How Gravity and Flow Explain Winning in Financial Services
In July 2005, the influential Counterparty Risk Management Policy Group released a report urging the market to address the degree of risk that the volume blockages caused for market participants before the situation spiraled further out of control. The US Federal Reserve became involved, calling a meeting of top executives with 14 leading banks to discuss related concerns.
To avoid forced regulation, major derivatives dealers committed to substantial reductions in the number of confirmations for vanilla credit derivatives outstanding over 30 days. While reducing the credit derivatives backlog was a first step, the error rate for credit derivatives has doubled since 2004, and the backlogs of other derivative products continue to grow. Clearly there is room for improvement.
In addition, another set of trading transactions exists that most participants have not yet begun to address. These are the post-confirmation trade processes. They are much more complex than bilateral trade matches and confirmations because extra participants are often involved. To address these fast-growing, more complex requirements, specialized new solutions from independent software vendors such as Interwoven are removing these processing blockages and enabling greater volume flow.
Capital markets and brokerages are not the only sectors of the financial services industry that are particularly dependent on volume-flow efficiencies to remain competitive. The same types of needs are also faced by insurance firms, and by retail, commercial and investment banks. Functional areas that have yielded high paybacks from volume-flow initiatives have included loan and transaction processing, deal negotiation and closure, contracts management, collateral management and regulatory compliance.
Gravity Pull and Volume Flow: Two Requirements for Success
Financial services companies will always be essential, competitive and closely monitored enterprises. Success in this industry is a constant challenge with its operational complexities, shifting customer demands and regulatory obstacles.
The firms that surmount these challenges are the ones that will prosper. Time and time again we will see that success comes to the financial institutions that are able to exert a strong gravity pull on their customers, and maintain a steady, blockage-free volume flow of information and services.
Six Factors That Rock the World of Finance
Financial services businesses across all categories face new forces in a rapidly shifting marketplace. Some of the main factors causing this upheaval:
- Shifting customer demographics—The aging of the baby-boomer generation, increases in regional populations, changing risk appetites and other demographic factors directly influence customer demands for specific types of financial services;
- Aggressive competition—Growing competitive pressures are driven by the entry of new players, cross-offerings across verticals and the entry of cross-border participants;
- Surfeit of capital and the resulting quest for yield—The world is awash with capital, putting immense pressure on yields. Customers are increasingly seeking newer, better-yield products for deploying capital;
- Growing regulatory pressures—Governmental agencies across the world are getting stricter about compliance to regulatory guidelines;
- Increasing globalization—Financial institutions, their customers and the regulatory and market forces that affect them have become increasingly transnational and intertwined; and
- Rising business complexity—As businesses offer more products, serve more markets, and offer more services, the inherent operational complexity of these businesses increases, thereby presenting a barrier to remaining competitive.
Interwoven, provider of enterprise content management (ECM) solutions for business, enables financial institutions to unify people, content and processes to minimize business risk, enhance the customer experience, accelerate time-to-value and sustain operational efficiencies. Financial services companies that leverage Interwoven solutions include ABN Amro, Bear Stearns, Cathay United Bank, Blue Cross Blue Shield of Massachusetts, Fannie Mae, Farmers Insurance, Frank Russell, Rothschild, Washington Mutual and hundreds more institutions around the world. For more information, visit
www.interwoven.com.