Jean-Marc Stenger's interview | Forge
Innovation Insider with Jean-Marc Stenger, co-founder of Forge | Albert Loo, Deputy Global Head of Sales for Global Markets | Didier Lallemand, SG Ventures
The starting point for Societe Generale’s Innovation and Digital Transformation strategy is through our own capabilities to harness technologies for the benefit of clients and to improve our operational performance. In short, we only look externally if we can’t build it ourselves to meet the needs of our customers and the business.
One of the best and most exciting examples of this at work recently is the internal start-up Societe Generale – FORGE, which is applying blockchain technology to capital markets. It’s a posterchild for our intrepreneurship start-up programme and is making waves through ground-breaking issuance of bonds and structured products, some of which were settled using the Central Bank Digital Currency (CBDC).
Co-Founder and MD Jean-Marc Stenger filled me in on the momentum behind Societe Generale – FORGE and we were joined by Albert Loo, Deputy Global Head of Sales for Global Markets, who shared his perspectives on the direction of travel.
Jean-Marc, what does Societe Generale – FORGE do?
We allow corporates or financial institutions to finance themselves by issuing financial instruments registered on the blockchain. The securities do not exist anywhere else, so we’re advising and structuring instruments for clients in a digital native form. Then we provide secondary market capabilities for investors wanting to buy or sell these securities. Thirdly, we offer custody services to safeguard these digital assets on the blockchain.
We have positioned ourselves in regulated digital assets, so mainly securities. We are not at all active in cryptocurrencies, nor is it something that we are currently considering. What we are trying to achieve here is to serve clients in traditional sector market activities - issuers or investors – considerably better.
How do Societe Generale’s clients benefit from this digitalisation of financial instruments?
Digitising financial instruments reduces costs when it comes to post trade operations. Everything that happens during the lifecycle of the financial product is quicker and automated, but also the market reach is better because clients have access to a much broader pool of liquidity. For issuers this enhances pricing and access to investors. On the other side, if you’re buying these financial products, you can access a truly diversified portfolio of assets and your investment opportunities aren’t constrained by regional or market infrastructure.
At Societe Generale we think it's always best to be at the forefront of innovation than let others be in the driving seat. We created Societe Generale - FORGE so we can provide a new innovative offering to our capital market clients in digital assets, which are driving a fundamental transformation of financial markets.
Where did you get the idea from?
I was the Chief Investment Officer of the Group’s subsidiary Lyxor Asset Management prior to founding Societe Generale – FORGE. In this role I kept getting requests from clients wanting to diversify into crypto assets. I also started to develop a personal interest in crypto assets and began digging into it in more detail, as did the other members of the team who created Societe Generale - FORGE with me.
Definitely demand triggered the creation of Societe Generale – FORGE but we also saw that regulation had reached a point of maturity to allow banks like Societe Generale to create digital financial instruments registered on the blockchain with the same level of legal security as traditional financial instruments.
What do you do differently?
It's fair to say that we are at the forefront of this innovation on a global basis. We see other players in the field emerging - a few banks in Europe, some in the US, and definitely in Asia, where there is a strong push for this technology.
Societe Generale is a worldwide market leader in capital markets activities with a very strong franchise. We definitely want to enhance our existing position by being at the forefront of this market transformation driven by blockchain, so we have very big ambitions in this area.
What have been the ingredients for Societe Generale – FORGE’s success?
All of the team who started with us came from the business side, so we approached technology as a tool to develop something that makes sense from a financial point of view for clients rather than R&D for the sake of it.
Our initial transactions were within the controlled framework of the Group but now we have prestigious clients who are executing transactions. For us this is definitely a KPI of success. In May we organised a 100 million-euro unsecured bond issue for the European Investment Bank. Societe Generale, Goldman Sachs and Banco Santander placed the security tokens we created with investors. Since that transaction, we’ve onboarded asset managers and financial institutions who are very keen to enter this field.
Talk me through the start-up process and how Societe Generale supports the business?
Our journey began almost four years ago by responding to an internal start-up call piloted by the bank. The Group was looking for disruptive ideas and offered the chance of a budget and a certain time frame to develop the first use cases.
Societe Generale was the right place to start this adventure. It's a bank with a strong entrepreneurial spirit and DNA in capital markets, so a nice combination. There was also the opportunity to pitch our idea from the beginning to top management - so basically the CEO office of the bank - and we found people who were curious, eager to learn and prepared to let us work on something. That was not an easy call at the time.
We enjoy some level of independence, by being nimble in the way we progress things and in the way we make decisions. For such a highly innovative project we move at the same pace as clients and regulation, so we absolutely need to keep this flexibility to adjust quickly and not be bound by a rigid one-year roadmap.
What is your long-term vision for your sector?
We see a very strong convergence on regulated digital assets by traditional banks’ capital markets teams and new players coming from the crypto industry. We’re trying to reap the benefit of both worlds by positioning Societe Generale – FORGE as a market leader.
Things are moving really fast. When we started the journey, we thought the tipping point when blockchain would replace traditional approaches would occur in something like 15 years. Today we see it happening in two steps: 2022, when the European Union will have a comprehensive legal framework for the primary and the secondary markets in security tokens. The next point will be 2025, where we'll probably have this digital Euro.
The roadmap we’re following is to focus first on bonds and structured products and then progressively to enhance the features, functionalities and asset servicing around these products. We need to bring them to maturity before broadening to other asset classes, but definitely moving to equity, currency and commodity products is also on the agenda.
Albert, where does Societe Generale – FORGE fit into the Group’s broader Global Markets capabilities ?
Initially I was sceptical about blockchain but I’m convinced now that the technology will become mainstream in capital markets in four to five years’ time. I compare it with ESG criteria in investing, which is becoming the norm.
What Societe Generale – FORGE is doing today is very important because it’s showing clients that we are thinking about their needs and innovating proactively. There are so many advantages that blockchain brings – real-time settlement, greater transparency, fewer intermediaries and lower costs among them.
More and more clients are looking ahead to the future and we’re extremely well placed to support them. Societe Generale prides itself on the innovations we have brought to the capital markets over the years. It’s not just the client benefits but also internally, the work by the Societe Generale – FORGE team is helping develop a new business model from which the Corporate and Investment Bank will learn and evolve.