Cloud, blockchain, AI, automation among technologies driving digital disruption of capital markets buy-side, sell-side and intermediaries.
Global capital markets firms are facing unprecedented challenges that collectively are forcing a digital technology-driven reimagination of the capital markets industry, according to Everest Group.
Key trends in the capital markets industry include:
- Evolving customer demands. Customers expect more transparency, ease of access to data and services, and better multi-channel experiences.
- The rise of non-traditional competitors. Non-traditional players, such as financial technology (FinTech) firms, are targeting the profitable segments of the capital markets business.
- Regulatory and security complexities. With end-to-end trading activities becoming digitized, cybersecurity is at the top of the agenda for capital markets firms to ensure data security and integrity.
- Technology disruption. Disruption is especially being driven by the scalable and affordable “ABCDE” technologies: Artificial intelligence, Blockchain, Cloud, (Big) Data Analytics, and Ecosystem Partnerships.
According to Everest Group, these challenges have forced capital markets enterprises to revisit their business models, launch innovative products, invest in emerging technology, and redefine the way they interact with customers and other ecosystem players, including service providers.
“A common impetus for digital disruption across the capital markets value chain—impacting buy-side, sell-side and intermediaries alike—is the shift to a customer-centric focus,” said Ronak Doshi, practice director at Everest Group. “Digital technologies ranging from machine learning to blockchain and from cloud to deep learning are being used to deliver an enhanced customer experience. This can take the form of data-driven insights that enable personalized offerings, the provision of seamless services across channels, and even ‘humanizing’ the design process so that product and service offerings are more empathetic to the unique needs of individual customers.”
Everest Group has released a set of research reports which address the unique challenges, priorities and trends in the digital adoption journey of each segment of the capital markets industry—buy-side, sell-side and market intermediaries. Each report also details the implications these findings have for enterprise buyers and IT service providers.
- Capital Markets IT Annual Report Part 1 – Platformification Wave Disrupting Buy-side focuses on buy-side firms such as private equity, hedge funds, and asset management firms. These firms are serving a new breed of investors who find digital services essential. Buy-side firms are being challenged in the marketplace by alternative lending and automated trading platforms and face increased reporting and market surveillance requirements due to regulations such as EU Benchmarks Regulation and Market Abuse Regulation.
As a result, buy-side firms are making digital technology investments to target customers, meet compliance standards, and generate patterns from historical data to optimize the system. Artificial intelligence (AI) and automation of core functions is a key focus of investment, as it will enable firms to free up resources to work on core business activities. Buy-side firms are also investing in digital technology to provide the seamless digital experience that their customers demand.
- Capital Markets IT Annual Report Part 2 – Data and Intelligence Transforming Customer Experiences for Sell-Side focuses on sell-side firms such as investment banks and brokerage houses, which are struggling to meet a diverse range of client needs while maintaining profitability amidst a proliferation of specialized products.
Partnerships within the ecosystem—with FinTechs, for example—are critical for the sell-side segment, because they are key to enabling new distribution channels, competitive product offerings and value-added non-traditional services.
Complexities in regulatory reporting are forcing sell-side firms to make digital investments in data management initiatives. Emerging technologies will require investments as well; these advancements are disrupting the sell-side of the value chain with new trading models, better cost structures and analytics-based advisory models, and keeping pace will be key to market survival.
- Capital Markets IT Annual Report Part 3 – Building Digital Market Infrastructures focuses on market intermediaries such as stock exchanges, custodians and clearing houses. To address changing investment behaviors and the demand for data visualization and insights platforms, market intermediaries are adopting next-generation digital technologies to facilitate real-time systems that process a very high volume of data with minimal delay.
Intermediaries also are looking to leverage analytics and automation to reduce the costs of regulatory reporting. Blockchain and AI likely will play a role in changing the way intermediaries operate, which may prove essential as the proliferation of blockchain-based startups diminish the role of traditional intermediaries as a trusted party.