3 unique things about investment banking

Evolution of Financial Service Organizations
Modern Financial Services organizations have become practically virtual.

This is because there is no actual requirement for an organization’s employees, its customers and its business assets to be in physical proximity. The only key requirements are human resources for management, decisions, control and execution of operations.

This has become possible due to the evolution of technology and the nature of the Investment Banking business.

It is now possible to have almost instant access to global markets for customers anywhere across the world. Customers get information on hand-held devices and across different media.

Distinctive Nature of Investment Banking

What makes an Investment Bank distinct? What are its real assets? How do we understand the key changes in the market including Financial Technology aspects relevant to their core business?

The core elements that make up an Investment Bank are Capital (input), Assets (such as people, technology and customers) and Reputation and Net Worth (Output).

Investment Banks (Broker/Dealers, Custodian, Asset Managers, Funds, etc.) are distinguished principally by their:

1. People who create innovative products and solutions
2. Technology used to create and deliver the solutions
3. Customers who use the products and solutions

Capital is a pre-requisite while reputation, brand and net worth (increase) are consequences when an organization uses its assets efficiently and effectively.

Thus, how an Investment Bank manages these assets and the scale of their investment in these provides invaluable clues on the direction of Financial Technology evolution.

An Investment Bank’s operating assets are primarily digital assets, such as cash balances, positions,unrealized P/L, transactions, activity records, and so on.

The only exceptions are office space,technology hardware and people. All digital assets are held in Investment Banks’ own systems or in systems of external entities such as Banks, Depositories, Exchanges, Counterparties, Custodians and Related Companies.

Technology infrastructure is generally distributed based on the location of the organization’s employees, and is dependent on the required proximity to financial markets’ infrastructure for faster access and transaction throughput.

However, technology allows customers to use solutions to access products and markets irrespective of where the customer or market is located.

Essence of Financial Technology in Investment Banking
The uniqueness of Investment Banks is based on the following aspects:
1. Ability of Banks to design effective and valuable customer and market solutions
2. Ability of Banks to make speedy and correct decisions and act upon these rapidly using technology
3. Opportunity provided to their customers to enable them to make their own informed decisions and act upon them with the same speed

The efficiency of Banks’ technology can be decided through its capability to ensure rapid movement of large volume of data in the form of orders, instructions and information flows effectively and transparently.

It is seen that the expense distribution of an Investment Bank is indeed along these lines. The top four categories of expenses are presented in the table below.
 

The specific elements of Financial Technology in Investment Banking are presented in the following table, highlighting the competitive advantages.