Delving beyond the world of algo’s/AI, the drive for ever faster speeds and platform consolidation is potentially the return of the utility platform were a shared platform offers efficiencies to a group of participants. For example, the concept of a Regulatory Reporting utility for an association of banks could well lead to better transparency in reporting, higher quality/more accurate data, and lower costs. The benefit of a shared platform would bring efficiencies to the changing reporting requirements and probably lead to a faster deployment.
Another idea could be for an association of banks to share functionality. This could be the savings bank sector for example. At Eurobase, we have a savings bank platform (alongside an embedded Regulatory Reporting platform) that was deployed by a German Landesbank to service their underlying savings banks. These days in a “utility-as-a-service” model, we are more likely to see this technology deployed as a shared platform mutually operated for the benefit of the savings banks themselves, with the utility stakeholders seeing the cost savings/revenue earnings directly accrued to them. This efficiency, allowing better margins to be achieved, could be critical in this era of low interest rates.
My own direct experiences include having been involved in two utility-like platforms that were mainly centred on foreign exchange trading. The first was involving co-operative banks in Europe where each bank would contribute their national currency liquidity to a shared pricing platform. As each national co-operative would have tighter spreads in their own currency, the advantage was to be pooled to the benefit of all, resulting in better customer pricing and increasing flows in your own currency. Sorting out cross currency liquidity would have been an interesting technology challenge in the late 1980’s if the idea had gone beyond the drawing board!
The second, almost two decades later, was for a small consortium of banks who pooled liquidity that was then aggregated and the customer always dealt on the best-aggregated price but the deal was booked with their main relationship bank and the market risk was covered by a back-to-back transaction when needed. Both projects offered efficiencies and cost savings to the participating banks and their customers. Both of these serve as good illustrations as to how a utility approach can lead to a win-win situation for all stakeholders.
Another platform approach was featured in a McKinsey Digital report recently, which posited an era of the platform-based company. In this model, IT is described in the report as “organised around a set of modular “platforms”, run by accountable platform (or product) teams. Each platform consists of a logical cluster of activities and associated technology that delivers on a specific and can therefore be run as a business or “as a service” as technologists say.”
In the report, they cite a leading global bank that created multiple platforms one of which was a payments platform. This platform acted as an internal “payments-as-a-service” business for the rest of the bank. What I found interesting about this concept is that we have already adapted our own e-Payments platform (covering FX & domestic payments) so it is both outward facing for customers to use and inward facing for other areas of the bank to use. Deployed, this would drastically engender efficiencies across a bank and replace multiple legacy payment architectures by a modern “fit for purpose” single comprehensive payments platform.
Structural changes, mainly regulatory led, are creating opportunities in execution, compliance and data sharing. With cost control high on the agenda, we can see a bright future for co-operative platforms and will likely see a number of grouped participants looking at how they can deploy a utility platform approach going forward.