How Digital Innovation has already changed Investment Banking and how it might be likely to change further in the future?

As in any industry, new developments in technology make processes faster, simpler, more precise and swifter. This all sounds truly impressive until we look at how it could impact those currently working in this sector. Could it mean that they are essentially replaced by machines? So far, in banking, we have already seen success in utilising digital innovation to track anomalous actions and monitor communications to ensure any criminal activity gets flagged, but also seen a jump in the amount of bankers who have been prosecuted for insider trading, Libor fixing and other such illegal practices. This has allowed for these illegal offences to be kept to a minimum!
As we look to more positives of digital innovation, disruptive platforms like Robinhood have allowed potential brokers to buy and sell stocks and exchange-traded funds (ETFs) without paying a commission, which is lowering the barriers to entry for anyone looking to start trading, making brokering more accessible to a wider audience.

On the other hand, we have also seen the rise of data driven investments - quantitive finding (quant funds), which rely on complex algorithms to implement automated trading strategies. These algorithms can analyse data at capacity far beyond those of a human to identify investment strategies. As a result, this will lead to higher profit levels, more frequently and more quickly that their human counterparts. Thus, billions have been invested into quant funds as there is a strong belief in this industry that this is the future of investing. This is creating somewhat of a panic within the industry as many senior figures and those potentially looking to start a career in investment banking are worried these quants will outperform them and eventually replace them all together. However, by utilising data scientists, a hybrid approach can be undertaken that leverages the power of quantitive strategy to combine the best of both worlds. Ultimately harnessing the power of human and machine to regularly achieve investment performance. However, with 2018 being a rough year for quant funds, it will be interesting to see if in 2019 the the glamour of quant funds beginning to fade, and if they do what will be next for the future of banking.

Innovation Enterprise. (2018). “How Has The Digital Revolution Changed Banking?” Retrieved from: https://channels.theinnovationenterprise.com/articles/how-has-the-digital-revolution-changed-banking
Kishan, S., and Bielski, V. (2018). “It’s Been a Rough 2018 for Many Quant Hedge Funds” Retrieved from: https://www.bloomberg.com/news/articles/2018-06-26/quants-beset-by-woes-as-jpmorgan-pulls-money-from-hedge-fund
McGrath, J. (2016). “The rise of AI and algorithms in the financial services sector” Retrieved from: https://www.raconteur.net/technology/the-rise-of-ai-and-algorithms-in-the-financial-services-sector
Rebels, G. (2017). “Digital banking beyond retail: the impact on investment banking” Retrieved from: https://medium.com/@goodrebels/digital-banking-beyond-retail-the-impact-on-investment-banking-3759c1cd6b94
Srinivasan, P. (2017). “Machine Learning’s impact on the Finance Industry” Retrieved from: https://medium.com/@humansforai/machine-learnings-impact-on-the-finance-industry-246dda762e10
Street of walls. (2017). “WHAT IS A QUANTITATIVE HEDGE FUND?” Retrieved from: http://www.streetofwalls.com/finance-training-courses/quantitative-hedge-fund-training/what-is-a-quant-hedge-fund/

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