As new verticals come to the fore, we usher a new era of capital markets with revamped industries, digitised innovations and value chains. The macro-environment, along with the current crisis, has challenged Investment Banking firms and their operating models through slow-paced economic growth and prevailing low interest rates.
The prevailing scenario requires Investment Bankers to be experts at valuations, deal negotiations, in-depth knowledge of new segments, besides mastering transaction execution which alone was enough earlier to be an adept Investment Banker. Tech interventions too, have become an important aspect of the business agenda across sectors.
As businesses spare no effort to regain their former levels of profitability, they are furthermore concerned over the rising need for sophisticated in-house applications, innovative portals with easy user experience, and higher transparency and security in general, making the investment banking industry face substantial pressure on all fronts. Moreover, their major functions, specifically capital, liquidity, risk management, compliance, trade markets and governance have been put under great scrutiny by the new regulatory changes.
Given the stiff competition and heavily-saturated markets, following are the top investment banking trends-
- Specialization and Personalisation
- Mobility and Security
- Rethinking talent
- Customized market research findings
Companies in the investment banking sector have been constantly trying for cost-effective optimization of their core activities, while investing in new engagements. Yet, there are some challenges that still persist.
Disruptions in M&A
While investment banks see their chronical profits wither away due to technological and regulatory transformations, their ever-promising revenue generating M&A deals have seen a decline. As their clients struggle through the economic fallout, investment bankers are still trying to get their pre-pandemic advisory fee for M&A. But, merchandising it through innovations in deal making has proven to add to the value chains. Online platforms & networks, SaaS tools enable many businesses to execute transactions on their own. Having an online presence could be a way to help Investment bankers catch up, as many businesses will need them to shepherd these deals through.
Of all the most urgent concerns, outdated core IT systems are a significant concern for global investment bankers. Failure to invest appropriately in secure and agile systems that can enhance digital and mobile banking can result in significant loss, while compounding the risk for cyberattacks.
Aside from this, investment banking firms face serious competition from a host of disruptive innovators who are able to provide customers with seamless and more affordable experiences across a variety of channels. Also, since technology has repeatedly demonstrated its ability to commoditise business offerings, a clearsighted strategic decision-making is vital.
Banks must either make the substantial investments in straight-through processing capabilities needed to achieve economies of scale, or concentrate on areas such as advisory, that cannot be commoditised.
Customer-centric experiences in B2C business models are shaping client expectations in the B2B realm as well. As a result, investment banking companies are trying to comprehend these changing demands and expectations. Investment bankers can begin by assessing the existing client experience. They should map the client experience standards that they want to deliver with an intent of identifying necessary changes that could be made to their delivery channels, striking a risk/reward balance and feedback monitoring mechanisms.
Deliver value to clients, not just margins to yourself. After all, a deal done to the satisfaction of a client is the best form of Customer Relationship Management perspective that one could think of.
Effective deal sourcing is critical to any investment banking transaction. It entails generating leads and preparation of deal documents to ensure the successful completion of an investment deal. However, this doesn’t come easy. A surfeit of clients and dearth of deals or vice-versa create hinderances, considering time constraints involved in networking.
While many of the older and larger investment banks can still rely on the word-of-mouth style of deal sourcing, other younger entrants into the investing world have instead embraced new technologies such as a deal sourcing platform to get optimized and curated deals/offers that increase the probability of successful deal closures. In fact, this is becoming a trend in the recent times.
Reaching out to resource persons by paying abounding amounts to get financial and non-financial data, that too could have some missing financial figures for a few years all together is another ordeal to be dealt with. Thankfully now, there are online portals to facilitate investment bankers to source buy-side and sell-side deals on a global scale, tapping into relevant information for public & private companies. Users can discover target deals by scrolling through lists in minutes and contact information of prospects on the platform.
The private market landscape is changing fast, and as it does, investment banks are following suit. New technologies and industries are reshaping a once relatively straightforward profession, forcing firms to differentiate themselves through specialisation. The savviest firms are embracing disruption, adopting new products and processes that promise to transform the way they do business—for the better.