Top 10 Challenges for Investment Banks 2016 Introduction
Top 10 Challenges for Investment Banks 2016 Introduction
The Impact of Digital Technology on Investment Banking Over the past eight years, the Top 10 Challenges for Investment Banks series has documented the dominant issues and priorities that have captured the attention of leadership teams in investment banks. Because the launch of this series coincided with the start of the 2008 financial crisis, much of our discussion to date has revolved around the industry’s response to regulation, compliance and capital adequacy. In researching this year’s series, we noticed a distinct shift in focus and priorities among industry leadership. Notably, half of the challenges address the general impact of digital technology and the specific implications of financial technology (FinTech) innovation. Topics such as blockchain technology and distributed ledgers, which seemed esoteric and marginal last year, have moved to the top of management agendas as their potential for far-reaching economic benefits has been revealed, and the threat of disruption or even disintermediation has grown.
2016 Investment banks are also increasingly aware of what is happening outside their industry. When we wrote about digital technology last year, it was in response to the industry’s desire to shape the client experience rather than developments in the broader ecosystem.1 The topic of utilities, which remains of great interest today, was perhaps the first instance of firms recognizing the importance of innovation beyond the “four walls” of an investment bank.2 The idea that the external marketplace is a source of potential solutions and threats has gathered momentum this year and found its way into multiple challenges. While regulation, compliance and capital optimization continue to be critical issues for investment banks, management teams are approaching them in new ways. Once treated as episodic issues requiring project-based responses, they are now widely considered “disciplines” that need to be embedded in business, operations and technology functions. At the same time, many investment banks still find that they have substantive cost issues. In addition to posing a fiscal burden—as much as $20 billion for the largest investment banks collectively—these legacy environments limit firms’ ability to redirect investment to emerging innovations. In speaking with executives, we noted three major factors driving this overall shift in interest and realized that digital technology, FinTech and the ecosystem emerging outside investment banking need to be front and center in management minds: 1. Lower barriers to entry for financial technology and solutions have resulted in increased innovation and potential competition. As processing power, data storage and mobile technology have become more efficient, and cloud-based software and services have become
While regulation, compliance and capital optimization continue to be critical issues for investment banks, management teams are approaching them in new ways. Once treated as episodic issues requiring project-based responses, they are now widely considered “disciplines” that need to be embedded in business, operations and technology functions.
more prevalent, the cost of turning ideas into working solutions has dropped dramatically. As noted by CB Insights, the amount of funding required to launch a technology startup fell from $5 million in 2000 to just $5,000 in 2011—and is likely even lower today.3 2. Finance—and investment banking in particular—has become a hot new area for technological innovation and investment. Investment in FinTech has grown explosively, rising from $1 billion in the second quarter of 2010 to $3 billion in the first quarter of 2015.4 This investment is attracting top-tier technology talent to Wall Street—although not necessarily to big investment banking firms— and creating new templates for activities, including trading, wealth management and capital raising. 3. The “network effect” is in play. As more types of transactions are digitized and more institutions adopt digital solutions, digital technology’s impact will grow dramatically. The benefits of industry utilities for functions like post-trade transaction processing multiply as more firms participate. Digital strategy is now business strategy. It affects client experience, product development, market infrastructure and more—and it is increasingly being driven from outside the “four walls” of investment banks. Digital technology is changing everything. As our exploration of this year’s challenges demonstrates, investment banks will need to harness all of their drive and creativity to adapt to and ultimately master these changes. This new environment brings new competition, new customer expectations and continuing pressures on margins, but it also offers new opportunities and new ways to conduct business more effectively and more efficiently.
In this year’s Top 10 Challenges series, we examine the hot topics in digital technology and other key issues that are dominating C-Suite discussions in the investment banking industry.
In this year’s Top 10 Challenges series, we examine the hot topics in digital technology and other key issues that are dominating C-Suite discussions in the investment banking industry. Top 10 Challenges for Investment Banks 2016
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Workforce of the Future: Dealing with Business Change and the Millennial Challenge Investment Banking Technology: Jettisoning Legacy Architectures Reference Data Management: Understanding the True Cost Blockchain Technology: Preparing for Change Value Based Cost Reduction: Finding the Optimal Strategy for Revenue Growth Global Structural Reform: Establishing a New-Era Response to Business Restructuring Trading Commissions: Rising Above the “Race to Zero“ Digital Disruption: Embracing an Integrated Digital Ecosystem Cyber Security: Confronting the Threat Market Data: Taking Control of the Cost Spiral
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Bob Gach Managing Director, Accenture Strategy - Capital Markets Lead [email protected]
Owen Jelf Managing Director, Accenture Capital Markets - Global and Europe Lead [email protected]
Wei Min Chin Managing Director, Accenture Capital Markets - Asia Pacific Lead [email protected]
Paula O’Reilly Managing Director, Accenture Capital Markets - North America Lead [email protected]
The authors would also like to thank Irina Scarlete and Jason Lee for their contributions. Read all the Top Ten Challenges www.accenture.com/10challenges Follow us on Twitter @AccentureCapMkt Explore more Accenture Capital Markets Latest Thinking www.accenture.com/CapitalMarkets
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http://www.accenture.com/us-en/10-challenges-investment-banks-2015-digital-technology http://www.accenture.com/us-en/10-challenges-investment-banks-2015-utilities http://www.cbinsights.com/fintech-trends-overview 4 http://www.cbinsights.com/fintech-trends-overview 1 2 3