This report examines the current state of banks’ e-commerce offering in the reality where, following the financial crisis, banks have refocused their trading from complex financial engineering to the distribution of simpler products. The research found that, as a consequence of this significant increase in e-trading venues, which coincided with subdued transaction volumes, several asset classes are suffering from chronic over-capacity. Until this excess e-trading capacity is withdrawn voluntarily or as a result of regulatory pressures, the investment banking industry will struggle to achieve satisfactory profitability levels let alone return to pre-crisis return on investment ratios.
Proprietary bank platforms are about to enter a new generation. The traditional SDPs that spearheaded the transition to e-commerce are reaching the dusk of their existences; they are now too numerous, too cumbersome and too narrow in scope. Despite the colossal inflation of the technology investment required to bring an SDP to market, proprietary platforms remain unique tools to build and defend an investment banking franchise. This new generation of DIB platforms will replace existing SDPs and will dramatically raise the barriers to entry for any bank seeking to avoid the disintermediation of its SDPs created by multi-dealer platforms (MDPs).
With increasing costs and collapsing margins, it is no longer possible for investment banks – bar a handful of ‘flow monsters’ – to compete in every segment of the market. Flow monsters need to refocus their ambitions and have a structured and objective re-evaluation of their market positioning, technology capabilities and levels of readiness for adaptation to new market structures. This report concludes with an advice on how to build a competitive e-commerce strategy in the emerging new era of DIB and client-centric offering.
