Can a “Robot” sell a Bond?
Reading this article on Bloomberg at the back end of last week, something caught my eye:
“…whether you’re a borrower or a lender, a salesman or a syndicate banker, your world is facing upheaval, with the human factor becoming less significant.”
The subject of automation has been discussed in our industry for decades. But this time around, it feels slightly different, perhaps more urgent than ever before. But is it really different? Is the ‘human factor’ really under threat?
As the article states, digital platforms – like Origin – only account for a small percentage of new issuance in the market and they are still mainly used as a tool to facilitate communication between human counterparties. But electronic solutions are bringing unique efficiencies and scales to the primary market, the type that incentivise all parts of the bond market – from advisory teams, salespeople to syndicate desks – to stay relevant and keep pace.
We believe this is good news. Through history, technology has been introduced to a whole plethora of industries with staggeringly positive results. The bond market will be no different.
Firstly, it’s great to see more attention being given to the primary fixed income market. This really is the critical nexus where banks interact with the “real economy”, helping companies and governments finance themselves and grow. After the wave of digitisation that has occurred in the secondary markets already, it’s vital that the primary process is made as simple and transparent as possible, so that it always works in the best interests of issuers and investors. Undoubtedly, tech is helping here by making the issuance process, from start to finish, easier and smoother for all parties.
In response to the article’s headline, technology is coming, but we don’t agree that robots will replace banks or bankers, or that “robot” is even the right metaphor. We believe the value of the intermediaries (including DCM, syndicate and sales), will not be diminished. In fact, their value has never been higher. If history is anything to go by (look at the secondary market’s response to the electronification of RFQs), human roles in the bond market may evolve, but they will become more important, not less.
Technology is unparalleled when it comes to standardising workflow, reducing operational risk, and ensuring that data and communication are captured, recorded, and analysed. However, the strategic and personal relationship between a dealer and an investor remains incredibly important and, as we all know, the most valuable salespeople are those who develop those relationships through ideas and intellectual capital. Over time, the manual workflow of taking an order will likely be automated. But that doesn’t diminish the reliance that both borrowers and investors have on trustworthy intermediaries with good ideas (and a balance sheet to help execute them). This becomes particularly acute when markets get more challenging.
It’s interesting to see how different tech companies are tackling different parts of the primary process. While some of our peers are focusing on facilitating the execution process (Ipreo, for example), at Origin we’re working on enhancing origination (there’s a clue in our name!).
One of the main problems that issuers tell us they face is visibility, particularly smaller issuers fighting for their piece of the market. We help open up the dealer community to these issuers, giving them access to new pockets of funding. On the dealer side, we constantly hear that the origination workflow is incredibly manual and inefficient. Our features – including a growing issuer database, search functionality and pricing calculators – are available to everyone, not just syndicate, but also to DCM and salespeople all over the world. Our product is helping them communicate, collaborate and identify opportunities way in advance of execution.
We understand the concerns people may have around revenue generation and job security in the face of technology. It’s a fear felt by many others, too, from truck drivers to lawyers. But our focus on origination in the primary market uses technology to help dealers grow their business by helping them find new clients through accessing markets more efficiently.
As the world continues to develop, and as various markets mature (think Asia and the Middle East through 2018, and Africa won’t be far behind), new opportunities will open up for dealers and investors of all shapes and sizes. Covering and connecting all these markets requires more robust workflow and better collaboration tools so that dealers can be more productive and grow their business’ top line. Their work could never be done by a “robot.” But the humans who are in the trenches and hunting for deals could definitely be more efficient and more productive. This is where technology and Origin can help.
We’d love to know what you think about anything we’ve talked about in this article. I’d welcome an email with your thoughts. It’d be great to connect.