Update on Utilities: Current State of Affairs and Possibilities for the Future
The utility model in capital markets is a new phenomenon with the potential to significantly transform how operations are carried out at financial institutions. Recently launched utilities in KYC have created a lot of interest and curiosity among several participants as they look to redesign their operations.
In the report Update on Utilities: Current State of Affairs and Possibilities for the Future, Celent discusses the progress made by several utility solutions in the Know Your Customer (KYC) space and answers a number of questions that we have received from several market participants since the publication of our previous report Emergence of a Utility Model: The Case of KYC On-Boarding Solutions.
The primary focus of the KYC utilities so far has been on getting the widest possible range of buy side clients on board, primarily in the US and UK. They are looking to add institutions from other jurisdictions in the near future. Adoption on the sell side has been limited because many sell side firms are waiting for more clarity on how the utilities will impact their internal operations, how (or if) the different utilities will interact, and which ones, if any, will emerge as a clear winner.
Multiple utilities performing the same function may be a suboptimal solution from an overall industry standpoint, but some participants feel it is better to have competition and avoid a monopoly. Key to success for a utility would be breadth of coverage of end clients, including coverage of different types of clients, as well as compliance with multiple geographies and jurisdictions.
“The KYC utilities solve the challenge of information and document collection and management, but there are other functions in the KYC value chain that banks will still need to conduct,” says Arin Ray, an analyst with Celent’s Securities & Investments practice and author of the report. “The utilities, once fully operational, will alter the role of traditional solution providers in the KYC space, and some of them have already started planning to develop new offerings around the utilities, with some considering strategic partnerships with the utilities.”
By expanding on the issues that are on top of mind for market participants, this report seeks to provide more clarity on them as well as update readers on the current state of affairs of the several KYC utilities. We also try to foresee how the multiple utilities will evolve and possibly coexist, and what their implications will be not only for KYC operations but also in other areas where the utility model may be adopted.