The financial world is undergoing a major transformation with the constant evolution of new and advanced technology. Fintech has digitalised the world money market and set new standards for the banking industry, foreign exchange, and consumer finance.
Traditional investment banks have adopted innovative measures of rendering financial services in real time through technological tools. Artificial intelligence has made mergers and transactions more transparent and informative while also reducing the need for transportation for banking purposes.
Modern technology has immensely improved the efficiency of investment bankers and provides an integrated banking experience to consumers and other professionals. In this article, we have given a detailed explanation of the technological tools that are transforming the investment banking industry.
Table of Contents
- 1 What is Investment banking?
- 2 What changes has technology brought to the field of investment banking?
- 3 Technology Trends in investment banking
What is Investment banking?
Investment banking refers to financial institutions which primarily gather large funds for corporations, governments or other finance houses. Investment bankers are finance experts who handle critical activities like financial underwriting, mergers, Initial Public Offering (IPO), trading, brokerage, asset management and debt financing while also providing consultancy on corporate affairs. Investment bankers also assist companies to sort their debt finance by issuing bonds, loans and other debt instruments.
What changes has technology brought to the field of investment banking?
The recent advancements in technology and online platforms such as Special Purpose Acquisition Companies (SPACs) have changed the face of the banking industry. Modern tools have brought the banking industry from paper to digital screens. Advanced technology such as Artificial intelligence, blockchain and virtual data rooms are used by investment banks to provide remote financial services. Robo-advisors and chatbots priortise personalised banking experience by targeting the specific financial needs of the consumers. Big Data Analytical tools evaluate consumer investments and compare market trends to build a culture of innovation including expert, data-led and agile financial operations.
Technology Trends in investment banking
Advanced trading platforms are one of the primarily used tools by investment bankers. These advanced platforms use machine learning and algorithms to evaluate and analyse data and help get better margins out of the money market.
The use of AI systems in Investment banking revolutionises the automation and analysation of this sector. AI analyses and processes vast amounts of data quickly and accurately, making it easier for investment bankers to make informed decisions. It also monitors all data at once on a daily basis and identifies the violations quickly. AI's ability to fast data processing enables better market forecasting which also improves trading strategies. AI automates all the time-consuming processes like reporting, record-keeping and a wide range of regulations.
Direct listing techniques
Companies that do not wish the involvement of intermediaries in selling their shares opt for a direct listing process. Investment bank function as a platform for small or medium-sized companies or their promoters to sell their shares directly to the public. Also known as Direct Public Offering, DLP is more cost-effective than IPO but has certain safety and volatility risks.
Natural language programming
NLP enables you to perform multiple tasks such as News sentiment analysis, trade analytics, equity research, risk management, portfolio optimisation and foreign exchange analysis within a significant time period. NLP transfigures raw insights into analytical charts and uses them to design accurate algorithms and analytical charts. Today, NLP has reduced the manual routine work of financial analysts and sped up the process of financial research.
Virtual data rooms
VDR enables investment bankers and companies to share confidential data & documents while conducting any kind of merger or acquisition. It creates a secure centralised online platform for companies to store and view confidential documents which are accessible to only authorised parties. VRD reduces the risk of data breaches online.
VRDs are affordable, save time, and enhance the control of authorised parties by providing a safe medium to exchange crucial financial information online.
Blockchain technology offers an extremely secure and transparent exchange of funds with a minimum cost of exchange. Blockchain provides an anti-money laundering platform by building a decentralised database that is impossible to tamper. This advanced technology of money transfer is a tricky subject to understand and thus has limited usage. Blockchain offers a distributed ledger that diminishes the need for third-party approval for making payments, the information of which is highly secured and can only be accessed by members with permission.
Initial Public Offerings
Investment banks function as an intermediary during an IPO process. The investment banks purchase the shares from corporations that are willing to sell their stocks and bonds to the public. The investment banking platforms buy the available share directly from the companies and then sell them to investors on their online distribution platforms. The investment bankers charge somewhere between 3% to 7% per share based on the revenue generated from the IPO.
Third-party platforms such as investment banks gain access to a wide range of financial data of consumers from banks and other financial institutions. The investment banks then use artificial programming interfaces (APIs) use these accounts and transaction data to reshape the banking experience and tailor financial services to meet the specific needs of the consumers. The consumer banks provide information to third-party platforms with the consent of the consumer.
Sustainable financial products
Green loans, green bonds, carbon credits, sustainable mortgages and public institutional equity investing, among others, are some of the sustainable financial products. These are initiatives of banks to meet the Sustainable Developments Goals of the United Nations. As consumers are prioritising commitment to environmental issues, investment banks are designing sustainable financial products to meet those requirements.
Artificial Intelligence and other technologically advanced tools have become an important segment of the modern investment banking industry. Traditional banking investors are feeling the need to adapt to the new methods of investment banking. Being a high-value profession, the demand for skilled investment bankers is very high in the money market.
If you are interested to learn investment banking, you can check out Imarticus Learning’s Certified Investment Banking Operations Professional Course. This investment banking certification course helps you to learn investment banking from recognised alumni and gain industry-specific skills.