In an exclusive interview, Christian Hammer, Head of Platforms at Saxo Bank discusses if the market is prepared for the future of banking.
What are your views on the region’s financial landscape?
I would describe the UAE and the wider Middle East as an exciting landscape in terms of technological capabilities. I think there is an enormous amount of untapped potential in these markets, of course for Saxo Bank and how we develop our business, but also in regard to the wider fintech industry. The region has a huge pool of talent and I think there is a real appetite for utilising technology more effectively in financial services in the region.
The UAE seems to be at the heart of much of this, with Dubai a regional base for many prominent international businesses as well as home to a wide range of expert professionals. I also think that there is a need for a cultural mind shift to some degree towards new ways to do banking and investment. In this regard I was pleased to see the announcement in Saudi Arabia this week of the ‘Fintech Saudi’ project to expand the financial services sector as this was a positive step in the right direction.
Is the market ready for open banking?
We are enthusiastic about the possibilities around open banking, especially beyond the simple PSD2 requirements. We believe that openness will lead to increased competition, greater innovation and ultimately a better user experience across all markets, the Middle East included. Is the Middle East market ready for open banking? That is difficult for me to say but given that so much of the business that is done in the Middle East is with partners in Europe and the UK where regulation around open banking is dictating how the industry moves, I think the shift to open banking will inevitably come to the Middle East.
What challenges do you see hindering the advancement of these systems in this market?
Digitalisation and adoption of modern technology more broadly is, with good reason, a top priority for financial institutions and a challenge. With banks being challenged on many fronts—from regulation, technological development and shifting customer expectations— everyone must find new ways to remain competitive and relevant.
We believe that partnerships and outsourcing are the solutions for both large and small banks to help deliver relevant solutions to their customers in an efficient and flexible way. A bank needs to focus its efforts on its core competencies, while entering into partnerships supporting the technology underpinning the rest of the value chain. The development is positive for both the sector as a whole, and the customers. Partnerships could become one of the most disruptive factors in the financial sector in the coming years and become the foundation for a significant step forward in the sector’s use of technology. When banks no longer have to develop their own systems, significant resources can be unleashed to deliver better services and products for clients.
Why should financial institutions in this market expedite the adoption of open banking and accommodation of PSD2? What are the advantages and how would you suggest they go about it?
There is research showing that a typical bank in Europe uses up to 80 per cent of its IT budget purely on maintaining old systems, i.e. to get the same (old) engine to start again every day. With such a large part of the bank’s resources being used on maintenance, it leaves little room to develop new solutions which are aimed at meeting ever changing demands of customers.
This does not necessarily mean that a bank cannot deliver a decent digital experience to its customers, but the situation is unsustainable in the long run and means that the bank is inefficient, inflexible and lacking scalability. Every time a change has to be made, the duct tape must be removed, and more chewing gum applied to keep it all together. Obviously continued incremental improvements are not sustainable and sometimes an alternative strategy is required, especially for the larger banks.
One is to undertake a comprehensive overhaul and try to build a new and more efficient machine that can replace the old IT system. However, such projects can take a long time to implement and it can be difficult to make the changes while maintaining the current system running. We know from both the public and private sector that the risk for large-scale IT projects is that it can be significantly more expensive than initially expected or significantly delayed and these risks increase with the size of the project. And such projects only generate cash flow when they are eventually finished. When entering into partnerships to deliver new solutions to clients, the time to market is much shorter and partnerships are often based on revenue sharing why the risk to the business is completely different.
Simply put, you only pay for the infrastructure proportional to how much you use it which is a perfect ‘hedge’ of this business risk. We believe that partnerships and outsourcing are the solutions for both large and small banks to help deliver relevant solutions to their customers in an efficient and flexible way, which is why financial institutions in this market should expedite the adoption of open banking. A bank needs to focus its efforts on its core competencies, while entering into partnerships supporting the technology underpinning the rest of the value chain.
In terms of trading and investment, describe the potential you see for this market.
While I am not an analyst, our Chief Investment Officer, Steen Jakobsen has commented that the GCC countries have made great progress to reduce spending fiscally and increase alternative sectors and productivity. These changes have also signalled to private investors that they need to look at managing their own private wealth differently with some alternative investments replacing more traditional assets to balance their risk profile.