We recently surveyed 464 sell-side executives about the future of their businesses. What most struck me about the results was that 87 percent say their business is becoming technology-driven. Commercial banks, investment banks and broker dealers – all investing to improve their businesses and become more competitive, and technology is playing a prominent role.
First, sell-side firms plan to invest more money in expanding the markets that they offer exposure to. Second, they’re focused on improving the customer experience – including through mobile and even wearable technology access. Third, they want to leverage disruptive technologies that can change their businesses for the better.
Today, when a lot of business is commoditized, you must invest appropriately if you want to stand out. On the one hand, you can invest to reduce costs and automate more areas. That’s exactly how survey respondents saw it, reporting that automation can save costs in the front, middle and back office. In fact, almost two-thirds of all respondents said they can save costs through technology in each of those areas.
That’s quite a startling thought.
The reason is that technology itself can provide a competitive edge. For example, it can help treasuries offer not just run of the mill commoditized products like FX, money market and simple forward rate agreements, but go further and extend the product range and make the treasury a profit center. Packaged derivatives, swaps – even structured swaptions – offer banks a competitive edge while also generating more margin.
That wasn’t all that stood out. According to the survey, the most compelling trend for the sell-side is improvements in execution technology – changes to algos or direct electronic connections to exchanges or other liquidity venues, for example. Clearly, really good execution can be driven by technology investment.
The second biggest trend is multi-asset capability. This harkens back to the desire to increase the product range and, therefore, your competitiveness by offering more to the customer. That can mean more of the base commodity, or it could mean more complex products where the margin is higher. And by expanding the number of markets your customers are exposed to as well as the products they get access to, you can make your customers ”stickier” and produce more revenue from them.
The final trend of note was responding to regulatory compliance. This has a big impact on your business costs, but you can also turn it into an advantage. To respond to the regulator, you need to understand your business, what’s going through it, the exposures, what’s at risk and what isn’t. But that same information also gives you better insight into how you’re making money as an organization. And you can use that to adjust what you’re offering to your customers, address any costly mistakes that are being made in processing and determine whether there are areas of business that you should get out of or outsource.
Are these trends shaping your business too? If so, how are you addressing them?
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