Digital technology is nothing at all new in the capital markets. Investment banking institutions were early adopters of digital technology, and the technical advances they made in leading office for trading and evaluation probably outpaced the developments in a great many other industries. In some cases, however, with the speedy increase of high-frequency trading notably, and product innovation that considerably went a step too, the industry probably became a hostage to its own technological creativity.
The next generation of digital development needs to be more balanced. It must allow a trading culture that is lasting and it must include the advantages of digital development into all elements of the business, creating a leaner, more connected ecosystem. New technology can be harnessed to innovate the front office further.
Take the world of advanced analytics, for example. You can find new offerings around predicting trading patterns, understanding trader behavior and sentiment, and providing more accurate data visualization provide obvious advantages for the trading desk and the research and marketing departments. Basically, we believe investment banks should embrace a FinTech adoption strategy that identifies long-term potential while prioritizing short-term gains. We believe the investment bank sector should look at innovation in much the same way that it could plan a multi-year portfolio. Some established technologies already offer short-term profits for firms both with an enterprise level and for specific point solutions.
Cloud processing is nearing maturity, and its own core benefits by means of lower costs, reduced capital expenses, scalability, speed and versatility of setup are well understood. However, investment banks continue steadily to have some reservations about the cloud from a risk management viewpoint and regulatory considerations remain over data privacy, transfer and location. As a result, many companies are opting to look at private cloud which provides some, but not all, advantages of the technology.
Process and service externalization is another concept that offers real short-term opportunities. Identifying the need to innovate in the right regions of the business is merely the first part of the puzzle. The next thing is deciding on the best technology companions for an investment bank or investment company, and this can be a challenging process not least because of capital market’s complicated infrastructure, operating culture and model. FinTech companies tend to have a far stronger understanding of technology than they do the intricacies of capital markets.
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At the same time, investment banks are expected to deliver short-term returns while the advantages of technology-led advancement normally are understood in the long-term. For FinTech to achieve success, it is crucial that corporate culture makes clear that advancement is expected – and indeed required – of market leaders within the business.
The firm also requires a governance framework that supports effective development. And it must support a means of working that allows technology initiatives to “fail fast” and encourage the lessons discovered to be included in future cycles. How invention is integrated into the operating framework of investment banks also plays a large part in its long-term efficiency.