The meteoric rise of cryptocurrencies, alongside the increasing adoption of robo-advisory services and chatbots by investment banks, has raised the question as to whether the industry is undergoing a technological transformation.
Wells Fargo Advisors has recently launched an automated investment service called Intuitive Investors which will lower the costs for investors when entering the markets. Similar robo-advisory services have also been offered by other major investment banks, with BAML introducing their own robo-advisory service called Merrill Edge Guided Investing earlier this year. Alongside this, Morgan Stanley is also considering the introduction of robo-advisory services.
Such services are revolutionising investment activities, through lowering costs for clients, with many of these robo-advisor algorithms derive themselves from Nobel Prize-winning theories, led by the likes of Harry Markowitz. Moreover, such services can also help select assets that clients should invest in, allowing banking advisers to allocate more time towards addressing tax and financial planning concerns.
Martin Chavez, the executive vice president and CFO of Goldman Sachs, has built a revolutionary client interaction model called Data Lake. The model includes a data service hub, which draws data from Goldman Sachs’ transactions and exchanges, before disbursing it to clients via another location. This will help guide employees to cater to specific clients’ needs through grouping together data concerning transactions, markets, research, emails and calls. Such schemes have been deployed in other major companies such as eBay and Expedia who have seen major revenue increases as a result.
The Growth of Chatbots
Chatbots are messaging platforms that have been recently adopted within the investment banking industry. They are relatively inexpensive in their development and maintenance and do not require a large amount of coding. They save banks the cost of developing their own systems whilst they can also provide wealth management for clients, as well as underwrite loans and deliver data analysis. For example, BAML use a chatbot called ERICA which provides customers with regular and essential updates on their finances, whilst also providing analysis and messaging to aid customers during their transactions.
However, it must be argued that chatbots are still in an experimental phase. For example, chatbots are currently limited to informing users about their account balance or breaking down their transactions, and have thus yet to become hugely influential or revolutionising systems. Moreover, roughly two-thirds of US financial services respondents highlighted that they lack the resources to make investments in such projects and innovative schemes, whilst they may are also restricted by regulations or operations. However, the world can still expect to see many major investment banks experiment with, and adopt, chatbots in the foreseeable future.
Cryptocurrencies: The Heartbeat of a Technological Revolution
Although there has been significant doubt and concern expressed about the potential adoption of cryptocurrencies within investment banking, illustrated by the fact that Jamie Dimon of JP Morgan threatened to fire any trader who invested within bitcoin as a result of the glaring risk of fraud, the benefits are still clear to see. A report by Accenture has predicted that blockchain technology could help to cut large investment banks infrastructure costs by up to $12bn a year by 2025, a hugely significant and impressive amount.
Many investment banks have begun to appreciate the huge potential benefits of cryptocurrencies and have started to adopt such platforms into their corporate structures, potentially due to the fact that market volatility levels are at their lowest in 5 years, restricting profit levels. For example, UBS and 5 of the world’s largest investment banks have launched a form of digital cash called the Utility Settlement Coin, which allows cryptocurrencies such as bitcoin to be traded electronically without a central ledger. The scheme has been labelled as ‘one of the most innovative technologies out there’ by Lee Braine of Barclays.
The system will allow financial groups to exchange securities, including bonds and equities, without the wait for the completion of traditional transfer payments. This will help to boost the efficiency and profitability of such activities. Aside from this, the CEO of Credit Suisse, Tidjane Thiam, has indicated that Credit Suisse is interested in blockchain, with the bank exploring its applications to the syndicated loan market. Alongside this, they are also a member of the Enterprise Ethereum Alliance, along with UBS and JP Morgan, which targets the imposition and introduction of Ethereum blockchain within financial services.
It is clear to see that the investment banking industry has benefited from numerous technological advancements such as robo-advisory services and chatbots, and that new and exciting developments are on the horizon for the future. The most invigorating developments are without a doubt cryptocurrencies, which offer investment banks the opportunity to completely revolutionise their trading methods.