As we enter 2020, the Banking and finance industry have already come far — from open trading at physical exchanges to algorithmic trading. We’ve gone away from paper savings accounts to robo-advisors. Here are the top investment banking trends to watch out for.
Borrowing from Bob Dylan, the times are a-changin’
The current crop of technologies — cloud computing, social media, AI, machine learning, e-commerce, big data — all these are redefining this century and beyond.
Tech innovation in every industry has become an inseparable cocktail, and it’s especially true for financial institutions. Nowhere has this combination been as powerful as in the investment banking industry.
Holding companies, today, are looking for an intersection with technology. Navi Technologies, formerly known as BAC Acquisitions, an investment holding company, is scouting for investment opportunities in technologies to augment financial services.
What do these developments bode for investment banking professionals and the markets of the future? Here we look at the critical juicy investment industry trends you need to keep up with.
Significant 2020 Trends to watch out for, that are changing the Investment Industry landscape.
Mid-Sized Companies become the spicy target.
Goldman Sachs recently announced its plans to boost investment in mid-sized corporate clients. Though the investment banking industry behemoth has been serving mid-sized companies, it was done on an ad-hoc basis in the past.
It plans to go full-scale with a cross-market group (CMG) that is set to deliver investment banking products to mid-sized companies. David Solomon, the chairman, and CEO of the US bank says,
There are many enterprises valued at $500 million to $3 billion. That’s the real expansion opportunity for the firm.
As a result of this focus on emerging private companies, the number of investment bankers and M&A deal-makers hired for the operations will witness a rise, along with a spike in the number of regional units.
Other than Goldman, there are many other banks eyeing this segment, including JP Morgan, Wells Farago, Citigroup, among others.
Rise of Initial Coin Offering (ICO).
It’s a new way to raise funds. Initial Coin Offering (ICO) is the cryptocurrency equivalent to Initial Public Offering (IPO) in investment banking. It offers the means for cryptocurrency-based corporations to raise funds for their new application, service, or a new digital coin.
Investors buy in these offerings and receive a cryptocurrency token by the offering company in the hopes that successful projects will lead token’s values to spike.
The Economist, a popular finance publication says this about ICO,
They are digital coupons that can be readily traded, although unlike shares, they don’t confer ownership rights.
Among the successful coin offerings, Bancor’s story is worth noting. Bancor is a blockchain-based prediction market that was a substantial hit due to its unique offerings. Bancor generates liquid tokes that allow for their conversion into other tokens.
For instance, a user can purchase a Bancor token that may be a 50% combination of Ether and 50% Litecoin. It drew attention, and eventually, a buy-in from a venture capital firm ‘Blockchain Capital’ and one of the earliest internet investor Tim Draper.
Storj is another blockchain-based cloud storage company that successfully exploited ICO.
To engage in ICO, you will need to develop a basic understanding of cryptocurrency wallets and engage in digital currencies.
Assets of ‘Robo-Advisors’ will hit the US $2 trillion in 2020.
Many investment banking advisors, stockbrokers, and other financial professionals have lost a portion of their business to robo-advisors. An example of this trend is Betterment. Robo-advisors are algorithm-driven advisors that work with little to no human intervention.
A company’s hallmark is the ease of online access provided to the clients. It is especially becoming popular among young investors and the digitally savvy new generation consumers.
A typical robo-advisor collects client information about their financial health and future goals. The robo-advisor then uses that data to advise clients and automatically invest their assets.
Some of the best robo-advisors can set up accounts with ease, robustly plan goals, provide account services, manage portfolios, and offer security features at a very low fee.
First, robo-advisor at Betterment was launched way back in 2008. After a decade, the robo-advisor’s at Betterment have today become capable of handling complex tasks like investment selection, retirement planning, tax-loss harvesting, and much more.
The growth of robo-advisors hit (in terms of client assets managed by them) US $60 billion in 2015, and the industry is projected to rise to the US $2 trillion in 2020, and an estimated US $7 trillion by 2025.
5G and BFSI (banking, financial services, and insurance).
The age of hyper-connectivity with 5G will also change the dynamics of finance, insurance, and investment banking industry. As the devices become smarter and faster, the services offered will too.
The years upon us now may be the time of the “Intelligence of things” where updated smart finance applications will use 5G. A vast network of devices and over 20 billion items, from dryers and cars, to bank accounts and investment portfolios, will become interconnected in this 5G revolution.
The enormous data generated in the process is poised to make investment decisions better and smarter.
Making “Perfectly efficient markets” with AI.
Talking about the future of stock exchanges, Adena Friedman, the CEO of NASDAQ, says we will get closer to perfectly efficient markets. The continued march toward AI can enable the investment banking industry to make better decisions through the barrage of data generated. Friedman says, as the data gets piled over the 10 to 20 years, quantum computing will lend the investment industry the ability to look at thousands of outcomes within seconds and draw right conclusions – about price, buying and selling, and much more.
AI tools can root out bad behavior – insider trading, market manipulation, and all that makes markets unfair.
In the AI space, NASDAQ plans to provide technology tools underpinning capital market data and insights to other exchanges, regulators, and broker-dealers. The hope is to power the investors across capital markets with AI.
Equity Crowdfunding is a reliable mode of alternative investment.
Equity Crowdfunding is about the online offering of private company securities like debt, shares, convertible notes, etc. to a group of people. The reliable mode of Crowdfunding has become a popular method of raising funds for private companies and startups. Small business owners provide information about their funding needs and business on these websites and solicit financial pledges from people.
Many investment banking professionals have proceeded to launch their equity crowdfunding platforms. Indiegogo and Kickstarter are among the most popular crowdfunding arenas. Kickstarter is the best fit platform for creative professionals looking to raise funding for their projects. Indiegogo, on the other hand, help technology firms to get their products off the ground.
Equity crowdfunding, unlike traditional product crowdfunding, offers real equity in companies to the investors.
GoSun, GOffee, and Miso Robotics recently launched their equity crowdfunding campaigns. This mode of funding gives better flexibility to the company owners than the traditional venture capital route.
Need for Coding skills.
Investment banking professionals will be required to understand and know the technology behind algorithms, as more operations shift toward that. Banking, Finance, and Insurance industry has already begun to ramp up their hiring of IT professionals in the bid to have an in-house IT and data team.
Whether you be in banking, portfolio management, risk management, or other field of finance, you will be expected to be able to program at least in one programing language.
Stock picking used to be a coveted skill, but now investors are no more focusing on it. Passive funds run on autopilot are automating the process of stock picking.
Cybersecurity and Investment Banking.
The past year and coming years will be significant for the confluence of cyberspace, and investment banking from a cybersecurity standpoint. Other than corporate ventures of the likes of Google and Cisco, financial services companies like JPMorgan Chase are ramping up their investment in security startups.
In 2019, investments in cybersecurity were worth over US$23 billion, and the spending in this industry is expected to reach US$151.2 billion by 2023.
These are the key trends for the banking and finance industry for 2020, and an overview of what the investment industry is taking ahead from previous years and decades.