The Last Look…

We all love innovation don’t we? Well, sometimes we do. Me? If I find the people at Apple who last “improved” the iPhone, I could end up, as they say in the UK, as a ‘guest of His Majesty’.

My problem is workflow. Want to FaceTime someone? That can be up to three or four actions, where it used to be one. Want to take a call in my car? I used to press an easy-to-find button once and I was connected, now I have to turn the button and then hit it. And don’t even get me started on wanting to put a playlist on in the car…

Apart from a need to vent, why do I raise this issue? Well, the FX industry could be on the cusp of its biggest upheaval since the multi-dealer platforms thanks to AI, stablecoins and tokenisation – and all three are about workflow, rather than trading. This means the industry has to tread carefully.

As Eva put it so well last week, the first issue is picking the right partner – and a key part of deciding who will be the winner(s) will be who interrupts the workflow less. I was banging on about Apple for some reason to a friend in the industry last week and they revealed that they once stopped using a single dealer platform because of a major overhaul which involved functionality “not being where it should be”. On the positive side, look at how popular Barclays’ FX options platform was amongst customers a decade and more ago – in spite of the wider BARX platform going through, at the time, an extended period of under-investment.

The lesson is a simple one, by all means innovate, but don’t get too clever and understand that users of technology are creatures of habit. The good news is that once you embed a process and users become accustomed to it, they are ‘sticky’ and unlikely to go anywhere else.

The need to retain familiarity is why I think AI, stablecoins and tokenisation will have a major impact, because with a few exceptions they don’t disrupt the workflow, they merely speed it up. They are efficiency gains rather than a radically different way of working – and there is a good way, I think, to explain what I mean by that.

I recently addressed a bank’s FX team, providing a few observations and answering questions on the market structure, and was asked about how ISDA agreements will play out with stablecoins and tokenisation? The question was accompanied by the observation that getting ISDA agreements for hundreds of sub-accounts is already a nightmare, this could be a major roadblock.

I genuinely cannot see a reason for this next wave of innovation to fail unless the innovators get too clever and too ambitious

I am not convinced I answered the question well at the time, if I am being honest, but the point I was trying to make was the process doesn’t change – firms are still exchanging collateral – it’s just that it takes place using tokens and, most likely, on a blockchain, so via a different channel. ISDA is also doing a lot of work in this area and I am sure that it is cognisant of the need to integrate new products without the need for new agreements.

Looking at the FX industry specifically, it is important that CLS evolves with the market structure, as I noted a couple of months ago in this column, it is one of only two truly critical FX market infrastructures. At some stage, CLS is going to have to adapt for the use of either CBDCs or stablecoins, because they are going to make the markets more efficient and participants will want to use them. I understand the problems some firms have with instantaneous settlement, but same-day, netted, batch settlement? That solves a lot of problems without creating many new ones and it will be within reach if we have a solid regulatory infrastructure around stablecoins and tokenisation more generally.

It is important to note that my warning does not mean there is no room for innovation and introducing new workflows, rather it needs to be done as the front office dev teams have done it for some time – in incremental steps. If you look at the bank single dealer platforms, most look radically different to how they did 15 and certainly 25 years ago, but the functionality is largely unchanged – indeed the real benefit has been the ability of users to build their own screen. If a user has a familiar workflow, they are more likely to be open to new ideas, but in this case it is not as though the buy side front office – the people that make the first partner selection by opting where to trade – are likely to notice a difference. This is because the innovation is all about workflow and capital and cash management.

I genuinely cannot see a reason for this next wave of innovation to fail unless the innovators get too clever and too ambitious. People need to know their usual practices are not going to change too much, aside from getting quicker, and that if they need to find something, they know where to go.

And if you’re reading this Apple, in addition to the above complaints, I would like to know how (10 times or more) when I ask my “smart speaker” to play ABC Radio North Coast, I get either Notorious B.I.G. or Tupac, and have to get my phone to key up the station. If anyone can think of a connection between those three things please let me know – and no, they are not on any playlist of mine, I’m just not that cool…

colin@thefullfx.com