The explosion of technology has brought democratic principles in the procedure of building companies and raising capital. Bankers exist because of the essential business needs such as the sudden requirement of capital and company acquisition of other companies. Investment bankers have the networks and the capability to execute these financial transactions. In a digital platform, such banks have an opportunity to make a mark with their global networks and historical methods of transaction and pricing data. Banks with the information about customers can better understand their behavior. Investments in innovative solutions will allow them to use the data to provide a more educated view on markets, risks, and opportunities.
Investment banking is one of the most disrupted industries among all. It is comprised of private partnerships focused on specific markets and financial products. The industry was considered as traditional but has to reinvent new models to thrive in new technology-driven markets. Artificial intelligence, big data, interactive platforms, virtual reality and many such upcoming innovations in digital markets are fast altering the way business is conducted including investment banking. In financial markets, digital platforms for trading are common today which indicates at the urgent need for reforms in investment banking systems and the consolidation of multiple trading platforms.
Changing the Business Method
Companies who are major clients of the investment bankers no longer see the value of raising capital in the public markets. These companies often find it a better option to stay private because of the high regulatory and reporting costs, other sources of capital, and lower technology costs. The total number of companies publicly listed has decreased over the past decade. Since last few decades’ average numbers of companies going public have gradually reduced from annual three hundred to just one hundred at present. Few of the large companies have found ways to raise money outside of the traditional investment banking methods to grow with their models. Investment banking is no longer a must-have intermediate service for their business methods. Each company has its own culture and processes carried out by its staff. It has its own market and clients base. Everyone has their own way to solve the problems but companies must tackle the emergencies and adverse situations faster. Option to wait and see is no longer a choice.
Transforming Investment Banks
There are several challenges like tougher regulatory requirements for capital, low leverage, liquidity and collateral have substantially lower bank ROEs, complex, higher margin products. Commoditization of banking with increasing price transparency, risk management, and business controls have made banking structures costly. Outdated technology is inflexible and expensive to maintain hence it is no longer viable. The short-term tactical changes and improvements may give a temporary solution but a complete transformation will be required in the banks for success in the future.
The coordination between the teams of client service units with other functional departments will be required to enhance across product groups. Banks need to prioritize among clients for the service, and the banker staff behavior needs to get more professionally optimized at the organizational level. Investment banks will have to invest in products to present a comprehensive experience to the client. Client-centric service models that combine content, transactions and services will be successful.
The Way Ahead
Technology disruptions, emerging fin-tech startups, regulatory and security concerns are creating an enormous trouble in the future of investment banking. Restructuring is becoming a necessity for investment banks. They cannot compete in any other area other than those where they are market leaders. Over the next years, banks will have to give attention to their strengths and services in which they are good at. The current trend is from traditional banking to offering more specialist services.