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Top Ten Challenges for Investment Banks 2015: Revolution: Challenge 8

Read a report from Accenture Capital Markets on digital technology and creating a new client experience.

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Top Ten Challenges for Investment Banks 2015: Revolution: Challenge 8

  1. 1. Digital Technology: Creating a new client experience Top Ten Challenges for Investment Banks 2015 08 DigitalTechnology: Creatinganewclient experience
  2. 2. 08 Digital Technology: Creating a new client experience Client adoption of digital technology is causing a shift in the investment banking world. Unlike previous technological evolutions the digital revolution is client-driven (see Fig. 1), and investment banks’ interaction with their clients is beginning to change in both complexion and complexity. Other industries have seen the impact of such a shift and, while investment banks have long been technology innovators, seldom have we seen such disruptive forces coming from “outside the four walls”. Historically, technology has been used to create new trading platforms, develop new financial products and streamline processes for cost savings. Evolving digital technologies challenge the traditional investment bank value chain, allowing for new entrants and for new interaction models that can be both innovative as well as disruptive. The other characteristics that make this “S-curve” different is that it comes at a time when it is cheaper and easier than ever for smaller, innovative start-up firms to create new technologies (the Amazon “cloud phenomenon”) and at a time when the available discretionary spend in investment banks is under siege. Investment challenges notwithstanding, the industry is clearly facing the prospect of clients who are more socially media aware and more demanding of how they interact and consume products and services and how they view their relationships and interactions with investment banks. Increased client touch and intuitive, interactive digital applications will allow enriched consumer engagement and understanding. And, as with other industries, the move towards a more client-centric and interactive approach will ultimately trigger a behavioural change between the investment bank and its clients. While many early examples have been taken in the retail wealth management industry, institutional investors are becoming increasingly savvy and demanding of similar services and 2
  3. 3. capabilities. Most investment banks have already made significant investments in client portals and customer reporting using digital channels and capabilities. Analytics for risk has also been a key focus area in this domain. These are important areas of focus and yet they represent only the early days of this innovation curve. Push and pull factors driving digital The regulatory burden for investment banks remains one of their biggest challenges, demanding further simplification and transparency – a challenge given legacy environments. Digital technologies using smart data management solutions help to satisfy regulatory requirements and are also changing the client experience in the process. For example, the implementation of Swap Execution Facilities has allowed greater regulatory oversight whilst improving efficiency, clearing costs and speed of pricing for users. Furthermore, as margin pressure continues to weigh heavily and scope for traditional cost savings becomes exhausted, digital technologies provide new opportunities for client value creation in terms of understanding client needs, enabling smarter cross and upselling and the formation of new products. So from push factors to pull factors, cost benefits, protection from disruptors, renewed and novel revenue growth prospects and the opportunity for greater client engagement, the necessity for investment banks to get behind digital is present and increasing. 3 Most investment banks have already made significant investments in client portals and customer reporting using digital channels and capabilities. Analytics for risk has also been a key focus area in this domain. These are important areas of focus and yet they represent only the early days of this innovation curve. Figure 1: The customer-led digital revolution in Capital Markets Source: Accenture Research FIX Standard Early 1990’s Late 1990’s – Early 2000’s Mid – Late 2000’s Early 2010’s Electronic Equity Trading Instant Bloomberg (B) ETF’s E*Trade Online Account Access Portals liquidnet Electronic Connectivity Internet Electronic Communication “Digital Revolution” Capital Markets Industry-Led Innovations Prior Technological Revolutions Digital Revolution Customer-Led
  4. 4. Swinging the balance back in clients’ favour Digital is helping swing the balance back into the clients’ favour, with their interests expanding beyond execution and Straight-Through Processing (STP) services to pre- and post-trade analytics, allowing investment banks the opportunity to finally realise Trade Lifecycle Optimization strategies and their inherent value. As many digital technologies are intrinsically customer-focused, giving customers the ability to see personalised and tailored information, through the medium of their choosing, when and where they want it, the restoration of this balance will once again put investors in the driving seat. Early adopters in the investment banking community will also benefit from their ability to differentiate their service models from their peers. Demand for a dedicated digital approach For banks, this implies a requirement to create and to commit to a client-focused digital strategy. First and foremost is the need to recognise the fundamental 4 80% believe digital to be a growth initiative with client emphasis, half anticipated further digital change in the coming year. and 30% already see digital facilitating a complete business. i Statistics relate to respondents in a recent Accenture survey of digital trends in investment banking Figure 2: Digital Trends in investment banking impact digital will have on the business model, client expectations, operating model choices and market positioning. While it is also true that banks will need to take supporting steps such as appointing a dedicated digital lead, or Chief Digital Officer (CDO), assign a budget for digital change and innovation, etc., these preliminary decisions will be important if banks are to achieve the full benefits of their investments. We also believe that investment banks need to rethink the way their engage with the fintech have a digital strategy expect more digital change in the next year 70% 30% see cost reduction opportunity and see complete business transformation see a risk reduction and control opportunity But – not fully defined and no clear market leader 80% 40% 50% Client Tools Portals User Experience 80% see this as agrowth initiative and focus on the client Source: Survey of Digital Trends in Investment Banking, Accenture Research i
  5. 5. 5 We are also seeing the rise of the next class of industry utilities leveraging these digital technologies, and the advent of new standards that hold great promise as well as demands for investment banks. eco-system. Whether this be through launching their own fintech investment funds, engaging with incubators or other forms of collaboration, the very nature of this environment demands something more “external”. Based on recent Accenture insight from selected investment bank clients, 80% believe digital to be a growth initiative with client emphasis, half anticipated further digital change in the coming year and 30% already see digital facilitating a complete business transformation even though they have not fully been able to identify the full impact of this technology (see Fig. 2). Looking to other industries, we believe that the investment bank of the future will need to have gone through such a complete transformation to survive. Siloed platforms and asset classes are giving way to integrated and interactive portals, allowing for adoption and innovation of new technologies. For example, Saxo Bank’s TradingFloor.com has introduced a socially collaborative aspect to trading which enables users to follow, rate, and even mirror positions of their favoured traders. Technology continues to deconstruct the walls that once surrounded capital markets and former powerhouses’ dominant access to information, price, and liquidity. New entrants enabled by innovative digital technologies will come from all sides; small fintech start-ups and non-traditional providers (Google, for example) will compete with either a head start or a clean slate in the digital space. The number, type, and sophistication of buy-side participants will also increase, as will the scope of instruments at their disposal. Whilst not necessarily a direct opportunity to take market share, the complex nature of the investment banking client relationship makes digital an enabler for greater client “stickiness”. Price availability, research, multi-asset and multi-functionality will remain key, but increasing collaboration, providing access to liquidity, enhancing products and enriching the client experience, will be the differentiator. We are also seeing the rise of the next class of industry utilities leveraging these digital technologies, and the advent of new standards that hold great promise as well as demands for investment banks. Again, the concept of understanding the eco-system is critical to ensure that even the most innovative banks do not become islands of automation that cannot achieve industry-wide connectedness. The ethos of digital goes beyond the technology behind it; it is a collective mind-set blurring traditional lines, generating more-for-less, and yielding customer-focused approaches backed by fundamentally re-defined investment propositions and solutions. Our assessment of the promise and the threat of these innovations provides the strongest indication that banks need to carefully examine their business models, client interactions, and how they play in this evolving ecosystem.
  6. 6. About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 305,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com. Accenture Experts To discuss any of the ideas presented in this paper please contact: Sigrid Seibold Managing Director Capital Markets, New York sigrid.seibold@accenture.com +1 917 453 9981 Ciara O’Leary Capital Markets, London ciara.d.oleary@accenture.com +44 20 335 2752 Disclaimer This report has been prepared by and is distributed by Accenture. This document is for information purposes. No part of this document may be reproduced in any manner without the written permission of Accenture. While we take precautions to ensure that the source and the information we base our judgments on is reliable, we do not represent that this information is accurate or complete and it should not be relied upon as such. It is provided with the understanding that Accenture is not acting in a fiduciary capacity. Opinions expressed herein are subject to change without notice. Copyright © 2014 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

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