=sr_1_1?dib=eyJ2IjoiMSJ9.J9gh56H_DWuXjGWWUkdSYHU1M7BnvSKemankVx-6P4Fn7blQ6B19gyxjKT1gydTuzxr-en7ZdiYzkRvghKHhgN5H5IIlVfjGcPxtlc7O5QtqaMQNMrGJx2it0K3oodj9GsRbev3iKd4p32y16gwyWd5zwBdk4wJEEZq1oTYO6KNuabGfYpuNfO7clbUbSXLp.IzbK2jMEGiYQ3myvD_U9UdkOrkbV4Ej6oJs_gof4wRw&dib_tag=se&qid=1728041542&refinements=p_27%3APaolo+Sironi&s=books&sr=1-1

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About our guest: Panagiotis Kriaris

https://www.dhirubhai.net/in/pkriaris/

https://www.unzer.com/en/

Panagiotis has spent his career on the borderline between business and technology with a leadership background at an international level. Panagiotis brings senior expertise across Financial Services, Banking, Payments, FinTech, Retail and E-Commerce. Innovation, strategy, business development, strategic partnerships and building businesses and products from scratch have been at the center of his work and attention throughout his career. Being a recognized voice in the financial services industry, Panagiotis has contributed to various publications and podcasts and is often invited as a public speaker at events around the globe.

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Paolo Sironi: https://www.dhirubhai.net/in/thepsironi/

IBM FinTech Strategy and Author