GLOBAL INVESTMENT BANKING INDUSTRY
- The industry faces severe pressure from regulatory compliances and diminishing trading commissions. In addition, sluggish economic growth rate and falling interest rates owning to increasing geopolitical tensions furthers deteriorates its growth prospects in the near future.
- Owning to increasing restrictions on funding, capital and liquidity across nations thereby putting constraints on their returns, investment banks need to divide their operations under three categories, global boutique firms ( providing M&A advisory to several clients), localized firms (focusing on issues involving regional complexities) and globalized banks serving customer base across the world.
- The future of the industry requires either the existing firms should adopt a model similar to startups working in the finance domain in order to ensure their survival and growth or adopt technology that would enable them to meet customer expectation.
As of Aug 2020, it has been twelve years since the 2008 Financial Crisis happened, yet the global investment banking industry is still struggling to survive as the world’s five largest investment banks witnessed a 3 % decline or USD 26.1 Billion fall in their revenue earnings of 2019.
Investment Banking primarily involves advising firms on mergers and acquisitions and capital raising strategies. Heavy capital charges, cumbersome regulatory compliances, high structural cost, increasing geopolitical tensions and market saturation through entry of fintech’s have adversely affected their revenues and returns.
The market players need to adopt a better business model and revamp their existing structure to meet the dynamic environment where technological innovations are changing the entire landscape.
As per reports, twelve largest investment banks of USA and Europe generated around USD 77.5 Billion revenue from investment banking. Such a growth is primarily been accounted to the Asia Pacific region where the demand for wealth management and brokerage services is expected to increase owning to the entry of millennial investors in the financial markets.
Investment banks are slowly shifting to businesses requiring less regulatory capital. Major market participants such as Barclays, Credit Suisse have already announced that they are shifting from traditional underwriting to fundraising and mergers and acquisitions advisory as compliances have made certain activities expensive than others.
The driver of disruption would be technology – combination of current innovations -machine learning with that of quantum computing will help them scale their business but it also engenders new risks.
INDUSTRY ANALYSIS (PESTLE ANALYSIS)
|Political Factors||1. Increasing tensions between nations across the world such as China-USA, Brexit forces such globalized banks to rethink their regional strategies in order to ensure their global presence. (Geopolitical Factor)|
2. Protectionist policies– As the next decade dawns, most of the countries are aiming to become self-reliant which adversely affects free flow of capital across nations thereby affecting their operations significantly.
|Economic Factor||1. Japanification (a concept that indicates a situation of persistent low growth ,almost zero interest rates and low inflation )is expected to be faced by most developed countries in the coming decade as opportunities for growth become scarce thereby affecting returns earned by these banks|
|Social Factor||1. Aging population in both developed and emerging economics such as China (where it is expected that around 330 million people would be above the age of 65 by 2050) calls for overhauling their operations in such a manner that makes them more transparent, reliable and easy to access.|
|Technological Factors||1. Certain innovations that are bound to change the landscape include Artificial Intelligence, Machine Learning, Block Chain and Quantum Computing. Early adoption of such changes would help the industry to study large amount of data and provide better services to the clients.|
2. As we head towards tech enabled world, it invites threats in the form of cyber security, privacy invasions and phishing attacks that require better structural changes to combat them.
|Legal Factor||1. One of the major legal factors that would affect the future is the implementation of BASEL norms by banks. Such norms forces banks to ensure better liquidity and keep greater amount of capital in reserve thereby affecting their ease of doing business.|
|Environmental Factor||1. Climate change is the major concern that forces firms to prioritize their responsibility towards the society and forgo their short-term objectives for a long-term sustainability.|
INVESTMENT BANKING MARKET SEGMENTATION
CONCLUSION (Drivers that will drive the growth in the future)
As markets gets saturated due to the emergence of Fin-techs in the industry, the market players must look for alternative avenues for steering their growth ahead. The major factor in favor of such startups is their ability to leverage the use of technology enabling them in providing customized solutions to their clients at lower cost and at a greater speed.
The next decade does not demand for competition but greater integration of Fintech model (business model adopted by startups in finance domain) by these established players. They need to exploit the opportunities offered by digitalization to optimize their performance and achieve results.
Firstly, Investment Banks can make use of cloud solutions along with advanced analytics and artificial intelligence would enable them carry out real time analysis. This would help the firms to understand investor behavior, predict trading patterns and better data visualization thereby providing advantages to both research and marketing departments. Digitalization can also help them reduce their compliance cost such as by providing digital KYC facilities to their customers.
Secondly, banks need to focus on their customers whose trust is slowing eroding away due to their inability to meet customer expectations. Estimates indicate that around 37 % banks in USA only have a customer experience program. As financial markets are heading towards zero based commission trading, the only way to achieve growth is to provide better services and invest in making a business model that puts customers first.
Ultimately, only the participants who would be able to provide a world class digital experience to their clients would only survive in the next decade.
|2||Scope of the report|
|7||Insights from Industry stakeholders|
|8||Cost breakdown of Product by sub-components and average profit margin|
|9||Disruptive innovation in the Industry|
|10||Technology trends in the Industry|
|11||Consumer trends in the industry|
|12||Recent Production Milestones|
|13||Component Manufacturing in US, EU and China|
|14||COVID-19 impact on overall market|
|15||COVID-19 impact on Production of components|
|16||COVID-19 impact on Point of sale|
|17||Market Segmentation, Dynamics and Forecast by Geography, 2020-2025|
|18||Market Segmentation, Dynamics and Forecast by Product Type, 2020-2025|
|19||Market Segmentation, Dynamics and Forecast by Application, 2020-2025|
|20||Market Segmentation, Dynamics and Forecast by End use, 2020-2025|
|21||Product installation rate by OEM, 2020|
|22||Incline/Decline in Average B-2-B selling price in past 5 years|
|23||Competition from substitute products|
|24||Gross margin and average profitability of suppliers|
|25||New product development in past 12 months|
|26||M&A in past 12 months|
|27||Growth strategy of leading players|
|28||Market share of vendors, 2020|
|30||Unmet needs and opportunity for new suppliers|