Automation, ultimate trump card

Automation, the ultimate trump card in 2024?

Two years after our initial research, we visit the landscape of automation within capital markets to asses its evolution and impact. Where is the industry looking to for success and are there any alternative investment drivers in 2024.

Many attribute March 2020 as the catalyst for change within capital markets. Firms were overwhelmed by trading volumes and the supporting systems were creaking under the strain. The issue of increasing capacity was seen as the immediate solution but those ahead of the curve sensed it might be more an issue of efficiency.

Under these assumptions, we partnered up with Acuiti with the intention of understanding where the inefficiencies lay within reconciliations and what affects the events of March 2020 had across the market. The results were telling. The industry was indeed focused on improvement but nothing more, nothing less. There was no ambition to exceed expectations, it was simply to match them.

Only a handful of firms had fully automated their reconciliation processes. Manual processes remained prominent and there were many firms dependent on spreadsheets for core processes. This was especially prevalent within Tier 1 banks who were some of the worst culprits when it came to automation and the use of spreadsheets. In a sense, the foundations had been strengthened to steady the building but there was no ambition to build upon them.

Things change quickly though. We once again linked up with Acuiti towards the end of last year and decided to follow up on whether focuses had shifted. Surprisingly, they had and at a rapid rate too. Automation was now placed firmly within the focus of change and seen as central to improving a firm’s reconciliation process. 44% of Tier 1 banks now had a fully automated reconciliation process. This is an outstanding change when you consider that none of them had this two years prior.

It hasn’t been easy getting there though as the goal posts keep shifting and ambition keeps growing. The aim now seems to be to improve the efficiency of day-to-day operations whilst reducing costs. This can lead to a reduced headcount allowing staff to focus on other more critical tasks. Where this has been especially prevalent, has been in smaller clearing firms who operate on finer margins.

Larger firms have always marched to the beat of their own drum though. They have often invested in off-shore or near-shore bases, due to them throwing more headcount at their problems rather than solving it through technology. Automation seems to have changed this outlook though. Our survey suggested that investment has shifted away from headcount and towards automation.

If one were to look at the magnitude of investment within reconciliation software, it would provide all the evidence needed. More than two thirds of respondents invested over the past three years with the primary driver being to increase efficiency and capacity. The expectation is that this will lower operational and regulatory risk and result in better customer service. Better customer service means firms will send out statements to clients in a timelier manner and they will be able to address queries more effectively. Imperative when looking to differentiate oneself from the competition due to commission comprehension somewhat levelling the playing field.

When it comes to capital markets and investment, you cannot rest on your laurels and our message from two years ago that “Good enough” is no longer good enough, has never been more applicable. Automation is currently the focus of many a firm’s investment to differentiate themselves from their competitors. It may also be the biggest investment driver for 2024 but one thing is for sure. When it comes to investment, it’s an ongoing process and not a one-off expenditure. Before the year is out the next driver of investment will be known and firms will be doing all they can to implement it and further distinguish themselves from the herd.

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