BNP Paribas’s corporate and investment bank in Asia is prioritizing dealing and transactions as it looks to digitalize its business, with organizing data as its starting point.
Pierre Rousseau, head of global markets for Asia Pacific, said, “Banks are unique in the vast hoards of data they hold. If we can use it effectively, we can transform our business. But today, all of that data needs to be cleaned and verified.”
He told DigFin that any digitalization of investment banking, both trading and client-oriented business, has to be based on improving access and manipulation of this data, which exists in many buckets across the firm. He says there are piecemeal projects at BNP Paribas. “Everyone in the banking world is trying to figure this out.”
The difficulty of identifying and corralling this data – a process that is often complicated by regulation – is why banks are turning to third-party vendors, which is new.
“Banks have the data, but they lack the skill sets needed to drive business change, while at the same time respecting security and privacy. We have tons of new apps, but we can’t deploy many of them because of the need for privacy and because of regulation. This becomes the challenge with fintech partners: can their technology address questions of compliance and regulation?”
Although he would love a holistic answer to that, the reality is the business, given its size, complexity and global nature, requires prioritization. “For me today, it’s the electronification of transactions, and developing tools to let clients trade on our platform.” He says this spans basic, volume-driven flow business to more exotic trades for sophisticated clients.
Turning trading tools into products
This will continue to automate the trading floor. “We won’t have traders on the floor getting requests from a sales trader orally,” he said. “This process should be computerized so orders are fulfilled directly from a client’s instruction.”
An early example of this is the bank’s Smart Derivatives product, a single-dealer platform that now serves 80 clients in Asia, which include private banks in Hong Kong and Singapore, and big securities companies in Japan and Korea. This platform automates pricing and execution of customized or light exotic structured products; meanwhile standardized payoffs get priced over Contineo, a consortium-run online marketplace connecting investment banks and private banks in Asia via email or other multi-dealer platforms.
Having invested in developing SmartDerivatives, BNP Paribas can offer it to other banks, such as commercial banks in China, Taiwan or Japan, or private banks in Hong Kong and Singapore.
These prospective clients can use Smart Derivatives on a white-label basis, giving them access to pricing and risk-management ideas, as well as providing relationship managers with direct access to products.
When to outsource?
If that’s an example of banks investing in automation, and then trying to find new markets for it, there are also examples of them trying to get out of investing in tech that doesn’t add value.
“We don’t want to do in-house development anymore for equities execution,” Rousseau said. The execution platform has been outsourced to Instinet. In this case, BNP Paribas was comfortable moving this function to a third party because, unlike most big tech vendors, Instinet is itself a broker. It has to therefore keep up with every regulatory change.
“The execution service isn’t that different among tech vendors, but we still need to ensure that all compliance requirements are up to date,” Rousseau explained.
Outsourcing seems like a rational thing to do with many parts of the business, given the need to focus resources on higher value-added services like digitalization and deployment of new technologies such as artificial intelligence and blockchain.
But compliance and culture can still get in the way.
“It’s crazy for banks to build their own systems,” Rousseau said, “but they still do.”