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Bank Cost Cutting Will Drive Uptake of Financial Industry Utilities in 2016

  • Capco has released “What Makes Utilities Useful,” a global survey of banking executives’ attitudes towards adoption of a utilities-style approach.
  • Three main areas noted as ripe for growth include: market and reference data management, reconciliation and exception management, and regulatory and compliance-related reporting.
  • The survey confirms that banks are unnecessarily leaving money on the table by failing to take full advantage of the utilities model, especially in the compliance context.

Capco, the global business and technology consultancy dedicated solely to the financial services industry, today announced the findings of “What Makes Utilities Useful,” a global survey of senior banking executives’ attitudes towards adoption of a utilities-style approach.

The survey of 102 financial services professionals from 69 financial institutions across 26 countries found the three most significant drivers for increased uptake of utility models – cited by over 80% of respondents – to be:

  • Reducing costs
  • Coping with variable volumes
  • Achieving predictable service and quality levels

“The greatest single insight from the survey is confirmation that, by failing to take full advantage of the utilities model, especially in the compliance context, banks are unnecessarily leaving money on the table. They are paying too much, and still experiencing too much internal disruption and distraction, just to play catch-up,” commented Scott Claus, head of the Technology Services Domain, Capco.

Numbers that stood out in the survey, include:

  • 73% - respondents who want to use a utility model in market and reference data management
  • 61% - respondents who want to use a utility model in reconciliation and exception management

While utilities are prominent on the radar of most financial institutions, survey results reveal that there remains a wide spread – in attitudes and progress – around practical implementation. Roughly two-thirds of those surveyed agreed compliance is a significant driver of utilities uptake, but only about a third have begun actively working towards implementation of such a model. Attitudes are changing, however, with an additional third readily admitting they would now consider a utility model to help them achieve regulatory maturity.

“A utilities approach can deliver very significant benefits, both for institutions that have already exhausted traditional sourcing routes and, even more so, for those who have not yet engaged with extensive process rationalisation,” said Farzine Fazel, head of Sourcing Offerings, Capco. “The timescales to reaping cost savings benefits are typically quite fast, around 24 months. And the benefits are greater and more sustained than ‘traditional’ sourcing.”

When asked about potential obstacles to a utility model, the most significant concerns included:

  • Internal culture and territorial ownership of IT and processes
  • Lack of standardisation
  • Internal system, operations and business structure in need of simplification
  • Issues around data security and segregation

“Our survey underscores the importance both of the specific pooled utility model in our industry and the on-going and increasing importance of industrialisation techniques in general,” Claus said. “Our prediction is that, in 2016, banks of all profiles will seek answers to the continuing need to reduce cost while enhancing customer service. We believe they will find many of those answers in the intelligent application of industrial scale technologies offered by third parties to enhance the efficiency and reduce the cost of technology, data and process management.”

Carried out in association with Finextra, the survey defined a “pooled utility model” as utilisation of an external party that serves multiple customers to provide a pay-for-usage service in technology, data or process management. Respondents represented a spread of global, international and regional financial institutions and from C-suite to specific operational areas, including CTOs, COOs and specialist operational heads across Treasury, IT, Payments and Digital. A copy of the full report: “What Makes Utilities Useful” is available to download at capco.com.