Over the past decade, both the environment in which CIBs operate and the rules that they need to abide by have drastically changed.
By Frederic Ponzo
Whichever strategy they follow and whatever transformation they undertake, investment banks now face four existential threats:
- The commoditisation of the products that they sell;
- The compression of their margins resulting from this great simplification and the ensuing, increased competition;
- The progressive, but ineluctable, elimination of informational advantages; and
- Figuring out which workforce is needed and the jobs it has to perform.
To overcome these challenges, one must rethink and change a bank’s ways in depth:
- which behaviours should be encouraged or deterred;
- how products and services are manufactured;
- how they are marketed and distributed;
- how to manage data as the most valuable asset the bank holds; and finally
- how to hit the “reset button” and purge 35 years of accumulated technology debt.
So defined, the digitalisation of the investment banking business brings several very tangible opportunities:
- Improved Productivity beyond the obvious automation of labour-intensive tasks. Finally equipped with, not just more but the right information, and freed from the dullness of repetition, banking professionals can maximise their outputs by leveraging two uniquely human abilities – empathy (may that be with clients, colleagues, business partners of suppliers), and rational decision-making in new or uncharted circumstances.
- Reaching Clients Everywhere – Apart from a handful of exceptions, most investment banks retrenched and refocused on their core geographies and client franchises. With fewer bankers, traders and salespeople on the ground, only e-commerce and e-distribution solutions can make up for the reduced coverage, allowing banks to remain relevant to all their potential customers.
- Reaping the Benefits of Network Effects & Ecosystems – Investment banks can no longer offer everything to everyone, everywhere or do everything themselves. Shared platforms enable the rebuilding the economies of scale that one bank cannot achieve on its own anymore. When they gather together enough parties (customers and competitors alike) that would otherwise not interact with one another, platforms allow participants to bring their particular strengths to the fore and complement each other.
- The Ability to Move Faster, Further & Deeper – By integrating technology from the onset into the design of products and services (instead of as the subordinated task of embodying the new business workflow into an IT system), development cycles are dramatically shortened. It becomes possible to fail fast, to adapt iteratively to market circumstances and client demands, to innovate both incrementally and radically.
For hundreds of years banks have been banks; new technologies emerged, but the nature of the business remained the same: safeguard deposits, lend to trustworthy borrowers and invest funds according a chosen risk / reward equilibrium. This time is not different; investment banks will endure and remain the essential funnel between savings and the most productive investments. However, things are definitely changing for good for the bankers and traders within these institutions, and only die hard Luddites would deny the gains that embracing technology as part of the business proposition (and not just a mere tool to the service of the craftsman) can bring.
Being able to measure the level of adoption of this digital paradigm by each of the business units is essential to understand and predict their economic performance. This is the challenge that GreySpark Partners are set to help and solve.
Next week, we will be looking into the expectation and demands of the buyside in a digitalised relationship with the sellside.
Delta-X: The Digital Maturity Index for Investment Banks – How do you measure up?
