Investment Banking Trends and Outlook for 2024

Investment banking trends for 2024 show the sector at a pivotal crossroads—one that’s marked by demand for digital transformation, shifting economic paradigms, and opportunities in emerging new areas like sustainable finance, blockchain, and RegTech (among others). To navigate it all successfully, banks must have the tools and resources to innovate effectively, act quickly, and make decisions with confidence.

As you’ll see in our analysis of these trends, artificial intelligence (AI) and smart market intelligence solutions will play a crucial role in keeping firms competitive and helping them navigate uncertain markets. Banks that adopt and implement these solutions successfully will always remain a step ahead.

Below, we explore the top 10 trends in investment banking and important considerations for investors and firms as they build strategies for the months and years ahead:

  1. GenAI As a Transformative Force
  2. Adaptation to Higher Interest Rates
  3. Focus on Customer Experience and Digital Engagement
  4. Rise of Sustainable Finance
  5. Decarbonization and Climate Change
  6. Blockchain and Distributed Ledger Technologies
  7. RegTech Adoption
  8. Advanced Cybersecurity and Data Protection
  9. Shift Toward Private Credit
  10. Geopolitics Impacting the Investing Landscape

Key Takeaways

  • Investment banks will adjust to higher interest rates in a more permanent way in 2024, as central banks keep rates high to curb inflation.
  • ESG focus areas like sustainable finance and decarbonization are top investment bank priorities.
  • Investment banking customers now want seamless, personalized digital experiences.
  • Blockchain is seeing more mainstream adoption in 2024 across the investment banking sector.
  • RegTech is becoming essential to navigate more complex regulatory and compliance landscapes.
  • Ongoing geopolitical unrest continues to impact global supply chains, market prices, and overall investor sentiment.

Investment Banking Trends in 2024

In 2024, the investment banking industry is in the midst of a transformative era marked by continued, rapid technological advancement, fast-changing economic landscapes, and innovative new opportunities related to sustainability, customer engagement, portfolio diversification, and more.

In this section, we’ll explore these trends in greater detail, including the impact they’ll have on market dynamics in 2024 and the future ahead.

GenAI As a Transformative Force

Generative AI (genAI) is set to be a transformative force across most business sectors in 2024, and investment banking is no exception. Investment banks are leaning on genAI to enhance a variety of their strategies, from operational efficiency to customer service to investment decision-making.

Automation of routine tasks and complex financial analyses is now accurate and faster, leveling up the scale at which deals can be sourced and the speed at which decisions can be made. Data analytics capabilities are enabling more timely, precise, and informed decisions than ever before, opening up new opportunities for investors but also strengthening the competitive playing field. This has made it imperative for banks to invest in implementing and maintaining genAI tools to support advisory services.

The value potential going forward is vast—McKinsey estimates genAI will add a staggering $200-$340 billion in value for the banking sector across R&D, software engineering, marketing and sales, risk assessment, and other functions.

To learn more about additional use cases and considerations of applying genAI to the financial services industry, check out this post: Generative AI in Financial Services.

Adaptation to Higher Interest Rates

Investment banks must adjust to higher interest rates in 2024, not just as a transient response to current volatility, but a strategic realignment in the face of prolonged elevated rates. Central banks are indicating they will keep rates high this year in an effort to curb stubbornly high inflation around the world.

Even a drop from peak rates—which is likely in 2024—will keep rates more elevated than market norms in 2023 and before the pandemic.

As a result, banks are reevaluating their approaches to deal structuring, financing, and client advisory services, ensuring their strategies are resilient enough to the challenges posed by higher rates that will be around for the next several months or more.

The impact of heightened rates has been multifaceted. On one hand, it’s influencing pricing strategies for financial products, demanding a more nuanced understanding of market dynamics. On the other hand, it is necessitating a recalibration of risk management protocols, as the cost of borrowing and credit risk undergo significant changes. 

From established banks across Europe and the US to emerging fintech players in markets like India and China, financial institutions are figuring out how to navigate this new terrain. To do it competitively, they’re increasingly turning to market intelligence tools powered by AI and real-time data analytics to make more informed decisions and tailor advice to each client.

The goal is to not only manage the risks associated with higher rates but also to identify and capitalize on the unique opportunities they present. In the coming year, the ability to adapt to these changes will be a key determinant of their success in an increasingly competitive and digitally-driven banking sector.

Focus on Client Experience and Digital Engagement

Like every other industry in 2024, investment banks are experiencing increased demand for seamless digital banking capabilities and client-centric experiences. It’s become crucial to attracting and retaining clients, who want highly personalized interactions.

Banks are utilizing AI to deliver on this expectation, using data analysis to provide things like customized service packages and financial advice tailored to their unique situations and needs. This not only improves satisfaction but provides banks with valuable insights into trends related to preferences and behaviors.

Investment banks that invest and innovate in their client experience will be set to gain a competitive edge. According to McKinsey, this advantage will come in the form of “stacked wins” that include higher returns, faster growth, and lower costs.

Rise of Sustainable Finance and ESG Investments

ESG is nothing new in the investment banking scene, but 2024 will bring heightened focus on structured, regulated sustainable finance. This trend marks a continuation in the fundamental change of ethos in financial decision-making as banks and financial institutions increasingly integrate ESG factors into their investment strategies, recognizing a growing demand from a socially conscious investor base.

Related Reading: ESG Due Diligence

Adding to the momentum is a global push toward sustainable finance and investor transparency through regulatory frameworks like the EU’s Sustainable Finance Disclosure (SDFU) and the SEC’s updated “name rule” , which requires that 80% of a fund’s portfolio matches the asset advertised by its name.

This all reflects a broader understanding that going forward, investing success and social responsibility won’t be mutually exclusive but complementary endeavors.

Decarbonization and Climate Change Initiatives

In a related trend, investment banks are increasingly aligning their financing and advisory services with global decarbonization efforts, focusing on projects that aim to reduce carbon footprints. This is driven by a large-scale shift in major world economies, like the U.S. and China, to achieve low-carbon status.

These transitions require massive amounts of resource allocation, new technologies, and innovation, all of which are expected to be largely supported by investment banking in 2024 and the long-term future.

Investment banks are developing financial products and services that cater to the growing demand for sustainable investments. This includes funding renewable energy projects and advising on sustainable business practices.

Banks also play a crucial role in financing the development of low-carbon technologies and large-scale infrastructure, contributing to a more sustainable global future. This underscores the banking sector’s recognition of its role in mitigating climate change and its commitment to contributing to a sustainable global economy.

Blockchain and Distributed Ledger Technologies

Blockchain and distributed ledger technologies are experiencing an adoption surge in the banking sector in 2024, driven by its potential to create more secure, transparent, and efficient financial systems—from streamlining payments and creating smart contracts to enhancing cybersecurity and fraud detection.

The adoption of blockchain isn’t just about technological advancement but also facilitating trust and transparency in financial transactions. It enables the creation of secure and immutable records, ensuring the integrity of financial data.

The European Investment Bank (EIB) has notably embraced blockchain for its green bond issuance, marrying sustainable finance with technological innovation to demonstrate how blockchain can support environmentally conscious financial products.

The EIB also partnered with Unreal DAO to establish a $30 million fund to boost blockchain startups with the goal of fostering the next generation of blockchain innovations, highlighting the level of commitment European investment banks have for blockchain’s widespread advancement and growth.

In the U.S., J.P. Morgan recently launched blockchain trial applications for offering dollar-based settlement services to Indian banks, showing the technology’s potential for streamlining and scaling  international financial transactions. Initial trials in India’s GIFT City would enable banks to make 24/7 dollar payments and get instant settlements, eliminating time zone challenges in international finance.

Blockchain is also facilitating the rise of digital currencies and cryptocurrencies around the world, with more than 130 countries exploring the adoption of central bank digital currencies (CBDCs). All signs point to more mainstream leveraging of blockchain in the investment banking world in 2024.

RegTech Adoption

In 2024, the banking sector is ramping up its investment in regulatory technology (RegTech) to navigate a complex and evolving regulatory landscape. RegTech spending is projected to reach $66.9 billion by 2032, a substantial increase from its valuation of $15.68 billion in 2020. This growth is largely driven by a need for advanced solutions as regulatory requirements become more complex and investment banks scale.

Automation and AI will both play a central role in RegTech implementation in 2024, enabling banks to significantly cut costs associated with compliance efforts by automating the process, while enhancing the quality of analysis with machine learning and analytics capabilities. 

These technologies can parse datasets to identify patterns of behavior that indicate potential fraud or abnormalities that may signal an unintentional compliance breach—occurrences that can be impossible to detect manually amidst vast and growing data volumes.

Advanced Cybersecurity and Data Protection

As investment banks increasingly adopt new technologies like AI, blockchain, the cloud, and more, the threat landscape is becoming more complex and sophisticated. For finance companies, the risk is even higher than in other industries—a single security breach costs nearly $6 million, 28% higher than the global average.

Venture capital firms are scaling their investment in cybersecurity startups as cyber adversaries become more sophisticated alongside advancements in AI technologies. It’s a trend expected to benefit investment banks in turn by fueling innovation in cybersecurity and creating a surge in banking-focused solutions they can adopt into their infrastructures.

India, in particular, is proving to be a market to watch in this space. Indian cybersecurity startups earned $130 million in funding over the past two years (more than 60% higher than the two years prior).

Shift Toward Private Credit

The growth of private capital markets is a significant trend in investment banking for 2024. Private credit is gaining steam as a major source of funding, driven by substantial dry powder after a slow year of exits and increasing investor allocations to this asset class.

Investment banks are adapting to cater to the dynamics of private market financing, offering specialized advice and developing products tailored to the specific needs of private investors and companies seeking private funding.

The demand for junior and hybrid capital is pushing private credit and broader alternative investment platforms to expand their mandates. This trend signifies a shift in the investment banking sector towards more diversified and flexible funding sources, reflecting the evolving preferences of investors and the dynamic nature of the global economy.

Related Reading: Private Equity Trends and Outlook for 2024

Geopolitics Impacting Investment Landscape

Continued geopolitical conflicts like those in Eastern Europe and the Middle East have already had ripple effects on the investment banking sector, and will continue to do so in 2024. These and similar events hinder economic prosperity and growth in a myriad of ways—they cut off supply chains (which can have inflationary effects), impact market prices, and create a general atmosphere of uncertainty.

This uncertainty forces investment banks to reassess their risk management strategies and the makeup of their portfolios, considering the potential for sudden market shifts and economic instability.

In addition, geopolitical issues often lead to changes in trade policies and economic sanctions, which investment banks must navigate carefully. This requires banks to incorporate geopolitical awareness into their investment strategies to stay ahead of global economic shifts and adjust accordingly.

2024 Outlook: Navigating the Future of Investment Banking

As we look at the rest of 2024 and ahead to next year, the investment banking landscape is poised for a transformative journey shaped by the convergence of technological innovation, economic shifts, and evolving market demands.

In this rapidly evolving environment, investment banks must embrace a holistic approach that includes digital adoption and AI integration with a deep understanding of global economic and geopolitical dynamics. The future success of investment banks will hinge on their ability to leverage technological advancements not just as tools, but as integral components of their strategic vision.

This means going beyond automating tasks and analyzing data, and instead reimagining business models, redefining customer engagement, and reshaping investment strategies for a digital-first world.

Market intelligence solutions are a critical resource for achieving this. They enable investment banks to maintain a birds-eye view of their market landscapes while drilling down into the regions, companies, industries, trends, and events that matter most to them. They deliver valuable insights in real time that empower investors to recognize and capitalize on opportunities quickly.

Equally important, they keep banks a step ahead of inevitable market challenges that arise, allowing them to prepare appropriately by adjusting investment strategies and adopting necessary solutions.

Stay Ahead of the Curve with AlphaSense

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Learn about technology’s evolving role in investment banking and its broader implications for the industry’s future in our newest webinar: Technology Adoption as a Revenue Driver in Investment Banking with Huw Richards.

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Nicole Sheynin
Nicole Sheynin
Content Marketing Specialist

Fueled by empathy-driven storytelling and good coffee, Nicole is a content marketing specialist at AlphaSense. Previously, she has managed her own website/blog and has written guest posts for various other publications.

Read all posts written by Nicole Sheynin