White labelling for the open banking generation
Global Head of Wholesale, Saxo Bank
Summary: If you're a broker or wealth manager serving retail and professional clients the likely secret to your success is probably a combination of 'front-office' factors. End users may value your keen and dynamic pricing, your ability to identify relevant new trends and opportunities, your intuitive and easy-to-navigate user interface - or a mix of these and other features.
As we all know, creating a unique and compelling client experience is impossible without the middle- and back-office building blocks that support it. Alongside access to liquidity in major currency pairs and asset classes – not to mention comprehensive execution, reporting and custody services – today’s brokers need to tap into an ever-widening range of functions and services to construct a feature-rich but robust and scalable platform that can adapt quickly to changes in demand and regulation, while handling rising service level expectations.
To compete effectively, this foundation may include multi-asset global clearing and settlement capabilities, 24/7 support in local languages, financial crime compliance, plus new capabilities that leverage emerging digital technologies to enhance the customer experience, such as the use of AI to interpret and anticipate evolving preferences and requirements. Further, these services and capabilities should be supplied seamlessly via open APIs, enabling maximum flexibility, visibility and speed in responding to customer behaviour.
In today’s fast-paced, highly competitive and increasingly unpredictable market, there is little case for financial services operators to dig these foundations themselves. Fine margins, ongoing innovation and rapid changes in the expectations of regulators and customers mean that internal resources of brokers must be focused on the front-end value proposition, supported by a comprehensive and well-structured partner programme. The good news is that access to third-party support is easier than ever. Traditional white label offerings are now evolving to become full-service, API-first outsourcing partners, with the tools, capabilities and expertise to support compelling client experiences.
In different ways, trends and developments in Asia and Europe are highlighting the need for brokers and wealth managers to keep their attention firmly on client service priorities.
Across Asia, but most dynamically in the greater China market, we’re seeing a strong upsurge in new entrants to the retail brokerage and wealth management space, competing with each other and incumbents for affluent millennial market share, with the omni-channel user interface the key battleground. In many cases, the intellectual property of these disruptors is being generated through high levels of investment in digital engagement via the user interface, with support functions being accessed via open APIs from partner platforms.
Meanwhile, European FX brokers recently experienced the profound and rapid impact that regulatory change can have on established business models. In July 2018, the European Securities and Markets Authority imposed restrictions on the sale and marketing of products such as contracts for difference to retail customers. There were sound reasons for the change, but it nevertheless constrained what had been a strong revenue stream for some. To avoid significant business disruption, firms have had to quickly reorientate and diversify, many expanding into adjacent markets to offer multi-asset trading and investment opportunities. Regardless of specific drivers of change, all firms must retain the ability to achieve business and operating model change at speed via close and effective collaboration with partners and suppliers with deep expertise and experience in these functionality areas.
Of course, effective digital engagement with clients is critical in all markets. It is also a moving target. No matter how appealing your user interface, how comprehensive your coverage and how loyal your customers, we all know how quickly the wind can change, with newcomers knocking out market leaders or regulatory changes undermining established business models at short notice. As such, the data that flows between customer and service provider via the user interface is a highly valuable source of intelligence. In a fluid and dynamic competitive environment, the ability to tailor client engagement based on recent activity such as sending targeted news items on specific trading and investment opportunities, can be critical to revenue growth. When selecting outsourcing partners, brokers and wealth managers should consider their ability to capture, store, analyse and report the client data, in line with regulations and best practice on data privacy.
Whilst it may not be immediately apparent to the end-user enjoying a uniquely tailored digitised client experience, it is getting harder for brokers and wealth managers to deliver on a standalone basis. Just as client experiences can be tailored to meet very precise needs, so too can outsourcing partnerships. At Saxo, we believe that all white label arrangements and other forms of collaboration between service providers will quickly migrate to use of open APIs to streamline data exchange along the transaction chain. But there are currently many variations that are capable of supporting competitive value propositions. For example, Saxo recently helped leading Italian wealth manager Banca Generali to deliver multi-asset digital trading and investment services to its clients via a joint venture, enabling the firm to compete effectively against fintech rivals.
This approach contrasts with that taken by OCBC Roboinvest1 , a self-service digital wealth management platform that allows affluent millennials to invest in thematic "playlists", launched by Singapore-headquartered, OCBC Bank last August. Serving as execution and custody partner, Saxo also enables automated trade allocation and rebalancing, with bulk orders aggregated for execution then split across underlying accounts. The seamless exchange of transaction and account data between Saxo and OCBC is enabled via Saxo’s OpenAPI solution, which also facilitates efficient client on-boarding.
In today’s financial markets, there are no guaranteed recipes for businesses, products or partnerships. In this increasingly evolving, competitive and disruptive world of financial services, brokers and wealth managers should explore how API-driven partnerships can help to maintain their competitive edge through the provision of tools, capabilities and expertise to support compelling multi-asset client experiences. Re-invented as s API-driven partnerships, white label solutions can thrive in an open banking world.
1 assets under management €3.7 million (Feb 2019).