Every industry is feeling the effects of the information revolution, but capital markets are a bit different. Players in this industry have been somewhat shielded by large balance sheet requirements, regulation and network effects, which make big-bang disruption along the lines of Uber or Netflix unlikely. However, a perfect storm of stagnating revenues, increased competition and weak financial returns—a combination we’re calling “compressive disruption”—is forcing capital markets firms to evolve and reinvent in their own way.
Five winning technology design principles
Trends such as automation and self-service, combined with the continued rise of non-bank liquidity and execution providers, are pushing firms to attempt to harness technology faster and more effectively than their competitors. While we cannot predict with certainty what 2022 will look like for capital markets, it’s clear that leading firms will have built not only a competitive advantage around technology, but also agile organizations capable of adapting to change.
At the core of these winning strategies will be an approach to technology that is based on five design principles:
- Intelligent and automated. Deploy technology and organizational designs that use machine intelligence to automate and amplify human creativity and intuition. By moving beyond process replication to more sophisticated applications, including anomaly detection and pattern recognition, you have the opportunity to boost anti-money laundering detection, derive alpha-generating insights and more.
- Data-led and client-centric. Expand the catalogue of data that’s captured and analyzed to create real-time views of your client needs and behaviors, and inform service design. To make sense of this data, you’ll need a coherent data strategy and management framework with analytical tools that are capable of finding patterns in the noise.
- Open and accessible. Make it possible for your customers and ecosystem to engage deeply with your organization. New digital standards of integration and interoperability, including open application programming interfaces (APIs), open-source software and shared platforms, can help you interact seamlessly with others and extend your capabilities beyond the boundaries of your firm.
- Agile and resilient. Design a “living business” that assumes uncertainty and can adapt with pace and purpose to changing market and customer needs. By adopting microservice architectures and implementing zero-based organizational design, you can build agility into both your business and IT organizations.
- Simple and homogeneous. Remove unnecessary complexity and friction across the organization by outsourcing non-differentiating services and leveraging utilities where possible. De-duplication and simplification can reduce costs and help prepare your organization for a more agile operating environment.
Please join me next time for a closer look at how you can begin to implement these five technology design principles in your organization. In the meantime, please check out: Capital Markets Technology 2022: Five Technology Design Principles for Digital Capital Markets.
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