Squeezed by the twin pressures of satisfying both regulators and clients, the world's top banks are starting to work together on technology projects. More used to fierce competition than friendly collaboration, investment banks vie to offer computer-based trading services to a diverse client base of hedge funds, high-frequency traders, asset managers and other banks - and invest heavily to make sure theirs is the system of choice on the client desktop.
But they also have to spend on adapting internal systems to comply with swathes of new regulation, which means they effectively have less cash to invest in platforms they provide to customers. "Banks are looking to build things in a way that can be re-used and there is a collective interest in developing applications collaboratively," said Kosta Peric, head of innovation at financial messaging firm SWIFT.
Peric said banks were increasingly happy to spread the cost of developing back office and regulatory compliance systems that they all need to conduct their business. SWIFT last year built an account management platform in partnership with Bank of New York Mellon, Citibank, J.P. Morgan Chase, and Royal Bank of Scotland.
The not-for-profit company, owned by 2,500 financial firms, has also developed a messaging service for corporates backed by members including BNP Paribas, Credit Agricole , Societe Generale and UBS. Such collaboration allows companies to channel more resources towards what they do better than competitors.
"We are having several discussions with different institutions over how they can work together to create utility models to drive cost savings for everyone," said Jeffrey Wallis, managing partner at SunGard's consulting business. "Working in this way allows banks to focus on those areas where they differentiate their offerings."
Director of group strategy at software vendor Fidessa , Steve Grob, estimates banks can save millions of investment dollars a year working collaboratively with rivals through companies such as Fix Protocol Limited, which sets messaging standards for trading firms.
Banks are looking for ways to make compulsory spending work for them to attract more business from trading clients, which helps the bottom line at a time when profits are under threat. "The budget left over to invest in generating revenue and profit is shrinking year-on-year," said SunGard's Wallis. This is especially key at a time when spending is rising because of a raft of expensive new compliance requirements brought in since the 2008 financial crisis.
"Balancing cost pressure, regulatory requirements and the need to remain competitive is omnipresent in financial services firms' minds and plans," said Geoff Hodge, chief executive of technology firm the Milestone Group. A study by research house Aite Group found technology spending by global banks will increase 7 per cent to $47.2 billion this year before rising a further 8 per cent to $51 billion next year.
The increases were linked by the 24 Chief Information Officers surveyed to regulatory compliance, which they said was their top priority, with Aite citing the Dodd-Frank Act in the United States and the planned changes to Europe's Markets in Financial Instruments Directive (Mifid) as the main drivers. Fidessa's Grob said: "Regulation is not going away so firms have to take a decision whether they are going to do the bare minimum to comply or go further and invest in technologies that enable them to turn compliance into a competitive advantage."
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