Is traditional D2C repo dying?

As D2C repo goes electronic, having the right systems in place will be crucial for repo dealers wishing to nurture both voice- and venue-based businesses at scale.

Repo dealer-to-client (D2C) trading on electronic venues is expanding quickly. A pool of dealers is a great attraction to the buy-side. Similarly, the sell-side dealers can leverage the growing number of electronic D2C markets to reach new customers.

There are plenty of opportunities, but there are pitfalls to be considered too. We can draw parallels in other walks of life; for instance, the slow death of traditional retail with the inexorable shift to online shopping.

The challenge faced by a sell-side dealer, who has traditionally dealt with clients over voice channels and now wants to tap into those electronic markets, is like that of a bricks-and-mortar retailer setting up its online store. One task they face is cultivating that new flow while maintaining existing traditional relationships

A changing landscape

While dealer-to-dealer (D2D) repo is already largely electronic, the D2C landscape has lagged and remains mostly voice- or chat-based. But that is quickly changing. Venues like BrokerTec Quote, GLMX, MTS BondVision, and Tradeweb are growing their businesses and investing in their platforms. Dealers are watching with interest and listening to their customers as they decide where they need to be active. Without a single dominant market, and new incoming entrants, like Bloomberg’s BOLT platform, many have been adopting a wait-and-see strategy.

Even with the pace of change accelerating, the inertia of decades old practices takes time to dislodge. In much the same way specific shoppers might avoid the online experience, certain buy-side customers may prefer the direct experience they have with their dealer(s). Traditional retail isn’t dead yet, and it’s not a binary choice either. There’s nothing to stop customers from enjoying both the conventional mall experience while still flexing their Amazon accounts from their armchair.

As consumers, we like to take advantage of all the options at our disposal. We like to get a good deal and know that we didn’t miss out on a better one. But at the same time, we want the shopping experience to be stress-free, successful, and either quick or enjoyable (but preferably both). On balance, online is often the best option, but not always.

It is a brave person who bets that the traditional channels of D2C business will disappear anytime soon.

How to be all things to everyone

The smart move as a retailer is to be customer-focused. As a repo dealer, that will mean delivering great customer service across all channels. However your customers get in touch, you maintain and strengthen the brand quality and trust you’ve built up over the years.

Great customer service over chat isn’t necessarily going to take the same form as over D2C venues, so dealers need a flexible solution that scores highly on responsiveness, accuracy, and reliability.

That’s a tall order, but the right system can make this possible.

Know your customer

Nobody enjoys waiting at a counter while the overstretched sales assistant serves a dozen other customers, desperately hoping you’ll be the next one to catch their eye. A brief acknowledgment that you are there, you have been noticed, and you are important to them goes a long way. That personal touch, combined with a knowledgeable salesperson that can deliver rapid, effective services, is what keeps you coming back to that counter.

Personalization in the Starbucks names-on-cups mould might seem unnecessary, but—if it costs nothing in time and effort—it makes sense to respond to your customer with details that make them feel seen and appreciated. Of course, customers will see through attempts to fake it, so your systems must give you real insight into your customers’ appetites and behaviors. Salespeople and traders alike need a solution that collects, aggregates, and visualizes historical data to identify customer and market trends and measure how well they are performing.

Accuracy

As volumes crank up, a more significant strain is placed on traditional manual processes and the risk of error increases dramatically. Automation is your friend, but not only when it comes to managing the structured content from electronic markets. An effective repo client order management system is one that can immediately capture, interpret, and digitize incoming natural language requests, like the unstructured contents of a chat message or email. The accuracy delivered in this respect is continually improving, moving the business towards a low- or no-touch nirvana.

Accuracy isn’t just about error-avoidance. Desks fielding orders need the most up-to-date decision making data, ideally at their fingertips so they don’t need to hunt around for it on multiple screens. This means real-time positions and risk measures to know instantly whether a deal can be offered. Then, traders need to use D2D market data, internal pricing sources, and intelligence from historical activity to set the appropriate levels. The ability to define and manage rules that automate the response is the real key to unlocking scalability and seeing that business grow.

With an automated solution, dealers no longer need to spend time on low-value, high-frequency tasks or endless context-switching.

Reliability

Trusted, reliable partners are essential in any business, and the repo sell-side is no different. In an interdependent world, the most successful organizations draw on others’ expertise, like established systems providers such as ION that can adapt to their changing needs. This lets them continue to thrive as their business landscape evolves, delivering quality customer service.

In a changing D2C world, the constants of customer service principles and trusted partnerships will ensure that traditional channels are popular for some time to come. ION’s Secured Funding solution for repo client order management recognizes this. It lets repo desks consolidate their decision-making data while aggregating and normalizing orders across all their incoming channels, voice and electronic.