In a recent rare interview with The Sunday Times, Sir Jonathan Ive, head of design at Apple, asserted that the consumer electronics revolution set in motion by the firm’s inventions had barely started.
“We are at the beginning of a remarkable time, when a remarkable number of products will be developed,” the California-based Brit said.
If the era of the iPad, iPhone and iTunes (not forgetting Kindle, Android, Galaxy etc.) is just the opening salvo in a battle to redefine how we read, listen, watch and communicate with each other, how far has the Internet-based technology revolution yet to go in the finance sector?
Ive’s comments reminded me about a chat I had early last week with Matteo Cassina, the recently appointed global head of institutional business at Saxo, the Copenhagen-based bank largely known, to me at least, for its asset class expertise in FX, and its franchise among the retail and professional trading markets. Cassina's early career in finance coincided with the original tech bubble of the early 1990s. It was a period in which all the major banks appointed heads of ecommerce to exploit the commercial opportunities of the Internet, and a good many institutions and their clients ended up getting burned by ill-advised investments in Silicon Valley tech firms with great names and not-so-great business plans.
As well as incurring first big fees then substantial losses, including to reputation, by backing IPOs that sank like a stone on debut, banks' early steps into ecommerce in their own right also had their ups and, mostly, downs. Global institutions, largely with with big retail brokerage franchises, realised the potential of the Internet to broaden their clients' investment horizons across asset classes and geographies at a fraction of the previous cost. Goldman Sachs, Citi, HSBC, Merrill Lynch, Morgan Stanley (Jiway anyone?) and many others launched new ventures to deliver this sparkling new value proposition. Most ended up with big losses and hurried withdrawals.
The idea was right suggests Cassina, after all online brokerages such as Charles Schwab, E*Trade, TD Ameritrade have developed into successful worldwide businesses. What was wrong was the skills, the demand and the timing. In the silo-based world of investment banking, it was just too hard to get different parts of a bank to really pull together to provide a seamless offering to the client. Moreover, Cassina argues, the target customer wasn’t ready yet. The people with the wealth didn’t use the latest technology and the users of the latest technology didn’t have the wealth.
As Apple, Google, Amazon and latterly Facebook and Twitter swept all before them in the communications, retail and social networking space, banks such as Saxo have been watching closely and learning fast. The firm has avoided the interface patches and batch processes and silos of larger firms, delivering in its core areas at a fraction of the cost of larger competitors. As a result, a growing number of major firms are opting out of maintaining their own retail and business FX service to clients, white-labelling instead Saxo’s offering. Such large banks with global client bases know they need to deliver FX services in their branches, but also realise it is not their core business and as such would rather partner with a firm like Saxo than risk losing clients by not supplying a competitive FX product.
For Apple, it’s great turning point was to focus on providing stylish devices with a user-friendly interface. Instead of trying to compete with a multitude of specialists each making their own products, it opted to run platforms such as the App Store to let specialists create and distribute products while Apple focused on making an environment that consumers liked. As the universal banking model ebbs away, similar ideas are taking root in the financial world.
Ive has a point. The consumer electronics revolution has a long time to play out and Apple’s future role is far from certain. In the feedback section at the end of his Sunday Times interview, many subscribers praised Apple, but still more others criticised the firm for its use of proprietary technology and processes to keep margins high. That criticism will sound familiar to any banker watching margins tumbling in the bond and OTC derivatives markets in response to steeper capital charges imposed by regulators. Fortunes are waxing and waning with increasing speed in consumer electronics. Banking will likely never move quite as quickly, but executives who think time is on their side in adjusting to the new realities in the financial markets may be mistaken.