If your investment bank is like most, data is aggregated by the sell-side. Because of this, you’ve been able to capture the value of this data, even price bilaterally and protect high margins that might be derived in an auction-like market model. But, times are changing. Increases in data transparency are set to completely change this model, and it’s the second of six themes expected to be driving forces in the coming digital disruption of investment banks. For many banks, the implications will be significant.
Data transparency: Good for clients, but how about investment banks?
It’s no secret, today’s customers want more—more service, more products and more transparency. A move to data transparency in investment banking will contribute to increases in disintermediation and fragmentation of the markets. What’s more, investment banks can expect to see lower fees and spreads, and blurred lines between client-initiated and market-marker transactions.
Take stock lending. Prime brokers collect and analyze lending spreads for individual equities and borrowers, but there hasn’t been a centralized marketplace where borrowers can see pricing information—this is changing. “Attacker” firms have already begun to offer technology to enable peer-to-peer lending (more on this in coming weeks), as well as client aggregation of lending spread data.
Digital technologies have the potential to make collecting, aggregating and sharing transaction data easier, faster and cheaper. And while anonymity and regulation still prevent certain types of investment banking clients from trading directly with each other, the trend toward greater transparency in pricing and transaction data will continue.
How to prepare and respond
Investment banks will need to dramatically cut the costs associated with intermediation, and digitize their businesses to handle high volumes and greater frequency of transactions. They’ll need to aggregate and use the transaction data they see and create, and price and respond to market movements. And, remember those client web portals Ciara talked about last week? Investment banks will need to make greater use of these portals as trade capture channels.
Now’s the time for investment banks to identify, invest in and drive the disruptor and attacker business models that may otherwise cannibalize their business.
To learn more, read: