Published: Oct 01, 2014
Source: Khaleej Times

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Digital innovation key trend in banking

Social trading growing well amongst retail investors 

Digital innovation and the quest to build digital strategies in the banking industry are key trends now, and will be for the next decade, experts have revealed. 

“Banks have become complex organisations, spending millions of dollars maintaining complex and often outdated core systems that are difficult to develop and innovate on. This is a major issue and why the traditional system is vulnerable to outside competition,” said Jakob Beck Thomsen, chief executive officer of Saxo Bank Dubai. “We see the whole sector undergoing significant changes over the next ten years.”

Highlighting the importance of digitalising processes, in an exclusive interview with Khaleej Times, Thomsen said: “It is all about creating better products and services for clients. Banks today have a major advantage with the amount of data they hold on their clients. They need to utilise this data to create individual solutions that add value to their clients, and that prevent inefficiencies such as the need to fill in the same data across multiple forms. Banks which achieve this, will succeed.”

“A recent research report by Accenture says that banks around the world risk losing 32 per cent of their market share, unless they start to take digitalisation seriously and rethink their strategy in order to utilise its potential. We think it could be even more,” Thomsen revealed. “Many industries have been transformed and revolutionised by the Internet — financial services is by no means immune to this development. The CEOs of banks around the world need to recognise companies like Amazon, Paypal, Google and Facebook as potential serious competitors.”

These tech giants are agile and innovative, with large balance sheets. They are masters in creating financial ecosystems that can easily be expanded upon, and they understand the importance of putting the client at the centre and creating individual value, Thomsen stressed.

“When Apple made their latest product launch, journalists were mostly focused on the new iPhones and Apple Watch, while their new payment service got less attention, despite its game changer potential. Apple has successfully disrupted sectors before, when it revolutionised the music industry with iTunes, and therefore banks need to pay attention,” he explained.

Speaking on the emergence of “social trading” in the banking sphere, Thomsen elaborated: “Social trading is gaining popularity amongst retail investors and is a reaction to the breakdown of trust across the financial industry participants including investors, clients and service providers. The only answer to the distrust is transparency and this is what social trading is bringing to the market.”

He added: “The financial crisis created a gap between clients and advisors, exposing examples of conflicts of interest between the two. Financial advisors now tend to operate in a highly sales-driven environment with remuneration directly linked to the sale of products rather than solely being incentivised to create value for their clients.”

“The world of big data is not going away and understanding other traders’ sentiments, and giving people tools to interpret that data, is the best way to leverage all the market-relevant information our clients have,” Thomsen emphasised. “By digitalising the investment management space, the market will become more transparent and more efficient as the advisory role shifts from sales people to a crowd sourcing model.”

“We created TradingFloor.com, a financial community and social trading site because we thought there was a need for a new advisory model after the financial crisis. We are ultimately trying to facilitate the process of investment advice, rather than selling products. With TradingFloor.com we put the investors in charge and create a previously unseen level of transparency that allows clients to make informed decisions about their investments and trades,” said Thomsen.

He further explained: “TradingFloor.com is a trading solution for the social media age. All traders have an online public profile, there is complete transparency around their investment picks and performance. Until now, trading has been a solitary activity; however, through TradingFloor.com, traders can now benefit from the exchange of ideas, inspiration and strategies with peers who have actual exposure to the market rather than paid professionals. Traders value the opportunity to connect with peers from around the world with whom they would otherwise have no access or dialogue.”

Asked if he foresaw bank and financial advisors as going obsolete with the focus shifting to social trading, Thomsen answered in the negative. “There will always be a demand for expert advisors. But, their success will be determined by the value they create for their clients. This means that you will increasingly see institutions offer products of other institutions if they believe they are a better fit for the client — as they should.

He added: “We have challenged the conventional thinking around trading for the last 20 years and helped change the way investors conduct their trading by taking it online. Saxo Bank is digital to its core. We enable our clients to trade/deal in currencies, stocks, commodities, bonds, futures and options from a single account and cloud-based platform in 20 different languages.”

“Since 2001, through our White Label programme, we have helped financial institutions around the world develop digital strategies and solutions in the online trading space. Besides helping global banks such as Barclays and Citi we support over 100 of the world’s leading regional banks including ten banks in the GCC with online platforms and digital trading infrastructure encompassing the full value chain: execution, reconciliation and risk management,” he said- By Rohma Sadaqat

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