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Saxo Bank has become the first leading financial institution to give clients access to its REST trading infrastructure, through its new application programming interface (API), dubbed OpenAPI, in what the bank describes as the foundation for its next-generation white-labelling business. The Saxo OpenAPI is the foundation of SaxoTraderGO, Saxo’s social trading platform, which it launched earlier this year. Saxo says around 30% of its clients have already migrated to the new platform, and believes uptake for OpenAPI is likely to be even greater.
Particularly significant is the choice of REST as its software architecture: REST is popular because it is light on bandwidth and simple to work with, which Saxo hopes will encourage developers to build tailor-made apps on its infrastructure that can be used on a variety of platforms.
This contrasts with the Financial Information Exchange (FIX) protocol, a more complex trading infrastructure that banks and large finance institutions use to trade amongst each other, owned and maintained by the institutions themselves.
Saxo’s latest initiative is in response to requests from white-label partners, which wanted to further customize and brand the front-ends of their offerings to their clients. Saxo hopes to have at least five white-label partners using its new OpenAPI by the end of 2015, but declined to disclose the names of any potential clients at this stage.
Saxo will either charge a commission for trades conducted on OpenAPI, or can charge on a price-per-call basis, depending on how clients intend to use the system.
The Danish bank will also cater to institutions, but has made some concessions to ensure its appeal is greater to the retail market.
It is also launching a Developers’ Portal, offering documentation, libraries, sample code and technical support to further entice external developers to Saxo’s infrastructure.
Sean O’Donnell, director at Sapient Global Markets, says: “REST is easy to understand and easy to write. It is geared at general web transport, not the B2B community. It would not be optimal, for example, for obtaining price discovery in a trading environment, for which it would make more sense to layer a REST API over a FIX layer. But retail does not talk FIX.”
OpenAPI will, nevertheless, allow its institutional clients to white-label Saxo products to their own clients, integrating parts or all of Saxo’s trading and investing capabilities directly into their own applications and systems.
For clients that do not feel REST is appropriate for them, such as high-frequency traders, Saxo also has a FIX API available.
The move brings Saxo into a space populated by a number of players catering to the institutional market, such as Velocity Trade, which is geared to the FX market specifically, and Matrix Trading, which, like Saxo, offers FX alongside other asset classes. Deutsche Bank offers something similar with Autobahn.
The retail space, on the other hand, appears to be less congested.
“Outsourcing is more widely adopted among institutional trading firms than retail trading firms because they have more parts of the business, some of which needs to be outsourced, but it is really beneficial for both,” says Emmanuel Doe, president of real-time feeds at Interactive Data, which helps many financial institutions, including tier-one banks, with their technology infrastructure.
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Wealth management institutions have been struggling … This technology can help them turn things around Christian Hammer, |
Christian Hammer, head of platforms at Saxo Bank, believes the way the bank has grown over many years gives it a natural advantage over other banks that also offer their APIs to clients.
“Many banks have seen FX, equities and other asset classes develop as silos, which are not always fully integrated, so the banks are offering less that other nimble institutions,” he says. “Saxo has been thinking like a fintech firm for 20 years now. There has always been a focus on developing functionality through one account.”
Hammer says OpenAPI “will allow houses with a core focus on one asset class to build out their offering so clients can trade on a multi-asset basis without having to login to a new environment, and to add any functionality they need. It is much cheaper for them to only have to build the front-end using an OpenAPI.”
It allows partners, clients and external developers to access its trading infrastructure, including pre- and post-trade services, more than 30,000 instruments, position monitoring, balances and margin, from a single API.
By encouraging stronger relationships with the fintech companies likely to take the lead in developing apps and building new front-end interfaces for the bank’s technology, Saxo might also enhance its front-end.
Pascal Spelier, managing consultant for digital customer experience for banking and insurance at Capgemini Consulting, says: “Fintech firms specialize in giving a great customer experience. They tend to be much more innovative than banks. So maybe Saxo will learn something from them and improve its own front-end.”
However, he warns the change will also present challenges.
“There is a risk banks opening up the front-end for fintech firms will end up with a diminished role, focusing on the back office, which is the lower margin part of the business,” says Spelier. “The real margins are in the front-end, where the value is added in the interaction with the customer.”
Saxo might well have judged this as a risk whatever it does. Banks cannot undo the progress fintech firms have made encroaching on traditional banking territory, and the rationale for this kind of outsourcing is strong. It is particularly strong in FX, given the fragmentation of the market, and the cost of maintaining connectivity to all pockets of liquidity.
Saxo’s Hammer says: “Wealth management institutions in particular have been struggling with access and the sophistication of their systems, while earnings have been trending the wrong way. This technology can help them turn things around.”
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He believes the finance sector is playing catch-up in a trend that has already been firmly established elsewhere by the likes of Google and Amazon.
“Some banks already offer access to third-party developers to build specific features or apps, but we are offering much deeper functionality and access to our entire trading infrastructure,” says Hammer. “We are essentially decoupling our infrastructure from the user experience to become a trading facilitator.”
However, Sapient’s O’Donnell believes the finance industry is already at an advanced stage in the process of outsourcing.
“The top-five firms invest very heavily in their trading infrastructure, but other firms are already focusing their efforts on their core business and buying the other parts from vendors,” he says.
“At the tier-two level their platforms are essentially a collection of systems supplied by different vendors and their investment is in system integration, and providing their own veneer in the branding.”
O’Donnell argues financial technology has evolved to a high level of standardization, encouraging outsourcing.
“The systems are quite commoditized so it is easy to switch providers,” he says. “The new trend now is bypassing that on-site system installation entirely and getting services from the cloud.”