Technology a catalyst for future deals

Acuity Knowledge Partners
5 min readFeb 15, 2023

Technological advancements have made past ways of transacting obsolete. Trends are changing constantly in the world of finance, and Adapting to this changing environment is vital for both survival and growth. The pandemic was an eye opener for the banking sector, which was lagging behind in terms of adopting new- age technologies. Years 2020 to 2022 witnesses a technological revolution, with the financial sector spending the most on technology. From digital interactions to digital fintech solutions,banks are now testing new waters by collaborating with metaverse platforms.

Banks have increased use of artificial intelligence, machine leaning, and natural language processing to reduce the number of mundane tasks and to create a unique customer experience. There is no single solution or technology that can resolve all issues, But banks have adopted a mix of capabilities such as digital payments, intelligent bots, and data acquisition and processing tools . For example, Bank of America has introduced a Predictive Intelligence Analytics Machine (PRIAM) that suggest a suitable investor for a deal based on historical deal participation, equity offering details, trading and client touch point information and market data. Banks have also partnered with external vendors that have assessed this need and developed platform-based solutions, to attract millennial who are tech- savvy,comply wth changing regulatory requirements, and ensure long-term sustainability.

The metaverse is another area gaining momentum with its combination of aspects including augmented reality (AR), virtual reality (VR), social media, and crypto currency. The aspect gaining traction in banking is its VR space that can help users interact with a computer-generated environment and other users. Online banking, which has enhanced communication with live chats and emails, could be taken further with VR. Through VR, banks could set up virtual branches, hold virtual meetings using avatars that portray human-like candour and empathy, and show simulate using ions through real- time graphics. Financial institutions could an present abstract financial data in a graphical, and in an aesthetically pleasing manner. Through a virtual presence, banks could an continue to offer facilities like such as account openings account, ATM facilities and, lending services. For and so on. A best example, is of Quontic Bbank that has announced to offering virtual banking services to transform the customer experience, and broaden the horizons of banking services.

This also introduces a new asset class, plots of land in metaverse that are plots of virtual land. These plots can be bought, sold and even rented similar to physical land but with cryptocurrencies. This forms part of the metaverse, operated collectively by online platforms such as The Sandbox, Decentraland and Axie Infinity. Apple, Roblox, Epic Games, Microsoft and Meta are among the major developers looking to create an immersive experience. Banks are also being disrupted by blockchain technology. JPMorgan was the first investment bank to set up a lounge on Decentraland’s Onyx platform to seize new opportunities in the virtual world.

Central banks are pushing this digital transformation further with the introduction of digital currencies. Bankruptcies filed by most cryptocurrency companies have convinced nations to develop more regulated and centralised digital currencies. A central bank digital currency (CBDC) is a digital version of the physical wallet but not the same as cryptocurrency that uses similar underlying blockchain technology. Every movement/transaction is recorded and tracked, providing transparency. Digitalisation avoids the cost of printing currency and puts an end to fraudulent transactions. Digital currencies and similar innovative payment gateways can increase the efficacy of cross-border transactions.

Around 90% of the world’s central banks are running a pilot programme on CBDC. Countries such as the US, South Africa and India are exploring CBDC, and many European countries are in the development phase. The Bahamas has developed the Sand Dollar, which has been in circulation for more than a year. Sweden’s Riksbank has put together a technology to explore the implications of CBDC.

Digitalisation may require investment banks to make major changes to the technology they adopt. The banks would need to partner with the right technology that supports digital payments and digital issue of capital to stay ahead of the curve. KfW Development Bank with Clearstream issued the first-ever digital fixed income of c.USD21m on the Deutsche Börse’s D7 digital post-trade platform with a term of two years and a coupon of 2.38%.

Against the backdrop of an economic slowdown, investment banks are vulnerable and need to manage margins and compete on limited deals. By investing in artificial intelligence and machine learning, however, they could automate routine and monotonous tasks, and steer the deal-making process with radical insights, valuation models and reports. Banks are slowly realising the accuracy of the results; analysis still requires human intervention, but technology would definitely bolster the investment process. This year is likely to see more such developments that would help investment banks make more informed decisions by analysing customer behaviour by staying invested in new technology.

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About the Author

Shubha Kamath is part of the Investment Banking team at Acuity Knowledge Partners. She has over 6+ years of experience in the financial services domain. Currently, supports Consumer and retail team for a U.S. based mid-market Investment Bank, in Bangalore. Prior to joining Acuity, she was part of sell side research in Crisil Ltd. and audit practice of KPMG. She holds an MBA in Finance from Manipal University.

Originally published at https://www.acuitykp.com

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Acuity Knowledge Partners

We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://bit.ly/3NaJ4Et