Top takeaways

• Investment banks1 face significant challenges driven by COVID-19 impacts, evolving financial regulations, market democratization, 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 specialize 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 optimize the use of financial technology, data, and analytics to generate differentiated insight and added value.

The changing investment banking landscape

The unprecedented public health, economic, and societal impacts of the global COVID-19 (novel coronavirus) pandemic have intensified the forces that are creating challenges and accelerating disruption in the investment banking industry: falling equity prices, liquidity stress, evolving financial regulations, market democratization, pricing pressure, increased client sophistication, shifts to remote working arrangements, and rapid technology advances.

Against this tough backdrop, we anticipate that investment banking will transition from a full-scale service model to a bifurcation of two broker archetypes: “client capturers” that specialize in front-office functions and “flow players” that focus primarily on middle-office functions. These archetypes will likely operate within an interconnected, increasingly global—and, potentially, virtual—ecosystem that includes partners collaborations that provide various back-office functions.

Industry realignment should create opportunities for investment banks to drive toward higher levels of return. However, to deliver on this agenda, organizations can no longer tinker around the edges. It is likely that many will need to dramatically retool their current business models and operational platforms to prioritize client-centricity, disruptive technologies, regulatory recalibration, and workforce and workplace evolution. In addition, they should determine which archetype they want and are able to be within the new ecosystem.