Case Study: Lloyds Banking Group chooses TraderMade Charts for its Arena Portal
Managing FX is a major part of the job for an international treasury department. IBS talks to Lloyds Banking Group’s FX team about channels of delivery, old and new.
Delivery of FX services to corporate clients may be carried out via telephone, proprietary platform or multi-bank portal, and regardless of which channel is used, speed and efficiency are a given. But to step beyond a mere commodity service, especially at the high-end of the market where pricing differential is minimal, it has become essential to add value.
Helen Woolcomb, Lloyds Banking Group states ‘Of course, different client’s value different things, so the concept is subjective’. For Helen Woolcomb, head of eBusiness for wholesale banking and markets at Lloyds Banking Group (LBG), the only way to find out what clients wanted when building Arena, the bank’s proprietary FX platform, was to ask them. ‘There are many trading platforms on the market,’ she says. ‘What we wanted to look at was what actually drives our customers in terms of research, risk data and how our platform enables their treasury station to work, rather than just approach it from a trading angle.’
When LBG launched Arena in September 2011, it did so in the knowledge that some 18 months of development work, involving multiple third parties and a core internal project team, had been shaped by client input, garnered at ‘almost every stage of the way’, as well as internal discussion.
In fact, that internal discussion had informed an important technological decision early on in the project. The deployment of third party applications as part of the Arena platform was nothing new for LBG, but this time it took a more open-minded view of those offerings, opting for standard versions wherever possible – and for good reason. In the past it had implemented bespoke offerings from vendors and had ‘suffered for that when we needed to change or upgrade’, says Woolcomb. ‘This is something we were conscious of right from the start.’
With its mix of best-of-breed and in-house built technologies, and a range of real-world views on its development, Arena was introduced to the market as offering FX execution – covering spot, forwards, swaps and time options – in more than 50 currencies and allowing clients to place money market deposits in 19 currencies. The single portal currently has a customisable interface and combines FX execution with risk analytics, market news (from Reuters),
interactive charting (via TraderMade’s Maverick platform)
and LBG’s own proprietary research. Arena also includes a trade blotter so clients can search for and view all their FX and money market trades (other asset classes will be added) on one screen.
‘What we thought would work, on the whole, did. But the clients’ involvement enabled us to prioritise work and enhance the solution a lot more.’
In addition to other financial institutions, including banks and hedge funds, LBG is aiming the platform at the global operations of large corporates. As such, a number of FTSE 100 companies were drafted in to provide input regarding their wants and needs. With the bank’s FX operation also reaching out to SMEs, a broad range of voices were necessarily listened to, these being directed through a client advisory board which had been drawn together from the project’s outset.
The bank started with requirements driven by the experiences of its own sales people, before consulting its customers. ‘What we thought would work, on the whole, did. But the clients’ involvement enabled us to prioritise work and enhance the solution a lot more,’ recalls Woolcomb.
One of the fundamental aims – and the most often repeated request from clients – of the Arena project was to ‘keep it simple and visual’. At the same time, to cater to the broad range of client types, the development work also had to reflect the functional priorities of each. According to Simon Hunter, head of eFX payment solutions for wholesale banking and markets at LBG, delivering added value to the major corporates and FIs at the top end of the market meant provision of tools and advisory services around areas such as hedge accounting and compliance. At the other end of the scale, the SMEs typically wanted to focus more on the executions side, so demanded functional simplicity.
Of notable interest though, and arising from discussions with all users, was the provision of risk analytics. ‘When we originally looked at it, we planned a fairly vanilla version of analytics,’ says Woolcomb. However, the feedback given by clients urged the development team in the direction of something more ‘enriched’. As a result of this input, Arena now has more complex analytical attributes such as correlation analysis – a technique used to measure the association between two variables such as oil in sterling and dollar.
In delivering Arena, there was an element of ‘bringing together what we had and knitting it together, neater and better’, says Hunter. But by using the client advisory board and by analysing how the 100 or so initial clients (it was rolled out 100 at a time) were actually using the technology, it has enabled the deployment of the platform in a ‘deliberately architected’ way. This allows an ‘element of configurability’ by both bank and client. ‘What we’re aiming to provide is a solution for the corporate client that allows the treasurer to look at it in a very different way to the payments clerk,’ he explains.
Not every idea proposed for Arena makes it into production. ‘When trying to enrich or bring new functionality onto a platform, there will be some ideas that will take off and run really well, and some that won’t,’ notes Hunter. When something doesn’t work, he says it is essential to ask a number of probing questions as to why, before dropping it. Has it been positioned correctly? Is the process sufficiently intuitive? Is the service even required? By being critical in this way, the bank has been able to get to the heart of the matter quite quickly. ‘We went in very open-minded with Arena,’ says Hunter. Each iteration was rolled out to a few hundred of the bank’s clients who were then asked for feedback. All comments – positive and negative – were gathered on a weekly basis, with fixes for any issues being created over the weekend, ready for the following week’s critical use.
With Arena up and running, there is still a need to constantly evolve it, ‘probably in perpetuity’, says Hunter, knowing that the markets, the regulators and the clients never rest. User feedback has yielded Arena’s next few major changes. Top of the list is integration with LBG’s own core transactional banking platform. This, Hunter feels, will be one of those market differentiators that is sought by the team. ‘Most customers will say they don’t like their banks being siloed and having to go to three or four places to get the services they need,’ he explains. The focus for Arena in the short term is to blend ‘the power of market information and the intellectual capital brought with that’ with additional services such as account balance information, transaction reporting and payment capabilities.
However, Arena is still a single bank platform and most major corporates are multi-banked. Does this limit the appeal of the solution? Colin Devo, head of corporate FX sales at LBG, says the take-up so far suggests otherwise, noting that many companies are using Arena as a ‘sideline’ for their pricing engines, Arena marking ‘another entry point’ into LBG’s corporate banking services.
As an asset class, there may have been talk ‘for the past ten years’ of FX volumes shrinking, says Devo. ‘The reality is that it has continued to grow.’ Where large corporates are concerned, he says, interaction between bank and client has become increasingly close with advisory services playing an important role as complexity mounts.
In addition to LBG’s FX traders, sales people and its various channels – including Arena – it has a team that will, for example, construct balance sheet hedges in terms of clients’ overseas assets, or produce a cash balance analysis. A specialist accounting team is also available to advise on any hedges and whether these meet IAS or FAS 133 criteria. For Devo, this service strengthens the bond. He comments that ‘the partnership between bank and treasurer is stronger than ever’. Indeed, at the high end of the market, FX price difference is minimal and so the main differentiator is still in the people, he says.
LBG sets up its FX team by industry sector so that each sales person’s knowledge and understanding of a client’s business (and attendant risks) should ‘add value to the dialogue with clients’, whether dealing with FX relating to acquisition and disposals or FX resulting from day-to-day transactions. The bank also holds FX educational events for clients, covering aspects such as hedging and risk management, and the level of interest from treasurers in these is, he believes, further evidence that there is now ‘a huge emphasis on the human side of the relationship’.
To be able to benefit clients – to ‘add value’ – it is significant that the Arena concept was driven by sales people working with the customer, not by IT people. ‘It’s the extension of the relationship that has to be at the heart of what we’re trying to do with eCommerce,’ states Hunter. Arena therefore plays a part in the bank’s overall FX solution, but it is not the be all and end all. ‘We’ve got a phone business, a proprietary channel, and we provide liquidity into all the multi-bank channels,’ he says. ‘It’s the customers that decide how they want to operate, what services they want and when.’
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