B.I.S.S Research White Papers

The Front Office: Where the Battle for AI will be Won (and lost…)

Jay Biancamano

Jay Biancamano

A 25 year plus financial services veteran and managing director of Digital Assets and Blockchain in Capital Markets at State Street.
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The Capital Markets industry is facing interesting if not uncertain times, and nearly every firm understands it needs to incorporate Artificial Intelligence (AI) and Digitization in some way shape or form, but in a service industry, that is very difficult.

Too many firms think the solution is to incorporate AI and Digitization into their traditional services and products and clients will adapt. Wrong. The answer is: You must rethink your FRONT OFFICE to reinvent products and services and do it WITHOUT impeding your clients workflow.

For the last few years I have immersed myself in understanding the application of AI to Capital Markets (in order to stay relevant as we ALL should). What I see is that while many firms and individuals have made an effort to comprehend how it will effect the industry, too many are not really aware of what AI is and what they need to do to stay relevant. AI has become an all too encompassing definition, and not many firms are focused on what it is and what it means for them. 

Traditional players in the Capital Markets sector are facing many startups and non-traditional (AWS, Google, Intel to name a few)firms who are only thinking about products in terms of AI and Digitization. They have the luxury of not carrying legacy products, and only need to focus on delivering the next generation of Capital Markets solutions. They do however have a disadvantage: they still don’t get workflows, especially on the desktop level.

Its the Workflow Stupid

Workflow understanding is the advantage incumbent firms currently have over the startups and non-traditionals, but that advantage will last only as long as the current populace of users remains in place. I am speaking about the Baby Boomers and Gen X’ers who didn’t grow up in the post internet era. The millennials and post-millennials will want the latest and greatest, and they will embrace AI and Digitization quickly. It’s happened before, in the late 90’s into early 2000’s when electronic trading with ECNs, Dark Pools, HFT and algorithms, made a very manually driven industry virtually obsolete. If leading Capital Markets firms, especially those in the asset management space do not look to seamlessly transform their business to incorporate AI, new players will eventually figure out workflows and will emerge overnight to seize their customers and thus their share.

I have consulted with several firms who are facing this conundrum. Unfortunately too many firms are either ignoring this transformation or taking a “wait and see” approach. The wait and see approach never works, just look at how many firms STILL haven’t figured out how to incorporate the Cloud into their systems in 2019! 

Every firm, especially those who rely on the Front Office to generate the majority of their revenue need to focus on AI.

The FRONT Line 

The battle has already begun in the back and middle offices of many enterprises, but it will be the FRONT OFFICE where the firms will win or lose the transformation into an AI driven Capital Markets ecosystem. Let me define Front Office a little better so you understand, the front is sales and trading, portfolio management, Advisory Services and so on. In other words its where 90% of the revenue is generated. It’s dominated right now by traditional players, but only because no one has done much in the way of innovation in the last few years. That my friend is changing and AI is the driver.

The innovation I currently see in the back and middle office is digitization based, blockchain, Big Data, even predictive analytics are seeping their way into them. I cannot emphasize this enough ,its not AI, AI is what will drive the Front Office.  

As difficult as it can be to transform the back and middle office, to the end user introducing innovation is simply a matter of increasing efficiencies and they are mostly transparent. While there’s a lot of money to be made there, these workflows are easily automated and firms are easy to adapt, it’s always been that way. Clients do not see much disruption as they digitize their back and middle office workflows. The Front Office however, game on.   AI in the Front Office is the Holy Grail, and the solutions are not simple. A sales and trading tool cannot simply incorporate AI, Advisory services simply cannot become a series of intelligent chat bots, Portfolios cannot be “set it and forget it”, there is so much more that needs to be understood. 

With AI, the Financial Services sector will see the playing field become very level, and it will eventually become slightly tipped in favor of those firms who reinvent their Front Office and incorporate AI. If incumbents have the tolerance to re-evaluate their Front Office offerings, to rationalize and evaluate AI and what it means for them, then not only can the secure their market positions, they will ultimately be able to increase penetration into new clients and services leaving their competitors to wonder where all the humans (i.e their customers) have gone. 

Jay Biancamano

Jay Biancamano

A 25 year plus financial services veteran and managing director of Digital Assets and Blockchain in Capital Markets at State Street.
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