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Top 10 challenges for investment banks in 2015: Utilities (Part 10)

Beat Monnerat, Accenture's senior managing director of financial services for Asia Pacific | Dec. 23, 2014
For the seventh consecutive year Accenture outlines ten of the key challenges facing investment banks in the coming year. Today is the final day Accenture explores one of the top issues the industry faces.

Even as banks expand in Asia, they have been mindful of keeping costs in check. Most global banks have continued, since the financial crisis struck six years ago, to tighten their belts. However, many have reached a limitation on the benefits of offshoring and outsourcing, while others have realised that achieving cost reduction through internal scale cannot be fully achieved with in-house shared services. As a result, a new model is required.

Accenture believes the market is now ready to enter the next wave of collaborative innovation in the form of a new breed of utilities.

The concept of shared utilities is not new and has been applied successfully in several industries. Post-financial crisis pressures in the investment banking industry have served to highlight the opportunities for utilities to reduce costs, achieve standardization of processes, mutualise risk and increase service quality in core processing functions. This is a way to reduce costs and increase efficiencies.

Put simply, utilities can create efficiencies by collectively performing a set of similar, non-differentiating activities for multiple industry participants, and drive cost savings through economies of scale. Utilities also minimise the duplication of effort, allowing banks to shift resources to areas of greater value. Moving day-to-day processing functions to the utility model also allows banks to focus on the control and governance functions required to meet regulatory requirements.

Accenture believes market participants have the opportunity to create consortia for utility functions that will be viewed as neutral third parties, benefiting all in terms of data quality, lower costs, and the creation of standards around which the industry and regulators can co-ordinate.

For example, Accenture Post-Trade Processing is an innovative solution that will help banks reduce post-trade processing costs, including minimise future change spend, adapt to new regulations and increase speed to market, leveraging proven, market relevant technology. We estimate that clients can potentially realise a reduction in costs per trade of up to 30 per cent. By transferring the fixed cost model currently employed by banks to a variable cost model, clients will see a decline in the marginal costs per trade for every additional bank that joins the service, benefiting both new entrants and incumbents.      

The challenge remains in finding those organisations that are willing and able to make the first move. From Accenture's perspective the choice is simple: choose to lead the transformation and have the first mover advantage, or get left behind.

 

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