LATEST THINKING


Digital disruptions in investment banking

Investment banks have been uneven in their response to digital disruption, but to be leaders, they’ll need to consider six emerging trends.

Overview

Social, mobile, analytics, big data, cloud and interactive technology are changing the way business is conducted across all industries, including in investment banking. Up until now, investment banks have been uneven in their overall response to potential disruptions by these digital technologies. Many are still not leveraging the potential of digital technologies, leaving the door open to less entrenched players.

We’ve identified six key themes expected to be driving forces in the coming digital disruption of investment banks. Read this paper to find out what the themes are and the expected industry response for each.

Many investment banks are still not leveraging the potential of digital technologies—this is especially evident when you take a closer look at these banks’ internal processes and client interactions. One likely reason for hesitancy to adopt digital technologies is the aftermath of the financial crisis, including an intense focus on risk, regulation and costs over the past five years. This focus has resulted in the “crowding out” of investment banking technology innovations as IT budgets have been devoted to regulatory compliance work.

DOWNLOAD THE PDF (PDF, 772 KB)

Analysis

We have 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.

  • Increases in data transparency to clients will reduce the need for intermediation, enable additional self-service and further squeeze pricing and profit margins.

  • Stakeholders will receive information far more quickly, to the point where it supports real-time management decision making and compliance monitoring.

  • Increased demand for on-the-go services will drive a departure from the traditional “within the walls” environment of the investment bank.

  • The trade lifecycle will be split among the best-in-class providers, helping to control costs, but also sharing the trading revenue pools more broadly.

  • Increasing portions of the traditional investment banking business model will be threatened by smaller, niche players.

Recommendations

Once investment banks familiarize themselves with the six digital disruption driving forces, they should consider responding as follows:

  • Theme 1: Clients will expect a unified customer experience.
    Savvy investment banks must think about their current institutional client portals, but also develop strategies for the longer term that include multi-bank portals.

  • Theme 2: Increases in data transparency to clients.
    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.

  • Theme 3: Stakeholders will receive information far more quickly.
    Successful banks will need to redesign their data “supply lines” and processing schedules, and start thinking in terms of real-time dashboards.

  • Theme 4: On-the-go services will drive a departure from the traditional investment bank.
    Investment banks that leverage mobile technologies need to be testing them, developing “proofs of concept” and implementing the necessary supporting infrastructure, processes and rules.

  • Theme 5: The trade lifecycle will be split among the best-in-class providers.
    Investment banks should evaluate each piece of their trading lifecycle and consider how to provide it to clients most cost effectively and with the highest efficiency, functionality and value added.

  • Theme 6: Smaller, niche players will threaten traditional investment banking models.
    Investment banks will need to ensure that their intermediation provide sufficient value to their clients.