Joerg Ruetschi: «Open Finance as an Innovation for the Industry»

Fintech entrants have disrupted the incumbents’ traditional models but struggle to attract profitable customers and manage the regulatory complexity effectively. Both sides need to work together to make the change and growth agenda a reality, Joerg Ruetschi writes in an essay for finews.first.

This article has been published on finews.first, a forum for authors specializing in economic and financial topics.

Digital innovation has rapidly accelerated over the last 25 years. Technology has fundamentally transformed commercial models, operating platforms, and broader customer engagement. It has now become a critical success factor for the financial industry. This has not always been the case as financial institutions (FIs) have been slow in adapting to technological innovation.

FIs are global, large-scale organizations with complex business and operational requirements. Their systems, in many cases developed over 30 years ago, require stability and remain resistant to change. Only during the last few years, the wider industry initiated in response to tumbling revenues and dramatically increased cost-income ratios multi-year transformation programs with billions of investments spend.

Fintech became a synonym for the initiatives of a dedicated start-up community that developed new technology and services solutions outside of incumbent financial institutions (FI). These emerging players have become the innovative force across three key technologies that constitute the building blocks of the industry’s digital transformation agenda.

The first one is artificial intelligence (AI) which transforms with its components of big data, machine learning and data visualization decision-making. The second one, defined by software solutions such as application program interface (API), cloud computing and smart desktops integration, improves operational efficiency through automation, open architecture, and interoperability. The third one, distributed ledger technologies with blockchain as its main industry application, is reshaping today’s financial and legal infrastructure.

«The new operating framework is based on the design principles of open collaboration»

Value creation is a management methodology that focuses on institutional growth and performance. It is defined by the concept of intrinsic value that measures the financial impact of dedicated strategic and operational initiatives. The changed regulatory and competitive landscape challenges established commercial models with their profitability thresholds.

From a value-creation perspective, a new target operating model stays at the core of the financial industry’s transformation agenda. It replaces old with new systems while integrating emerging technologies in a broader operating framework. The objective of the incumbent is to preserve and defend its positioning while looking to start-ups to innovate and transform their commercial and operational models. Innovative fintech entrants have disrupted the incumbents’ traditional models but struggle to attract profitable customers and manage the regulatory complexity effectively. Both sides need to work together to make the change and growth agenda a reality.

The new operating framework is based on the design principles of open collaboration, integration and interoperability, delivered through an ecosystem of incumbents and innovators. Open collaborative architecture allows incumbent FIs to specialize in their core competence and embeds best-in-class services by building universal platform offerings for their clients.

«Originally, the focus was on payments»

Through a core platform, utility-like services can operationally be delivered at scale and efficiency by the established players while making sure that the regulatory requirements are fulfilled. There is inherent value in specialized technology, risk-transfer and distribution capabilities that are provided by fintech challengers. Their services are defined by differentiating sets of capabilities and getting deployed by specialized value propositions.

The combination of operational restructuring and technology innovation drives the industry’s strategic design. Open finance is the commercial and regulatory concept that defines the operational roadmap by integrating different service layers on one customer experience. This framework was initially established by the open banking standards to use APIs and enable third-party developers to build applications and services around the incumbents.

Originally, the focus was on payments but there is a much wider role for open-source technologies in building out a commercial offering across lending, investing and other financial services. Open finance integrates all the required capabilities in a broader operational framework by setting standards and best practices. They are the key pillar that transforms the financial-services business models.

Joerg Ruetschi is a value creation specialist with a passion for building, growing, and transforming businesses through new technologies. His international career spans investment banking, consulting and technology across Europe, the US, the Middle East, Africa, and Asia. As an investment banker at Goldman Sachs, he led several transformation mandates with financial institutions at Booz & Company as well as Strategy& as part of the PwC network. He is the founder of Evolve Enterprise Solutions (EES), an independent platform for operational venture capital and private equity that specializes in innovative value creation. As Chief Operating Officer, he currently led the scale-up of Cosaic, a US software firm, across two products ChartIQ, with data visualization and Finsemble, interoperability arms. He holds a Ph.D. in Finance from the University of Zurich, as well as being a Certified Turnaround Professional (CTP), Chartered Financial Analyst (CFA) and Financial Risk Manager (FRM). His book «Transforming Financial Institutions» was published by Wiley in 2022.

Previous contributions: Rudi BogniPeter KurerRolf BanzDieter RuloffWerner VogtWalter WittmannAlfred MettlerRobert HolzachCraig MurrayDavid ZollingerArthur BolligerBeat KappelerChris RoweStefan GerlachMarc LussyNuno Fernandes, Richard EggerMaurice PedergnanaMarco BargelSteve HankeUrs Schoettli, Ursula FinsterwaldStefan Kreuzkamp, Oliver BussmannMichael Benz, Albert SteckMartin Dahinden, Thomas FedierAlfred MettlerBrigitte StrebelMirjam Staub-BisangNicolas RothThorsten PolleitKim IskyanStephen DoverDenise Kenyon-RouvinezChristian DreyerKinan Khadam-Al-JameRobert HemmiAnton AffentrangerYves Mirabaud, Katharina BartFrédéric PappHans-Martin KrausGerard GuerdatMario BassiStephen ThariyanDan SteinbockRino BoriniBert FlossbachMichael HasenstabGuido SchillingWerner E. RutschDorte Bech VizardAdriano B. LucatelliKatharina BartMaya BhandariJean TiroleHans Jakob RothMarco MartinelliThomas SutterTom KingWerner PeyerThomas KupferPeter KurerArturo BrisFrederic PappJames SymeDennis Larsen, Bernd Kramer, Armin JansNicolas RothHans Ulrich JostPatrick HungerFabrizio QuirighettiClaire ShawPeter FanconiAlex Wolf, Dan Steinbock, Patrick ScheurleSandro OcchilupoWill BallardNicholas YeoClaude-Alain Margelisch, Jean-François HirschelJens Pongratz, Samuel GerberPhilipp WeckherlinAnne RichardsAntoni TrenchevBenoit BarbereauPascal R. BersierShaul LifshitzKlaus BreinerAna BotínMartin GilbertJesper KollIngo RauserCarlo Capaul, Markus WinklerKonrad HummlerThomas SteinemannChristina BoeckGuillaume CompeyronMiro Zivkovic, Alexander F. WagnerEric HeymannChristoph SaxFelix BremJochen MoebertJacques-Aurélien MarcireauUrsula FinsterwaldMichel Longhini, Stefan BlumZsolt KohalmiKarin M. KlossekNicolas RameletSøren Bjønness, Gilles PrinceSalman AhmedPeter van der WelleKen OrchardChristian GastJeffrey Bohn, Juergen BraunsteinJeff VoegeliFiona Frick, Stefan Schneider, Matthias HunnAndreas Vetsch, Fabiana Fedeli,  Kim Fournais, Carole MilletSwetha RamachandranThomas StuckiNeil Shearing, Tom Naratil, Oliver Berger, Robert SharpsTobias MuellerFlorian WickiJean KellerNiels Lan DokyKarin M. KlossekJohnny El HachemJudith BasadKatharina BartThorsten PolleitBernardo BrunschwilerPeter SchmidKaram HindujaZsolt Kohalmi, Raphaël SurberSantosh Brivio, Mark UrquhartOlivier Kessler, Bruno CaponePeter Hody, Florin Baeriswyl, Michael BornhaeusserAgnieszka Walorska, Thomas MuellerEbrahim Attarzadeh, Marcel HostettlerHui ZhangMichael BornhaeusserReto JauchAngela AgostiniGuy de BlonayTatjana Greil CastroJean-Baptiste BerthonMarc Saint John WebbDietrich GoenemeyerMobeen TahirDidier Saint-GeorgesSerge TabachnikVega IbanezDavid Folkerts-LandauAndreas Ita, Michael WeltiMihkel VitsurFabrizio PaganiRoman BalzanTodd SaligmanChristian KaelinStuart Dunbar, Carina SchaurteBirte Orth-FreeseGun WooLamara von AlbertiniPhilip AdlerRamon VogtAndrea HoffmannNiccolò GarzelliDarren WilliamsBenjamin BöhnerMike JudithJared CookHenk GrootveldRoman GausNicolas FallerAnna StünziThomas Höhne-SparborthFabrizio Pagani, Guy de BlonayJan BoudewijnsBeat WittmannSean HagertyAlina DonetsSébastien GalyRoman von AhFernando FernándezGeorg von WyssStefan BannwartAndreas BrittFrédéric LerouxNick PlatjouwRolando GrandiPhilipp KaupkeGérard PiaskoBrad SlingerlendDieter WermuthGrégoire BordierThomas SignerBrigitte Kaps, Gianluca Gerosa, Christine HoustonManuel Romera RoblesFabian KäslinClaudia KraazMarco HuwilerLukas ZihlmannNadège Lesueur-PèneSherif Mamdouh, Harald Preissler, Taimur Hyat, Philipp Cottier, Andreas Herrmann, Camille Vial, Marcus Hüttinger, Ralph Ebert, Serge Beck, Alannah Beer, Stéphane Monier, Ashley Simmons, Lars Jaeger, Ha Duong, Claude Baumann, Andrew Isbester, Shanna Strauss-Frank, Teodoro Cocca, Bertrand Binggeli, Marionna Wegenstein, George Muzinich, Jian Shi Cortesi, Razan Nasser, and Nicolas Forest