Investment Banking Trends and Outlook for 2024

Investment banking trends for 2024 show the sector in an ongoing evolution, 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 undoubtedly have a competitive advantage.

Below, we explore the top 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. Interest Rate Stabilization and Potential Reduction on the Horizon
3. Rise of Sustainable Finance
4. Decarbonization and Climate Change
5. Blockchain and Distributed Ledger Technologies
6. RegTech Adoption
7. Advanced Cybersecurity and Data Protection
8. Shift Toward Private Credit

Key Takeaways

• Generative AI is expected to add tremendous value to the banking sector and is already transforming how investment banks make decisions and strategize.
• After an extended period of high interest rates, inflation is finally stabilizing, and the Fed is expected to announce interest rate cuts in September 2024.
• Sustainability and decarbonization will continue to be areas of focus to continue meeting the needs of investors and customers
• 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.
• New technologies are increasing the need to invest in more sophisticated cybersecurity and data protection measures.
• Private credit is gaining steam as a major source of funding, driven by substantial dry powder after a slow year of exits.

Investment Banking Trends in 2024

In 2024, the investment banking industry is in the midst of ongoing transformation marked by rapid technological advancement, fast-changing economic landscapes, and innovative new opportunities related to sustainability, 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 the second half of 2024 and beyond.

GenAI As a Transformative Force

Generative AI (genAI) has been 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 client service to enhancing investment decisions.

The 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, surfacing new opportunities for investors while also strengthening the competitive playing field. It has become  imperative for banks to invest in implementing and maintaining genAI tools to support advisory services.

The inherent value 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.

Related Reading: 

Generative AI in Investment Banking

Generative AI in Financial Services

Interest Rate Stabilization and Potential Reduction on the Horizon

In an effort to curb stubbornly high inflation around the world, central banks have kept interest rates elevated throughout much of 2024. As a result, banks had to reevaluate their approaches to deal structuring, financing, and client advisory services, so as to promote resilience to the challenges posed by higher rates. Increasingly, they have been 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 Fed is now expected to cut interest rates in September of 2024, meaning that inflation rates are creeping closer to target levels. With interest rate cuts, investment banks are expected to benefit, due to a higher demand for loans, though profit from each loan will be lower.

Overall, adaptability will continue to be a key determinant of banks’ success in 2024 and beyond. Banks must be ready to shift their strategy in accordance with the Fed’s decision, so as to remain competitive and avoid falling behind.  

Rise of Sustainable Finance and ESG Investments

ESG is nothing new in the investment banking scene, but 2024 brings a 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.

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.

In 2024, the Federal Reserve expressed concern about the introduction of strict climate regulations endorsed by the European Central Bank, directed by the Basel Committee—a global organization that sets and promotes regulatory guidance among banks. Under newly proposed regulations, banks would need to publish detailed information about the impact of climate change on their business starting in January 2026. The Fed has pushed back on this proposal, stating that it has no intention to be a “climate policymaker.” A modified proposal is expected to be released sometime near the end of 2024. 

In the meantime, while banks may not face strict climate regulations from a global governing body, sustainability and decarbonization will continue to be areas of focus to continue meeting the needs of investors and customers. The energy transition will largely be driven by bank financing, as it requires substantial resource allocation, new technology, and innovation for projects. As such, in addition to their own corporate sustainability initiatives, banks will indirectly support climate change and a greener economy in 2024 and beyond. 

Blockchain and Distributed Ledger Technologies

Blockchain and distributed ledger technologies are experiencing an adoption surge in the banking sector in 2024, driven by their 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 nearly $67 billion by 2032, a substantial increase from $15.7 billion in 2020. This growth is largely driven by the need for advanced solutions as regulatory requirements become more complex and investment banks scale to adapt.

Automation and AI continue to 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 sets.

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 investments in cybersecurity startups as the potential for breaches increases 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 garnered $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

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. Their success will hinge on the 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 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.

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