Impact of technology on Investment Banking- Part one

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In January this year, HSBC Customers were unable to use online banking services for two days. An IT failure earlier in August led to 275,000 payments not being processed. That means late interest charges for you. A well-known firm lost 440 million Dollars in forty minutes because software updates sent erroneous orders into the market. Its no surprise then that news was out that banks will spend more on technology in 2016. Total bank IT spending across North America, Europe, and Asia-Pacific was expected to touch $196.7 billion in 2015, an increase of approximately 4.6% over 2014, according to forecasts by Celent.

The impact of Technology on InvestmentBanking can be summed up in money, money lost in systems going down, money lost when your technology is unable to mitigate risk efficiently, money lost due to customer loss on the back of slow responsiveness. The only way you are able to place a trade in the US to buy a Japanese stock is because Technology has enabled you to so.  It is technology that turns a trading strategy into a trading profit, enables new pricing models thereby creating new products that are relevant and conducive to the market. It is technology that adds value to the client in terms of shorter delivery times and better accuracy. The Investment Banking industry thrives on the flow, analysis and interpretation of information and technology holds the power to deliver that competitive advantage.

The current race between Investment Banks is not to create better cleverer products, because products can be imitated rather quickly, but to build unique streamlined technology platforms that can mitigate risk and improve efficiently thereby delivering seamless service.  Technology touches every aspect of Investment Banking, and underpins every deal that is transacted be it Securities Research, M&A or an IPO.  When a system is unavailable, millions can be lost. Thus robust systems and infrastructure is fundamental not only to profitability but also the evolving regulatory burden (Dodd-Frank, Basel III, Capital Requirements Directives 2 and 3 and OTC derivative clearing regulations) where technology also plays a big role.

The problem with technology however, is its obsolescence. As products become more complex the underlying technology must evolve as well. To secure computer systems, develop analytic capabilities and enhance customer-facing platforms, bank CIO’s expect to spending to jump 10 percent. 

http://www.americanbanker.com/news/bank-technology/banks-to-spend-more-on-tech-in-2016-especially-security-1077200-1.html.