Industry Coverage icon

The Future of Investment Banking

Understanding the future of the investment banking business.

Unlock a Free Sample
  • Keeping up to data with market development in investment banking
  • Better understanding the business of investment banks
  • Trying to understand changing business trends within the investment banking business
  • Preparing for technology changes that will impact IT

Our Advice

Critical Insight

The investment banking business is going through a period of rapid change that requires IT to:

  • Understand the changes throughout the business
  • Partner more closely with the business to enable new products and services
  • Recognize that the need for significant change has never been higher

Impact and Result

Significant changes are required throughout IT to enable it to:

  • Keep pace with the needs of the business
  • Understand the changes that are coming to better prepare
  • Educate the CIO and IT teams on their business

The Future of Investment Banking Research & Tools

1. The Future of Investment Banking is designed to support members from this industry to better understand the trends and topics that are driving changes in their industry.

Learn about three key trends that are driving change throughout the investment banking industry. These trends will help IT professionals better understand the business factors driving change and how IT can use them to drive better outcomes.

Unlock a Free Sample

The Future of Investment Banking – 2022

Continued rapid change for Investment Banking IT

Photo of David Tomljenovic mba ll.m CIM, Head Of Financial Services, Industry Research, Info-Tech Research Group.

David Tomljenovic mba ll.m CIM

Head Of Financial Services
Industry Research
Info-Tech Research Group

Analyst Perspective

The investment banking industry is experiencing a period of high disruption that is increasingly being driven by technology change. Traditional services provided by investment banks including trading, capital raising, mergers and acquisitions (M&A) advisory, and initial public offerings (IPO) are evolving rapidly as a result of changing market forces, competition, and emerging technologies.

Traditionally, the investment banking industry has been built upon personal relationships and networks. Institutional salespeople, traders, and investment bankers heavily rely on their personal relationships to be successful in their roles. However, a relationship-driven approach to many of the core functions in an investment bank have had the effect of blocking the adoption of new ways of doing business. Also, an element of inefficiency exists within the relationship model. Competitive forces, many of which are accelerated and enabled by technology, are reshaping many aspects of the investment banking industry.

Info-Tech’s approach focuses on an analyst’s investigation of strategic foresight. This methodology helps the IT department, and the business, process what is happening in the organization’s external environment in a way that guides ideation and opportunity identification. As a methodology, strategic foresight flows from the identification of signals to clustering the signals together to form trends and uncover what is driving the trends to determine which strategic initiatives are most likely to lead to success on an industry level.

Executive Summary

Your Challenge

The pace of change throughout the investment banking industry is accelerating. Customer demands, cost pressures, competitive products and services, and the increasing pace of business are placing new demands on IT.

The business is evolving to meet the new market conditions. IT must stay closely aligned to its business partners and stakeholders to assure they play an active role in developing new products and services.

Technology intensive products and services must be developed and supported in a fast-paced environment.
Common Obstacles

IT is often not included in new product and service development. Without early stage involvement, IT may struggle with system design, implementation, and support. It can often cause additional challenges with existing systems and infrastructure.

Technology governance is challenging. New product and service development can often be a large and complex undertaking. Without effective technology governance and project management, IT may be overwhelmed with the amount of projects they need to complete, which can lead to poor business satisfaction levels.
Info-Tech’s Approach

Excellence in IT operations, governance, and business-aligned strategy is essential. Now, more than ever, IT needs to be highly aligned with business needs to ensure they are in a position to deliver the new products and services that are coming to market.

Mature core IT capabilities are essential to achieving success. Data and data governance, enterprise architecture, and forward-thinking infrastructure design and planning are critical to success.

Business alignment approaches such as dev-ops and agile are becoming more popular. Without close and ongoing business alignment, IT will struggle.

Info-Tech Insight

The investment banking industry is undergoing a period of intense change driven by competition from new products and services. Customers are also experiencing challenges with costs, regulations, and changing end-customer preferences. IT must embrace change and support business innovation.

The Disintermediated Intermediary

Core Market Activities Are Changing

Many factors are driving change throughout most of the core market activities that an investment bank performs.

A high level of regulation exists and new regulations continue to be added that affect core functions. The industry is trying to find ways to minimize effort related to regulatory burdens.

Technology is enabling new capabilities in the areas of trading, IPOs/capital raising, and M&A services.

Investment banking customers are demanding more efficiency. They are trying to find new and more efficient (simpler as well as cheaper) ways to satisfy their capital market needs. This often threatens traditional goods, services, and processes.

Old Habits Die Hard

Most roles in an investment bank follow a hierarchy. Entry level individuals must move their way through a series of roles where they are supervised and taught by more senior members of the organization. An individual working in the investment banking role will have to move through five levels before they become a managing director.

Senior members of investment banks rely heavily on networks developed through their families, their education, and their work experience and are reluctant to adopt new ways of doing business that threaten the value of the systems they have worked decades to develop.

Additionally, traditional investment banking activities rely heavily on commissions as their prime sources of revenue. Much of the industry disruption threatens traditional commission rates.

New Opportunities Are Emerging

Investment banks must come to terms with their present and future market realities where customers and the market, not investment banks, are evolving new products and processes.

Investment banks must embrace new technologies that continue to disrupt existing core activities.

The role of IT within an investment bank is dramatically growing in importance. As the need for change from the business escalates, IT will be required to support new business opportunities, processes, and products.

The continued alignment between the business and IT needs to keep pace with the rapidly changing business environment.

Investment Banking Is Evolving to Changing Market Conditions

Regulatory, Technological, and Market participant preferences Are reshaping value streams

Regulators around the world are adopting new regulations that allow companies alternatives to traditional capital-raising processes such as the Initial Public Offering (IPO). This includes the Securities and Exchange Commission (SEC) in the United States. New mechanisms where companies can bypass investment banks and go directly to investors in a Direct Public Offering (DPO) are in their early days but are gaining interest.

Increasing regulatory requirements for selling securities to the public, such as S-1 Registration Statements, are driving up the cost and complexity for companies to access public capital that has led to increased use of Special Purpose Acquisition Corporations (SPACs), which can reduce investment banking involvement and fees.

The increasing use of technology throughout institutional investment processes is leading to a reduced role for investment banks, especially in the sales and trading groups where technologies, such as Direct Market Access, is growing in adoption and usage among the invitational investment managers.

Stacked bar chart of 'Global Investment Banking Revenue by Business by Quarter (US$ Billions)'.
(Source: The Wall Street Journal MoneyBeat)

100% of institutional asset mangers (a large investment bank customer group) report cost pressures in their business

65% of institutional asset managers report regulatory constraints as a primary challenge in their business (Source: Deloitte )

Many Changes Yet to Come to the Investment Banking Business in 2022

Change is occurring throughout the industry

New markets are emerging for investment banks such as private market securities trading. Private companies are choosing to stay private longer, but shareholders want to be able to sell/buy shares more easily. This is a natural opportunity for investment banks to enter.

New digital assets as tokenized assets and non-fungible tokens (NFT) are creating a new asset classes that investment banks are well suited to provide services around.

Crypto currencies also continue to hold a small yet persist place among the investment community. Investment banks can repurpose their capabilities to raise capital via IPOs and apply them to ICOs (Initial Coin Offerings).

Technologies that are Transforming The Investment Banking business

  • AI
  • Automation
  • Real-Time Data
Top investment banking IT Trend technologies to Explore
  1. All things data, classification, governance, and insights
  2. Automation of repetitive or low-value activities
  3. Automation of high value processes such as M&A to enhance client insight and opportunity identification
  1. AI applied to masses of customer data to drive innovation
  2. Blockchain or similar technology to standardize products/ contracts with the goal of accelerating settlement toward becoming real-time
  3. Mature dev-ops, agile, governance, and project management capabilities to drive deeper alignment with business goals

17.6% is the growth rate of the US investment banking market in 2022

8.5% is the growth rate of the global investment banking market from 2017-2022 (Sources: IBISWorld)

The future of investment banking is increasingly platform focused, data driven and automated

The investment banking industry has a long tradition of being based on personal relationships. The nature of the business supported higher fees across many areas of the business including M&A, sales, and trading. The combination of changing customer preferences and technology innovation and an increasing focus on costs as key customer groups experience their own disruption required investment banks to escalate their level of technology adoption to remain cost competitive and to innovate their products and services.

The Past

The investment banking industry has a unique history. The scale and importance of the services that investment banks provided to their customers resulted in close-knit relationships in which trust was developed over time.

Complex or proprietary data provided barriers to new entrants. Democratization of data/information is changing this leading to greater levels of competition.

Technology was not a major enabler for many of the key services offered by an investment bank. Telephone and email were the only technologies required for success in many aspects of the investment banking industry.

The Present

Technology has proliferated throughout the investment banking industry. Customers (institutional asset managers, private equity, and specialty hedge funds) are rapidly adopting new technology as well.

Technology has revolutionized access to data. Data was historically quite proprietary in nature (trading information, M&A transaction details, market statistics).

In many ways, technology has democratized much of what was proprietary. As well, it has provided access to datasets that previously did not exist.

Technology has reshaped investment banking. It has removed and redefined many historic value drivers.

The Future

The future of investment banking is much more technology enabled. Investment banks need to become technology/platform providers in order to continue to deliver value to their customers.

The nature of work is changing. Some of the work that individuals, from analysts through to managing directors, use to perform will be highly impacted or possibly replaced by technology.

Trading services are becoming increasingly automated. Humans are frequently being bypassed during trade execution.

The massive amounts of data that trading provides will become the enablers of equity, debt, and M&A activity.

What is the future of investment banking?

Automated, Data Driven, and Platform Centric

Automated

The nature of front office functions will change, or potentially be eliminated. This includes sales, trading and advisory services. Customers are choosing self-service or self-directed alternatives. These require increasing levels of automation to enable customers to engage with the investment bank (IB) according to their preference

Automation is becoming essential. The ongoing democratization of the investment banking business, combined with customer centric pricing pressures will require investment banks to use automation to continually reduce costs.

Data Driven

Data is critical to modern investment banks. The investment banking business and its customers increasingly rely on access to a growing number of rich data sources to power their businesses. IBs must assure their data capabilities are leading edge.

Internal use of data is becoming an essential component for success. Investment banks produce massive amounts of valuable customer-derived data that must be used for innovation.

Innovation and modernization will rely heavily on data to identify and launch new products and services.

Platform Centric

Investment banks are intermediaries. Much of their values comes from connecting consumers and providers of capital to one another. This is at the center of the sales, trading and advisory services.

Technology is disintermediating investment banks. Technology is enabling consumers and providers of capital to transact without the involvement of an investment bank.

IBs must find new ways to deliver unique value to their customers. They must take control of the technology innovation externally and provide new value to customers on their own platforms.

Investment Banking:
Three Enabling Trends

New Market Development
Become an enabler of new products and services

Embrace change. The innovation that is happening throughout the investment banking value chain needs to be embraced, not feared.

Trading is being disrupted by direct market access (DMA).

Private Securities Trading markets are evolving to create liquidity for non-public securities.

IPOs are llama being replaced by Direct Listings and SPACs

New products and processes are rapidly evolving such as Initial Coin Offerings (ICOs) or tokenized securities.

M&A Innovation
Continued consolidation

M&A Advisory is being challenged by transaction exchanges, deal matching services and new AI power technologies.

Relationships still matter. Despite the ongoing impact that technology is having on M&A services, investment banks still have an advantage by having relationships and proprietary customer and marketplace insights.

Investment banks must combine technology and proprietary knowledge to bolster their M&A capabilities.

Data is essential. Data that comes from other parts of the business can be used to identify M&A as well as other high-value activities such as capital raising.

Real-Time Systems
Speed is critical

Real-time systems are proliferating. Throughout the financial industry, the movement toward real-time systems is expanding.

The investment banking industry still has some delays throughout its processes such as the trading business that can take trade one, two or three days for settlement.

Real-time settlement is critical for risk management/mitigation, regulatory compliance, and new product and service developments.

NEXT STEP

Leveraging the Trends Report as a Key Input

Investment Banking of the Future
Trends Report

As part of your next steps checklist, leverage the trends report for priorities that drive measurable top-line organizational outcomes and the unlocking of direct value.
Arrow pointing right.

Business context & IT Strategy

IT StrategyDigital Strategy

The future will hold more trends and technologies, making it pivotal that your investment bank continues to establish itself as the disrupter, and not the disrupted. You must establish a structured approach to innovation management that considers external trends as well as internal processes. Info-Tech’s Define Your Digital Business Strategy blueprint and Build a Business-Aligned IT Strategy blueprint gives you the tools you need to effectively process signals in your environment, build an understanding of relevant trends, and turn this understanding into action.

Trend 01

New Market Development Through Innovation

Investment Banks must be actively developing new markets

Innovation Is Active Throughout Investment Banking

Global investment banking markets are adopting new products, services, and opportunities

Technology is leading the way for many changes throughout global investment banking markets. Global capital markets are experiencing dramatic changes such as:
  • Direct Market Access (DMA) trading
  • Direct market listings which bypass the traditional Initial Public Offering (IPO) process
  • The creation of trading markets for the security of companies that are privately owned
  • The rise of AI in investment decision making, idea generation, portfolio construction, risk management, and trading
  • New investors who use apps such as Robin Hood and online resources that impact institutional investors
  • The rise of new asset classes such as cryptocurrencies and the associated Initial Coin Offerings (ICOs), non-fungible tokens (NFTs), and other digital assets
  • High velocity trading working in conjunction with quantitative investing strategies
  • The rising popularity of index investing
  • The rise of Environmental, Social, and Governance (ESG) investing
AI’s Impact on hedge fund TRADING
The estimated percentage of aggregate trading activity being processed using AI algorithms

20%

27%

The estimated amount of aggregate hedge fund trading executed using AI

67%

The percentage of hedge funds using AI for investment idea generation H1 2018 (Source: OECD)

Signals

What we are seeing

A collection of market factors are reshaping investment banking markets
  • Customer revenues are changing. Institutional asset mangers are facing revenue challenges as the market continues to adopt passive, index investing strategies that are causing a compression in management fees.
  • Direct to market is growing. There is a small but growing movement toward direct-to-market activities such as Direct Market Offerings where companies go public with minimal investment bank involvement.
  • Electronic trading. Trading is increasingly executed through Direct Market Access and sophisticated algorithms (at much lower rates).
TOP NEW MARKETS INVESTMENT BANKS NEED TO TRACK
  • Direct Market Offerings
  • Direct Market Trading
  • Cryptocurrencies
  • Initial Coin Offerings
  • Non-fungible tokens

Drivers

Why you should care

Icon of a graph with an upward trend.When customer revenues, expenses, and profitability are challenged, investment banks are soon to follow.Icon of a group of people.New trends often start small but can gain momentum. Innovation that affects core revenue needs to be considered.Icon of a person pointing to a presentation.Technology continues to disrupt financial services. Technology is becoming an arms race that investment banks will be forced to participate in.

Benefits and Risks

BENEFITS

New revenue opportunities

New product/opportunity identification

Larger sources of transactional data

New markets offer potentially new revenue sources. The investment banking business is fundamentally one based on acting as an intermediary between parties, traditional consumers of capital, and providers of capital.

Existing knowledge and technologies can be modified to address new markets such as private securities trading, direct market listings, initial coin offerings, and non-fungible token sales and trading.

New product and service revenue also generates more/new data and data sources. This can allow investment banks to more deeply understand their customers’ activities and behaviors to drive additional new business.

RISKS

Threat to traditional revenues

Potential for disintermediation

Potential security risk from greater technology adoption

Opportunities are also threats. While new markets hold the potential for new sources of revenue, they also threaten existing core markets. In many cases, the new markets could cause traditional revenue sources to decline and the investment bank is left trying to generate new revenue to replace it.

Managing disintermediation from innovation. Many new market opportunities also disintermediate traditional roles. While the investment bank may have the resources and experience to facilitate new opportunities, the market participants may be using/prefer new approaches.

New innovations and technologies often engage advanced technologies more aggressively. The newly created opportunities can expose investment banks to new and greater risks.

What the new market development trend means to Info-Tech members

CIOs

CIOs need to become deeply connected to their business partners. In order for IT to effectively support the successful launch of new products, services, and overall business lines, they need to be part of their design from their inception.

CIOs need to stay up to date with business-focused innovation to assure that they are well informed before their business partners engage them in the development and execution of new products.

CIOs need to invest time into understanding the enabling technologies that are required by new products, services, and business lines.

CIOs should not wait to be included in new product and service development. The financial services industry has the tendency to provide limited or weak guidance to IT. For this reason, CIOs need to assure they are well informed and able to work in an ambiguous environment.

IT Departments

IT teams need to prepare themselves for an increasing pace of change, and that is likely to require them to take on an increasing number of activities that may be new to them.

Become an active observer of changes that are occurring within their organization. Rather than waiting for opportunities to present themselves from above, IT team members should seek out ways to participate in new initiatives or volunteer for cross-functional team participation.

IT teams need to proactively embrace training/re-training. In a dynamic environment characterized by continuous new product/service/market development, IT team members need to proactively engage in training in areas that will be in high demand.

Recommendations

  • Partner closely with the business. Successful new development will require IT to be close and deeply aligned with the business. Exceptional governance and project management skills will be essential to success when entering new markets.
  • Create open and agile infrastructure. New market developments require existing infrastructure to be agile and responsive to changing conditions. Invest in API Management tools and pursue a service-oriented architecture to futureproof existing infrastructure.
  • Security must be a top priority. Info-Tech security diagnostics can help IT service providers evaluate the current state of your client’s security management and governance areas, including security policies and processes.

Info-Tech Resources

Increasingly, new markets are being identified, built, and operated with advanced technologies. For investment banks to succeed in new markets they will have to work co-operatively across many stakeholder and business units.

At no point has technology governance been more important. In a rapidly evolving environment, cross functional teams working within an agile framework are a critical success factor. In order to overcome the threats represented by changes in the market and to thrive by developing new opportunities, IT must be fully engaged and aligned with the business.

Trend 02

M&A innovation

Technology is reshaping the way M&A is done at investment banks

Technology/market dynamics drive future M&A innovation

Digitalization has revolutionized the way organizations operate
  • The market for digital transformation is expected to grow at a compound annual growth rate of 19.1% between 2021 and 2026.
  • Businesses are experiencing digitalization at various levels:
    • Customer experience
    • Optimize the workforce
    • Enhance operational activities
    • Transform product and services
Conducting business digitally generates growth in products and services
The percentage increase in the global average share of partially or fully digitalized products and services between December 2019 and July 2020.

62%

Acceleration of seven years

64%

Acceleration of seven years
The percentage increase in the global average share of digital customer interaction between December 2019 and July 2020.(Source: McKinsey, 2020)

30%

Data automation could reduce an investment banker’s hours by a much as 30% (Source: Introhive)

To remain competitive in new business and economic environments, the need for digital adoption has become a business imperative.

Signals

What we are seeing

The M&A process is going through significant changes
  • Investing In Automation. Leading investment banks are taking a deep look into their M&A processes to determine what creates value and what doesn’t. Low value activities are the focus of heavy automation efforts.
  • Looking for Value In Proprietary Data. Investment banks generate large volumes of transactional data, which is now being used to reveal high-margin opportunities in M&A as well as equity and debt placements.
Sources Of Innovation being explored by investment banks
  • Reviewing proprietary internal data sets
  • Automation of regulatory files
  • Automation of financial modelling
  • Data mining client transaction activity

Drivers

Why you should care

Icon of a graph with an upward trend.Major changes to any of the core functions in M&A are going to have meaningful impacts to the people, processes and technology that support them.Icon of a group of people.Data mining, automation, machine learning, and AI are being used. IT will be required to implement and support these technologies.Icon of a person pointing to a presentation.New technologies will likely require people with new skills to design, build, and support them. Talent acquisition, training, and development are critical.

Benefits and Risks

BENEFITS

Identify More M&A Opportunities

Streamline M&A Processes

Grow Overall Profitability

Technology adoption can drive innovation. By adopting more technologies throughout the M&A process, more opportunities can be identified. In particular, the large volume of data that an investment bank generates from its business lines (sales, trading, M&A advisory etc…) can provide insights into new opportunities to raise debt and equity capital, to find buyers and sellers of assets, and to recognize potential candidates for M&A activity.

Investing in innovation. Many investment banks have already invested heavily into evaluating the core processes related to M&A and where possible. They have tried to replace low value effort with technology, especially automation. This accelerates the M&A process and also has the added benefit of reducing costs in many situations.

Technology supporting M&A profitability. The use of technology to identify new advisory opportunities combined with technology powered optimization is helping to make M&A activates more profitable.

RISKS

Potential to Cannibalize Revenues

Over Reliance on Technology

Failure to Cultivate New Talent

Use technology prudently. As technology transforms portions of the M&A business, there is the potential to cannibalize existing revenues. High effort is one justification for high fees in the M&A industry and greater technology and automation could challenge this.

Find the right technology balance. By relying too heavily on technology, there is the potential that some of the “art” of M&A will be lost. While M&A can be process heavy, there is still a large part of it that is difficult to replicate with technology.

Don’t forget people. An over emphasis on technology and deep automation of processes can lead to a failure to develop new investment banking talent. M&A is, in many ways, about ideas that come from highly talented, skilled, and experienced investment bankers. Investment banks must continue to cultivate and develop human talent as well as technology.

What the M&A innovation trend means to Info-Tech members

CIOs

Need to become deeply connected to M&A leadership. In order for IT to effectively support the successful transformation of the M&A process they need to become a part of their redesign.

Need to invest time into understanding the enabling technologies that are required by the M&A innovation, with a specific focus on automation and data tools.

Need to stay up to date with business-focused innovation to assure that they are well informed before their business partners engage them in the innovation process.

Should not wait to be included in the M&A innovation process. The financial services industry has the tendency to provide limited or weak guidance to IT. For this reason, CIOs need to assure they are well informed and able to work in an ambiguous environment.

IT Departments

Need to prepare themselves for an increasing pace of change that is likely to require them to engage in an increasing number of activities that may be new to them.

Need to become an active observer of changes that are occurring within their organization. Rather than waiting for opportunities to present themselves from above, IT team members should seek out ways to participate in new initiatives and volunteer for cross-functional team participation.

Need to proactively embrace training/re-training. In a dynamic environment characterized by continuous new product/service/market development. IT team members need to proactively engage in training in areas that they see will be in high demand.

Recommendations

  • Design digital business strategy. Build an effective digital strategy for your client that is not only focused on automating business processes but also focused on driving business resilience for growth opportunities.
  • External and internal digital impact. Prioritize projects or initiatives to implement digital technologies or solutions at various fronts of your client’s business, such as marketing, sales, operation, collaboration, advertisement, customer engagement, customer service, and remote workplace.
  • Digital risk. It is imperative to introduce the client to digital risks associated with digital transformation initiatives at the level of structural and operational changes in the organization.

Info-Tech Resources

M&A innovation is going to come in many forms and is having broad-based implications for the technology teams that must support the innovation.

CIOs and their teams need to be active participants in the innovation process. Their efforts should begin well before they are formally involved in the redesign and innovation process.

Education and training is crucial for CIOs and IT to be effective partners with the business. Learning about the business itself and speaking with colleagues in other organizations and profession groups are excellent places to learn and develop the skills and knowledge needed to succeed.

Trend 03

Real-Time Systems (RTS)

Investment Banks should be selective with their initial RTS transformations

The Future Is Real-Time

Financial markets of all types are moving toward real-time systems. the investment banking industry needs to keep pace

Real-time systems are becoming a key requirement throughout financial services. The top five reasons to adopt real-time systems are:
  1. Customers have real-time access to funds
  2. Reduced risk of fraud and mitigation of counterparty settlement risk
  3. Product innovation is enabled by real-time systems capabilities
  4. Increased customer satisfaction; lower operating costs
  5. Real-time systems transformation can occur over time, most important markets first
  6. (Source: FIS Global)
Data is essential to financial services competitive advantage
Percentage of global financial institutions reporting competitive advantage gains from data use. (Source: The IBM Institute for Business Value)

71%

63%

Global average increase in competitive advantage from all industries using data.

20%

The annual growth rate of AI spending between 2019-24 (Source: OECD / ICD)

Real-time systems are going to increasingly become a necessity throughout financial service. Internal and external customer expectations will drive the continued need for real time systems. It will increasingly become a question of when, not if, RTS are adopted.

Signals

What we are seeing

A growing number of systems are being upgraded to real-time
  • Markets Are Moving Faster. The pace of business in the investment banking world is accelerating as market participants adopt more technology. As markets and participants accelerate their pace, so must investment banks.
  • Regulations and Compliance Are Essential. The pace and complexity of products and transactions are increasing. Real-time systems are the frequently the only solution to deliver robust and effective regulatory and internal compliance.
  • Driving New Products and Services. Real-time systems are enabling a new generation of products and services. Customized experiences, products, and services are difficult to deliver without real-time systems.
Drivers Behind the transition to real-time systems
  • External use of real-time systems is accelerating
  • Growing technology adoption is accelerating the pace of business
  • Humans cannot provide adequate oversight of growing transactions
  • Product complexity, where financial instruments have derived values based on other complex assets, make effective human oversight impossible.

Drivers

Why you should care

Icon of a graph with an upward trend.Real-time systems have a wide-reaching/ripple impact on other systems.Icon of a group of people.Real-time systems have different design, build, and run requirements that your IT organization may not be prepared for.Icon of a person pointing to a presentation.Real-time systems will place a greater focus on enterprise architecture and infrastructure.

Benefits and Risks

BENEFITS

Reduced Fraud and Risk

More Effective Oversight And Regulatory Compliance

Increased internal/external customer satisfaction from new real-time capabilities

Reducing fraud and risk. Real-time systems reduce the potential for fraud and risk associated with settlement delays. With real-time systems, settlement can occur immediately, reducing the potential for funds to be removed that were supposed to be used for settlement.

Regulatory optimization. In an environment where real-time data is assured, the risk to an investment bank is reduced. The period between a transaction’s occurrence and the time it settles with the parties involved puts capital at risk for the investment bank. In an environment that is characterized by high transaction volumes and/or high value transactions, the value of real-time systems is revealed.

Delivery customer satisfaction. Real-time systems offer opportunities for new product and service innovation. In time-sensitive markets such as trading, real-time data presents many opportunities for new products, services, or features.

RISKS

Faster-paced business environment

Potential implications on other systems

Elimination of “buffer” time to capture errors

Increasing the pace. Real-time systems inevitably lead to a faster pace of business. As noted, there is tremendous opportunity to be gained from this feature. At the same time, the faster paced environment can also have potentially negative implications.

Consider broader impacts. The introduction of or upgrade to a real-time system introduces a complex multi-system environment and can cause a ripple affect with other systems. Rarely, do systems work in total isolation. The implications on connected systems must be fully explored before the transition to real-time is completed.

New risks may be introduced. Many transactions have delayed settlement serves to act as a buffer to allow compliance, regulatory, and financial processes to occur. With real-time systems, any buffer that previously existed is eliminated. This can introduce new risks into the transaction that must be fully considered.

What the RTS trend means to Info-Tech members

CIOs

The shift to real-time systems can have broad implications. As systems transition to real-time, there is likely to be a ripple impact on other technologies, processes, and the people who design and support them.

CIO’s need to work with company-wide stakeholders well in advance of the go-live date of a real-time system. We suggest the use of our reference architectures to assess the impact on other systems.

Establish new support agreements with vendors as well as internal stakeholders to assure that there is a mutual agreement around support expectations. Real-time systems can often require a higher level of support.

Communicate the differences with RTS to stakeholders to assure that they are well informed about the differences compared to less time-sensitive systems.

Enhance services around RTS. Market information, communications circuits, etc. are likely to see a requirement for increased speed, reliability, and redundancy that CIOs must understand and plan for.

IT Departments

IT Teams are likely to experience a greater need for support once real-time systems are launched within their organizations. This is especially in an Investment Bank where real-time systems are critical components of many time-sensitive activities.

Understand escalated user expectations that will be come with RTS. Activities such as trading involve a high level of real-time systems use. In many business lines, real-time can now mean milliseconds, not seconds, minutes, or hours. These activities are critical revenue generators for the Investment Bank and they are also essential to maintaining good client relationships, so IT team members need to prepare to respond instantly to issues affecting these systems.

Enhanced training on new systems and the technology that support RTS. IT teams will likely need additional training to support the technology that hosts the RTS as well as the services that feed into them.

Recommendations

  • Perform a Needs and Return Analysis. This is the first step to understand the most valuable use cases for real-time systems. Recognize that not all products and services will benefit equally from real-time systems (RTS). It is important to assess which systems will generate the most internal/external customer benefits from RTS and transform them first.
  • Start Small and Work Collaboratively. The transition to RTS will present a lot of new challenges. It is important to start with a system that is smaller and not likely to be a core system. Take a cross-functional team approach to assure all stakeholders are involved in the project to minimize unexpected challenges.
  • Take an Agile Approach. Adopting an agile approach to RTS transformation will help to break the project down into smaller stages with frequent stakeholder checkpoints. This will minimize unnecessary effort and lead to greater stakeholder alignment and satisfaction.

Info-Tech Resources

The transition to real-time systems is likely to present many new business and technology challenges. Real-time systems have broad implications across all parts of an Investment Bank. Legal, regulatory, finance, and risk as well as business owners need to be an integral part of any real-time systems transformation effort. Working in cross functional teams with an agile approach will enhance stakeholder satisfaction with the transformation. It will also help to educate stakeholders to enable future RTS transformations.

Bibliography

“5 Data Analytics Trends in Investment Banking.” AlphaSense. November 23, 2021.

“2022 Trends: The Impact of Technology on Investment Banking.” Accessed June 20, 2022.

“Analysis: New Direct Listings Won’t Spell the Death of IPOs.” Reuters, December 28, 2020.

“Analytics: The real-world use of big data in financial services.” IBM Institute for Business Value. N.d.

Andrzejek, David. “Banks and Real-Time Data - Are They Running out of Time?” Global Banking and Finance Review. Accessed July 28, 2022.

Annett, Michael. “Cracking the Myth of Long Investment Banker Hours | Introhive.” Introhive. Accessed July 27, 2022.

“Artificial Intelligence, Machine Learning and Big Data in Finance: Opportunities, Challenges, and Implications for Ploicy Makers.” OECD, 2021.

Ashigbi, Ablorde. “Trends in Investment Banking Technology.” 4Degrees, November 4, 2022.

“Asset Management Survey - The Gold Rush Route for Asset Managers.” Deloitte, 2019.

Baghai, Pooneh, Ju-Hon Kwek, and Philipp Koch. “The Future of Asset Management in North.” McKinsey & Company, October 6, 2021. Accessed July 25, 2022.

“Bank of 2030: The Future of Investment Banking.” Deliotte. Accessed June 20, 2022.

“Banking and Capital Markets.” PwC. Accessed June 21, 2022.

Beltran, Luisa. “Direct Listings Jump. Why This Path to Going Public Is Getting Noticed.” Barron’s. Accessed July 25, 2022.

Bughin, Jacques, et al. “Automation and the Workforce of the Future.” McKinsey & Company. Accessed June 21, 2022.

Charpentier, Jerome, and Ali Djellalil. “Fintech Trends in Investment Banking – Volume 2 : Structured Finance.” Ailancy, April 16, 2021.

“CRM for Investment Banking.” Affinity. Accessed July 25, 2022.

DeChesare, Brian. “Technology Investment Banking: Deals, Sectors, Valuations, and Exits.” Mergers & Inquisitions. July 8, 2020.

“Direct Listings vs. IPOs, From a Banker.” Morgan Stanley. Accessed July 25, 2022.

Dubey, Ruchika. “Banking on Real-Time Analytics for Better Customer Experience.” Knoldus Blogs, November 18, 2019.

Bibliography

Chen, James. “Direct Market Access (DMA).” Investopedia. Accessed July 25, 2022.

“Digital Transformation Market by Technology (Cloud Computing, Big Data and Analytics, Mobility/Social Media, Cybersecurity, AI, and IoT), Deployment Type, Organization Size, Vertical (BFSI, Retail, Education), and Region - Global Forecast to 2026.” Research and Markets. Accessed July 28, 2022.

“Direct Listings vs. IPOs, From a Banker.” Morgan Stanley. Accessed July 25, 2022.

“Direct Market Access (DMA).” Corporate Finance Institute. Accessed July 25, 2022.

Feldsher, Keren. “Financial Real-Time Data: Five Factors to Keep in Mind.” Coralogix, March 10, 2022.

Fernando, Seshika “Real-Time Analytics in Banking and Financing: Case Studies.” WSO2, April, 2017. Accessed July 27, 2022.

“Future of Investment Banking: Eye-Opening Trends and Challenges to Consider.” RNC. Accessed June 21, 2022.

“Global Investment Banking Industry - Growth, Trends, COVID-19 Impact, and Forecasts (2022 - 2027).” Research and Markets. Accessed June 21, 2022.

Guagenti, Peter. “Why Real-Time Data Matters in Financial Services.” International Banker, September 11, 2019.

Harrison, Jill. “5 Trends Shaping the Future of Investment Banking Today.” Silverline. June 15, 2021.

Hazdun, Nazariy. “7 Recent Trends in Investment Banking Technology.” Geniusee, March 11, 2022. Accessed June 20, 2022.

“Industry Market Research, Reports, and Statistics.” IBISWorld. Accessed June 21, 2022.

“Investment Banking Scorecard.” The Wall Street Journal MoneyBeat. Accessed July 25, 2022.

“Investment Banker Demographics and Statistics [2022]: Number Of Investment Bankers In The US.” Zippia. January 29, 2021.

“Investment Banking - Overview, Guide, What You Need to Know.” Corporate Financial Institute. Accessed July 27, 2022.

“Investment Banking software to reduce risk and accelerate innovation.” Finastra. Accessed July 27, 2022.

“Investment Banking; Top Trends That Will Shape Investment Banking In 2022.” SG Analytics, April 5, 2022. Accessed June 21, 2022.

“Kumar, Kiran, and Saswata Mohanty. A“Investment Banking Industry Trends in 2022.” Acuity. Accessed June 21, 2022.

Bibliography

Kriplani, Jash. “Direct Market Access in Exchanges Will Pose Higher Systemic Risk: Brokers.” Business Standard News. Accessed July 25, 2022.

Lessig, Matt. “Five Benefits of Real-Time Processing - Insights.” FIS Global, May 2, 2022. Accessed July 27, 2022.

Lin, Diaan-Yi, Sruthi Namratha Rayavarapu, Karim Tadjeddine, and Rebecca Yeoh. “Helping Small and Medium-Size Enterprises Thrive.” McKinsey & Company, January 25, 2022. Accessed July 28, 2022.

“Next in Banking and Capital Markets Trends.” PwC. Accessed June 21, 2022.

O’Kelly, Ronan, Mariya Rosberg, Dylan Walsh, and James Davis. “Corporate And Investment Banks - Striving to Sustain Returns.” Oliver Wyman. Accessed June 21, 2022.

“Percentage of Asset Managers Using Direct Market Access.” Google Search. Accessed July 25, 2022.

Pogson, Keith. “Why Banks Can’t Delay Upgrading Core Legacy Banking Platforms.” EY, June 18, 2019. Accessed July 27, 2022.

Portillo, Ricardo. “Real-Time Insights in Financial Services.” Databricks. May 20, 2022.

“Real-Time Observability in Finance.” Crowdstrike. Accessed July 28, 2022.

Ritter, Jay R. “Initial Public Offerings: Updated Statistics,” University of Florida, October 27, 2022.

Shahrawat, Dushyant. “Making Sense Of The Innovations in Investment Banking On Wall Street.” Forbes. Accessed June 21, 2022.

“Technology Innovation Trends in Investment Banking.” Salesforce. Accessed June 21, 2022.

Terenina, Vlada. “Making a Business Case for Real-Time Data in Retail Banking.” INETCO, March 30, 2017.

“Top Investment Banking Trends - CIB & Wealth Management.” Early Metrics. Accessed June 21, 2022.

“Top Investment Banking Trends to Watch in 2021.” Investment Banking Council of America, December 15, 2020. Accessed June 21, 2022.

“What Is ‘Real-Time’ Anyway…?” Rapid7 Blog, April 18, 2014.

“What Role Does Technology Play in Investment Banking?” HCL Technologies. Accessed June 20, 2022.

White, Olivia, et al. “Financial Data Unbound: The Value of Open Data for Individuals and Institutions.” McKinsey & Company. Accessed July 28, 2022.

Wilson, Christy. “4 Examples of How Financial Institutions Are Using Big Data Analytics.” Precisely Blog, April 15, 2020.

About Info-Tech

Info-Tech Research Group is the world’s fastest-growing information technology research and advisory company, proudly serving over 30,000 IT professionals.

We produce unbiased and highly relevant research to help CIOs and IT leaders make strategic, timely, and well-informed decisions. We partner closely with IT teams to provide everything they need, from actionable tools to analyst guidance, ensuring they deliver measurable results for their organizations.

What Is a Blueprint?

A blueprint is designed to be a roadmap, containing a methodology and the tools and templates you need to solve your IT problems.

Each blueprint can be accompanied by a Guided Implementation that provides you access to our world-class analysts to help you get through the project.

Talk to an Analyst

Our analyst calls are focused on helping our members use the research we produce, and our experts will guide you to successful project completion.

Book an Analyst Call on This Topic

You can start as early as tomorrow morning. Our analysts will explain the process during your first call.

Get Advice From a Subject Matter Expert

Each call will focus on explaining the material and helping you to plan your project, interpret and analyze the results of each project step, and set the direction for your next project step.

Unlock Sample Research

Author

David Tomljenovic

Search Code: 100205
Last Revised: December 12, 2022

Visit our IT Cost Optimization Center
Over 100 analysts waiting to take your call right now: 1-519-432-3550 x2019