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Product Innovation

Capital Markets Ripe for Disruption, Innovation

Accenture study forecasts end to 'lucrative inefficiencies' in $1 trillion capital markets industry as it adapts to the digital age

A recently released study from Accenture shows how the capital markets industry can wring out historical inefficiencies in its business model to more effectively face digital disruption in the industry. Accenture’s report, Capital Markets Vision 2022, is based on Accenture’s financial analysis of the capital markets industry and on interviews with executives at a number of industry firms.

Among the findings: Wealth and asset managers generate 90 percent of overall industry economic profits (profit after taxes and cost of equity) but are ineffective at achieving scale efficiencies and should prepare for down-market scenarios, with shrinking margins. Investment banks, meanwhile, show a diverse picture: Only some institutions — both large and small — are earning 10 or more cents on the dollar in economic profit, while many others are not earning their cost of equity. And traditional market-infrastructure players’ revenues are now rivaled by those of emerging cryptocurrency exchanges.

According to Accenture, Capital markets firms collectively earn about US$1 trillion in annual net revenue, which translates to more than US$100 billion in economic profit.

“Some expect the capital markets sector to normalize again and resemble itself before the financial crisis, but our outlook for the years ahead is very different,” said Michael Spellacy, a senior managing director at Accenture who leads its capital markets practice globally and co-authored the report. “This industry still leans heavily on historically ‘lucrative inefficiencies,’ when there was little incentive to change the status quo because the industry was generating such strong profits. But unlike in other sectors, the core business of capital markets accounts for a very small fraction of its cost bases — and in an era of rapid digital innovation, that leaves the industry ripe for disruption.”

The report focuses on the three main sectors: investment banking, asset and wealth management, and market infrastructure.

“Adapting a trillion-dollar industry for the digital age while it’s entering an era of profound disruption is a complex and shape-shifting goal,” said Markus Boehme, a co-author of the report and managing director in Accenture Strategy. “But it is also an era that provides significant opportunities for those who act fast as value pools are being redistributed. Nimble firms will be able to capture new profit opportunities in a ‘race for relevance’ — while also benefiting the industry’s customers.”

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