Investment banking reinvented

Covid-19 has been a disaster and a driver of change for most of society, especially the banking sector.

Luckily for Rand Merchant Bank (RMB), this process of moving to greater digitalisation was already in the pipeline, and Covid-19 simply accelerated these plans, says Stephen Linnell, RMB’s chief technology and operating officer for the markets business.

Investment banking, which is generally a high-touch business with lots of direct banker-to-client contact, has had to evolve with the times. Like so many businesses, last year’s sudden lockdown fast-tracked these changes.

“Productivity is about purpose and process, not location,” says Linnell. The growth of internet banking led to smartphone banking and the option to do just about everything digitally.

“On the flip side, RMB has clients at the centre of its business. We are a relational bank, our partnerships with clients are important, and a key differentiator.”

But this has also made the transition to more electronic engagements difficult. “Perhaps we’ve been late starters because we fiercely defend the personal touch. Over time though, we have curated ways to remain hyper-personalised, but in the digital domain.”

Linnell says advances in technology and shifting customer needs have challenged banks, often thought of as pillars of complexity, to reimagine themselves.

“We’ve had to look at our value chain completely differently, and have rebuilt it from the ground up,” he says, about a process that has already been years in the making.

An investment bank lives in two different operating worlds: before and after transacting with the client. In the pre-transaction space, you need to competitively differentiate yourself, he says. “This is where complexity and specificity has accelerated. In the post-transaction space though, simplicity and consistency are more important than differentiation.”

The vast capabilities needed to operate in this post-transaction space mean that to be competitive end-to-end requires smartly selecting and orchestrating the right partners and not simply trying to do everything yourself.

Quoting Netflix’s Adrian Cockcroft “Don’t do your own undifferentiated heavy lifting”, Linnell says it’s nonsensical to build a trading platform when many service providers already have world-class offerings. Of Cockcroft’s advice, he says: “I think even in your garden it’s good advice.”

FirstRand, of which RMB is a division, is the only African clearing member of the London Clearing House, he says. “Instead of building that full enabling capability ourselves, we partnered with Sernova — a cloud-based derivatives clearing provider. We could come to market quickly because we were awarded access to the clearing house, but we didn’t have to construct all the capabilities from scratch.”

These fintech partnerships are important and, in many cases, warrant multiyear investments. Two of the most prominent investments for the bank at this time has been first their work with Murex, in the delivery of a fully integrated cross-asset trading and risk management solution, and then second in the delivery of end-to-end lending management and servicing capability, alongside FIS ACBS. Linnell says RMB’s continuous investment in developing a digital ecosystem makes it an attractive employer for financial technologists. 

Many of these initiatives have been first — even on the international stage — so the blended approach of internal development and mutualised external partnerships is bearing fruit.

It has enabled RMB, Linnell says, to stick to what it does best, while still being nimble enough to foster digital transformation and not dilute its focus on clients’ challenges, and effectively solving for that.  

This article was paid for by Rand Merchant Bank.