For a perspective on the future of the digital transformation of capital markets, rewind to a seminal work of scientific literature published 156 years ago.
“There's a great line from The Origin of Species, where Darwin says it's not the strongest that survive or the most intelligent, but the one that's most adaptable to change,” said Matthew Hopgood, London-based vice president at Sapient Global Markets and co-head of the firm’s visualization practice. “That’s at the heart of the digital-transformation conversation.”
Within capital markets, that adaptability to change will manifest itself in a multitude of specific ways.
“The most successful firms will have a well-planned data strategy and product architecture to adapt to the evolving marketplace,” said John Donahue, senior vice president and head of equities at Fidelity Capital Markets. “More buy-side firms will be investing or partnering with technology providers in order to merge their proprietary data with external data, to assist in identifying opportunities and trading improvements.”
The goal will be to effectively integrate that data with broker or other third-party platforms into an end-to-end optimal execution strategy, with a sustainable process that can adapt to innovation in the industry. “The trader’s role will continue to expand to integrate more information to improve the broader execution strategy, creating a far more cohesive trader-technology relationship,” said Donahue.
There are four primary lenses through which digital transformation can be viewed, according to Josh Sutton, vice president at Sapient: customers, employees, processes and business.
As global lead for digital transformation in financial services at Sapient, Sutton works with clients to identify opportunities to transform their business in the areas of customer engagement, empowerment of employees, optimization and automation of business processes, and the creation of new business lines.
The customer lens is about, “How does your customer engage with your firm and how do you create a better experience for them?” he said. “The second is the employee: How do you empower your employees to do their jobs better, to perform more efficiently, and to create a better result for the company and for its clients. The third is: How do you optimize and automate your processes? How do you look at business functions that aren't strategic and drive automation? The fourth, which is going to have the most impact in the three- to five-year window, is around new business lines, which include accretive and disruptive lines.”
Accretive lines, Sutton explained, are about how firms can capitalize on changes in the market and create a new revenue streams, for example, a clearing service that wasn't a revenue stream yesterday but could become one tomorrow once regulations come in to force and demand for those services increases. Disruptive business lines are about how firms can leverage innovations as a result of digital technologies, such as peer-to-peer lending, which can impact the entire business in a fundamental way and shift the way it works.
“Investment in technology will continue to create efficiencies in the market and, in order to differentiate, brokers will focus more time not only on processing trades, but value-added services and products that help their clients improve performance for their end investors,” said Derrick Chan, senior vice president at Fidelity Centralized Electronic Trading.
Brokers will need to be innovative and identify where they can best provide value in the process. “Competition, technology, and the pursuit of performance enhancements will lead to market efficiency improvements throughout the capital markets spectrum,” Chan said.
Capital-markets firms have "led the world" in driving business via high-velocity technological advancements, but there's more to digital transformation than that, according to Jason Bloomberg, president of training and advisory concern Intellyx.
"Continuing to place bets on velocity at the exclusion of agility will lead established players to fall prey to the 'Innovator’s Dilemma', thus opening up opportunities for newer, more agile players who seek to disrupt the status quo," Bloomberg said.
Digital transformation, concluded Sapient's Hopgood, “requires an evolution of the entire company because it's elevating change outside the departmental silos, to a corporate-wide and cultural level.”
Featured image by /Dollar Photo Club