Ten years on from the financial crisis, the global economic outlook remains uncertain, with the IMF recently reducing its forecast for global growth in 2019 to a decade low of 3%. Trade policy uncertainty has led to fresh concerns over the outlook for business investment, potentially reducing demand for corporate lending. As a result, interest rates languish near historic lows and several market participants expect them to remain lower-for-longer. In turn, this brings lower volatility, hurting the prospects of securities trading operations. Regulators remain focused on making banking ‘safer’ and ‘fairer’; banks will, therefore, face more scrutiny on product pricing, while regulators are also encouraging competition from new, nimble technology-enabled entrants. For example, fintechs charging zero commissions on stock trading have forced the hands of capital markets incumbents to also offer zero commissions. The advent of open banking based on application programming interfaces has the potential to transform processes such as cash and liquidity management. This is clearly a challenging operating environment.

In this context, capital markets players will need to deploy:

  • Data analytics 
  • Simplification 
  • Modernisation 

 The table below provides an overview of what each of the above can achieve:

Data analytics Data analytics can help capital markets players achieve: (1) revenue generation; (2) real-time solutions; and (3) cost reduction. 

In terms of (1), data analytics can be used to create a clear understanding of market sentiment in order to drive front-office trading strategies as well as to enable clients to make informed investment decisions. In addition, it can be used to increase the speed and accuracy of compliance requirements. In terms of (2), data analytics can be used to serve real-time customer needs. In transaction banking, for example, corporate clients and buy-side organisations want solutions that use data in an intelligent way to optimise working capital or investment performance and create a hassle-free experience. Instead of being forced to ‘go’ to the banks, these clients also want the banks to ‘come’ to them and enable stronger, secure connectivity and information flows through APIs. In corporate banking, access to greater amounts of customer data could lead to more analytics-driven processes, especially within loan underwriting. Finally, in terms of (3), data analytics can be used to reduce the costs of data storage and enable system and data feed rationalisation. 

Simplification

Simplification can help capital markets players achieve: (1) greater agility and (2) cost reduction. 

In terms of (1), operators need to streamline the organisation from front-to-back whilst putting the customer at the centre. Capital markets players will need to pay particular attention to reducing the complexity of the technology infrastructure – which is the most complex area to address – by building cleaner integration of systems stacked up on each other. This will enable capital markets players to be agile enough to adapt quickly to changing business and regulatory needs. For investment banks, specifically, post-trade simplification is becoming an urgent priority, with the bigger players now willing to make investments to simplify and innovate around their technology infrastructure. 

In terms of (2), simplification can be used to streamline the cost base to drive strong cash flow and earnings. In particular, simplification can reduce the maintenance costs of the legacy technology infrastructure by decentralising the new architecture into specific custom-built applications. 

Modernisation

Modernisation can help capital markets players achieve: (1) greater operating efficiency and (2) enhanced innovation. 

In terms of (1), capital markets players should integrate real-time processing and multi-channel capabilities to boost operating efficiency and help deliver the seamless, digitally enhanced experience that corporate clients increasingly crave. In investment banking, risk functions have seen some modernisation, and some banks have begun reshaping their business processes and other middle-office functions, with a few taking bold initiatives. The resulting cost savings free up resources for front-office related investments.  

In terms of (2), modernisation can be used to better address the needs of customers. Capital markets players should assess their product offering by carefully matching it with the needs of their customers.