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Capital Markets: Return on Innovation

Everybody knows the saying: Innovate or die.


In the wake of COVID-19, that sentiment has taken on a greater sense of urgency. Nearly all Capital Market firms are revisiting their operating models and technology infrastructure. Even as firms turn to cost-saving and business continuity in the near term, 53% of financial services firms plan to accelerate their next-gen technology strategies.

In today’s world, constant transformation is the only safe play.

  • But where do you invest?
  • What do you prioritize?
  • How can you be sure?

There is clearly no shortage of ideas—or challenges. No one had a COVID-19 scenario in their business plans. Today, firms face disruption, new regulations and greater volatility, at a time when mounting fee pressure has created an urgency to cut costs and curtail investment.

Are you ready to become more client-focused, agile and efficient? Intelligent innovation starts with a compelling business case.

Calculating your Return on Innovation

The unspoken reality: We live in a day-to-day, quarter-to-quarter universe. Very few people are rewarded for thinking long term. But that doesn’t mean you should look to solve complex front- middle- back-office problems with the lowest-cost band-aid.

You can turn tech disruption into opportunity by finding use cases that cut costs in the short term while creating a long-term strategic advantage.

Three ways to think about returns

Getting your project to the front of the queue will depend on your ability to demonstrate how it saves money, accelerates transformation and boosts overall performance.

  1. Costs

    Challenge yourself to rethink operating models without expanding your infrastructure. Today, there is no shortage of case studies showing how Capital Markets firms are using next-gen technologies, including Artificial Intelligence (AI), blockchain, the Cloud and digital to cut costs and increase efficiency.

    Middle and back-office processes such as trade allocation, trade processing, asset servicing and data reconciliation are prime candidates for the digitization and automation of workflows. Firms are using Optical Character Recognition (OCR) to transform a steady stream of emails, PDFs and spreadsheets into usable data sets. Robotic Process Automation (RPA) can then streamline operations by replacing keystrokes, performing specific actions or triggering downstream processes.

    While such transformations would once require an expansion of computer and data storage systems, today, more firms are relying on the Cloud—saving almost 30% of their IT budgets.

    Innovation that can demonstrate a clear cost advantage will always be prioritized. True leaders look beyond cost savings and focus on innovations that cut costs and help propel the business forward.

    Case in Point: DLT Repo

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    Blockchain technology enables buy-side and sell-side firms to enter, agree, settle and clear repurchase agreements. All parties share in a single view throughout the lifecycle of a trade—with no need to physically transfer the underlying collateral. By eliminating fees, streamlining workflows and eliminating manual interventions, DLT Repo offers multi-million-dollar savings while reducing overall risk.

  2. Speed

    The value of innovation can also be measured in time. Sometimes, this is simply about speed to market. It can also be driven by a threat, such as a regulatory change or a well-funded startup. Similarly, it can be an opportunistic move to accelerate cost savings or revenue growth.

    Given the recent market volatility, speed is also measured in your ability to process a higher volume of transactions, increasing your overall capacity and ability to serve clients.

    There is incredible value simply in performing tasks quicker. Faster access to accurate information can help you make faster, more confident decisions, which can be critical whether you need to act in weeks, days, hours or seconds. In the case of data reconciliation, your ability to accelerate the resolution process and confirm the truth can also mitigate risks across the entire enterprise.

    Case in Point: Enterprise Reconciliation

    Capital Markets firms know how to reconcile data. Match rates are generally high, and most firms have teams assigned to manage exceptions. The challenge: When transaction volumes spike, teams have trouble keeping up. The solution: AI adds a smart layer of control to reconciliation and break-management processes. Machine learning algorithms automatically generate and improve matching rules, classify matching problems and suggest resolution steps. The result: Fewer manual investigations, faster resolutions and more time for mission-critical activity.

  3. Performance

    Ultimately, innovation should enable you to achieve results otherwise unattainable. While short-term savings and greater agility can expedite project approvals, your goal with any innovation should be transformative change.

    Here, next-gen technologies can open so many doors: Streamline workflow. Expand to new markets. Offer a wider range of asset classes. Increase your margins. Grow new revenue. Crush the competition.

    Case in Point: Digitized Trading

    Only about 25% of U.S., high-yield corporate bonds are traded electronically. Recent innovations have enabled broker-dealers to digitize their operations. AI-powered solutions can help traders and salespeople identify natural counterparties for a bond within their customer network using both real-time and historical trading data. Engaging these less obvious natural buyers and sellers to aggregate liquidity enables firms to deliver the ultimate best execution to their buy-side customers.

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The secret to success: Recognize the challenge

Business heads are paid to make money, not to play nice in the sandbox. Yet it’s easier to make a business case for innovation when a new technology is used collaboratively to solve more than one problem. When you overcome the siloed nature of Capital Markets business lines and think about enterprise-wide capabilities, you can foster a culture of innovation and collaboration that yields even more.

Four technologies with the potential to drive transformation

No matter what use case you focus on next, it’s likely that you will rely on one or more of these next-gen technologies.

Artificial Intelligence: While it was initially used to streamline operations, AI is now being harnessed to personalize experiences, create products and drive revenue. Levels of investment and readiness among market participants vary widely. However, most firms recognize AI’s potential for radical change and are investing in solutions.

Blockchain: Firms are just starting to implement blockchain on a broader scale and many are beginning to profit from these investments. In the longer term, blockchain has the potential to transform the financial services industry. Having a network of participants and peer-to-peer connections can forge better security, transparency and more efficient processes.

Cloud: With the Cloud, most people think about the infrastructure and platform, but the real power comes in how firms structure, configure and apply solutions to solve specific business problems. In addition to offering scale and flexibility, the Cloud allows firms to innovate through an open architecture while meeting the need for strict data security protocols. This enables a truly agile approach to innovation.

Digital: Digital interaction is not just a technology; it’s a way of doing things—and about rethinking how to use new capabilities to improve how end-customers are served. It can result in more seamless and integrated customer journeys, more cost-effective, flexible delivery of services and more data-centric operating models and decision making. Many firms are using digital interaction to improve their reputation with customers and employees during the pandemic when the need for timely, accurate communications is high.

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Three ways to accelerate your returns

Few firms have the time, resources or desire to go it alone. Working with third-party providers—or in some cases, competitors—will allow you to innovate faster at lower costs, with significantly less risk.

  • Partnerships
    There is no reason to build every application yourself. A trusted FinTech partner should offer deep expertise in your industry, forward-looking technology and a track record of proven use cases. When we asked financial services execs to name the most important criteria in selecting a partner, “70% cited innovative use of next-gen technologies.”
  • Mutualization
    There is definitely a secret sauce that makes your firm unique. Yet, the vast majority of workflows and processes you manage are common across the industry. Like other firms, you’re in the business of managing trades and transactions. That opens the door for mutualization—where multiple companies rely on the same platforms to process the day-to-day. In addition to the vast reduction in development costs, this approach also leads to better outcomes. When you operate at scale, you process more data, which enables machines to detect patterns and learn faster.
  • Outsourcing
    Taken to the extreme, you can outsource some middle and back-office functions in their entirety—freeing you to focus on what you do best.

Broadridge works across a large network of clients, giving us the scale, reach and perspective to increase your returns. Every day, we simplify the complex with The ABCDs of Innovation®. It’s how we help our clients understand and apply next-gen technologies—including AI, blockchain, the Cloud and digital—to transform their business and get ready for what’s next.

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