In what ways is Wells Fargo different from many other large banks operating in the currency markets and how has that influenced the electronic FX and eCommerce services that you offer?
We think of ourselves as a large, quiet competitor in the FX market. Our focus is on our customers and fulfilling their needs, and this takes a variety of different forms such as addressing their liquidity needs or providing extensive risk management services. One main area where we differentiate ourselves from our competitors is by delivering FX alongside payment and cash management services through a deep integration with treasury products and services provided by other Wells Fargo units. In the FX group we help provide customers with global cash management services including payments, but these payments may involve a foreign exchange trade and they may not. Still, we understand that from the client’s perspective, their workflow is likely to need to support both. In addition, we provide extensive risk-management support and work with clients on interest rate and FX risk, including analysing their exposure using quantitative techniques and providing hedging services which can involve forwards or other derivatives. The overall goal of all activities is to help our clients achieve their objectives.
What sort of clients does Wells Fargo provide online FX services for?
Our customer base ranges from consumers to financial institutions. Within that spectrum, we have retail consumers, high net worth individuals, small businesses, medium- sized or middle market businesses, large corporates and then financial institutions (FIs). And for us FIs include many downstream banks who are using some of our FX products to service their customers or international FIs who might be using us for their primary US dollar account. Other FI customers include money managers and insurance companies. In almost all cases, FX services complement those of other Wells Fargo units and when we think about product development, we think about effectively delivering services in partnership with these teams. For example, through wellsfargo.com, the Bank delivers money transfer services to consumers and the foreign exchange group’s role is to deliver rates into that team’s application.
What are the core FX e-commerce solutions and integration toolsets that Wells Fargo currently provides?
Our products are delivered either through a user interface or via application programming interfaces (APIs). Our flagship e-commerce offering is called Foreign Exchange Online (FX Online) and is available through Wells Fargo’s Commercial Electronic Office portal (CEO) which is the primary delivery mechanism for any electronic solution for wholesale customers. A key product- development driver for Wells Fargo’s FX group is to remain integrated with the rest of the products the bank offers and CEO is a powerful way to make this happen. Within CEO, we have two primary flavours of FX Online. There is the “corporate” model for the middle market, used by many firms who bank with us, including California tech companies. There is also a version designed for smaller banks who use our currency network to provide FX services to their customers. We sometimes refer to this as the “Third Party Administrator (TPA) version.”
In addition, we offer a further configuration of FX Online providing streaming access to our graphical user interface (GUI) known as WATS FX Professional, which, as the name suggests, is for professional FX traders. It is for clients who want to receive streamed pricing from our single dealer platform rather than a multi-dealer one. Then we also have a series of APIs or system interfaces which enable our customers’ to embed our foreign exchange services into their own digital environment. While we provide our customers with liquidity and trading capability using APIs, we also use them to collaboratively design workflows helping our customers to be more efficient.
The suite of Wells Fargo APIs are available through our developer portal Wells Fargo Gateway. This model, like CEO, offers a wide range of services, of which FX is one, through a single client-entry point. It uses cutting edge web service technologies which are often used by FinTech and new technology companies.
The Gateway is designed to give our clients ease of access and the developer tools needed to get up and running very quickly. System integration tools and APIs that enable banks and their customers’ systems to work together are not new, but the Gateway is innovative in the ease and flexibility at which client solutions can now be deployed.
It also allows us to combine FX services with other banking services to create highly customised and broad solutions for customers. These could be in the area of cash management, payments or hedging. In my view, the best way to help clients achieve their objectives is to provide complete, cross- product solutions.
Improved price discovery remains a very important reason for utilising electronic channels in FX. In what ways does the value proposition of your own e-FX services go beyond that?
Our approach is to provide more than just pricing services to our customers. We need to differentiate our offering and one way we do that is by looking at client end-to-end needs and helping them to be more efficient and effective in what they are trying to do. Pricing is just one aspect.
An important dimension of this extended service is in the area of data. When we talk about payment services or FX trades, there can be a lot of data passed back and forth between banks and customers to, for example, reconcile sales invoices or establish hedge accounting treatment. Price, execution and risk management are other areas in which data are very important. We have a partnership with an exposure-management company to help our customers understand their FX exposures by providing tools looking into their enterprise resource planning (ERP) system to measure currency exposure across all entities in their corporate family. This is particularly important to multinational corporations who may have exposures in a variety of currencies in different parts of the world. The eTrading complement to this risk-management service is an application integration allowing customers to easily execute hedge trades resulting from the exposure analysis.
Also, in terms of price discovery, we provide pricing to our customers across multibank channels such as FXAll, Bloomberg, 360T, Currenex and FXConnect.
It’s important for us and for our clients that Wells Fargo achieves an interoperability across channels and high degrees of automation. Automation and STP are critical to customers since it helps them meet their efficiency targets. Moreover, we have a lot of compliance, risk and operational-monitoring tasks that also require automation, such as transaction reporting, market and credit-risk management or due diligence of one sort or another. Stepping back to look at the platform from a macro perspective, there’s quite a bit of underlying automation infrastructure that we’ve put in place to support our business which also helps us better serve customers.
Interest in utilising FX execution algorithms is growing amongst a wide variety of buy-side firms. Some reasons for this include reduced market impact, better liquidity access, execution consistency and trader productivity. What work has Wells Fargo been doing in the algo space?
FX execution algos are an important tool, and we are investing to enhance our current offering. We think that they will help in several areas including liquidity management since an execution algorithm can be an efficient way to tap into a variety of liquidity providers who could be banks, hedge funds, multi- dealer platforms, dark pools or other trading venues. They also provide an execution discipline by putting a plan in place ahead of time rather than making decisions in the heat of a trading moment. Algos can also help with transparency by evidencing how prices were reached from among various liquidity sources. We are developing our FX algo team in partnership with Wells Fargo Securities business units, such as our equities group, who already offer an extensive algo suite. Part of their evolution will be to build on the logic used in other asset classes in a way that meets FX customers’ needs and objectives.
In what ways do Wells Fargo’s e-offerings compliment the bank’s voice trading services and do you think further electronification in FX will eventually spell the end of hybrid dealing?
Voice is still an important way that we deliver service to customers, and we believe it’s going to continue to be an important part of the equation. The same theme applies here as with other aspects of our FX business in that we’re designing cross-channel solutions that are complementary.
Routine transactions lend themselves to being done electronically, such as cash management transactions or the initiation or rolling of standard hedge contracts. But if a customer is facing a unique, new or complex scenario such as a large M&A deal, liquidity challenges, or the use of a new hedge instrument, they may need to talk to a specialist about strategies for risk or liquidity management. I don’t see that conversation about strategy going away but it’s possible that the discussion eventually leads to the use of an electronic or algorithmic tool for execution. It’s part of the responsibility of the salesperson to have that conversation, understand client needs, pull in expertise from among the Wells Fargo product groups and arrive at the best solution for the client.
Build versus buy is a common but important consideration when it comes to developing electronic FX trading capabilities. What factors usually determine whether you develop your e-FX products in-house or outsource their construction to specialised vendors?
We operate using all models and describe our platform as a hybrid. We build plenty of technology in-house but we also buy or license and, in some cases, partner with technology providers when appropriate. We determine which path to follow by thinking about which technological pieces will best differentiate us from our competitors. We also consider what parts of the business process are commoditised and for those components, the best technology solution. For example, generating a MT300 SWIFT FX trade confirmation is an industry standard and offers no scope to differentiate. We wouldn’t want to invest WF resources into building this functionality; purchasing from a vendor makes more sense. We prefer to use our resources for customer-facing products, allowing us to better serve them.
Looking ahead what plans does Wells Fargo have in the relatively near future for launching new e-FX products and toolsets?
We will continue to enhance and expand the capabilities of our FX API offering, alongside our colleagues in other product areas. We will continue to enhance and realise a very flexible set of building blocks that we can use to create customer solutions.
We have several additional product development initiatives underway. We’re continuing to build out our FX algo capabilities to help with our liquidity management and to make them available to customers. We are working on a new version of the corporate flavour of FX Online called FX Online 3. This version has mobile capabilities and many new features, and we are just starting to roll this out to clients now. Looking further out, we are also developing, in partnership with Wells Fargo’s wealth management division, enhanced FX services for high net worth customers. Our focus, as always, is on serving our customers.