How does automation affect investment banking?

How FinTechs are changing investment banking

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A current study shows how investment banks could improve their market position by working with FinTech companies and counteract the decline in investment income.

In 2015, investment bank returns fell by 4 percent compared to the previous year. The average ROE of the 14 leading global investment banks fell from 7.8 percent to 6.3 percent. The typical cost of equity rate for investment banks would be ten to twelve percent.

Investment banking is under enormous pressure worldwide. In addition, there are regulatory requirements and stricter capital requirements. All of this ties up scarce resources, which means that the topic of innovation has faded into the background in many places.

Against this background, EY conducted more than 40 interviews with investment banks, FinTech companies, supervisory authorities and venture capitalists around the world and examined the aspects of working with FinTech companies in more detail.

New impulses from FinTechs

Investment banks that rely on innovation, collaboration and partnership could expand, optimize, protect and manage their business in a way that was previously not possible. FinTech companies - according to the study - could revitalize investment banking with new impulses. The best short-term opportunities are therefore in areas such as robotic process automation (RPA), modern analytics, digital transformation and the outsourcing of processes and services.

Technologies such as artificial intelligence (AI) and smart contracts based on blockchain, on the other hand, could bring about fundamental changes in the medium term. However, it would take longer to translate into positive returns on investment.

Partnerships between FinTechs and investment banks can also help reduce structural and operational costs, improve regulatory compliance, and promote innovation in products and services.

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