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August 2011

Wednesday, August 31, 2011

Progress Revolution Session Sneak Peek: Transforming Your Bank to Become Operationally Responsive

Posted by Richard Bentley

Within the banking industry today, we’re observing a significant expansion of choices available to customers, and subsequently loyalty to the primary bank is eroding. What specifically is driving attrition? 

Results from a 2011 customer survey conducted by Capgemini show that “quality of service” and “ease of doing business” are the factors that most strongly influence a customer to both initially select AND leave a bank.

What does this mean for a bank conducting business in the current competitive landscape? It means that connecting with your customer at the right time and right place is critically important. The question that remains is exactly how this seamless connection between the organization and the customer is achieved in the real world.

Immediacy is the critical overlay, and immediacy is achieved through real-time data capture and reporting translated into highly targeted, more relevant offers. Real-time data capture and responsiveness put you in a position to move fluidly with your customer base.  There’s no lag time where a lucrative window of opportunity closes before you have the opportunity to act.

It’s all about connecting with customers on their terms, and this is best achieved through automating the process.  For instance, if you have a customer that has deposited a large check outside the parameters of their typical deposit cycles, you can present an offer for a high yield savings account. This type of offer works well when you connect with your customer immediately because the large deposit is still top of mind, and other choices for investment have likely not yet been identified.

Essentially you’re able to capitalize on your preemptive knowledge that this customer is likely in the market for a savings account product BEFORE the customer is able to research competitive options. 

By anticipating your customers’ needs you’re delivering on the most important factor in retention – ease of doing business.

When you have the tools in place to serve up the right offering to the right customer at the right time, everyone wins.  You don’t want your customer to jump ship because they think you don’t have what they need.  And your customer really doesn’t want to spend their valuable time and energy searching for a solution that they could quickly and easily secure from you.

The beauty of Responsive Customer Engagement is that it evolves operational efficiency into operational agility.  It’s not enough to streamline processes and collect data – it’s about how quickly and effectively you can translate data capture and analysis into real-time, relevant communication with your customers. Believe me, if you’re not focused on real-time customer engagement, it’s highly likely that your competitors are.

I hope that you can join me in Boston on September 21st at Progress Revolution Boston 2011 to discuss how to leverage software solutions to not only improve operational efficiency but also increase customer engagement and loyalty.  I’m going to be covering cross-sell and up-sell marketing, payment management, and customer on-boarding and other timely topics, and look forward to a lively exchange of ideas!   







Wednesday, August 17, 2011

DON'T PANIC! Maybe a Depressed Robot is to Blame

Posted by Dan Hubscher

The market frenzy that whiplashed global markets last week has been - unsurprisingly  - blamed on high frequency trading. Headlines such as these fuelled the fire:

  • "The Trading Game is Causing Market Panic" - The Atlantic.
  • "High speed traders are exacerbating volatility" -  the Financial Times.
  • "High Frequency Traders Win in Market Bloodbath" - the Wall Street Journal.
  • "High Frequency Trading May Be Making Things Worse On Stock Markets" - HuffPo.
  • "Black box trading is the real hazard to markets, says Lord Myners" - The Guardian

As you can see, the media, brokers, and investors were quick to point fingers at HFT and, in the meantime, the SEC has sent out subpoenas to high-frequency trading firms in relation to last year's flash crash probe, according to the Wall Street Journal.

But does HFT cause panic? Panic, which is an emotional reaction to fear,  is an inflammatory word. Panic is contagious, especially in markets. Because panic is ultimately a human emotion it may not be the most accurate word to describe the moves of cold-blooded trading algorithms. But when you see trading robots hit stop-loss after stop-loss, triggering buying or selling in light-speed over and over again, the voluminous activity is bound to mimic actual panic.

The markets today make the struggle between human investors versus high frequency trading firms look like an intergalactic battle. But while the humans are sitting behind the wheel of a broken-down old car, HFTs are soaring on a spaceship equipped with an Infinite Improbability Drive. 

And the algorithms that dominate the markets - along with their HFT owners - are getting a bad reputation. They are being portrayed as the villains in this uber-sensitive economic environment.

The current dialog casts them as Vogons, the bad guys in the brilliant Hitchhikers Guide to the Galaxy (BBC series and books by Douglas Adams). The Vogons are described as "one of the most unpleasant races in the galaxy. Not actually evil, but bad-tempered, bureaucratic, officious, and callous."

High frequency trading is not actually evil either, it is the natural development of quantitative trading, and algorithmic trading which grew out of the new market structure and automation. Although quantitative trading takes the emotion OUT of trading, something has gone wrong. The effect on volatility is a matter of debate; perceptions around this question are creating panic and upsetting investors.

Investors boycotted HFT in the week ended August 10th, dragging $50 or $60 billion out of the stock market and walking it over into safer money market accounts. So what can be done to restore investor confidence? One bemused market participant said last week that what was needed was an algorithm with a built-in panic button. Instead of tumbling after the market when a stop is hit, the algo could pause and take a breath and think about what it is doing.  But would that lessen volatility? Because, again, thinking is a human activity.

Ford Prefect, one of the protagonists in Hitchhikers, said about Vogons: "They don't think, they don't imagine, most of them can't even spell, they just run things." Like the Vogons, algorithms are not great thinkers. And, with upwards of 70% of equities trading being done by algorithms, they do pretty much run things.

But blaming HFT (or Vogons) for market swings is like blaming social media for the riots in England. Yes, it was easier to get everyone together for a looting-and-burning session by using Twitter and Facebook, which made the situation worse.  And social media also helped people organize the clean-up. Would the same have happened, differently, without social media?  Likely yes.  HFT and social media have another thing in common - because they are automated they can easily be monitored and controlled, if regulations allow it. What if authorities could recognize the electronic early signs of a riot, send a warning to citizens, and arrive at the scene faster?  In the UK, the government is considering blocking Twitter and Facebook during a major national emergency. 

I am not suggesting that the government or the regulators should block HFT when markets run riot. And our markets are still tinkering with just the right recipe for actual panic buttons; witness the dislocations of the May 6th flash crash and the ensuing coordinated circuit breaker and other limit debates.

There a number of government investigations - including the US and the UK - into high frequency trading practices. Some are trying to shine a light on algorithms and determine whether their behavior is perhaps predatory or disruptive. Lifting the veil of secrecy on algorithmic and high frequency trading could be a way of regaining investor confidence. But that is a double-edged sword; if firms offer up too much about the methodologies and strategies behind their algos they could also be giving away their secret formulae.

Giving regulators a balanced peek under the covers might help. Regulators already can and do deploy market surveillance and monitoring tools to help prevent market abuse at high speed. That may be a difficult pill to swallow, but the Hitchhiker’s Guide would tell us – DON’T PANIC.  As many damning studies as there are, others come to a different conclusion ("Study gives backing to high-speed trading" – Financial News).  If something isn't done proactively - and soon - then investors, politicians, regulators and other nay-sayers are going to be calling for an end to HFT completely.

As Marvin the depressed robot in Hitchhikers said: "I've calculated your chance of survival, but I don't think you'll like it."