Capital Markets: In search of sustainable growth

In recent years, investment banks have faced a number of challenges that have negatively impacted revenues, while increasing costs. 

These include:

• Reduced risk taking capacity and increased regulatory oversight
• Technology-driven disintermediation and disruption from clients and new competitors 
• Increased buyside fragmentation and changes in customer expectations and needs

As a result, banks have seen declines in revenues across key functions including M&A, IPO writing in fees – this despite a recent surge in deal-making during the pandemic. 

To address these challenges, banks have tended towards a control-driven, operational, margin focused set of responses. One well documented area is process automation and juniorisation – to lower costs of operations. We have also seen the expansion of products and services to capture new revenue streams, such as providing alternative data sets and ESG services.

In response to increased competitive, regulatory and technology pressures, firms are choosing between scale and specialism plays (i.e. flow monsters vs. boutiques) to align operating models with revenues, and leveraging information asymmetries to drive advantages (i.e. flow/research capture and insights, corporate access).

While these responses may provide a short term salve, they fail to address the root issues and indeed, can increase the susceptibility to commoditisation and disruption in the medium term: more automation means more chance of eroding differentiation and reduced barriers, while leveraging information asymmetries, creates opportunities for technology-based solutions that democratise access to services and knowledge. 

To address the challenges sustainably, a new approach is required: Data-driven advisory. By this we mean augmenting human expertise with advanced insights and workflow solutions to better understand client intent and deliver targeted services.

Data-driven advisory enables banks to:

• Leverage digital technology to understand, design and enrich customer journey driven processes,  rather than efficiency motivated siloed processes. This enables rich interactions capture across sales & trading, research, corporate access and corporate finance
• Transform data capture and insights delivery from being operational and reporting activities to elements which flow naturally from day to day functions so that they are ambient rather than automated
• Integrate open, transparent data and platforms into the daily workflow, such that the customer insights platform becomes the foundational layer to deliver compliant access to insights for sales, trading, research and corporate finance professionals

Meeting this need requires a new approach to the CRM paradigm:

 

 

Data-driven advisory delivers a customer need based approach to Investment Banking, with greater emphasis on productivity and smarter resource allocation rather than blanket cost control and efficiency focused initiatives. 

By applying a data-driven model, banks can move can maximise revenue, profitability and operational efficiency. The shift to data-driven advisory will be as transformative as the shift to electronic trading was two decades ago. Are you ready?