Denmark-based Saxo Bank is really more of a fintech. And it is from this long-standing perspective that CEO Kim Fournais tells Edward Russell-Walling how he foresees a bursting of the fintech bubble, and why partnerships are now paramount for all banks.
Kim Fournais
Today's fintech bubble is following the same trajectory as the dot-com bubble of the 1990s, and will burst before long, according to Kim Fournais. But the CEO of Denmark's Saxo Bank looks on the bright side, and where others see competition and threat, he sees possible partnerships.
Saxo itself is more of a fintech than a bank. It does have banking licences in Denmark, France, the Netherlands and Switzerland. In some other markets, including the UK, it is authorised as a brokerage. In reality, however, Saxo is a technology provider.
Tech veterans
"In terms of our true DNA, we are more of a technology business," Mr Fournais acknowledges. The financial services value chain has three broad types of player, he says – distributors, fintech and regtech providers, and global providers of products and liquidity. He places Saxo squarely in the middle camp.
Indeed, Saxo likes to point out it was a fintech even before the term was invented. Mr Fournais and his erstwhile partner, Lars Seier Christensen, began the business back in 1992 as a foreign exchange and futures brokerage. "Pricing was opaque back then – no screens, no indicative prices," says Mr Fournais. "So in 1998 we launched one of the first online trading platforms. It was good timing."
Today Saxo has clients in more than 170 countries. Its SaxoTraderGO and SaxoTraderPRO platforms target the wholesale and professional market, while the recently introduced SaxoInvestor investment platform is aimed at more sophisticated retail investors. The platforms connect users with more than 150 global liquidity and product providers, giving access to some 35,000 financial instruments across all asset classes and in 28 languages.
All employ open application programming interfaces, allowing users to build their own trading applications with relative ease. Importantly, Mr Fournais says, open banking and a 'Lego approach' lend themselves to the creation of partnerships. "Even the biggest bank today can't do everything itself," he adds.
Joined up thinking
Partnerships are a guiding concept for Saxo, and it is creating them on a number of different levels. It has built a considerable white-label business with fintech start-ups and others building their front end on Saxo's trading infrastructure. It collaborates with the likes of BlackRock and Morningstar to create products for its investment clients.
In 2017, Saxo Bank formed a joint brokerage venture with Banca Generali, the Milan-listed wealth management subsidiary of Italy's Assicurazioni Generali. The venture is 51% owned by Banca Generali, which, when the deal was announced, managed €52bn for more than 250,000 clients through a network of some 1900 (now 2000) financial advisers across Italy. The deal allows the advisers to give their clients access to a Saxo trading platform.
"We couldn't get 2000 financial advisers in Italy on our own, and this provides better services for the end user, so working together is a win-win," says Mr Fournais.
At an even higher strategic level, in 2018 Saxo allowed itself to be acquired by Geely, the Chinese automotive group. After a number of shareholders sold their stakes, Geely ended up with 52% of the business and Sampo, the blue-blooded Finnish financial conglomerate, with 19.9%.
The key sellers, in descending order of size, were US private equity firm TPG Capital, Mr Christensen and Indonesian conglomerate Sinar Mas. Mr Fournais, who owns 25.7% of the business, is keen to stress that he did not sell any of his shares and has actually added slightly to them.
Driving innovation in China
The attractions of the Chinese market are obvious, but those of a car maker are less so. Geely does have an important connection with Scandinavia, however, having bought Sweden's Volvo Cars in 2010. More recently it bought 8.2% of AB Volvo, which makes Volvo trucks, becoming the largest single shareholder in that business.
"Geely is a unique car company," says Mr Fournais. "It is very much a technology company. And soon you won't drive a car, but you will talk to it."
The car is a new device, he points out, and with interfaces such as Apple's CarPlay people will be able to pull up charts and deal in shares while riding in it.
Financial reform in China is focused on having financial institutions that support social development and can launch cheap products and services, according to Mr Fournais. "Geely believes that one day Saxo can be part of the solution in China," he says, noting that Geely is a very prominent and successful Chinese company.
He accepts that it will take a lot of work, and adds that right now there is a lot of discussion with regulators over the appropriate licences. "But China is growing at 6% a year and has 1.4 billion people," he says. "The opportunities there are very big."
Breaking Benelux
Saxo's most recent corporate coup has been to acquire 100% of the Dutch online business BinckBank for €424m in a deal which closed in August 2019. The company describes itself as a bank for online investors, and brings with it some 640,000 customers. These will now be moved onto the same platforms as Saxo's existing 220,000 clients.
BinckBank gives Saxo a notable presence in a number of different markets. "It's number one in the Netherlands for online trading and investment," says Mr Fournais. "It's also number one in Belgium." BinckBank ranks number three in France, but Saxo already has a "decent" business there. Once they have been put together they might just occupy the number one French slot, Mr Fournais believes.
BinckBank has a smaller presence in Italy, but when combined with the Banca Generali joint venture, Saxo will have an altogether bigger Italian proposition. "We have big ambitions in Italy with Banca Generali," says Mr Fournais.
Overall, the integration will be a major project. But if successful, Saxo may want to do more of the same. "We are unique on the technology front," says Mr Fournais. "We work on making sure that when we migrate clients onto our platforms they are smiling, with a lot of products."
A question of scale
Saxo needs to "scale", says Mr Fournais, and it can do so in various ways. One is via mergers and acquisitions. Another is by attracting more direct clients, traders or investors. And a third is by working with more wholesale partners such as Banca Generali.
The business already has more than 100 partners, according to Mr Fournais. He points to South Africa, where Saxo works with three major institutions – Old Mutual, Standard Bank and First National Bank. "We also have a number of white-label partnerships in Asia," he adds. "Of the eight robo advisers in Singapore, six work with us."
Regulation, Mr Fournais believes, is here to stay. Costs and complexity are going up, while margins are going down. "There is a paradigm shift in the industry, and Saxo is not in a bad place to be," he says.
The firm wants to be the preferred partner for fintechs and challenger banks who are looking for technological savvy and cheap and seamless access to global markets, says Mr Fournais. Who are Saxo's competitors? "Everyone and no one," he reckons. "We don't talk about competitors but about potential partners."
The partner of choice
Mr Fournais repeats his dictum that no one can do it all themselves. "That's even more relevant now that 80% of the IT spend in European banks is for regulatory change and legacy systems," he says, adding that this is simply throwing money away.
Institutions need to decide where they fit into the value chain of distributors, fintechs and global providers. "Some have a presence in more than one, but no institution can be number one in all three," insists Mr Fournais. His advice is for an institution to do what it does best, form partnerships for the rest and enjoy the win-win scenario that results.
He warns of trouble ahead for some fintechs, however, as they strive for growth by giving services away for free. "Eventually, people will have to pay the bills," he predicts, likening this phase of "irrational behaviour" to the late 1990s.
"Then, a lot of businesses burned a lot of money, and the more they burned, the higher their valuations grew," he recalls. "You saw some Amazons come out of it, but the majority of those businesses are not here today."
Much the same is happening with today's fintechs, and these are dangerous times, Mr Fournais says. While some business models will be able to turn themselves around, some will not. That said, he remains bullish on Saxo's own partnership model and the firm's future prospects.
"Open banking has developed faster than many people understand," he says. "We are part of the solution, not the problem."
