In recent years, technological innovation has caused major disruption in all industries. It has changed the way that every business does business. This shift has also affected investment banking, as financial service firms have quickly implemented new financial technology solutions into their business models to better serve their clients.

This has opened new paths and opportunities for generating revenue, while simultaneously stimulating the emergence of fintech (financial technology). A firm must now consider how to capitalize on the latest technology in order to be competitive with other firms in the digital age.

In this article, we explore five trends in fintech and financial services (specifically investment banking) that are most propelling the market forward into 2022.

1: Fintech — Beyond “Disruption”

Is it the end for large investment firms and banks? Years ago, fintech organizations started to disrupt the industry’s functioning and taking away profits from those huge firms that were once considered immune.

Fintech companies have emerged to offer customers new ways of managing their finances and making payments. Companies also have the option to streamline financial operations and eliminate any unnecessary financial “middlemen.”

These revenue streams were dominated by large financial institutions prior to the advent of these companies. However, they are now being challenged by smaller firms that focus on particular products or services within the industry.

In addition, disruptors in the financial services industry are often focused geographically. This forces a firm to defend unique competitors in different regions. This further complicates their ability to adapt.

The emergence of fintech, however, has had a positive effect on the banking industry, with a rise in partnerships between third-party fintech companies and investment banks.

2: New Fintech Software

By partnering with companies that have the potential to increase their knowledge and improve decision-making, investment banks have taken advantage of new technologies.

Software helps firms use technology in a number of important ways.

  • It allows investment banks to quickly identify and verify investors
  • It provides access to specialized data so firms can easily analyze private companies
  • It increases land improves lead generation
  • It Improves post-deal marketing strategies

The rise of better information gathering has directly influenced global market M&A activity, for example. Investment banks have found that partnerships with fintech companies are a significant source of revenue.

This trend will continue as the interlude between technology and investment banking converges.

3: Fintech Leveraging Investment Banks

Fintech firms are using the knowledge of investment banks to boost their own growth, even though they have certainly benefited from third-party technology companies.

There has been a significant increase in the number of fintech companies collaborating with investment banks and other financial firms. This allows them to extract valuable information in a variety of ways. For example, they can profit from the large customer base of investment banks and gain access to the wealth of information investment banks possess. Although investment banks were once very cautious when considering partnerships with fintech companies, this trend appears to be changing.

Fintech solutions are being adopted by more investment firms to increase efficiency and reduce costs. Blockchain technology is one example of how technology has had an impact on the investment banking sector.

4: Blockchain Technology

Blockchain technology has gradually crept into mainstream consciousness since the introduction of Bitcoin and other types of cryptocurrency. Blockchain technology is being adopted more rapidly by the financial services sector, which has the potential for cost reductions and increased security.

Two reasons banks and other businesses have adopted blockchain forms are that it eliminates intermediaries in funds transfers, reduces costs, and increases the security of transactions.  This security benefit is particularly interesting as banks have been targeted by cybercriminals in recent years. Companies have increased their cybersecurity spending. This risk could be significantly reduced if blockchain is further adopted.

Although blockchain is still a slow market for adoption in the banking sector, technology like artificial intelligence (AI), has seen rapid progress despite being at an early stage of development.

5: Artificial Intelligence

Financial service firms are investing quickly in new ways to increase efficiency through artificial intelligence. The majority of the investments made by financial services companies in AI platforms have been for cost reductions.

Two key areas in which AI has been used across the banking industry are customer service and fraud. Chatbots can process all client queries and employees are no longer managing as many questions. AI technology can detect fraudulent transactions and notify customers, putting a hold on accounts. These two innovations have resulted in huge cost savings for large financial institutions, which can then be used to reroute funds towards other operations.

Looking Toward 2022

Deal sourcing technologies can prove to be a double-edged weapon for the investment banking industry. Although technological advances pose a threat to the investment banking industry, they have also stimulated efficiency and improved decision-making. It is safe to say that investment banks that rely on technology to improve their deal flow operations will succeed.