This article was written by Benjamin Bécar, Head of Sales Enablement and Strategy (Trading) at smartTrade Technologies.
As the financial landscape evolves, regional American banks face mounting pressure from multiple fronts—competition from large banks, non-bank financial institutions, and fintech firms. Managers and directors at these banks must understand that without investing in better technology, they risk losing market share to their larger and more tech-savvy competitors. With digital transformation reshaping customer expectations and driving a shift in market dynamics, the time to act is now.
The Current Landscape: Challenges and Competitors
Across the banking industry, digital transformation is no longer a choice but a necessity. Banks of all sizes are investing heavily in digital delivery to meet the changing expectations of clients, stave off competition from other financial institutions, and comply with evolving regulatory requirements. However, there is a stark difference between the digital capabilities of global banks, such as JPMorgan Chase and Bank of America, and national or regional banks. The largest global banks possess the budget, scale, and scope to create highly custom compelling digital platforms that appeal to a broad spectrum of customers.
Recent data shows a trend that should concern super regional and regional banks: the largest banks are consistently gaining market share in deposits and cash management, while service-focused smaller banks and credit unions (CUs) have mostly held steady. However, the younger cohorts of customers—Millennials and Gen Z—are increasingly choosing large banks over credit unions due to the superior digital platforms these banks offer. The implication is clear: to remain competitive, national and smaller regional banks must improve their digital offerings.
Moreover, US regional banks are facing additional pressures. Following several high-profile bank failures in 2023, these banks have come under increased scrutiny. Simultaneously, rising interest rates are pushing up deposit rates, making it harder for these banks to manage costs. In the realm of FX trading, the market is shifting towards non-bank liquidity providers, forcing banks to become more competitive and efficient. For payments, more customers are turning to specialist providers rather than traditional banks.
Large global banks can absorb these pressures thanks to their size and scale. Their advanced technology platforms help them stay competitive against specialist providers, and their large balance sheets allow them to manage the costs of rising interest rates more effectively. Meanwhile, clients of super regional and regional banks often expect higher deposit returns, a challenging proposition given the need for these banks to manage costs aggressively.
How Can National and Regional Banks Stay Competitive?
The key to staying competitive lies in technology. Banks must leverage modern, comprehensive solutions that offer decades of innovation for a fraction of the cost of developing such platforms in-house. smartTrade Technologies can provide these banks with the tools they need to improve their overall balance sheet whether by cost saving (“save money”), generating new revenue (“make money”), and protecting their financial interests (“protect money”), levelling the playing field with larger competitors. Let’s break this down into three critical themes:
Part A: Improve efficiency (“Save money”)
Client Use Case: A regional bank successfully reduced the time spent by its sales team on internal post-trade processing by 40%. This significant improvement was made possible by empowering clients to independently perform simple post-trade adjustments to trades and orders through an intuitive, user-friendly client GUI. Previously, clients had to rely on the sales team for basic modifications, which not only led to operational inefficiencies but also introduced unnecessary risk. By streamlining this process, the bank was able to enhance client autonomy, improve team productivity, and reduce operational risks.
Optimize Operations and Reduce Costs: One of the biggest challenges for banks is the high cost of maintaining legacy systems and inefficient processes. Many banks are still heavily reliant on manual setups that involve voice trading, manual negotiation, and extensive post-trade management. By adopting a more advanced digital solution, these banks can significantly reduce human-intensive activities, thereby cutting costs and improving operational efficiency. Efficiency improvements are not necessarily achieved by cutting staff but rather smartTrade allows the bank to grow market share without growing the staffing costs as each headcount at the bank is made more efficient via increased automation.
Cut IT Spend and Increase Economies of Scale: Building and maintaining an in-house trading solution is not only costly but also time-consuming. It requires substantial IT spending and resources that could be better allocated elsewhere. By opting for a comprehensive, out-of-the-box technology solution, banks can reduce their IT costs and benefit from economies of scale. Purchasing software on a flat-fee basis further helps to stabilize costs. For banks currently engaged with vendors who charge based on volume (“dollar per million”), switching to a flat-fee vendor can lead to significant savings—every additional transaction volume translates into direct profit.
Part B: Generate new revenue (“Make Money”)
Client Use Case: A bank identified a misalignment between its pricing strategy and the actual cost of distribution. By adjusting its pricing model to account for factors such as sales involvement and venue costs, the bank not only increased its win rate but also ensured that each transaction remained profitable. This strategic adjustment enabled the bank to capture greater market share, deliver enhanced service to its clients, and significantly improve the profitability of the trading desk.
Expand Market Reach and Improve Revenue: Technology is not just a cost center; it can also be a revenue driver. By adding new distribution channels through advanced digital platforms, regional banks can broaden their market reach, engaging new customer segments and driving additional revenue streams. Better technology also means faster access to markets and more granular pricing capabilities, enabling more business to be executed efficiently and profitably.
Enhance Pricing and Boost Profitability: The ability to leverage advanced technology to deliver better prices in real time enhances competitiveness, particularly in volatile markets where every basis point counts. With a streamlined technology platform, banks can respond more quickly to market opportunities, driving increased profitability.
Part C: Better risk management (“Protect Money”)
Client Use Case: A bank relying on a legacy vendor faced challenges with market data latency, resulting in financial losses during fast-moving markets unless it significantly widened its pricing. After transitioning to smartTrade, the bank was able to tighten its pricing and capture more business, thanks to the platform’s robust market data processing capabilities and its advanced algorithms for accurately identifying and removing erroneous data. This gave the bank the confidence to operate in volatile markets without compromising on pricing or profitability.
Speedy Response to Market Volatility: In today’s fast-moving markets, the ability to respond quickly to events is crucial to avoid financial losses. An advanced technology platform allows banks to protect themselves from various risks, whether due to market movements, pricing errors, toxic clients, or network issues. Automated credit checks and other embedded risk management tools provide additional layers of protection, reducing the likelihood of costly errors and enhancing overall financial stability.
Affordable Risk Management Solutions: While many firms may perceive advanced protection mechanisms as costly, the reality is quite different. smartTrade offers a suite of sophisticated risk management tools that are both effective and affordable. By leveraging these tools, regional banks can safeguard their financial interests without breaking the bank.
Conclusion: Embrace Technology to Stay Ahead
For regional American banks, the choice is clear: invest in advanced technology or risk being left behind. As larger banks continue to dominate with superior digital platforms and non-bank financial institutions encroach on traditional banking areas, the urgency to act has never been greater. Regional banks must seize the opportunity to leverage modern, comprehensive technology solutions to remain competitive.
smartTrade’s LiquidityFX platform has consistently helped clients worldwide—including in North America—gain better control over IT spending, reduce Total Cost of Ownership (TCO), and ensure cost stability. Our platform enhances the ability to respond swiftly to market events, optimise pricing strategies, and drive profitability, all while maintaining strong protection against market risks.
By adopting these solutions, you can level the playing field and secure your bank’s position in a rapidly evolving financial landscape. The time for action is now—don’t let your institution fall behind. For more information on how we can help your business optimise FX flows, deliver superior client service, and compete with the best in the market, please get in touch.