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Bank of 2030: The future of investment banking
Transforming service delivery to generate differentiated insight and added value
Recent economic shifts have created significant challenges for the investment banking industry. This report explores how banks will need to adapt their operational frameworks to keep up with the evolving investment landscape and deliver the bank of the future.
- Investment banks1 face significant challenges driven by COVID-19 impacts, evolving financial regulations, market democratisation, increased client sophistication, a shift to remote working arrangements, and rapid technology advances. There are opportunities for banks to drive toward higher levels of return; however, to achieve this, they likely will need to retool certain business models and operational platforms.
- The investment banking industry will likely undergo a bifurcation of broker archetypes: “flow players” that focus on middle- and back-office functions and “client capturers” that specialise in front-office functions. This bifurcation will result in an interconnected ecosystem of various players.
- Banks likely will need to determine which role they want and, depending on internal and external factors, are able to play within the ecosystem. They also will likely need to redesign their service delivery around a connected flow model—moving capacity and processes to the ecosystem of market providers—and optimise the use of financial technology, data, and analytics to generate differentiated insight and added value.
Examples of initiatives to commence the journey include the following:
- Identify the utilities to either outsource or develop internal, bank-wide shared services functions (for example, for data management and Know Your Customer compliance).
- Consider the governance arrangements required for a utility-based model to be successful.
- Decide on industry-led standardisation and consider how it will affect the ecosystem.
- Consolidate operations processes and activities across asset classes (such as single post-trade processing).
- Centralise data management and invest in application programming interfaces to develop flexibility and create seamless connectivity.
- Consider using a scalable, cloud-based infrastructure to improve overall efficiency, achieve faster time to market, and reduce cost of ownership.
- Explore the art of the possible with emerging technologies such as AI, blockchain, and advanced data analytics.
- Evaluate workforce and workplace practices through a post-pandemic lens and the shift from traditional, office-oriented employment to more flexible workspaces supported by technology innovations.
As long as considerable barriers to market entry remain in place (capital requirements, regulatory scrutiny, conduct risk, and long-standing client relationships), investment banks are unlikely to have their market share challenged by digital disruptors or other non-industry competitors. However, investment banks looking to the future amidst shifting market dynamics should consider relinquishing expensive internal infrastructures and move toward a connected flow model where outside providers offer services for both critical and non-critical functions. In this new environment, the investment bank’s ability to create and harness differential insights from data becomes its new competitive advantage.
1 In using the term “investment bank,” we refer to firms’ broker-dealer or “markets” business, not the advisory business.