There are three ways in which Saxo Bank can be described. For some Danes, it is their country’s success story, while for others it is one of Denmark’s largest firms. But the most common description is that to some extent it represents what their country is all about: a tech-savvy and pioneering financial institution, offering free meals to all employees in a building packed with pieces of modern art.
For the rest of the world and especially the financial services industry, Saxo Bank is a facilitator. It’s an institution that uses technology to make the life of traders and investors easier and allow them to connect with global capital markets.
But for Kim Fournais, the firm’s CEO, it is the physical manifestation of a personal and professional bet he has already won, although he continues to renew it whenever necessary. “Saxo Bank is a dream, and it’s something that makes me really proud,” he says. “It’s a passion, an ambition, and above all, it’s a great team effort.”
Midas was Saxo’s original name during its first nine years in existence, until 2001, when Fournais began flirting with technology. While trying to establish Midas as a brokerage, he soon realized that brokers could not rely on their landlines to place and execute orders. It was obvious—at least to him—that the power of the internet was about to take over and eliminate the boundaries of time and place.
“It was market practice for the trades to be done on the telephone, but that was not very efficient and not conducive to transparent price discovery,” he recalls. “Even the most skilled people can’t have more than a couple of phone calls at a time.”
The whole process was archaic and cost a lot of money. It also produced large numbers of errors and most importantly it did not serve clients well. “Back then, you traded with a client, you put this into a system, you printed out a letter, and you sent it via mail and then three days later the client got confirmation of that trade,” he says.
In 1998, Midas launched its first online platform. Three years later, in 2001, along with his partner, Lars Seier Christensen, Fournais decided to take a big step and shift the business model, transforming Midas into Saxo. The broker became a bank, a financial institution entirely focused on technology, a strategy that remains unchanged.
“Obviously, our big milestone was that we decided to become a technology company. I don’t think we fully understood what that meant at the time, but we decided to develop our offering and be present on the internet,” he says. “Today, more than one-third of our employees work in IT.”
When he discusses all the “firsts” Saxo has introduced to the market, you realize that Fournais was not just a technology enthusiast, even though his love of technology is immediately apparent. He breathes technology, and is determined to transform the capital markets in the most profound way. “We were the first ones to launch a foreign-exchange platform with streaming tradable prices, initially with Deutsche Bank, and then with UBS, and then we added a lot of other banks,” he says. “Developing our offering in this way was a game-changer that also allowed us to build scale in a relatively short period of time and grow significantly.”
However, this transformation came at a cost, Fournais admits. He says that Saxo spent two-and-a-half years developing its first pieces of technology, literally stagnating the firm’s bank account. Saxo wasn’t even sure if this effort would pay off, as this evolutionary process was unique. Nevertheless, the team kept plugging away at it, as Fournais was convinced that that is what all firms would do at some point in the future.
Eventually, in 2001, Saxo brought on board its first white-label partner. Because of this, Fournais prides himself in establishing one of the world’s first and most innovative financial services fintech firms. “That was the first time we really distributed through other partners,” he says. “That was the first stage of being a fintech firm where we delivered ‘business-as-a-service’ to another financial institution, and now we have more than a hundred white-label partners.”
Surprisingly, Fournais’ obsession with technology was not only a business decision and an effort to differentiate himself and Saxo from other sell-side entities. And it wasn’t innovation just for the sake of it. He is a tech enthusiast for a more important reason: Technology serves no other purpose, but to make global markets accessible to the wider public. He says his mission is to achieve the full democratization of investment management and trading.
“Initially, we started as a voice broker for foreign exchange and futures, but when we started adding technology to our offering, we realized that we would be able to democratize investment and trading because technology can provide access to the capital markets to a much broader audience and amplify trading opportunities,” he says.
Ultimately, he says, the idea was to create and make available an infrastructure that would enable every person on the planet to trade and invest in global financial markets. For Fournais, this is a topical issue, as in many parts of the world, access to markets is limited to a small number of people because banks still refuse to remove financial barriers to the masses. “Equal access to investment opportunities across global markets lies at the heart of efficient allocation of capital and to take advantage of any opportunity that may lie in the markets,” he says. “We aspire to play a fundamental role in this by enabling transparent, cost-efficient access to global capital markets.”
Fournais says that what sets Saxo apart in a crowded field is that it offers a multi-asset trading experience from a single account and in 28 languages. “It’s built on an OpenAPI with an HTML5 front-end, which is again a significant tool and proof that we want to give everyone the opportunity to invest from any location in the world,” he adds.
Fournais has sought to preserve the tech mentality in all of Saxo’s operations, making it a competitive advantage. He says the bank’s main philosophy is that a computer should handle everything and can be just as good as or even better than a human.
“That bar is being raised every day with artificial intelligence (AI), machine learning, big data and now also biometrics,” he says. “We have always had many more ideas than we could realistically implement. That is to say, it’s not a lack of ideas that’s keeping us from moving even faster, but the ability to execute them as it costs a lot of capital and it takes a lot of time to plan the execution.”
This continuous flow of ideas has, at the same time, been a pain point for Saxo. While creativity and innovation are always welcome, having too much of both can lead to setbacks.
Fournais admits that over the years there have been a number of projects the bank had to scrap. “That’s a waste of time and money, but if you learn something from those types of experiences, then it’s good,” he says. “Sometimes you pay a lot for learning some lessons, but this is an important part of building a business.”
What he and Saxo learned from failed projects is the importance of carefully weighing the pros and cons of each new idea and planning a detailed process around them.
“We are much better now at the entire process—from ideas to planning and execution and the rollout phase,” Fournais says. “Everything we do is rigorous—we need to go through the necessary procedures in IT, operations, legal and compliance, capital liquidity, suitability tests, etc.—so many things need to be checked.”
Despite sporadic failures, Fournais is keen to maintain Saxo’s innovation stance. It is, after all, the bank’s trademark and an integral part of its strategic goals.
It is always tricky asking a CEO to reveal information about what his or her company is up to regarding new services that have not yet been officially announced, but Fournais proved to be candid, sharing a number of technological advancements currently on the Saxo test bench.
He reveals that the firm has been working with data science and machine learning for many years, aspiring to deliver new products in the near future and expand the scope of choices for Saxo’s clients. In fact, he says that a few months ago, the firm started working on a component that will further personalize users’ trading and investment experiences.
“It will understand your behavior, your interests, what kind of news you are interested in, what kind of instruments you have traded and what kind of risk profile you have,” Fournais explains.
For Fournais, data is the most important element of today’s trading infrastructure, the element that allows the provider to establish a one-to-one relationship with its clients and ensures that all operations remain relevant to what the industry needs. With this in mind, he says that Saxo is willing to take the use of data to a whole new level, where users will be able to manage their own risk.
“We have developed an algorithm that can predict when a client is likely to churn,” he explains. “That is to say, the trading behavior is likely to lead to unprofitable trading. It’s clear to most people in the industry that there is a lot of psychology involved in trading and sometimes people don’t behave in a rational manner.”
For example, he says, at times they tend not to diversify, they can overleverage, and they don’t use trailing stops and risk management mechanisms. “One of the things that we’re trying to do with big data is to say that we can predict things, for example, by identifying previous patterns and explain to clients the results of these patterns and then we can propose potential solutions to them,” he says.
The Tech Bubble
Fournais is aware that all these new technologies have one thing in common: They have the potential to disrupt the financial services industry in a meaningful way, where simplicity and flexibility will be the core and driving force behind financial operations. That’s exactly what he had in mind back in 1992 when his Saxo journey began. “When we started we had nothing; we had no capital and no platform—just a telephone and a big smile,” he recalls, although he quickly adds that he always wanted to be a pioneer in his field.
Back then, the industry was still in its infancy, but now there are thousands of firms, either startups or established fintech companies, scrapping for a piece of the fintech pie. To him, this is dangerous. Trading technologies are now on shaky ground. They could become, he says, the next big bubble, as a lot of the firms are not going to make money for years and simply won’t be able to survive. “I’ve been in the business for 25 years and I’ve seen many crises unfolding,” he says. “The European Exchange Rate Mechanism (ERM) crisis, the dot-com crisis, the 2008 crisis: When you have business models that are only focused on creating growth and scale, but don’t make enough money to pay the bills—that will create another crisis.”
He says that while all of this is part of the “game” and an integral part of the creative process within a capitalist system, it is unrealistic to believe that all the people investing in trading technologies are going to make a good return. He does, however, hope that startups succeed. “It is super important for the world for startups to win, to disrupt the normal way of thinking, and try to create value for their clients,” he says.
Fournais wishes the same for Saxo Bank, his baby. He might not remain in his seat for the next 25 years—“50 years at a job is probably too long,” he jokes—but he wants the firm to remain ahead of the industry. “I believe we are at a tipping point because we have been transforming and the world is transforming with globalization, regulations, etc. There are many things that are changing,” he says. “When I think about the next 25 years, I want us to create an even bigger direct footprint, but also add many more partnerships.”
And while he doesn’t seem to be overly fond of giving advice, as “no two people are the same,” he does have a clear message for every aspiring CEO: “There will be many days that will not be fun and where there may be difficulties, so if you don’t have an underlying urge and passion to do it, it will be difficult to keep going. If you are that person, you’re not going to last for 25 years.”