Up until now, investment banks have been uneven in their overall response to disruptions by digital technologies (see my post last week to understand the reasons why). The digital age waits for no one, however. We’re seeing key themes take shape in the investment banking industry, and they’re all driven by digital disruption.
Digital disruption’s effect on investment banking
We’ve identified six key themes, which we expect to be driving forces in the coming digital disruption of investment banks:
- Clients will expect a unified customer experience across channels, even beyond the current single-dealer, full-service portals provided by investment banks. Investment banks must think about their current institutional client portals, but also develop strategies for the long term that include multi-bank portals. Banks will need to differentiate themselves based on products, client relationships and ability to deliver the lowest cost where appropriate.
- Increases in data transparency to clients will reduce the need for intermediation, enable additional self-service and further squeeze pricing and profit margins. To respond, investment banks will need to dramatically cut the costs associated with intermediation and “digitize” their businesses to handle higher volumes and greater frequencies of transactions. They will need to aggregate and use the transaction data they see and create, and dynamically price and respond to market movements.
- Stakeholders will receive information far more quickly, to the point where it supports real-time management decision making and compliance monitoring. To access, integrate and analyze data in real-time, banks must first address ongoing problems with how data is currently managed.
- Increased demand for on-the-go services will drive a departure from the traditional “within the walls” environment of the investment bank. Investment banks should consider how digital solutions could virtualize the entire end-to-end deal management process, perhaps using a web-based portal to bring together a virtual team from multiple areas of the organization. Banks that leverage these technologies, such as mobile, need to test them, develop “proofs of concept” and implement the necessary supporting infrastructure, processes and rules.
- The trade lifecycle will be split among the best-in-class providers. Standardization of data models and procedures and the introduction of digital technologies that enable connectivity, workflows and transparency within the trading lifecycle give banks the potential to split the trading component functions among the providers. Now is the time for banks to evaluate each piece of their trading lifecycle and consider how to provide it to clients in the most cost-effective, efficient, value-added way.
- Parts of the traditional investment banking business model will be threatened 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. Investment banks will need to ensure that their intermediation provides sufficient value to their clients.
As we move further and further into the digital age, the gap between the leaders and the followers in investment banking will only get wider. Leaders invest in digital early—even before they fully determine how they will use these technologies. In contrast, followers attempt to build detailed, longer-term plans, but they do not prioritize budgets for digital projects, often viewing them as exploratory. Undoubtedly, the changes digital disruption promises will be significant, and investment banks that want to emerge as leaders, will need to consider the opportunities digital technologies will bring now.
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