Friday 24 January 2020

Digital innovations are transforming the FX industry. Neehal Shah, Global Head of G10 FX Trading, makes the case for banks – and why they will drive change.


Just as digital customers are reshaping retail banking, so they are in the global markets. Banks are in an advantageous position – if they focus on execution, data and content, and take an agile approach to partnerships.

The foreign exchange market is one of the most digital in the world. The advent of electronic trading technology has transformed execution, introducing a swarm of new entrants to FX trading.

For banks, relying on built-in advantages of scale and market presence is not enough to stem the tide of digital disruptors. What can banks do to stay relevant?

For me, banks should focus their strategy on three areas: execution; data, content and user interface; and collaboration with fintechs.

1. Optimising execution

The dynamism of the FX market means that now more than ever quick and seamless execution is a top priority. Banks can continue to add value if they can provide clients with the tools they need to manoeuvre in a fast-paced market. Reducing the friction stemming from human intervention during a transaction not only saves costs, but drastically improves the customer experience, which is increasingly influenced by advances in the digital consumer industries.

A way in which BNP Paribas has done this is through its "request-for-quote" (RFQ) bot, which combines the bank's proprietary natural language processing (NLP) logic and pre-trade processing technology to deliver real-time responses to clients' requests for quotes on all linear FX derivatives. 

By drawing on the power of machine learning, banks can adopt leaner and more effective platforms that can put the client in the driving seat.

2. The power of data 

Access to more  real-time data and content can now be harnessed to feed directly into a client's execution strategy. Banks already sit atop a trove of data, which can be intelligently deployed to positive effect to underpin every transaction.
"By drawing on the power of machine learning, banks can adopt leaner and more effective platforms that can put the client in the driving seat."


This can deliver valuable insight, providing clients with in-depth analysis through the entire trade lifecycle. BNP Paribas' fourth generation of FX execution algorithms makes full use of these data to provide clients with analysis before, during and after the execution of a trade. This gives them confidence in their trading decisions, with a user interface that allows for interaction and interrogation of terabytes of data.

By combining multi-asset execution and enhanced market intelligence, banks are in a much stronger position to meet the changing needs of the digital client.
 

3. Collaborating with fintechs

Finally, entrance of a diverse array of market participants to the field has acted as a major catalyst to change in the industry. Maintaining competitiveness means embracing an agile approach, not only investing directly in new technologies, but also investing in fintech and nurturing new partnerships.

For example, BNP Paribas' recent partnership with Kantox, a world leader in corporate FX fintech, means clients can gain access to Kantox's dynamic hedging software, delivering exceptional results. Far from threatening the existence of banks, such partnerships are complementary, enhancing the product offer and raising the bar for clients.

It is by adapting, by keeping an open mind and by bringing all of these threads together that banks can drive change, bring greater value and thrive in the global FX market. Banks can draw on a deep well of talent, knowledge and global presence. Mixing that with digital transformation – encompassing execution, data and content – and strategic fintech partnerships could well be the winning formula for banks in global FX.

Neehal Shah
Global Head of G10 FX Trading at BNP Paribas
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