Pub. 8 2018 Issue 2

23 ISSUE 2. 2018 Figure 7: Performance of the commercial and transaction banking and treasury services business ($M) Figure 8: Performance of the M&A advisory and primary issuance business ($M) Meanwhile, many corporate customers, like their retail counterparts, are demanding seamless, tailored product and service choices with us- er-friendly interfaces. Hence, streamlining front-end operations could be an essential priority in 2018. Mobile and online banking emerged as the top IT priority for nearly half of the global corporate banking respondents in the 2016 Ovum ICT Enterprise survey. With this backdrop, corporate banking groups should ramp up their digitization efforts, especially in businesses that still heavily rely on manual, paper-based activities. But digitization without reexamining and improving business pro - cesses first can be counterproductive. Take RPA for example, which is likely to gather steam in 2018, where it is important to ensure that inefficiencies are addressed by rethinking how work is done rather than just throwing a bot at the problem. We also expect blockchain to gain traction, especially in trade finance and corporate payments, given their natural fit for blockchain’s ability to eliminate duplication and errors inherent in a business hinging on multi party transactions. Already, seven large banks in Europe have partnered with IBM to construct a blockchain to conduct cross-border transactions for their small- and medium-size business clients. 40 Technology-enabled, front-end platforms should enable banks to cross-sell fee-based services to customers more efficiently. Banks that pool data into lakes, for example, should enable the data to be tapped by sales personnel via digital interface at client meetings. These digital tools with cross-business data could allow junior bankers to work directly with customers without relying on the relationships of senior bankers, while also eliminating multiple roles in service delivery, all of which would reduce operating expenses. Capital markets: Leading technology adoption for competitive differentiation Automation and AI are changing many of the drivers of compet- itive differentiation in capital markets—in the front and back office—creating substantive knock-on effects on operations, talent, and business strategy. Fixed income commodities and currencies (FICC) trading has been emblematic of ups and downs in capital markets activity in recent years. Therefore it seems a good candidate to assess the transformation that banks can undertake to make the business more profitable and sustainable. Many banks scaled back FICC desks due to post-crisis regulation, high- er operating costs, and a shrinking revenue pool. However, front-office technology innovation, especially cognitive automation, can bring efficiencies and possibly new sources of growth. In the back office, the industry can confront a smaller and unpredictable revenue pool by mutualizing post-trade overhead across participants. Additionally, firms with the right talent to make this transformative leap will likely win market share. Once monetary policy tightens across global markets and volatility returns—there is no empirical reason for it to remain as low as it has been—we think that banks that build the right capabilities and make the strategic choice to ride out near- term pressures (see figure 9) to stay with the FICC business could see big pay-offs. Examples of intelligent automation to create leaner front offices and new products are becoming more common. For instance, Goldman Sachs has deployed bots to trade odd lots in corporate bonds so that human traders can focus on more lucrative work. 41 AI is also fueling innovation, as in UBS’s “adaptive strategy” offering that customizes strategies for clients. 42 Sophisticated predictive analytics applied to transaction data are giving bankers the ability to anticipate client needs better. These technologies, along with the others such as blockchain, are also spurring change in the middle and back office. However, more likely needs to be done. True externalization—in which the infrastructure and the operations are run by a third party—may need to take hold as many capital markets businesses have become too costly to operate due to smaller revenue pools. Engaging specialized technology-enabled providers can be one way to more profitably manage these businesses. 2018 Banking Industry Outlook w Continued on page 24