How Disruption in the Capital Markets Industry Can Fuel Profitability
Technology is a polarizing source of change, one that can shake up entire industries. For those who embrace it, the outcome is progress, for those who dismiss it, the outcome is generally much less favorable. There are six defining technology megatrends that make up the digital economy enabling the vision of a truly digital firm of the future:
- The data explosion
- Cloud / utility computing
- Smarter world
- The shift from standardization to simplification
Consider technology’s impact on the capital markets industry. Digitization is rewriting the rules of how firms compete with one another and engage with clients. Thanks to digital technology, firms and investors are connected as never before. These empowered clients have the flexibility to choose when and how they interact with their trading partners. They use digital technology to research their options, make investments, and meet their ever-increasing expectations – turning money into the ultimate digital service.
Technology is also fueling the emergence of significant new competitors. Some of these firms, born outside of the traditional buy-side/sell-side trading sector, are less financially burdened by traditional corporate and IT infrastructures and overhead. These newcomers are creating constant pressure on established capital markets firms to innovate in order to remain relevant.
Conversely, the proliferation of disparate channels and legacy systems when combined with the rise of digital technology has caused internal process challenges and made it more difficult to meet evolving regulatory requirements and address liquidity needs. Furthermore, unevenly applied technology often results in inconsistent client experiences – at a time when firms need to create personalized client journeys to engage and retain clients. Facing these obstacles, the vast majority of firms have limited their digitization efforts to retail trading and private wealth management.
Change or divest
The pressure is now on capital markets firms to adapt to the disruption caused by technology-fueled change. Companies must give their clients the tools to make smarter decisions, based on real-time visibility into financial data and analysis of external semantic and social data. To achieve this goal, firms must bring together several internal and external data universes so they can offer clients a cohesive, digitally optimized experience.
Meanwhile, financial technology companies and innovative capital markets firms are rethinking everything from the client experience and business processes to workforce engagement and internal operations. Using the power of digitization to support new approaches and tools, these firms will redefine the future of the capital markets industry. Firms that do not participate in this disruption will inevitably fall victim to it.
Embrace transformation to drive innovation
Managing digital transformation is today’s most critical challenge for capital markets firms. Executives must navigate the complex regulatory environment and reshape the client experience. They must also formulate a digital strategy that addresses the requirements of employees and market counterparties, the industrialization of hyper-secure operations, and the need for real-time risk and compliance analytics.
To successfully manage the disruption caused by digitization, firms must develop an innovative digital transformation strategy. This strategy must:
- Support a variety of channels to acquire and engage clients
- Attract and retain portfolio managers, traders and investment advisors
- Monetize traditional broker and dealer channels while establishing alternative ones
- Combat increased competition from both traditional players and new entrants
A properly designed and executed digital transformation strategy will help firms reimagine their business models and processes and reshape their workforce to meet the needs of the new digital economy. With the proper planning, they can also restructure their data platforms and advanced analytics to provide lasting insight.
Digital transformation is already reshaping the capital markets industry. For those prepared to embrace change, digital disruption can create value and fuel innovation – giving firms the foundation to increase client longevity, increase revenues, reduce operational risk, and ultimately enhance profitability. The byproduct of this type of change is expanded opportunity.
For more information on meeting the challenges of digital transformation, join us at SAP Capital Markets Innovation Day on June 7.
Hi Simon, very interesting article. Let's stay in touch....