Investment banks are starting to share technology. How can IT pros survive?
If you work in technology, are you in danger of becoming commoditised? As more investment banks are encouraged to share IT functions that don't give them a competitive edge, some roles are in danger of being eliminated, while others will become the must-have skill-sets of the future.
Cost-pressures, more sophisticated products from technology vendors and the increasing use of open source software are likely to prompt more investment banks to share technology investments, particularly those that don’t give them a competitive edge, according to speakers at last week’s TradeTech conference in London.Certain functions, such as "networks, market access and VWAP algorithms" should be pooled among banks to keep tech budgets in check, suggested Fabien Oreve, global head of trading at Dexia Asset Management.
Deutsche Bank has long been a champion of developing an open-source model for such software through its Lodestone Foundation. This was reiterated by Jose Marques, its global head of electronic trading speaking at the conference: “This happens in every other industry and I don’t see why we think we are special, or any different. A lot of things around trading networks and other infrastructure will be commoditised away.”
Suffice to say, this wouldn’t be great for those working in banks’ technology teams. In the past, much of the movement between organisations was motivated by one bank trying to duplicate, and improve upon, an IT platform produced at a competitor. This has created huge IT divisions – J.P. Morgan employs 30,000 technologists worldwide, for instance, while around 25% of employees – or 7,000 people – work in technology at Goldman Sachs.
“The bottom line is that this approach hasn’t yielded the results that banks expect, and increasingly technical skills alone are no longer enough,” said Shawn Banerji, executive director within the financial technology division of headhunters Russell Reynolds Associates in New York. “Occasionally a genuine ‘secret sauce’ piece of software has been produced, but often technologists are simply customising an off-the-shelf platform and need to offer more.”
As more banks either take the option of using a third-party provider for their software, technical roles are likely to gravitate towards vendors, he suggests. “Business analyst roles will be more prolific within the banks, while technical architects and developers who remain will need to understand the business impact of their technology.”
However, Paul Bennie, managing director of IT in finance headhunters Bennie MacLean, believes that the front office technology jobs are simply shifting away from equities and FX and towards new business areas.
“Banks still see significant competitive advantage in the electronification of bonds, credit and other fixed income products that have traditionally relied on more manual processes,” he said. “There’s a real march among most large investment banks to hire for this area.”
Deutsche Bank, J.P. Morgan and Royal Bank of Scotland are all hiring fixed income technologists currently.
Ben Cowan, director of recruiters Astbury Marsden, agrees that fixed income electronic trading is still viewed as an expansionary area by most investment banks: “However, the vast majority of new roles are out of the front office, and related to regulatory pressures.”