The investment banking industry is under pressure. The rise of information technologies has affected many industries, testing the traditional business models. It is argued that also big investment banking’s business models will be targeted and invaded; wealth management, private investment and small business lending. Scale and global reach have become increasingly important, putting pressure on current business models; which become complex due to the enormous amount of information within them.
Within the investment banking industry, the high level of information and complexity and the high costs were once a competitive advantage, but have now developed towards being encumbrances! (Accenture.com, 2017)
Although Capgemini states in the Fintech report 2017 that Fintech is the most overhyped yet underestimated term the industry has heard in a long time, I would like to elaborate on the underestimated part, by examining the Industry by using the Literature from our Information Management course. (https://www.se.capgemini-consulting.com, 2017)
To argue whether the investment industry is a newly vulnerable market we have to argue according to three conditions; newly easy to entry, attractive to attack and difficult to defend. (Literature, 2017)
First, it may be argued that the ease at which the investment industry may be entered has increased rapidly. Accenture argues that the cost of launching a Tech Start-up has dropped dramatically from $5 Million to only $5.000! Furthermore, the existing businesses have massive sunk costs, which used to be necessary but are now only barriers to innovation. The Accenture paper on digital disruption states that “research indicates that banks are devoting three times as much money to maintaining legacy systems as they are to building new platforms needed for growth’. These changes have indicated that regulatory changes have enabled entrants, changing technologies have reduced costs significantly and that the minimum scale has decreased. Furthermore, the rise of highly efficient communication networks and customer’s increasing preference towards engagement indicate there is a change in the distribution systems and customer preferences. (Accenture.com, 2017)
Second, it is not difficult to argue that the investment banking industry is an attractive industry to attack. The investment banking industry is a highly profitable industry in which a lot of money can be earnt. Furthermore, the rise of digital solutions to complex problems (e.g. Artificial intelligence) may increase the ease at which money can be earnt. Furthermore, the risks may be decreased as a result of new business models enabled by new technologies. We can also argue that there is a high difference in profitability across different investment customers. (Farmer, 2017)The number of FinTech deals in size in New York has respectively been in Lending, Payments, Wealth Management, Markets, other markets, Risk and Security and Insurance. (Accenture.com, 2017)
Last, we may argue that the investment banking industry is relatively difficult to defend. Not only have the barriers to entry decreased rapidly, the industry’s traditional structures are out-dated and are under continuous pressure. It is argued that the rising Fintech will not only disrupt the investment banking industry, it will become part of it. (Farmer, 2017) Furthermore, Accenture argues that the move to an integrated digital ecosystem is not an option for investment banking, it is an imperative!! (Accenture.com, 2017)
References:
Accenture.com. (2017). Cite a Website – Cite This For Me. [online] Available at: https://www.accenture.com/_acnmedia/Accenture/next-gen/top-ten-challenges/challenge8/pdfs/Accenture-2016-Top-10-Challenges-08-Digital-Disruption.pdf#zoom=50 [Accessed 16 Oct. 2017].
Farmer, N. (2017). FinTech Ready to Disrupt Investment Banking. [online] B2b.com. Available at: http://www.b2b.com/blog/reality_check/index.php/uncategorized/fintech-ready-to-disrupt-investment-banking/ [Accessed 16 Oct. 2017].
https://www.se.capgemini-consulting.com. (2017). World FinTech Report 2017. [online] Available at: https://www.se.capgemini-consulting.com/sites/default/files/world_fintech_report_wftr_2017_final_web.pdf [Accessed 16 Oct. 2017].
