Digital finance and its transformation of the capital markets industry |24 September 2022

The capital markets sector provides a platform where buyers and sellers (also known as participants) meet to trade financial instruments such as bonds, stocks etc. Over the years the capital markets industry has experienced significant growth and developments. With the emergence of new technologies such as distributed ledger technology, cloud based systems, artificial intelligence and many others within the sector, which has altered the traditional way of doing business, the capital markets sector has become more attractive as a business and to both buyers and sellers.

The ongoing advances in telecommunications and computing technology have been significant in the transformation of digital finance. Businesses have shifted from operating manual processes or analog systems to digital systems.

Many functions which were previously being done manually by employees are now being automated by systems. Some of these include data entry, filling, execution of trades, on-boarding processes and many more. The changes in technologies have allowed sellers and companies to offer their products and services to a wider range of customers across multiple countries, without the customer needing to be physically present in their office to place orders for financial products. Likewise, customers also have access to a wider range of products and services that they can acquire, at the comfort of their homes or anywhere else by just logging onto a laptop or even their phones.

The digital transformation has also improved companies’ processes and streamlined their operations, which led to decreased transaction cost for both the business and the client. An example of this is how customers now have access to a company’s platforms, of which they use to place their trades or orders online and same is executed instantly by an automated system. The internal automated systems have also reduced the number of staff companies have to employ, leading to significant cost savings.

Furthermore, the new digital ecosystem has facilitated client on-boarding process, which is a critical stage for any company prior to beginning any relationship with a client. The traditional on-boarding process saw companies meeting with clients physically to complete on-boarding forms, verify documents and identity of the client which is a very lengthy and time consuming process. With the introduction of digital databases, Know Your Customer (KYC) requirements process is being conducted more efficiently. In most cases, customers simply fill out online forms and upload required documents requested by the company through a mobile phone, laptop or any device with a network connection. This simultaneously saves time and eliminates wastage from printing physical forms to be manually filled out by pen. Furthermore, with digitalization especially Artificial Intelligence has helped companies with identifying the needs of clients and tailoring the products to suit them in order to meet their objectives.

Moreover, most financial institutions are moving from the traditional physical filling and storage system and moving towards keeping documents in a digital format either on company’s internal systems or on cloud based storages. With the digitalization of documents, companies are able to keep all their documents/information in one place, making them easily accessible when needed. Creating an internal database system to house documentation and information can also be expensive, however, it does save the companies from having to physically occupy office space to keep records. Apart for this reason, many financial services have begun to use cloud storages to house their documents and information, which is very secure and cheaper than acquiring internal systems.

The Covid-19 pandemic has also been a key factor which has influenced digitalisation within the capital markets sector, with most employees working from home, accessing information and ensuring that the business is still operating despite not being physically in office was a top priority for most businesses and organisations.

With the Covid-19 statistics improving, most businesses have remained with the practice adopted during the pandemic. One of these practices is the use of virtual documents with secure signatures such as DocuSign which saves the need of having to physically sign documents and scan it in order to be sent out.

Despite the several advantages highlighted about how digitalisation has improved the capital markets sector, investors always have to exercise due care and caution when using financial products due to the several risks associated with it.

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