Digital Transformation | Post Trade

The symbiotic relationship between banks and technology providers. An evolution towards the true strategic partnership.

Written by Christopher Garner
Nov 16, 2021

The banking and financial services industry currently faces the dichotomy of improving their value proposition at a time when margin pressures mean limited investment is available for new projects. Legacy technologies can further hamper this. The market needs a model to integrate applications and components to augment an infrastructure to support an increasingly dynamic business model.  

We can look to other industries for proof that the strategic vendor relationships model can really work. Shining examples are the automotive and aerospace industries. Both have at their pinnacle, globally known brands. However, behind these are several tiers of critical partners, some of whom produce small components that go to another vendor to incorporate into a sub-assembly that then in turn goes to final manufacture. This has allowed those industries to focus on their core business of selling cars or aircraft allowing a cascade of quality, innovation etc. to a supplier partner network.  

A similar evolutionary trajectory can been seen in the banking industry. In this article, we draw some examples from a recent collaboration between LPA and a major global investment bank. 

Cooperation, collaboration and trust are key

This particular project started from an existing LPA client seeing how the LPA Capmatix platform could be leveraged for post-trade processes. The bank initiated joint project to combine their market and post-trade process expertise with LPA’s development capacity and understanding of financial technology. This emerged organically from the bank’s operations team rather than coming from strategy or IT planning.  

The objective of the project was not to build a custom solution but rather a fit-for-purpose product, which would be adopted by the wider industry fitting into a bank’s architecture as a complementary solution to replace individual modules or as a new asset-agnostic central utility platform replacing existing silos.  

The result is an extension of LPA Group’s Capmatix product, a one-stop-shop solution with highly configurable modules that is used for digitizing processes. The result works across pre-sales, through trading and on to post-trade processing. Designed to improve ‘Straight Through Processing’ (STP) in the post-trade area, Capmatix allows users to introduce additional control measures while improving the bank’s key performance indicators relating to service level agreements and the level of straight through processing.  

This partnership shows that vendors and banks can team up to design, build, implement and subsequently run projects with both internal buy in and the ability to be useful for both parties afterwards. A single project can act as a proof of concept for skeptics and other potential buyers inside an organization, demonstrating how an outside company can coordinate and organize multiple parts of a large company towards a common goal. 

Achieving tangible results

Post-trade systems, like many parts of a bank’s infrastructure do not directly provide measurable revenue but are mission-critical functions. For post-trade, this means the ability to efficiently and quickly process different asset classes such as derivatives.  

Therefore, measuring the impact of the system will not be as simple as measuring the new customers that sign up because of this new functionality. People do not decide where to trade based on their bank’s post-trade system provider.  

The post-project benefits were as follows;  

  • Reduced cost – The bank’s existing infrastructure required licensing payments to multiple software providers. This integrated system jointly developed with LPA removed that need, saving the firm a significant amount of money over time.  
  • Improved efficiency – Greater efficiencies and agility enabled employees to focus on client facing activities or other more value-adding duties also reducing operational risk.  
  • Better client service – The new streamlined process has; less risk of error, less manual processes most of which are now automated, and consolidated overlapping IT systems. This meant faster processing and fewer exceptions. Internal and external clients noticed this!  
  • Faster time to market – Creating and deploying a new common, low code infrastructure, the bank is reducing the time to bring products and services to market boosting innovation in new features and products.  

Building upon success

 For the bank, this project is a test for broader transformation in other areas. It is relatively simple and cost effective to add support for additional functions or asset classes, multiplying the return on investment. It also supports customer service, regulatory compliance and security enhancements. This is a model for organisational agility and change that can fit inside shrunken research and development budgets. 

Conclusion: Embracing the new approach

Banks are increasingly realising that strategic, trusted vendors will have their best interests at heart, supporting a more agile, symbiotic future.  

This Global Financial Crisis and subsequent waves of regulatory requirements have compressed margins; adaptability is therefore a key factor for survival. Innovation through partnership represents a promising way to continue to meet the oncoming headwinds. Banks need their software technology to work harder. This means going beyond data collection towards using cloud-based artificial intelligence to detect patterns, produce reporting KPIs and dashboards and guide continual improvements that may have been previously undetectable.  

In the case of this specific project, the main driver for implementing the new platform was indeed to extend agility and automation to include its post-trade activities. Interestingly, the perspective of the bank was not to tie LPA Group in an exclusive arrangement for the software, but to encourage adoption across the industry.  

Foresight guided that a widely adopted solution would be well supported and continue to evolve, and thus outweighed any potential competitive advantage from being the sole platform user.   To survive and prosper, banks need to head into their planning cycles with similar agile way to approach product development. Moreover, that means finding an external partner who can bring the ability to combine financial domain expertise with software development skill and apply that to create a long-term beneficial solution.  

Keith O’Brien is the Chief Product Officer of LPA

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