Information Overload In Banking and Capital Markets

In the information age the excess of information we have to process and react to every day is overwhelming. While information overload can slow down and even paralyze almost all industries, the banking and investment sectors are particularly prone to its ill effects. People may not have the necessary tools or financial acumen to manage the situation. 

In an article from Sneha Shah, former Refinitiv Managing Director, Business Accelerator, she mentions, "The world around us has accelerated in so many different areas. From virtual working, socializing and schooling, to the importance of socially responsible business; and from a heightened awareness of environmental impact to the rapid ascent of digitization. This rapid acceleration brings with it greater pressure to make decisions faster than ever, and this is driving a huge demand for data of all kinds.

The causes of information overload

There are three primary causes of information overload in banking and capital markets. The first is the sheer quantity of information. The depth of information, whether it’s for mission-critical decisions or routine projects, can be way more than necessary. This can slow down even otherwise competent systems because there’s more to analyze, react to, and learn from. 

The second cause of information overload is the number of sources, many of which can’t be verified. When there are multiple sources, each with attention-grabbing headlines or search engine-friendly introductions, it becomes difficult to understand which one needs attention. It can be difficult to prioritize which information source needs to be treated with credibility if there’s no protocol for the same in the organization. 

The third reason is a more complex one. When there are multiple streams of information, it can be extremely difficult to differentiate one source from another. This process can be confusing and even exhausting even for seasoned professionals because there are always newer sources of information.

All these factors can be cumulatively challenging when the investor doesn’t have adequate financial knowledge, defined as expertise directly related to the investment process. It’s important to note that general business knowledge or theoretical economic understanding won’t be of much help here. Investors should know how investments are done and how information is quickly processed to enable actions.

The effects of information overload in banking and capital markets

So, what happens when there is information overload in banking and capital markets? Far back in 2005, a report in the Journal of Behavioral Finance revealed that those with limited and low levels of financial knowledge would be encouraged to opt for the default option and minimize their risks. That’s one of the most dangerous effects of information overload. It can overwhelm people into making the safest and most predictable choice. 

Research in decision-making suggests that rather than processing more information when decisions become more complex, consumers tend to reduce the amount of effort they expend in order to make their decision or choice (Payne, Bettman and Johnson, 1988; Payne, Bettman and Luce, 1996).

With too much information, multiple data points, and a continuous inflow from multiple sources, professionals in banking and capital markets might opt for the safest strategy or worse, delay making a decision. This affects investors and forces individuals to miss highly profitable opportunities. That’s how information overload leads to decision paralysis in banking and capital markets. 

With too much information to process - and wondering which ones to prioritize, act on, or ignore - investors can make unsuitable investments. Without a set protocol for identifying valuable information that’s relevant to any decision, investors might miss out on lucrative opportunities to invest or end up making the right decision at the wrong time. 

This is where AI augmentation tools like ModuleQ can help. ModuleQ’s People-Facing AI learns individual priorities and builds a unique profile around unique coverage areas, people, opportunities, and much more. Rather than requiring bankers to search for data, with ModuleQ, the insights will arrive proactively at the right moment, like prior to an important client call.

Managing information overload

The first step is to understand that there is information overload both at the systemic and individual levels. If this isn’t done, the problem will be allowed to fester and wrong causes will be attributed to both successes and failures. Once the leadership realizes that information overload is slowing down the system and making it less competitive, the next step is to come up with a functional plan. 

All stakeholders should be encouraged to share only relevant information. This should be defined as any information that the individual or team needs to know. It should also be relayed in a simple manner. For any team member to act on a piece of information, they should be able to quickly process it. 

The third tactic is to find the optimum level of information that the system and its participants require for making any decision. Information pruning shouldn’t result in a situation where brevity (or fewer sources) is confused with viable information. It’s crucial that everyone in the system has access to both quality and quantity of information.

Both in banks and capital markets, it should be possible for individuals to go back and verify the information in a structured way. This would empower them to question the information and demand actionable insights rather than vague information. One of the hallmarks of highly functional systems is their ability to deliver this feedback mechanism. 

Investors should also be encouraged to figure out an information consumption mechanism that makes sense for them. Once they identify sources both internal and external that they trust, it becomes easier for them to depend on them. Team members should also be incentivized to share relevant information with others in the system. The more accurate information everyone has, the better the quality of their decisions will be. 

Another viable tactic is to personalize information according to the needs and specializations of individuals and teams receiving it. This alone will lessen their information processing time and allow them to see relevant inputs at the right time. Technology can immensely help the process since stakeholders will be able to highlight or appreciate information that they would have found useful. This would encourage others with similar job profiles to rely on those sources of information. 

Finally, everyone should be educated on how to identify credible sources of information, how to process them quickly, and how to share them internally. This is how the banking and capital markets sectors can develop functional protocols for sharing and disseminating information. 

In short

Information overload isn’t going to disappear anytime soon. The problem could only get worse. The solution is to develop a process for optimizing information flow and make it work for banking and capital markets.