The investment banking industry has accelerated its shift to a sophisticated way of administration from its traditional functional roles post-pandemic. They are revising their strategies and outsourcing new cloud systems, digital solutions, adding new services and apps.
In an effort to scale back their businesses, many are holding more capital and liquidity, segmenting customers, developing new strategic directions, getting more innovative, and transforming business models in alignment with a new vision.
Apart from digitalization, commitment to social purpose is also on the list. Banks are paying attention or need to pay attention to climate change and take initiatives toward sustainability. Many investment banking firms like JP Morgan are looking for ways to go green.
Let’s understand in detail about how the future of the investment banking industry will look like.
Investment banking industry: The transit
The future seems challenging and promising as well. There are ups and downs in overall business and strategies, leading to changes. Take a look.
Underwriting: Underwriting was a highly profitable business till now. But today, the technology companies are using their influence to extract lower fees. Many are exploring IPO alternatives like alternative exchanges or direct public offerings. Also, several companies do not want to go public at all. Investment banks are forced to make more deals but with lower revenues.
Mergers and acquisitions: Just like underwriting, M&A has been one of the revenue streams that investment bank relies on. Today, the power is distributed. Technology has entirely changed the deal-making nature. The SaaS tools and online networks have facilitated smaller companies and brokers to conduct transactions more affordably and also at a faster rate.
The executives are more focused on strategic M&A to build long-term businesses and expand their portfolios.
Technologies: The investment banking industry was forced to reinvent its business models through technology. Artificial Intelligence, interactive platforms, virtual reality, and big data are altering the business way of investment banking too. Digital platforms are becoming more common for trading and investment banks are consolidating multiple trading platforms to stay competitive.
Revisiting business model: An investment bank may not be a must-have intermediary service for business methods, because companies are processing them out by their own staff. Companies have their clients and tackling problems in their own way during an emergency or adverse situation.
Investment banking: The future
To summarize, there are several challenges during this transitioning period. Commoditization of banking, risk management, business controls, and other factors as mentioned have turned costlier for investment banks.
A complete transformation is required for banks to witness success in the future. The banks will blend their costs curves and operations with data analytics and emerging technologies. Artificial Intelligence, advanced data analytics, cloud, and APIs are on the frontline. Many bigger firms are taking initiatives to take pilot projects in blockchain or implement them in at least a part of their businesses.
Modeling client behavior, predicting risk appetite, developing risk models, improving workflow, boosting customer experience, and complying with new regulators are on the list. The recovery period may not be straightforward for all. Uneven recoveries will accelerate the need for active management and skilled investment banking professionals. Sustainability, climate change, and ESG are the defining elements of the future. banks can win the race only when they become adaptive to the new changes.
At this juncture, an investment banking career would be a great challenge and inspiring too. Industries look forward to special talent who are updated with the technology trends and can use them; who can show resilience in business and carve new solutions for existing and unexpected challenges.
If resilience and meeting challenges are your cup of tea, then you have plenty of opportunities to thrive in the field.
