Capital Markets innovation and the FinTech landscape

Background and context
Innovation in capital markets is no longer optional
The capital markets industry is continuing to work hard to
address several challenges. Faced with stubbornly high structural
costs, heavy capital charges and stagnant revenues, investment
banks’ returns on equity (ROE) continue to disappoint. While
steps are being taken to transform culture and rebuild trust,
progress in these areas takes time.
So, given these challenges, where are capital markets firms
directing their resources? The answer is that they’re primarily
focusing on delivering changes mandated by regulators or
driven by external threats. Yet this brings its own problems: the
combination of complexity and unrelenting pressure to meet
regulatory deadlines is causing organizational fatigue, while
also leaving management short of bandwidth to step back and
look further ahead with a view to investing in initiatives that will
improve ROE.
Average investment banking ROE
“ Our industry is going through
a transformational time, driven
by competition, regulation and
advancements in technology.
As a leading global bank, we are
committed to driving industry
change by investing heavily in
internal development, but also by
collaborating with the talent of
determined, young startups.”
Daniel Pinto, CEO of the Corporate & Investment Bank,
J.P. Morgan
18.4% 19.5% 4.3%
17.0%
16.0%
-12.6%
10.0%
Put simply, the capital markets business model needs to evolve —
and to do so quickly. Historic evidence indicates that the industry
has been only partially effective in delivering change and
managing its cost base, creating the need to evolve in a different
way. As a result, innovation is no longer optional. Yet, for most
firms in the industry, organic evolution toward a new model
would be very difficult to achieve.
8.8%
7.8%
6.3%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: EY investment banking quarterly analysis for 1Q16.
8.8%
“ We are at a point where we have an
opportunity to reposition financial
services. With the technology
available, we can change the way
transactions are done, reducing
costs from dollars to pennies.
Through collaboration, we have
the opportunity not only to revive
businesses that have died, but also
to create new ones that haven’t even
been thought of.”
David Rutter, Founder and CEO, R3 CEV
Help is at hand. A new FinTech ecosystem is starting to form
that can address many of the challenges confronting today’s
investment banks. The even better news is that the emerging
FinTech sector is well funded, energized to help, and powered
by a blend of seasoned industry professionals and fresh talent
unencumbered by the old way of doing things.
Capital Markets: innovation and the FinTech landscape | 9