Why banking has a lot to learn from telecommunications
The new open banking initiative will undoubtedly benefit the customer. I expect it will lead to better products, as well as more efficiency in doing business. This should in turn lower overall costs and possibly also improve transparency, which is something to which customers are growing more alert.
Alongside the unfolding of open banking we may well see a trend towards specialisation and collaboration, much like what we saw in the telecommunications industry around the start of the 21st century when much was said regarding the then newly-minted concept of “the last mile”.
In telecoms, there are now only a few very large companies taking care of the major infrastructure – putting up antennas, establishing cabling, and generating other highly technical and capital-intensive undertakings. At the same time there are many, smaller, companies that face the client. The smaller companies have an important role because they are responsible for taking care of the client experience, billing, and customer service, with the provision of these services regularly referred to as “the last mile”.
For the end consumer, each of these smaller companies appears to provide a unique service and value proposition, but in reality – and often unbeknownst to the user – they all use the same infrastructure backbone.
At Saxo we are keenly intent on becoming the preferred provider of such a backbone for the delivery of services within trading and investing, but such collaborations can only truly flourish if there is a fully open IT infrastructure at their heart. This is a journey that started back in 2001 when we made our first white label deal, and it is a vision we are constantly expanding, most recently with the release of our Open APIs and our “banking as a service” product.
We have been quite open about our belief that the open banking concept can and should go much further than PSD2I believe the PSD2 directive really only forces banks to do something that we’ve been recommending for years. I think that if banks understand the advantages of opening their IT infrastructure and embracing this trend, the bottom line will benefit.
PSD2's positive effect is that it will lead to increased competition in the international financial market as well as increased awareness of the fact that collaboration is both necessary and beneficial.
For us at Saxo Bank, the start of our current open IT infrastructure strategy was aligned with the development of our newest generation of trading platforms, a process that started back in 2013. At that time, we made the strategic decision that all user interfaces should be written in HTML 5, and that all communication – from the user interface to the server – should go via a well-documented, high quality, REST-like Web API. This has subsequently become our OpenAPI.
While this may seem self-evident now, it was a difficult decision at the time. There was a lot of discussion as to whether an HTML 5 application could ever perform as well as a downloadable desktop or mobile application. At the same time, the idea of opening up our banking infrastructure in the same way Google opens up its maps API, for example, or that Amazon provides API access to its merchant services engine also took a lot of careful consideration at management level.
Today I am confident that we made the right choices, and they have provided benefits both from an internal and an external perspective. Having a well-documented API has improved the efficiency of our own developers, as has the fact that we now only have a single HTML 5 codebase for all of our trading platforms.
At the same time, it quickly became apparent that the Open API had many benefits for our partner organisations beyond our own business needs, the most obvious of these, of course, being that it allowed Saxo Bank’s partners to do their own development on top of our trading infrastructure.
For the first time it was not only possible for a Saxo Bank white label or introducing broker to “represent” the last mile, but they could also significantly change and enhance it to suit the needs of their chosen target customer segment.
With just a little more investment from our side, such as making the API public, we have been able to open up our business in new ways to external parties and provide a true “banking as a service” offering that benefits all parties. Such collaborations allow each company to focus on what it does best.
Partnerships are the future
While we have always believed in the value of opening up, I am still very happy to say that looking at the partnership agreements we enter into now, they all have some element of open banking integration which further reinforces to me that such partnerships are the future of financial services.
In our case, we have an interface with 80 exchanges across the world supporting trading on 35,000 instruments, and we have the ability to run a complete bank with the licenses, the capital requirements, the servers, and the connectivity. In this context we are very much like the large companies that install telecommunications towers, and to complement this we have our partners who know their local markets very well.
One such example is our engagement with stock trading platform Webull, with whom we partner in China. Under this arrangement, Webull is entirely responsible for the user interface – that is, the trading platform – as well as the initial client acquisition. But that’s the only thing the company needs to take care of because we provide all of the other required trading infrastructure.
Explained in another way, Webull is the equivalent a your local telecommunications provider that you might approach for mobile phone or internet connectivity.
In another case, we partnered with Rivkin, a financial services brand in Australia, to help support its provision of tailored investment recommendations to clients based on each individual’s investment profile. Rivkin are responsible for controlling the user interface by building their own app, which is powered by Saxo Bank’s technology and automates segments of their business. Not only does this create valuable efficiencies for the Rivkin business, the automation of some tasks that were previously done manually has cut out the risk of human error.
I think the long-term benefactors of initiatives such as PSD2 and open banking generally are those companies that have a good mix of IT and business knowledge, which in Saxo's case is in trading and investing. We have been able to use our strengths to build a truly open IT infrastructure and integrate aspects of our business with those of other organisations.
Culture is key
What does that take? I believe the most important aspect to consider in this case is culture. The company culture must fully embrace an open banking and open IT infrastructure across all levels of the business. Failure to do so will most certainly challenge a company’s ability to deliver such an initiative in full.
In the case of Saxo Bank there’s not really any one part or big division working on our Open API that we could call our Open Banking division. We made a strategic decision very early on that we want to build our open banking or open IT infrastructure into the core of what we do, which is why we consider ourselves to be a fintech company.
We are so much more than a bank, and this differentiation is part of the strategy and culture of our company.
It is very clear to me that you must have buy-in across the entire business, not just with top management, as the attitude to openness needs to permeate every aspect of the company.
Because of PSD2, and other open banking initiatives, it is now obvious that every bank must be ready to open up its infrastructure, much like the telecommunications industry has accepted this as the norm. Some are now jumping at the opportunity already, while others are still on the fence. But the genie is out of the box and at least everybody is now acknowledging that building a complete user experience can be done without a single company delivering or operating all of the pieces.