Because the capital markets industry is somewhat shielded by large balance sheet requirements, regulation and network effects, firms are unlikely to experience the kind of big-bang disruption caused by companies like Uber and Netflix in other industries. Nonetheless, three key trends are creating a perfect storm of “compressive disruption” that’s forcing change and reinvention in capital markets:
Stagnating revenue: Following the global financial crisis, top-tier investment banks and boutique advisory houses have seen their pool of revenue stagnate or fall in real terms
Growing competition: While the industry’s revenues are stagnating, capital markets players are still dealing with the rise of non-bank competitors in both primary and secondary businesses.
Weak returns: Capital requirements for balance sheet-led businesses have increased so much that they have destroyed shareholder value generation at even the purest of investment banks.