McKinsey's viewpoint on Capital Markets and Investment Banking (CMIB) finds that the industry's restructuring from a decade ago has failed to deliver positive results. The CMIB industry remains under pressure and faces weak profits, high costs, and strategic uncertainty. McKinsey concludes that more fundamental change is required to produce favorable business impact, since the traditional model is no longer viable, with high costs, picky clients and rising customer expectations continuing to undermine performance. Additional headwinds include relentless waves of regulation, entrenched product complexity, and increased uncertainty following Brexit. The average Return On Equity (ROE) for the industry remains stagnant at 10 percent, with the top ten global CMIB banks posting declining revenues for the third straight year. Worse, the element of trust is sorely missing within the ecosystem.
Technology remains underutilized in CMIB
McKinsey confirms that despite adequate empirical evidence, new technologies remain underutilized, with many banks yet struggling to make fundamental changes in their operating models and embrace potential benefits of digitization. No surprise then, that clients are challenging the value added by banks, with many indicating that they feel over-served in an electronic/flow-products world, and that banks are struggling to provide products deemed desirable.
Transformative change is possible
McKinsey promises a better future to those banks that are ready to undergo transformative change to successful operating models and embrace new technology. Hard decisions must be made, particularly with regard to costs and commitment to resources. Banks must differentiate themselves based on value propositions that meet segmented client needs. McKinsey envisions a new market structure emerging for CMIB over the next three to five years. Four business models are likely to succeed as economic, regulatory, and technological trends play out.
Regardless of the business model, McKinsey identifies eight key initiatives bank leaders will need to implement. Top priority initiatives are:
- defining long term business portfolio
- articulating client value proposition, and
- fully leveraging digital technology across the entire organization
Additional opportunities offering potential include participating in industry utilities, including distributed ledgers (i.e. blockchains) and leveraging advanced analytics.
An innovative approach to digitization
Appian's low-code digital platform can help leverage technology benefits across the business, with a customer-centric view across channels, products, and staff. As you consider the McKinsey recommendations for operating models, let's talk about developing a roadmap with key milestones specifically for your institution. You can drop me an email at michael.heffner@appian.com.
Michael Heffner
Appian Corporation
Global Capital Markets and Banking Industry Lead
