By John Ashworth, CEO at Caplin Systems
Transformation is occurring in almost every department of investment banks. Systems are being consolidated, client interactions are being automated, and costs are being cut. But what exactly is at the root of this transformation, and what does it mean for the traditional bank sales team?
What’s behind global banking transformation?
The political landscape across the globe is placing increased control on the way banks conduct business. In seeking to protect the interests of bank shareholders and customers, the regulatory authorities are acting to limit the amount of a bank’s capital available for speculative investment, and demand greater price transparency in all stages of the trade life-cycle. The two specific areas of transparency relate to: competitive pricing (how a bank’s price compares to what’s available in the broader market), and price construction (how much of a premium over the basic cost a bank adds for risk, service and margin). Different regimes have given rise to different rule sets (Dodd Frank, Volker, MiFIDII), but these are the underlying principles at play.
Decreased opportunity and increased costs
The immediate implications of these regulations for banks are that they withdraw from some markets in which they’re not allowed to allocate too much balance sheet capital at risk, and that they must undertake drastic reconfiguration of internal and external systems to remain compliant. This is a double-whammy. The former reduces the opportunity to generate profitable revenue, and the latter adds cost.
Increased customer exception
In addition to regulatory issues, banks are facing increasingly technology literate customers. Our highest expectations of what technology can deliver are informed by the capability of our hand-held devices, and our experience of interacting with intelligent websites. E*commerce in retail banking allows us to check a balance or do a money transfer, but rarely wow us with the user experience. Most Single Dealer Platforms (SDPs) fall somewhere in between, but expectations of what can be delivered by banks to their corporate clients far exceed what they get today. It’s no surprise then that most banks are now appointing senior roles with a focus on ‘digitisation’. With broad remits spanning traditionally siloed product and client organisational structures, these new digital officers are tasked with driving digitisation and automation throughout the bank.
Regulation and digitisation dominate the agenda for sell side institutions and are driving rapid transformation across the industry.
But what of the sales team?
Partly in response to raw economics and the natural economic evolution of businesses to compete with one another, and partly to fund the costs of implementing the regulatory regime, all banks are seeking to cut costs. In all white-collar industries, and particularly banking, cutting cost is a euphemism for cutting people. In trading, greater emphasis is placed on systematic, or API based trading away from manual human traders. Trading rooms used to be thrilling places to visit. Now they’re dull. Similarly, in distribution, senior managers expect the same amount of client business to come from fewer sales people, or that sales managers protect and grow their customer business with the same number of sales people. On top of that, the combination of regulatory and economic pressures is causing banks to be far more selective about the customers and segments they want to target.
How can sales automation help?
The opportunity that any kind of automation presents is in improved efficiency of both manual and cognitive processes. If a customer can self-serve on an e*commerce platform (or in a supermarket), there’s a clear reduction in labour costs.
Given that much trading activity is API based, and e*trading technology has hollowed out massive efficiencies by eliminating human traders, the quest today for greater efficiency is in sales automation. The key drivers are improved service to customer, and empowerment of the sales relationship (taking the power back from the trading desk).
Whereas the sales person was at worst a relationship-savvy postman, sending interests to the trading desk with a fracture in client-specific knowledge about price sensitivity, the salesperson is now empowered to act in the client & bank’s interests. This is all manifested in trading-on-behalf-of (TOBO) functionality and carefully designed motifs.
Sales efficiency is not just about cost reduction, it’s also about getting more out of the sales people that are still employed. To do that, there must be workflow improvement between sales and trading desks. With a quest for efficiency however, the ability to track and therefore measure sales behaviour (how much spread/discretion is being offered/traded away) becomes critical as a control device. It’s important to can better hold risk within the bank rather than allowing it to be traded away outside the bank (in the case where worst-of-all-worlds the sales person is empowered to send the risk wherever he likes, inside or outside the bank).
So how can sales teams do more with less?
1. Give smaller customers a screen to do it themselves
Picking up the phone and talking to a bank has been the customer to sales channel preferred by corporate customers and smaller banks forever. It also remains the most efficient channel for high touch, structured products whose very nature demands an iterative, consultative sales process.
However, many corporate customers deliver little revenue and profit to the sales desk, so the trend has been to replace that relationship with a screen. In the future, we predict that human salespeople will only serve the biggest clients, and/or their high margin structured product needs. Banks will send lower profit customers to call-centre or SDP exile.
2. Be proactive by using analytics
Another trend is to force the salesperson to be more proactive, rather than waiting for the phone to ring. This can be achieved by leveraging pre-trade and post-trade analytics. By analysing what a customer has habitually done in the past, the salesman can nudge and suggest that they do the same in the future. Amazon has this nailed of course – it knows where people go after they’ve left browsing and buying footprints.
3. Mobile technology
The use case for mobile technology is less about execution (although that is starting to happen) and more about eliminating cumbersome human processes. Banks are adopting mobile apps for order amendments, confirmations, settlement notifications and watch-lists. Already common place in their retail divisions, treasury functions are hurrying to catch-up and be ‘with-it’.
4. Cross-asset view
Constraints on balance sheet capital at risk have turned banks through 90deg. Whereas the product silos were targeted to sell as much of their thing as possible, banks now need to take a total view of capacity and let that inform how much inventory they can sell. As a result, they must reconfigure their sales teams towards a horizontal cross-asset, rather than vertical single-product focus.
Traders have been largely eliminated by computers. It’s only a matter of time before most low-skilled sales jobs are eliminated too. A bank’s single dealer platform is becoming its principal distribution channel.
Commerzbank to lose 1.7 million clients by 2024 – Welt am Sonntag
FRANKFURT (Reuters) – Commerzbank expects to lose 1.7 million customers by 2024 as part of its current restructuring, resulting in a 300 million euro ($364 million) hit to revenue, weekly Welt am Sonntag reported, citing sources close to the bank.
The lender hopes to offset the drop by growing its loan business as well as by expanding its business with corporate and very wealthy clients, the report said, without giving any further detail of why customer numbers were expected to decline.
It also didn’t say if any specific category of client was most likely to be lost.
Commerzbank declined to comment.
According to the bank’s website it serves around 11.6 million private and small-business customers in Germany and more than 70,000 corporate and other institutional clients worldwide, so the reported loss of customers would suggest a drop of around 15%.
The bank earlier this month reported a $3.3 billion fourth-quarter loss, sinking further into the red as it continued a major restructuring and dealt with the fallout of the COVID-19 pandemic.
The bank’s restructuring plan involves cutting 10,000 jobs and closing hundreds of branches in the hope it can remain independent.
($1 = 0.8253 euros)
(Reporting by Christoph Steitz and Tom Sims; Editing by David Holmes)
Citigroup considering divestiture of some foreign consumer units – Bloomberg Law
(Reuters) – Citigroup Inc is considering divesting some international consumer units, Bloomberg Law reported on Friday, citing people familiar with the matter.
The discussions are around divesting units across retail banking in the Asia-Pacific region, the report https://bit.ly/3pD57WP said.
“As our incoming CEO Jane Fraser said in January, we are undertaking a dispassionate and thorough review of our strategy,” a Citigroup spokesperson told Reuters.
“Many different options are being considered and we will take the right amount of time before making any decisions.”
The move, part of Fraser’s attempt to simplify the bank, can see units in South Korea, Thailand, the Philippines and Australia being divested, the Bloomberg report said.
However, no decision has been made, according to the report.
Revenue from Citi’s consumer banking business in Asia declined 15% to $1.55 billion in the fourth quarter of 2020.
The divestitures could be spaced out over time or the bank could end up keeping all of its existing units, the Bloomberg report said.
The firm is also reviewing consumer operations in Mexico, though a sale there is less likely, the report said, citing one of the people.
Last month, New York-based Citigroup beat profit estimates but issued a gloomy forecast for expenses. Finance head Mark Mason said the lender’s expenses could rise in 2021 in the range of 2% to 3%, weighing on its operating margins. (https://reut.rs/2ZwXRB1)
(Reporting by Niket Nishant in Bengaluru; Editing by Maju Samuel)
European shares end higher on strong earnings, positive data
By Sagarika Jaisinghani and Ambar Warrick
(Reuters) – Euro zone shares rose on Friday, marking a third week of gains, as data showed factory activity in February jumped to a three-year high, while upbeat quarterly earnings boosted confidence in a broader economic recovery.
The euro zone index was up 0.9%, with strong earnings from companies such as Acciona and Hermes brewing some optimism over an eventual economic recovery.
The pan-European STOXX 600 index rose 0.5%, as regional factory activity was seen reaching a three-year high on strong demand for manufactured goods at home and overseas.
Another reading showed the euro zone’s current account surplus widened in December on a rise in trade surplus and a narrower deficit in secondary income.
Still, the STOXX 600 marked small gains for the week, having dropped for the past three sessions as investor concern grew over rising inflation and a rocky COVID-19 vaccine rollout.
But basic resources stocks outpaced their peers this week with a 7% jump, as improving industrial activity across the globe drove up commodity prices.
“This week’s slightly adverse price action has all the hallmarks of a loss of momentum temporarily and not a structural turn,” said Jeffrey Halley, senior market analyst at OANDA.
“There is not a major central bank in the world thinking about taking their foot off the monetary spigot, except perhaps China. (Markets) will remain awash in zero percent central bank money through all of 2021 (and) a lot of that will head to the equity market.”
Minutes of the European Central Bank’s January meeting, released on Thursday, showed policymakers expressed fresh concerns over the euro’s strength but appeared relaxed over the recent rise in government bond yields.
The bank’s relaxed stance was justified by the euro zone economy requiring continued monetary and fiscal support, as evidenced by a contraction in the bloc’s dominant services industry in February.
The STOXX 600 has rebounded more than 50% since crashing to multi-year lows in March 2020, with hopes of a global economic rebound this year sparking demand for sectors such as energy, mining, banks and industrial goods.
London’s FTSE 100 lagged regional bourses on Friday due to a slump in January retail sales and as the pound jumped to its highest against the dollar in nearly three years. [.L] [GBP/]
French carmaker Renault tumbled more than 4% after posting a record annual loss of 8 billion euros ($9.68 billion), while food group Danone and German insurer Allianz rose following upbeat trading forecasts.
(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Sriraj Kalluvila and Shailesh Kuber)
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