Since the pandemic outbreak, we’re seeing the impact of COVID-19 in both subtle and stark ways. Several markets have been impacted. The global capital markets are also witnessing both real and nuanced revolutionary changes.
Capital markets firms worldwide are reprioritizing their focus and spend to emerge with more resilient operating models. As the pandemic continues to disrupt businesses in several parts of the world, the following trends are expected to reign in the global capital markets.
More Focus on Digitization
With increased focus on digitization, organizations’ approach to data must be addressed by the senior management. The following areas must be defined before the implementation of key technologies:
- The idea of success in the digital world
- The impacts of digitization (or lack thereof)
- Leveraging data to be competitive.
The success of all technologies in an organization relies on clear goals and a willingness to transform the organization’s structure and culture. Caution around the consequence of rushed or poor technology upgrade decisions is also important.
Increased Adoption of Outsourcing
Outsourcing has been a trend even before the pandemic outbreak occurred, but COVID-19 has given an impetus to the adoption of this trend. Many organizations are looking to outsource everything, including data management, trading desks, middle-office functions, and foreign exchange. Small businesses are looking for technology partners to access new and innovative technologies and skills.
The volatility of COVID-19 also called attention to the need to manage and secure the in-house assets of organizations and ensure secure and adequate communications infrastructures. Therefore, many asset owners are also focusing on insourcing this year.
Blockchain Will Boost the Efficiency of Capital Markets
The technology behind Bitcoin, Blockchain, has been estimated to store 10% of global GDP by 2027. It is therefore going to have a profound impact on the capital markets firms.
Blockchain enables the creation of smart contracts with encryption for transactions, which will allow the use of real-time transparent data and seamless transaction processing and settlements.
Besides that, with the help of Distributed Ledger Technology, securities can be issued and transferred, and the need for intermediaries can be eliminated. Distributed Ledger Technology also enables seamless and secure data transmission throughout the capital markets ecosystem.
With real-time data availability and increased transparency, the possibilities of disputes among all the counterparties will be reduced greatly or eliminated altogether.
[Also Read: How central banks are experimenting with blockchain]
Artificial Intelligence will boost Efficiency and help lower Operating Costs
The industry is gearing towards conversational commerce with the help of Artificial Intelligence and Natural Language Processing at various functional levels. These technologies are helping capital markets to lower down the operating cost for several important functions. Today, systems that are capable of learning, adapting, and responding autonomously offer new opportunities to the global capital markets.
With the help of AI, investing and decision-making can be greatly enhanced. Today, several organizations are using Artificial Intelligence and machine learning to improve productivity across a range of functions, including trading, fraud detection, and risk management. Besides that, these technologies are also providing know-your-customer (KYC) and anti-money laundering (AML) solutions to capital markets to improve their data management capabilities.
Robotic Process Automation will simplify Processes
Robotic process automation (RPA) will greatly simplify the processes and redefine the business models in 2021 and the years to come. There are several functions RPA can help capital markets with, including – client onboarding, expense validation, revenue recognition, accounting processes, financial and operational reconciliation, and reporting. RPA can also reduce transaction time and can greatly boost the accuracy of processes like transactions reporting, settlements, reconciliations & payments processes.
Need for Greater focus on Data Protection
As the world hopes for things to improve in 2021, technology is becoming more closely intertwined in the capital markets than ever before. As a result, cybercriminals have become very active and are constantly looking for loopholes and vulnerabilities in systems.
Therefore, the regulatory focus must be on securing the existing frameworks and ensuring that a robust security system is in place to thwart possible cyber attacks.