I sometimes write blog posts that I actually disagree with. I write it to provoke reactions, and to test my own thinking. As a result, I think I usually annoy people in banks who read my writing but, instead, I actually get a quite a lot of compliments, for testing bank thinking.
That is why I am gratified when a banker writes something about my thinking and recently Benny Boye Johansen, Head of OpenAPI for the Danish Saxo Bank, wrote a really nice article on the structure of developing technologies for finance. He kindly has allowed me to republish his thoughts here so, here we go …
I recently read Chris Skinner’s book “Digital Human”. It provides an inspiring and insightful account of the current state of banking, focusing in depth on the rapid growth of Chinese fintechs, and presents a very clear case for pursuing Open Banking.
To that end, Chris devotes an entire section under the quite provocative heading “Build or Buy. Or Build and Die” His point is basically that banks too often insist on building the technology that underpins their value chains themselves. I fully agree with him that this is inefficient (everybody is basically building the same thing) and takes away focus and resources from what is most important: client relationships and client service.
Rather than trying to reinvent themselves as technology companies, banks should curate the best third-party solutions to support what is basically their core competency: client service. If the argument in itself isn’t compelling enough, the empirical fact that on average banks spend more than 80% of their IT budgets maintaining legacy systems makes it obvious that the current approach is not sustainable in the long term.
This message resonates well with Saxo, so I used Chris’ quote at a recent presentation, only to be immediately challenged: “If Saxo Bank has almost 800 software engineers, are you are you then in fact not building instead of buying? Are you really true to your stated message and vision?”
Build vs. buy
Our co-founder and CEO Kim Fournais has already touched upon our partnership vision in a previous article, but I would like to provide a complementary perspective. Prior to taking on the role of Head of OpenAPI, I spent four years as one of three Saxonian Enterprise Architects reporting to our CTO. Back then, as is the case now, Saxo Bank was continuously looking as how it can extend its offerings in terms of products, services, capabilities, and reach, so the Build/Buy discussion often came up.
The first question in our Build/Buy decision was always “Is this core to our business? Does the system support and extend a business capability for which we already have extensive knowledge? Is this new system, which we are about to build or buy, so important to our business and our mission that we want to invest not only money but also people, vision, and focus into the area for many years to come?”
A typical follow-up question would be: “Is there something out there that we can buy or integrate with?” Maybe we cannot buy all of the functionalities, but maybe some parts have actually been produced by someone else, requiring us not to start from scratch. This question touches upon a core question: where is it that we want to differentiate and where can we accept to integrate with a third party or off-the-shelf solution?
We regularly measure and evaluate ourselves against our stated mission, which is “to become the world’s most profitable and professional facilitator in the global capital markets”. We often ask ourselves: “can we implement the new feature or capability, using a third-party provider or third-party software while still staying true to our mission?” Is this new capability, something we would like to offer as part of our Open Banking platform, and if so, will that be possible if provided by a third party?
If the answer is “yes” we actually choose to buy/partner with someone over building it ourselves.
I should finally note that opportunities for integrating products are evolving over time, and consequently the build/buy decision must often be revisited. Back in 2000, we had our own custom-built CRM, Data Warehouse, and analytics solutions. Nowadays we use Microsoft CRM, Data Warehouse, and Power BI. Back in 2000, we also had our own custom-built websites using ASP.NET and a home grown CMS system. Today we use SiteCore. We also used to have a home-grown incident and problem management system for our IT Operating center, now we use ServiceNow.
One may say that such evolution was necessary to keep up with today’s digital advancements. But what about your trading platform? Have you not built all of that yourself, and if we want to provide a first-class trading experience for our clients, are we then not forced to also build that ourselves?
The Saxo platform
I may disappoint you. We have several key custom-built components, but they are custom-built because there is no viable solution on the market as of yet which allows us to support multi-asset trading on a single account in a completely customisable and configurable manner and in a way that we can make it available to our partners as part of our Banking as a Service in the Cloud offering. But even within core trading, we do not own and have not built our entire value chain. For example, with trading we often interface with other banks and brokers. For access to reference and market data, we work with a number of large data vendors. And when looking at other parts of the value chain, we also use third-party solutions for custody, corporate action handling, fraud detection, network acceleration, and other issues.
Even for components of our user interface – even for something which forms an integral part of the user experience – we partner with others. For example, we have not developed our own chart pattern analysis and recognition system. I am confident we could solve this in-house as the number of Saxonians dealing with AI has increased in great numbers, but why do this when Autochartist has specialised itself in determining patterns automatically for almost 15 years now?
Staying true to our vision
To summarise, although Saxo has almost 800 software engineers and IT specialists, we are indeed true to our own vision. Our raison d’etre is to democratise trading and investing, and we want to do it in a scalable manner by offering our Open Banking Platform and services to our own clients and partners. To do so, we have made and are still making conscious choices about what to build and what to buy. A significant number of the 800 engineers are indeed building customised software, but the remaining part is really focusing on integrating third-party applications, software, and services supporting this with people and processes to ensure that when your organization or service interfaces with Saxo Bank and our Open Platform, all of the underlying complexity is abstracted away.
This is also where we think we bring the most value. For the last 25 years, we have spent time, money, and focus building, curating and integrating components, systems, and services so that a third-party broker, bank or technology company can engage with only a single company through a coherent interface to offer their clients access to trading and investing in the global financial market across a vast range of asset classes.
This is why I wholeheartedly agree with Chris Skinner, and this is why we are seeing more and more companies taking the leap of faith and choosing to “buy” (or partner) rather than build when it comes to trading and investing capabilities.