Open infrastructure and digital innovation are at the heart of Fidor Bank's strategy. CEO Matthias Kröner explains how the integration of a new third-party payments network fits this philosophy and why it is important to remain separate from its larger, more traditional rivals.
The phrase community banking usually conjures up images of branch banking in small towns, but at Fidor Bank it has a totally different meaning. The Munich-based bank has no branches and instead has a user community in the digital world, where customers can interact and transact with each other.
As well as social media, cutting-edge options such as digital currencies, peer-to-peer lending and crowdfunding are all part of the bank’s digital strategy. Fidor Bank operates on a principal of openness, of creating peer-to-peer connections for customers where they have the freedom to choose from a range of services that are offered by partner companies. And, in May 2014, the bank added another option for its customers: payment network Ripple.
Matthias Kröner, CEO of Fidor Bank, explains that as a bank that has been created and is operating in the digital environment, it was important for it to consider what the main drivers are for their customers and why they are active in the digital environment. When it comes to digital banking, they want to send money in an efficient, quick and cheap way, he says. Once this core motivation was understood, Fidor then looked for the best solutions.
Ripple effect
Ripple has been described by observers as 'like Bitcoin but different', and Mr Kröner describes it as a “veritable alternative” to cryptocurrencies such as Bitcoin. Crucially, Ripple fits in with Fidor Bank’s philosophy of being an open platform and an open infrastructure.
Ripple has its own native currency – XRP – which is maths-based. Another similarity it shares with Bitcoin is that Ripple does not require a central bank for its currency to flow, and transactions do not require a counterparty. However, unlike Bitcoin, the Ripple currency plays more of a supporting role to the protocol and the Ripple platform.
San Francisco-based Ripple Labs, which developed the platform, has created it as an open-source protocol. In the same way as the World Wide Web was created as an open platform in its infancy, Ripple can also be used by anyone and does not require them to pay a fee or licence. The developers have created it as a ‘public good’, and describe Ripple as doing for money what the internet did for information. It is a system for exchanging value and has the potential to flatten the existing structures of the financial system – much in the same way as the internet democratised the flow of information.
Unlike Bitcoin, Ripple is currency agnostic and any currency can flow on its payment system. As well as the native Ripple currency, other cryptocurrencies – such as Bitcoin – can be exchanged, as can regular currencies – such as US dollars or Japanese yen – and even other kinds of value, such as frequent flyer Airmiles or mobile phone airtime.
Transfers on the Ripple protocol are virtually free and virtually instant and the developers aim to make transferring value as easy as sending an email.
Standing out
Fidor Bank was the first bank to integrate Ripple into its infrastructure. It aimed to give its customers faster and cheaper money transfer options, with a typical example being a migrant worker sending money home. Fidor customers do not need to open a separate Ripple account, and can transfer the funds via the Fidor Bank platform. Customers do not always have to use Ripple to make payments; on another occasion they may choose another option that is available on Fidor’s platform. The idea, explains Mr Kröner, is to deliver useful alternatives to the customer, so they can have the choice.
Innovations such as this have earned Fidor a reputation as an innovative bank. To the banks that do not understand what Fidor is doing, Fidor is “definitely a competitor”, says Mr Kröner. For the banks that do understand Fidor’s digital concepts but do not have the in-house capacity to replicate them, Fidor offers white-label solutions through its technology subsidiary FidorTecS.
On the question of whether Fidor is following a trajectory from challenger to vendor, to eventually one day being owned by another bank, Mr Kröner says: “Are banks trying to acquire us? Of course, I frequently hear this idea. On the other hand, I do not know if this [would be] my ideal scenario.”
What attracts customers to digital banks such as Fidor is the fact that they are different from larger traditional banks. Take the case of Simple, which was bought by Spanish bank BBVA, it could be argued that the main reason that customers were attracted to the bank – a digital alternative to traditional banks – has been removed now that it is owned by a larger traditional bank.
When asked how Fidor intends to keep innovating, Mr Kröner says the key is in keeping the infrastructure open. The bank will be hosting developer conferences in Germany, Russia and the UK to introduce the bank’s infrastructure to them so they can develop applications that are compatible with Fidor’s platform. “This is one of the most important parts [of continuing with the innovation] – keeping it open in a cultural and a technical way,” he says.
