The enormous public health, economic, and sociological consequences of the worldwide COVID-19 (new coronavirus) pandemic have exacerbated the variables that are producing obstacles and driving upheaval in the investment banking industry: declining share prices, liquidity stress, developing financial laws, market democratization, pricing pressure, growing client sophistication, transitions to remote working arrangements, and rapid technological improvements.
Against this challenging backdrop, we believe that investment banking will shift from a full-service model to a split of two broker archetypes: “client capturers” who specialize in front-office tasks and “flow players” who focus mostly on middle-office functions (figure 1). These archetypes will most certainly work in a linked, more global—and perhaps virtual—ecosystem that includes partner partnerships providing diverse back-office activities.
The reorganization of the industry should provide possibilities for investment banks to move toward better levels of return. However, organizations can no longer fiddle around the margins in order to deliver on this objective. Many will most certainly need to significantly retool their present business models and operational platforms in order to prioritize client-centricity, disruptive technologies, regulatory recalibration, and workforce and workplace development. Furthermore, people must select whatever archetype they desire and are capable of being in the new habitat.
Integrated flow is a simple, flexible, client-centric operating model that augments the capabilities of a commercial bank with those of a partner ecosystem, producing cost reductions by standardizing and centralizing the supply of non-differentiated services throughout the sector. Using internal and partner data offers insight into optimizing performance across revenue and expense drivers, as well as focusing financial resources on the most important activities and clients.
Adopting the linked flow model will enable investment banks to reinvent their businesses around four major themes: technological modernization, initiatives regarding, client-centricity, and regulatory recalibration. Finally, the model will improve efficiency by addressing cost concerns through more automation and upgraded tooling, resulting in lower inventory and revenue leakage.
The Future with Connected flow model
In order to generate differentiated insight and added value, investment banks will likely need to shed non-core assets and redesign their service delivery around a connected flow model—moving capacity and processes across geographies and ecosystem partners—as well as optimize their use of financial technology, data, and analytics. The investment bank evolves into a data-driven company focused on the client journey, with middle- and back-office functions shifting to market utilities or financial technology (fintech). A large data collection will enable the bank to model customer behavior and forecast client trading actions and risk appetite using artificial intelligence, machine learning, and natural language processing.
The financial firm is now an agile member in a complex ecosystem that addresses current market trends and is focused on differentiators like risk models and client experience.
In the end, just a few value-added tasks in an investment bank’s internal systems would be required: risk management, transactions, information and data processing (such as client data and regulatory reporting data), and general ledger.
