The COVID-19 impact has greatly impacted the business landscape in unprecedented ways. Business models have undergone massive restructuring and a stronger focus on introducing digital transformation has taken place across the board. across the. While several industries have faced many business closures, the investment banking sector has been quick to incorporate changes ensuring profitability is maintained and market volatility is accounted for. The Global Investment Banking and Brokerage industry has grown by 1.3% annually between 2016 and 2021 and is expected to grow by 1.6% this year alone (European Central Bank).
Investment research firms have been quick to understand what likely industry trends for 2021 are already in motion:
- Trading at High-Frequency
High frequency trading employs computers running powerful programs able to detect algorithms, market trends and conduct large scale orders to maximise investments. High frequency trading represents 50% of trading within US equity markets (European Central Bank). Research reveals high-frequency trading is likely to grow exponentially between this year and 2026. With trading that can be conducted in fractions of seconds, large investment banks and firms have been frequent employers of this concept.
With a growing number of participants, high frequency trading is likely to offer highly favourable returns and creates a more systematic structure to trading.
- Virtual IPOs
IPOs are the public issuing of shares by a private company looking to raise capital from public investors. With the pandemic moving more business activities to a digital space, IPOs are now conducted virtually. Under normal circumstances, pricing and the “roadshow” would take place over a period of a fortnight with in-person interactions to build trust between current management and possible investors. With lockdown measures and limitations on the number of people gathering in a single location, these activities have moved to a digital landscape.
This trend has gained enough momentum for banking heavyweight Goldman Sachs to introduce an AI field system named “Deal Link” to ensure legal compliance and conduct reporting to ensure the IPO in discussion is conducted in full fairness.
- The Digital Revamp
With a stronger emphasis on digital interactions over the pandemic period, investment banking and banking trends are moving to more virtually friendly interactions. The second round of structural changes within the banking sector has introduced the consolidation of services and the automation of back-offices. Digital technology trends expected to gain traction in 2021 are:
- Introducing Robotic Process Automation to substitute the need for physical intervention in repetitive or simple tasks. This saves organizations time and money. According to a report by Wipro, almost 70% reduction in trade fails has been noticed due to standardized approach and narrations.
- The introduction of stronger and more secure mobile payment options. This trend has truly taken off at the request of elevated convenience for both actual and prospective customers.
- Introducing cyber hygiene mechanisms for both actual and prospective customers.
- Improving in systems in circulation with an added AI element or the addition of other smart technology.
- Hybrid cloud infrastructures are fuelled by heavy investments from popular big ticket service providers.
- Strong data security measures to keep all confidential information secure while amplifying privacy afforded to communication.
- Data distribution has taken the automation route with contributions from big data analytics and real time reporting taking a front seat.
- Better compliance with regulations and monitoring of compliance measures. As most processes are moved to a virtual landscape it becomes easier to run large scale data management.
- Blockchain technology receives a stronger security upgrade through protection of transaction cores.
- Evolving Hiring Trends
As technology infiltrates the investment banking landscape more aggressively, the context and profiles of jobs in person are dealing with a strong redefinition. More talent profiles and skills are replaced with technology and the regulations and risks that come with the transition. Investment banking is starting to move away from face-to-face interactions despite the sensitive nature of the industry. As a result, the profiles and requirements to become an investment banking professional is also changing.
The investment banking sector is importing several professionals from the IT sector with special emphasis on industry giants such as IBM and Microsoft. For professionals to stay relevant during this heavy migration to the IT services phase, investment banking professionals are forced to upskill and introduce solid knowledge of technology application. There are several virtual courses individuals can take to make higher value contributions to their organizations. Introducing strong financial, technical and interpersonal skills is non-negotiable if employees do not want to hit redundancy.
- Liquidity Concerns Developed through the Pandemic
With the introduction of unstable market conditions brought about by the global pandemic crisis, more organizations are concerned with liquidity. Companies have begun taking loans, bonds and equity issuances at a larger scale. Most of these investments have been procured in order to manage liquidity should markets take a more aggressive negative turn. Currently debt procurement is at an all-time low within the US while a lot of markets internationally are charging significantly higher amounts to stay afloat. The international equity and debt markets are a great deduction method to understand whether the economy can maintain any degree of steadiness during the fluctuations caused by the pandemic. With the vaccine currently in circulation, companies are beginning to rebuild and acclimatize to the new normal. As a result, capital raising is on the rise and businesses are looking for creative ways to pull in investment and develop as needed.
- A rise in ESG investments
Sustainable investing is heavily categorized by moving funding into environmental, social and government related investments. This offers added stabilization to the economy at a time when businesses and current economic conditions are constantly fluctuating. Investing into social bonds helps move investments into building recurring beneficial situations for both all businesses involved and the economy.
The trends around investment banking are strongly influenced by the ongoing Covid-19 pandemic. These circumstances have pushed more businesses into transitioning to digital and the investment banking market is no different. Moving more processes into automation environments and virtual spaces has allowed for stronger monitoring but added flexibility. With the definition of business environments changing, ensuring the right measures are in place keep the industry from getting consumed by the drop in demand. Businesses need to take a moment to understand how demand for their service is redefined and addressed from the ground up, even if it means a complete restructuring. The investment banking sector is no different.
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