Banks need to get their IT investment priorities in order now given the rising risk of fintech disruption, according to analysts at US based investment banking giant Morgan Stanley (NYSE:MS).
The clock is ticking for banks, with new entrants able to provide banking services up to 50% cheaper, in part thanks to legacy-free IT,” Morgan Stanley’s Global Banks team wrote on September 18.
Banks are in the driver’s seat, for now, thanks to network, cheap funding, trust, but they need to act fast before they get disrupted.
Earlier this year, Morgan Stanley sent a fintech survey to 175 banks around the world.
It found that investments are top of mind for many large cap banks, most notably the trust (custody) banks which are heavily investing in technology to improve operational efficiency not only for themselves but for their asset manager clients.
Examples listed in Morgan Stanley’s note include BNY Mellon building its government bond clearing blockchain to help improve clearing efficiencies.
State Street’s $2.6 billion deal to close the trading order management processing foodchain by buying Charles River Development Corporation also gets a mention.
The goal is to enable asset manager clients to have one single security identifier for any trade,” Morgan Stanley’s experts wrote, commenting on State Street’s purchase.
This is the last mile needed to enable straight through processing which should lower costs associated with trading operations like reconciliation, audit, and control.
Meanwhile, Goldman Sachs and JP Morgan are leveraging a variety of new technologies for improving their trading operations.
Goldman, for instance, has created a fully automated bond pricing engine in its credit business,” the note adds.
JP Morgan is investing in AI, blockchain, big data, machine learning and bots to both improve efficiency and provide clients with more sophisticated tools.
Digital Asset Holdings is among the firms listed in Morgan Stanley’s fintech directory.