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E-Marketing: The Electronic Client Strategy

Developing technology to handle client orders is one thing, but restructuring the human side is quite another. Julie Ros asks how e-commerce is changing the traditional FX sales desk.

As banks continue to build, enhance and rollout their electronic FX offerings, they must also develop an electronic client strategy. In some cases, this means re-training existing sales dealers to use a new distribution medium, while in others, it means creating new e-marketing teams and looking for ways to create value added services that will differentiate each bank from the next.

The promised advantages for the client look boundless – reduced spreads, increased liquidity and market transparency, anonymity, even straight-through processing. But since there is no blueprint for building a successful e-commerce marketing strategy, how are banks reinventing themselves to offer their clients a better service via a medium that essentially disintermediates their own dealers?

“The bank dealing desk will change substantially,” says Phil Weisberg, CEO of FXall.”The activities they do will be harder, more complicated and more demanding. All administrative burdens will be gone, so dealers will have the freedom and flexibility to think creatively about markets.”

So far, online platforms are proving to be the homes of the smaller transactions and largely vanilla products, as both clients and banks find their footing. But just as both sides gain confidence in e-dealing, so will both sides improve the methods of their interaction.

Ultimately, the services themselves will become interactive. “Electronic interactivity between clients and sales people will be the key,” says Zar Amrolia, global head of FX sales and e-commerce at Goldman Sachs in London. “Advice that is currently given over the phone will become an online tool. At the moment, the Reuters chat service is the closest tool we have to an online service, but that is an ‘80s solution to a 21st century problem. Moving forward, we are trying to use the power of the Internet and what it offers in terms of interactive software.”

Jeff Scott, senior vice president, FX marketing, at Brown Brothers Harriman in New York, adds,”Since we began offering an online FX service to our clients, we have not diminished the human contact. We are interacting with our clients to an even greater degree than before, because this business is about relationships and trust. Taking the human hands out of the dealing process is one thing, but keeping the relationship alive is vital. Technology enhances what we have been doing all along, which is relationship management.”


THE CHANGING ROLE OF INTERMEDIARIES

Electronic distribution will make client information more easily compared and analysed, resulting in more responsive products and strategies. “Electronic trading will free sales resources for increased value added client interaction, while traders will no longer have to manage small orders; instead they will be required to provide liquidity and commit capital. The sales force will therefore need to be ‘e-enabled’ as spreads narrow for routine transactions, creating an increased emphasis on bespoke trade ideas,” says Edward Condon, director of e-commerce marketing at Credit Suisse First Boston in London.

“The integration of electronic trading into FX coverage will include applications for client monitoring and active voice coverage participation in the electronic trade process,” he adds. “This means opportunities to increase distribution will expand, as coverage costs decrease. Electronic distribution will lead to more services being available to customers, who will increasingly seek better trade functionality, clearing data and research access via electronic platforms. So sales dealers will become multi-skilled in all products, and will be increasingly able to provide a consultancy service to clients, rather than one that is heavily transaction-based.”

However, we are likely to see new service levels emerge. While smaller clients will receive tighter pricing for their smaller sized transactions, competition will increase even more to provide value added services to the larger clients. The Internet also means that the traditional client sectors are no longer the only ones that banks can provide with a cost-effective service, so the profile of the average client will change as well.

“Frequently updated and integrated product research will encourage flow and will be closely linked with trading on both single and multi-dealer platforms,” says Condon. “Two levels of research services may emerge: one for general electronic consumption, another for ‘covered’ clients.”


E-DEALING PLATFORMS

The idea of one-stop shopping will further develop as a few global firms offer a complete service via proprietary, single-dealer platforms, while others will aggregate to create consortiums, says CSFB’s Condon.

For the client, proprietary, single-dealer platforms provide research and coverage, broad market anonymity and confidentiality, STP benefits and reduced costs. These systems also provide constant price availability and transparency, multiple product access, automatic regulatory and audit records.

Meanwhile, multi-contributor portals offer clients access to multiple prices, satisfying the responsibility for obtaining best prices. These systems also offer broad transparency and tightened price spreads, as well as one stop shopping for high volume products.

Most banks will likely use their single-dealer electronic distribution systems, as well as multi-dealer platforms to offer clients a combination of coverage and delivery that is tailored to each user, says Condon. “Banks must also create a truly differentiated research offering to enhance the value of structuring, trading ideas and intellectual capital. By leveraging the electronic channel, banks can reach new customers, such as the middle market and smaller corporates.”

Banks will also find they must make important strategic decisions about how they will support the proliferation of electronic distribution channels, while continuing to keep traditional channels open. “If a bank covers multiple end user groups, one size will not fit all,” says Albert Maasland, global head of marketing for Cognotec in London.”More and more, customers are going to expect access to new distribution channels. The sophisticated end user is clearly interested in putting a significant part of its execution business through one of the portals. If you look at the companies on the customer advisory boards of FXall and Atriax, you will see that these are very serious players. Any bank with a reasonable customer franchise must be able to support trading requests of customers through portals, or face not servicing those clients in future.”


CLIENT LOYALTY

While e-commerce provides clients with the tools necessary to conduct their own analysis and make their own portfolio decisions, how will the bank continue to keep a client’s loyalty?

Some argue that electronic platforms provide no clear dealer responsibility to provide adequate liquidity in volatile markets. Others believe the multi-dealer platforms could lead to erosion of existing relationships.

“Sales people will have to add more value into the process – such as structuring derivatives, understanding accounting and tax issues, and knowledge of emerging markets,” says Goldman’s Amrolia. “Customers are increasingly going to measure the value add that dealers provide and reward them accordingly. And that means they must understand the exposures of their clients by looking at more complex issues – whether it’s the translation exposure in a foreign

subsidiary or the accounting treatment of a derivative hedge.”

“E-marketing teams will fulfil both a product management role, as well as a direct sales role, distributing the product to both existing and new customers,” he adds.

Henry Wilkes, treasurer of Brown Brothers Harriman in London, adds,”Focusing on client needs means offering them a total solution. Technology gives us more time to really get to know our clients. It enables us to provide them with, not only a pricing solution, but also with their hedging, risk management, asset allocation and benchmarking requirements.”

Not only does the sales dealer’s role at the bank change, but so does the profile of the average customer. E-commerce brings the playing field down to the same level for all customers. It enables them to conduct their own analysis and make their own portfolio decisions using cutting edge technology previously only available to the largest players. And pricing becomes more transparent, particularly over portals.

As clients become increasingly confident about using these systems, they will undoubtedly shift more and more of their business online. But not all FX business will go online, notes Cyril Cottu, executive director, Fixed Income, Currency & Commodities, at Goldman Sachs in London. “Smaller business and non-value added business will easily move online, but voice interaction will prevail for more value added and complex products,” he says.


E-MARKETING

A new breed of sales dealer is emerging from the move to online trading – the e-marketer. According to CSFB’s Condon, these dealers perform client demos in conjunction with traditional forms of coverage. They are responsible for co-ordinating documentation, client configuration and installation of platforms. They often work in conjunction with a business support help desk, perform marketing and seminar presentations, as well as liase with multi-dealer systems. These dealers are also responsible for the client follow-up to ensure use of the online product, and they have a role in feeding back client comments to the technical development IT team.

“Electronic trading documentation and installation is the responsibility of e-commerce marketing,” he says. “Client suitability and credit will remain with FX coverage and product groups. The integration of electronic trading into FX coverage will include applications for client monitoring and active voice coverage participation in the electronic trade process.”

Meanwhile, the traditional sales dealers’ role is also being impacted. What is the motivation for the salesperson to move their clients onto a multi-dealer platform?

At CSFB, Condon says all client relationships continue to be the primary responsibility of the FX sales desk. “FX sales continue to be responsible for all product and market specific client coverage, including the use of electronic research,” he says. “While sales credits continue to be paid to all cover-age generalists for products executed on electronic systems. Shadow sales credits are awarded to e-commerce marketers to encourage client follow-up and use of the product.”


MARKET OF THE FUTURE

The market of the future will be predominately electronic for routine transactions, says Condon, but two layers of systems will emerge – matching systems controlled by market makers and information distribution systems controlled by portals. Eventually, some systems will offer value-added functions – triggered execution ‘black box’ trading and cross product execution.

“E-commerce is redefining the way we communicate with our customers and interface with the market,” says Condon.”Clients and dealers will eventually choose a combination of systems according to their needs. There will be an eventual consolidation of e-commerce platforms influenced by cost, client preference and most importantly, liquidity. People will continue to be the most important asset, as dealers seek ways to differentiate their product and clients seek value.”

“What is value in this age?” asks Goldman’s Amrolia. “Today, information is not only widely available, it is being increasingly transferred to the client, and that process is being accelerated by the Internet. Human capital is therefore the most important commodity that we have. So training internally and educating sales people will payoff tenfold over the longer term, as sales coverage is refined, tailored and specialised to fit clients’ needs.”

“The e-commerce world of the future is about banks partnering with end users to find more efficient ways of transacting straightforward transactions, so scarce and expensive resources at both the bank and client site can be better spent on managing risk,” says Maasland.

 

E-Marketers: The Skills

The growth of the Internet over the last few years is irrevocably changing the world of FX sales and trading. A combination of client demand, increased availability of technology, and the desire by banks to provide a full and complete distribution service has led to a wide variety of offerings, both from banks and new, independent companies and consortia offering alternative approaches to sales, trading and research.

So what sorts of people are involved with the development and marketing of e-platforms? In the majority of cases, the front-end business leaders will be high profile, successful individuals in their existing fields, in order to reflect both the commitment given by the bank, and to ensure successful implementation of a strategy that is enormous in both size and scope for the business.

From a technology perspective, the answer is of course to involve a variety of project managers, business analysts, programmers and developers to provide the cutting edge technology needed. Establishing what is needed from a business standpoint is easily accessed through experienced individuals in-situ on the sales and trading desks.

So is it as obvious that marketing an electronic platform will be left to the existing sales force? The answer, in reality, is both yes and no. Whilst at some level an electronic platform can be incorporated into established sales coverage, many houses feel that to achieve real, substantial buy-in from clients, and to markedly differentiate their offerings from those of competitors, a new kind of e-marketer must evolve.

In order to maximise the potential of these roles, individuals are needed who can encapsulate a variety of skills. First and foremost, these people must come from the business itself, in order to explain and understand the intricacies of client foreign exchange requirements. A solid background in sales, covering a full range of products across a wide client base will be almost a prerequisite.

What we are talking about, however, is not the sale of products per se, but rather the sale of technology solutions within a business context. This means that successful individuals will have the capacity to understand and embrace the technology involved, and be able to fully value and develop the relationship between the technology and the ultimate requirements of the client base. A good base of contacts will obviously aid the process, and a desire to learn new aspects of the client development process will ensure longevity of relationships.

In summary then, we are seeing the evolution of a new kind of marketer. Typically a sales person moving into a new role, these individuals are often MBAs who have wholeheartedly embraced new technology. Multi-faceted, they have a structured approach to sales and marketing, as well as strong client relationships.

Looking ahead, we may even see IT professionals moving into the sales and relationship management sides of the business, as the nature of the role increasingly takes on an aspect of total product management.

Shaun Porritt is an FX recruiter at London-based Marshall Warburton

 

 

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