Are you aware of how technology is embracing the future of financial markets?
How is technological innovation disrupting the capital markets and shaping the future?
This article will highlight the most rapidly driving technology patterns that are shaping the future of the capital markets in real-time. But before this article takes a shot at developing technological aspects, let’s flashback to the challenges the financial industry faced in the aftermath of the pandemic.
Prominent Financial Challenges That Still Prevail
The financial industry continues to face significant challenges in the current operating environment. These challenges are becoming evident as the industry becomes more interconnected and digital.
The following are some examples of challenges the finance industry is still facing:
Evolving client expectations
The emergence of new offerings
Maintaining legacy technology platforms
The increasing cost of maintaining complex functions and operations
Increasing regulatory requirements
These key challenges are vital for the overall improvement of the capital market and for putting seamless operations in place. Therefore, to improve these challenges, capital markets must invest in innovative ways and take advantage of opportunities in the current developing environment to allay the persisting challenges. To overcome these challenges, technologically driven solutions or software are one of the most powerful tools that capital markets need to address. Technology is the only route to deliver future opportunities in the capital market.
The Role of Technology in the Capital Market
Technology in capital markets is speeding up to revolutionize the capital market. It provides direction to lead in the future, which helps shape the current state of the markets. In what ways is this happening?
First, technology enables ease of use. In financial firms and businesses, it has helped to make trading in the stock market effortless. In addition, technology in capital markets has advanced so that transactions are conducted faster than ever. Finally, technology is embracing the wealth of information in the markets worldwide.
The three essential technologies- cloud, data, and AI - are a powerful combination. These will likely have a significant impact on capital exchanges and market infrastructure operators to leverage"
Brad Peterson, Chief Technology and Chief Information Officer of Nasdaq
By considering the ways mentioned above, what are essential technological routes doing to help the capital markets frame a concrete future? Let’s immediately dig into how some of the best technologies are being embraced in shaping the future of the capital market.
Three Technologies Shaping Capital Market’s Future
According to a survey conducted by Oxford Economics, data analytics will positively impact capital markets, especially over sales and trading.
84% of the survey has responded that financial services such as banks and others will embed advanced data and analytics capabilities in the next five years. In addition to these capabilities, there will be an amplified adoption of cloud computing. The fact is, cloud technology will be the conduit for operations development in capital firms worldwide.
Data analytics will also cater to financial businesses to control, manage, and generate insights from data. On the flip side, Robotic Process Automation (RPA) is identified as an additional technology. Therefore, it is expected to receive significant investment in the short to medium term in the coming years.
So, it is evident that capital markets’ needs are currently not restricted to consuming data for references and algorithmic calculations. However, they require the ability to analyze data efficiently and quickly. Data must provide superior insight and minimize complex processes for managing and anticipating risks. In addition, it should also automate transactional processes along with real-time analytics. Data analytics plays an imperative role in these ways, as they provide a new level of customized financial/capital services.
For example, Workday Prism Analytics can consume E-Trade data and automatically perform checks on its manual process. The company produces the data in conjunction with the Workday Accounting Center. The data creates journal entries with additional data attributes such as legal entity cost center accounts.
Implementation of Artificial Intelligence
Several financial services have focused their attention on AI. Implementing Artificial Intelligence (AI) will escalate the benefits from both an investment and improvement perspective in data management. AI is expected to enhance decision-making in capital markets. This capital market technology will be beneficial to improving profitability in the form of machine learning in productivity across a range of functions. These functions include fraud detection, risk management, trading, and other operations.
The use of chatbots will be significant in processing natural language. Hence, chatbots will enable firms to interact with customers more efficiently and more personalized. Additionally, by using this technology, financial institutions can conduct more functions, such as the know-your-customer (KYC) process, detect money laundering, and obtain solutions. These actions would also require machine learning in order to improve the entire process. For example, Nasdaq is creating enhanced solutions to analyze abnormal market events to detect market exploitation using AI.
We practice machine learning in our data science environment. The value that you get from data is the work on the things that the business prioritizes."
Stewart Carmichael, CTO, Schroders Investment Management Ltd
Robotics Process Automation
Recent advances in robotics have offered significant opportunities for the future of financial markets. According to Grand View Research, the global RPA market size was valued at $1.57 billion in 2020. It is expected to grow by 32.8 percent from 2021 to 2028. This striking growth forecast is based on evolving hybrid work functions. This digital technology is evolving across financial services on an enormous scale. The architecture of robotics process automation (RPA) enables financial institutions deliver innovative services and operating models.
Therefore, the right solutions with the capability of implementing robotics technology will enable capital markets to witness the following benefits:
Improved operational efficiency
Reduction in IT costs
An enhanced corporate agility
Improvement of customer experience
Apart from these, RPA will be the most efficient capital market technology for firms. The technology would help financial companies with multiple sections of their business. Examples of these are as follows:
Proper expense validation
Operational and financial reconciliation
What Are the Drivers for Adopting New Technologies?
A survey conducted by Oxford Economics finds that 75% of financial firms have come across the five most essential factors driving the adoption of new technologies. These are the following factors that are responsible for the adoption of new capital market technology:
90% - Reducing costs and inefficiencies
85% - Increasing revenue
81% - Improving client service
78% - Maintaining business competitiveness in agility
70% - Meeting operational and regulatory measures
45% - Enhancing controls
Financial businesses have addressed the above-listed challenges as the most common. And due to these, several companies have already adopted technologically-driven solutions to overcome them. However, even today, businesses' costs are mainly focused on developing and maintaining legacy technology. This, in turn, impacts the opportunity and ability to invest in new technology and innovation.
Therefore, solutions to overcome challenges can only be actionable when the market starts investing in new technologies and introduces novel opportunities. As a result, technology would create the potential for new revenue streams.
What Should Be the Action Plan?
Capital firms are now becoming keen to focus on their future competitiveness. Some of them are already investing in AI, robotics, data, and the cloud. This makes their next investment seem to soar in adopting blockchain and agile development technologies.
The step towards implementing technological solutions is being taken because financial firms are now accustomed to advanced tools. The fact is that firms can now do much better at managing digital technology and transformation than before. However, many firms still fear workforce reduction and the brawl of building employee skills in terms of technological aspects. This is because these obstacles can hinder their financial business.
What can you do in such cases? The following are some action plans that can help strengthen your position in the market:
Adopting agile processes across the business, including the technical functions and operations
Investing in DevOps-driven automation tools to support technologically-driven processes
Apply innovative processes and tools to existing or legacy platforms
Introduce new resources in business
Establish partnerships and strategic alliances to amplify digital transformation at scale
Invest in behavioral change across the business to facilitate the success of agility processes
Frequently Asked Questions
Why are technological advancements necessary in capital markets?
Capital markets’ investing in technology can cretae several opportunities. Firms need to adapt to survive in current circumstances. Streamlining processes is essential to competing and thriving in today's market. Continued use of legacy platforms will eventually sink firms regarding revenue.
How is the role of finance going to evolve with technology?
The role of finance, along with technology, will evolve significantly. Finance firms can now automate processes, reduce costs and improve efficiency. More importantly, automated tasks such as data entry will become more centric towards value gaining and real-time.
How does technology affect financial investment?
Technological advances impact a firm's investment decision. This, in turn, affects the investment cost. Due to this, you can see changes in profitability as the demand for stocks increases. Also, technological advances result in high revenue generation.