Technologies Influence on Investment Banking

Technologies influence on investment banking

Yian Shen

ENG302-B19

Caitlin Dungan

FALL 2017

1. Introduction

    Investment banking has been developed for hundreds of years since medieval times, and modern investment banking as it appears today began in the 18th century. The structures and patterns of investment banking are changing as the technologies change. According to Blomberg, J. et al. (2012), in the beginning, it was just an international trade for currency transferring, and then it was steadily explored into stock financing to set a basic model for the present investment banking field. The investment banking field changed from a manually trading stock market, into an automatic stock market now, which depends mostly on the influence of new technologies. This paper will pay attention to the influence of new technologies, negative or positive, on the traditional investment banking field, and to explore which new technologies might bring positive impacts to investment banking.

    In order to know which kind of technology will have a positive influence on investment banking and how to use that technology going forward is the focus of this paper. In addition, trying to establish a solution plan is important for the descending investment banking field. However, what the new technologies are, there is no clear definition for this because so many types of technologies exist. From Campbell, A.’s perspective, mobile apps, one of those new technologies, have been developed steadily for years, and business is becoming more friendly to using apps to attract more customers and help customers check data or accounts in convenience. In addition, cloud computing is a rapid development to offer security and efficiency for businesses that require lots of attention to databases (2017). More specifically, business intelligence, blockchain and other new technologies facing the market for less than three years still bring better service for decision-making and automatic changing trends for a field.

1. Background

    There is no doubt that showing up of new technologies changes the profits distribution of the society, especially for the new investment banking. The investment banking field has been reshuffled after the financial crisis in 2008 to change into a new investment banking field. The reason why 2008 financial crisis happened not accidentally but was the unbalance economy between the real economy and fictitious economy. As the growth of fictitious after World War II, the real economy has suffered a lot. Financial areas, such as investment banking field, became an important field that could influence the whole economy of America, but they take their vulnerability to the American society, even to the world’s economy. According to      

Liaw, K.T. (2011), at that time, “three of the top five investment banks in the United States have disappeared” (2011). Other investment banks started to transform into more general commercial areas with restructuring the whole corporations around the world. In Liaw, K.T.’s mind, he also pointed out that in the first five years after the 2008 financial crisis, the investment banking companies will put more efforts on recovering their functions and adjust financial regulations in case that the big economic crisis will happen again. Then the survived companies prefer to enlarge the size of the company and make digital transformation with the new technologies after 2013.

1. New technologies on ATM use

    Generally speaking, it is definitely necessary for investment banking to take new technologies into use in the trend of the digital transformation of banking. According to Ferrari, S. Verboven, F. & Degryse, H. (2010)’s focus on the business world, new technologies could help companies get to know customers deeper by implementing the newest information without overinvesting or underinvesting and prevent losing money accidentally. The most direct change new technologies have caused is that, as more new technology is being put into use, companies are losing less money. Companies can predict numbers more accurately and calculate close equations with fewer residuals in the budgeting department. The example in “Investment and usage of new technologies” shows that commercial banks “joined forces to build large compatible or shared ATM networks” (2010), arguing that fewer people realized the importance of the joint network of ATMs for commercial banks. As mentioned above, investment banks are going to begin to enlarge the use of these functions that have already transformed commercial banks. Therefore, the commercial banks mentioned here not only refer to normal commercial banks, but also include commercial banks whose main issues still concern investment banking. ATM coordination is always benefiting customers. On the one hand, it reduces people’s time and is more effective to find one particular bank’s ATM to make transactions with same fees but when ATM has been a single system with all banks together, people will not worry about the substitute of ATM about the cash withdraw fees. In China, on the other hand, investors can make proper use of the network built by banks, which is not a waste of the collaboration of the bank’s resources (Ferrari, S., Verboven, F. & Degryse, H., 2010). ATM usage is a basic problem in the investment banking field, and this new technology of collaboration use will definitely bring positive impacts on customers and banks. As this is based on the empirical model of banks, it will be accepted easily by loyal investors if the regulations have accepted the idea.

1. Cloud computing on investment banking

“Banks” overall refers to one financial institution, which can be divided into

commercial banks and investment banks. In recent years, investment banks have changed into commercial banks to enlarge the size and function so the technologies used in ATMs are also working for investment banks. This paper will focus on the investment banking field more than the commercial field. By definition, investment banking is “a contribution of money or assets in a certain duration with an element of risk and a contribution to the economic development of the host state” (Grabowski, A., 2014). Cloud computing is one of the ten biggest trends of new technologies in 2017, which has been developing for five years. The study of Kocovic, P. & Vaskovic, V. (2013) finds out that new technologies of the investment banking industry could be helpful in performance improvements, but it cannot solve the root problem of corporations if the CIO becomes frustrated with the overall use of cloud computing in the company. If they do, the information system of the company would not put cloud computing to use. Therefore, the company will receive information later than other companies who think cloud computing is important. The phenomenon will directly cause customers to suspect the company’s capability and “seek alternative means of supply for financial products and services” (2013). Gartner defines cloud computing as "a style of computing where scalable and elastic IT-related capabilities are provided 'as a service' to customers using Internet technologies" (Smith, 2009). Cloud computing is an essential part of Software as a Service (SaaS), which serves as an engine and platform for financial services. The author showed that “The worldwide market for cloud services was worth $58.6 billion in 2009. By 2014, the market will be worth $148.8 billion” (Kocovic, P. & Vaskovic, V., 2013). Not only the number of profits the cloud computing created, but also the financial models that are based on cloud computing, will be essential tools for financial forecasting. All in all, some investment banks are afraid to restructure the corporation with new strategies, thinking and organizations, which will easily cause loss of new opportunities to reach a new market. Currently speaking, cloud computing use and restructured companies have positive impacts on the investment banking corporations, and it is an excellent chance for corporations to catch the opportunity to facilitate the digital transformation.