Current Investment Banking Challenges & Their Solutions

Aug 06, 2021 - 05:01 PMAuthor - Kenneth Jackson


Like all other forms of banking, investment banking is currently going through some threatening challenges and transformations. Almost all businesses across the world are trying their best to recover from the adverse effects of the global pandemic of Covid-19, but the companies operating in the investment banking sectors are facing difficulties to regain their pre-pandemic levels. The coronavirus pandemic compelled the investment banking industry to restructure its strategies. 

As a consequence, many investment banks are moving away from their traditional Underwriting services and focusing more on other activities including mergers & acquisitions (M&A), advisory & fund-raising activities. One of the biggest reasons behind these drastic changes is the latest regulatory alterations that have caused some banking activities to go expensive. Furthermore, the emerging need for comprehensive in-house applications, the latest customer-focused portals, and improved transparency with security across the board is putting substantial pressure on companies operating in the investment banking industry. The modern investment banking industry is experiencing several challenges. 

Some of these challenges have been listed here along with their solutions.

Here are the challenges which are being faced by investment banking sectors:

Investment banks today are required to be more diverse, all-inclusive, dynamic, creative, globally networked, and client-focused with well-defined regulators and a transparent system of business ethics. There is an increasing need for higher transparency, compliant cybersecurity initiatives, advanced solutions for customer’s transforming needs, revolutionary in-house applications, and new talent retaining strategies. 

Containing Costs 

Companies operating in Banking, financial services, and insurance (BFSI) are regularly evaluating different strategies to get better control on cost. They are constantly evolving their program & policies to achieve sustainable cost efficiency. Several factors ranging from decreasing revenues to excessive costs, and growth of digital & regulatory pressure are contributing to the desperate need of assuring cost reduction. Plus, the prices of goods & services are getting lower, leading to fewer margins, & reduced cost of capital with banks, making investors not willing to invest. Thereby many banks are reducing interest rates and the cost of equity. Also, investment bankers are not able to address the needs of corporations and investors, which is creating a challenge for them. 

One of the most prominent ways the investment banking industry is trying to overcome this challenge is by maintaining a balance between optimizing the current core activities through ensuring robotic processes & digitization while investing in new services.


Evaluating vulnerabilities for an industry that goes through constant transformations is one of the most critical tasks for IT experts. For example, cybersecurity in the Investment banking sector. This sector is more prone to get exposed to vulnerabilities that further bring compatibility concerns in M&A situations. The traditional infrastructure acquired by banks through M&A activities is outdated and associated with extensive vulnerabilities, creating challenges for the IT teams in the companies operating in this sector. Cyber threats are at their peak and traditional technologies have become a risk factor. 

Addressing cybersecurity is essential through significant investments into it along with updated & upgraded legacy systems. Introducing more modular solutions can also contribute to coping with cyber threats compared to inflexible traditional systems. This is the time when the industry should focus more on such solutions.

Improving Client Experience 

When it comes to achieving client-focused experiences in B2C and B2B models, it is completely different. As a result, it is quite difficult for investment banking firms to cater to the increasing demands and expectations of their customers. Earlier, the customer came to the bank but today, he wants the bank to come to him. Thus, the sector is required to consider new & improved delivery models that can assist today’s customers. Businesses in the investment banking industry should start evaluating their client experience and outline necessary standards. 

Retaining New Talents

Young professionals are much more attracted to alternative sectors such as technology or startups even after getting assured of good pay & quick career promotions by the companies. The investment banking industry is introducing new policy measures, for example, fast promotion to induce new employees, but today’s youth is seeking to work in a flexible industry with a proper work-life balance. The investment banker needs to do longer shifts & suffer through tight deadlines. Thus, sourcing and retaining talented minds has become a huge challenge for this industry. However, banking companies are figuring out new ways of attracting & retaining talented minds in their company.

Fintech As New Technology Threat

Today every industry is being transformed by adopting rapid advances in technology and the investment banking industry is also not an exception. However, fintech has been emerging as a new industry trend over the past few years to facilitate the same set of financial services but with effective use of financial technology at lower prices. For example, now modern fintech companies are way better at raising capital than investment banks, making investment banking & the rest of other sectors considering innovative technology and flexibility to boost their reliability among clients. 

Related Read: How Fintech Is Driving Financial Growth To SMEs To Survive From Pandemic?

Lack of Capital Resources 

Today the global economy is facing tremendous recessions & financial depressions, thanks to the global pandemic of the Covid-19 that had adverse effects on the economy. As a result, most individuals & companies aren’t that much interested in investing their money. Rather they are preferring retaining their money for a while instead of investing it in the short run. This is leading to a lack of capital resources for the investment banking sector to allocate to their customers efficiently that further leads to reduced business opportunities for the investment bankers.

Cross-selling Complexities

A huge area of the investment banking service sector relies on cross-selling. For example, if a customer is looking for mergers and acquisitions advisory services, the investment bankers provide them with services such as issue management, capital structure advisory, and many more. This way, they bring value to their clients. But currently, they have limited budgets and thereby limit the number of services offered. The declining budget is causing decreased revenue for research and other departments in investment banks which extensively rely on cross-selling revenue. This is the reason today customers are considering experts instead of availing these services from an investment bank.

The bottom line is that the investment banking industry must transform itself to survive in the market by implementing best practices of the advanced, latest & modern systems. Creating the right processes and data-driven strategies is a pivotal step to regain trust among customers.

Recommend read: Advantages Of Getting Corporate Investment Banking Services


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