Connect with us

Global Banking and Finance Review is an online platform offering news, analysis, and opinion on the latest trends, developments, and innovations in the banking and finance industry worldwide. The platform covers a diverse range of topics, including banking, insurance, investment, wealth management, fintech, and regulatory issues. The website publishes news, press releases, opinion and advertorials on various financial organizations, products and services which are commissioned from various Companies, Organizations, PR agencies, Bloggers etc. These commissioned articles are commercial in nature. This is not to be considered as financial advice and should be considered only for information purposes. It does not reflect the views or opinion of our website and is not to be considered an endorsement or a recommendation. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third-party websites, affiliate sales networks, and to our advertising partners websites. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish advertised or sponsored articles or links, you may consider all articles or links hosted on our site as a commercial article placement. We will not be responsible for any loss you may suffer as a result of any omission or inaccuracy on the website. .


An infrastructure shared is a problem halved: the new opportunity for banks

Rollo Burgess

Several factors are conspiring to put banks’ margins under extraordinary pressure. First, structural changes in the market are reducing profitability (for example by preventing margin netting). Second, Basel III and the regulatory actions of national authorities are increasing capital requirements. Third, big one-off charges associated with various ‘issues’ are translating into higher on-going costs of compliance and control.   

Rollo BurgessThese pressures will reduce banks’ available return on equity to as much as 10 per cent – as opposed to the 20 per cent or so that was common in the boom years. And banks will have to be ruthless about costs even to get to that 10 per cent return on equity.  
Many have cut deeply already, so the more obvious savings are no longer there. In addition, savings from some of the big moves we have seen (for example exiting whole product areas, as UBS is doing in fixed income) will be hard to capture given shared service structures and the need to maintain coverage. As a result, banks need to explore bolder and more radical approaches to cost reduction.  
By questioning traditional assumptions about what they need to do themselves, by sharing services and infrastructure with other market players, banks can reduce cost, complexity and headcount. 
Identify services you could share 
A full-service investment typically provides a range of operational and supporting services that do not differentiate banks from their competitors – in fact differentiation here is likely to be unhelpful to customers who prefer standard workflows. The same capabilities are replicated at each major institution, with each carrying out essentially identical processes, often with the same software and tools. It makes sense to join forces with other companies in the same business and share those services and capabilities, as a number of firms already do in respect of retail banking operations. The iPSL joint venture involving Barclays, LBG and HSBC is an example of this. 
Don’t dismiss the idea of working with competitors 
If done correctly, even business-critical processes can be shared with competitors. Critical infrastructure is frequently delivered this way in other industries where competition is no less fierce: mobile telephone companies share masts, and airlines share logistical services.
Within the finance sector itself, there are already successful examples of competing organisations sharing infrastructure, for example in settlement services: CLS has operated successfully since 2002. The same model can deliver standardised operational processes to the market across a number of process areas, removing excess capacity and benefiting the industry as a whole.  
Recognise that many conditions for success are already fulfilled  
We aren’t claiming infrastructure sharing will be easy. Banks will need to collaborate intensively, and confront stakeholder resistance. That will depend on a purposeful approach and strong top-level sponsorship. 
However, many of the conditions are favourable. Current market conditions clearly provide the necessary ‘burning platform’. Investment banks have a strong record of collaborating on initiatives that are important to the whole industry: a case in point is the development and expansion of clearing services for over-the-counter derivatives markets over recent years. 
The financial services industry stands to gain substantial benefits from pooling operational services. Banks can increase return on equity while focusing on competing with each other in areas where differentiation is possible and desirable.
Rollo Burgess is a financial services expert at PA Consulting Group
For more information, visit





Global Banking & Finance Review


Why waste money on news and opinions when you can access them for free?

Take advantage of our newsletter subscription and stay informed on the go!

By submitting this form, you are consenting to receive marketing emails from: Global Banking & Finance Review │ Banking │ Finance │ Technology. You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact

Recent Post