How will Investment Banking Change in 20 Years or So in the Future
Technological advancement has brought about a massive transformation in the capital market and banking sector. The banking segment is largely dependent on crucial business requirements including a company’s total capital, the involvement of investors and company acquisitions or mergers. Globally acclaimed banks exist mostly due to fundamental requirements to keep the economy up and running; investments bankers here play their due role by using their networks or connections to make these financial transactions happen. Investment banking is a business that involves high-stakes, higher costs, and an even higher chance of profiting business; however, bankers often have to spend years building the right kind of relationships with companies, investors, buyers, and sellers, something that is not taught as a skill in an investment banking course.
The gradual transition in the traditional process
Investment banking is going through a metamorphosis of its own, with innovations in technology causing major changes. Some of the transformations expected to affect investment banking in the near future are as follows:
Technological disruption- If technology is going to take an industry by storm, that is investment banking. Currently, the industry comprises interpersonal relationships, specific markets that focus only on private partnerships between companies, and businesses involving financial products. Newer models will evolve to sustain in a more technologically sustainable market; advancements in virtual reality, artificial intelligence, and the eruption of big data will take investment banking by storm. While digital platforms are fairly involved in day-to-day processes including trading in the capital markets, multiple trading platforms need to be brought together and this is where technology is going to break the barriers of traditional investment banking.
Taking a more client-centric approach- Investment banks, for a more futuristic approach, will have to focus on investment in products that cater to providing their clients with a 360-degree solution. While banks themselves need to make decisions regarding prioritizing clients, the overall bank-client coordination needs to improve at the organisational level itself. While coordination between client servicing teams with other departments will need to improve, models that bring together, employee coordination, client coordination, financial transactions and products need to be implemented.
Improvement in business models- Most companies work according to their own cultures and processes built by their employees; these processes are mostly functional for their markets and clientele base. While individual companies deal with their problems in their own ways, an overall solution for tacking emergencies must evolve on a gradual basis. With evolving markets, companies barely see the need to raise capital in public markets. Companies like these majorly prefer to stay private to lower overall technology costs and to also control other capital sources, high-reporting, and regulatory costs. Publicly listed companies have consistently decreased over the past couple of years, and globally acclaimed companies have found methods to raise capital without relying on traditional investment banking techniques. Other companies, small or big, need to eventually come up with similar non-traditional investment banking models to keep up with the future.
Overall transformation of the investment banking sector- Technology that is outdated, serves barely any purpose along with proving to be expensive in general. Increasing prices, risk management factors, and business management tactics have made banking a commodity that is proving to be extremely costly. Capital markets need better regulation, leverage needs to be lowered and products need to be made more marginally viable; all of which require a complete transformation for investment banks to future-proof themselves and prepare for the days to come.
Asset management disruption- One of the most profitable financial services in today’s day is asset management, for companies, HNWIs, and other clients. The new set of investment regulations has however limited asset management mostly to globally acclaimed institutions. On a more smaller scale, an app that helps investors or HNWIs understand the market and then consider investing would be a good way for other investment banks to attract a new set of audiences or users and draw leverage to their expertise in conducting research.
The way forward
Restructuring the functioning of investment banks needs immediate attention. While technological disruptions, security and regulatory issues stand in the way of a bright future of investment banking, over the next couple of years banks need to focus on how they can play their strengths to their advantage and yet offer services on a more specialised level. While basic investment banking courses will teach most of it, future-oriented skills pave the pay to a brighter career in this field.
Also Read: Introduction to Investment Banking