How Artificial Intelligence is Making Front Offices Competitive
Front offices are the main touchpoint between organizations and their clients, which is why outstanding client service and successful business interactions in this area are so vital. Preyer has an all-round solution for ensuring that everything continues to go smoothly in the future, too – it can analyze and assess existing processes, suggest ways of optimizing them and even implement AI-based solutions.
The front office is the main touchpoint between an organization – in this case a bank – and its clients. It is the interface where client experiences take place, transactions are processed and relationships are built. It is critically important for organizations to design their front office processes effectively so as to ensure seamless communications, service excellence and successful business interactions.
Our client is a German Landesbank with a global footprint, total assets of > €150 billion and what were historically extremely profitable trading activities across all asset classes. Forex trading has the potential to be a strong profit center; the asks received by the bank’s sales unit largely come from competitive multibank platforms, with only 15% resulting from bilateral, direct client contacts.
Identifying the potential for adding value – reviewing process efficiency
However, an analysis by our experts revealed that, overall, our client could only quote a price fast enough to have a chance of winning the trade for 5% of the asks on multibank platforms. Quotation speed was therefore a critical issue. In addition, up to 80% of the trades entered into had negative mark-to-market (MTM) valuations when the risk was assumed. It was therefore obvious that this area was not making the most of its potential to add value.
Our experts worked with the client to review its existing processes in detail. These proved to be largely manual, making it impossible to react quickly enough to changing market prices. The task was therefore to revamp the processes and modernize the IT landscape. In an additional step, an informed decision was needed on whether the new systems required should be developed internally or purchased (“make or buy”). We provided support for our client in the decision-making process and developed a comprehensive cost-benefit analysis.
A tailor-made solution: an automated pricing mechanism and a spread engine
Preyer then developed a customized solution that automated the pricing processes and significantly enhanced quotation speeds as a result. The success rate for quotes offered to clients via multibank systems went up to approximately 90%, making trading sustainably competitive again.
In addition, an intelligent spread engine was deployed that automatically took market conditions, risk appetite and client history into account when generating the quote. This significantly improved pricing quality. As a result, the previously loss-making business returned to the black. Not only could client margins be earned again in full, but the market risk assumed during trading via this channel resulted in neutral or positive MTM valuations for more than 80% of proprietary transactions.
Satisfactory results and renewed competitiveness
Our comprehensive consulting offering allowed our client to significantly improve its business processes and boost its competitive ability. Process automation has allowed the front office to devote more time to analysis and decision-making, which in turn has improved the performance of its investment strategies. In addition, the client was able to cut costs with its optimized IT systems and focus on its core business.
Yannik Ilgert, our front office expert, will be happy to answer any questions you have on this topic.
