Der Finanzprodukt Blog

In a recent report, Accenture identifies six key themes expected to be driving forces in the coming digital disruption of investment banking.

Rapid advances in digital technology are enabling greater access to rich information at lower cost. According to Accenture, six key digital technologies, namely social, mobile, analytics, big data, cloud and interactive technology, are changing the way business is conducted across all industries, including in investment banking.

What are these trends and how should investment banks respond to them? Here’s a summary of what investment-bankers should be expecting for the coming years.

1. A unified customer experience

As most large investment bank clients use multiple banks, having 5-10 web portals, future portals will have to prioritize the clients‘ needs and experience.

A trend in investment bank client portals will likely result in web portals that aggregate information and services across investment banks.

These portals would enable clients to access prices from and execute against multiple counterparties, access and consolidate research and price guidance from multiple sources, and have a single consolidated view of his/her transaction in flight without having to view multiple sites.

Savvy investment banks must think about their current institutional client portals, but also develop strategies for the ‘longer game’ that include multi-bank portals,“ the report advices.

 

2. Data transparency

In certain capital markets businesses, data has been traditionally aggregated by the sell-side and has remained opaque to clients, allowing investment banks to capture the value of this data.

Increasing data transparency to clients will reduce the need for intermediation, enable self-service, lower pricing and profit margins, and contribute to the fragmentation of the markets.

Digital technologies have the potential to make collecting, aggregating, and sharing transaction data easier, faster, and cheaper. An example is the peer-to-peer model.

„A continuation of the trend will change the economics of these businesses, lowering the need for intermediation, decreasing fees and spreads, increasing the number of transactions, and blurring the lines between client-initiated and market-maker transactions,“ the report says.

To prepare and respond, investment banks will need to dramatically cut the costs associated with intermediation, and ‘digitize’ their businesses to handle higher volumes and greater frequency of transactions.

3. Real-time management decision-making and compliance monitoring

Digital technologies are enabling a shift from analyzing outlier transactions after the fact, to analyzing all transactions in real time. In this sense, two areas that are expected to experiment major disruptions are compliance monitoring and collateral optimization.

However, this requires advanced analytics powered by real-time computing and complex event processing. Banks will have to look to cloud technology solutions to enable cost-effective, elastic scalability of computing power.

But the opportunities for real-time data analysis go beyond compliance monitoring. According to the report, these systems must account for ongoing transactions that affect collaterals, future settlement activities, changes in the value or quality of collateral, and the contractual agreements governing the types and level of collateral required by each counterparty or lending line.

Successful banks will need to redesign their data ‘supply lines’ and processing schedules, and start thinking in terms of real-time dashboards, minimizing the lag of data, and provisioning of business intelligence.

 

4. Increased demand for on-the-go services

Mobile and other digital technologies will enable experts to access more data and tools, collaborate more effectively, and make better, real-time decisions, no matter where they are, in or outside of the office.

Mobile technologies and wearable devices will facilitate collaboration, including the tracking, workflow management and security needs, and will play an increasing role in both sourcing and delivering notifications earlier.

Banks that will leverage these technologies in the future need to be testing them, developing ‘proofs of concept’, and implementing the necessary supporting infrastructure, processes, and rules now.

5. The trade cycle will be split among the best-in-class providers

As regulation has forced a standardization of products and processes and greater price transparency, investment banks find themselves in an increasingly cost-constrained environment and have to reevaluate each piece of the trade life-cycle.

Ultimately, the most efficient providers in each segment of trading will sell their services to other firms. These utilities providers will allow firms to access to lower unit costs and enable them to focus on the specific areas of the trading ‚value chain‘ where they can best compete and provide differentiated value.

„Now is the time for banks to evaluate each piece of their trading life-cycle and consider how to provide it to the clients most cost-effectively and with the highest efficiency, functionality, and value-added.“

6. Increased threat by smaller, niche players

Digital technologies will create opportunities for ‘disruptors’ to disintermediate various investment banking services, by creating transparency, aggregating data and transactions, and lessening the advantages of scale.

Two relevant examples of disintermediation is crowdfunding and peer-to-peer lending, where platforms such as LendingClub and Zopa directly match borrowers looking for low interest-rate loans with savers looking for higher-than-average interest on their savings.

„The disintermediation we have seen in the retail financial sector will continue to spread to institutional businesses,“ the report says.

Investment banks will need to ensure that their intermediation provides sufficient value to their clients, and simultaneously explore and invest in potential, disruptive models, which may eventually cannibalize their traditional business models.

Conclusion: Invest into Digital competence

To conclude, Accenture advices investment banks to invest in digital advances as a venture capitalist might, and balance this with careful strategic planning.

They will need to create and manage competing business models within their same firm to ensure that they stay on top of the fundamental changes brought by digitalization.

Read the full report: HERE