CSDs will transform as competition sets in
Customer focus, consolidation, new pricing models and a quite new landscape is what the future has in store for the CSDs as liberalisation kicks in. CEO Niels Olsen of VP SECURITIES presented his predictions at the Nordic Post Trade Conference in Copenhagen in front of 170 attendees from the financial sector.
“We are facing significant changes. The entire landscape will not be the same, and CSDs will have to be much more customer-focused. Historically, this has not been the case. CSDs cannot continue as a utility business unchanged; CSDs will have to be much more aware of their customer’s requirements and contribute to their success. We need to complement and add value to our customers more proactively. CSDs need to be customer-oriented utility companies”, the CEO of VP said to the audience at the Nordic Post Trade Conference in Copenhagen, where he talked about the future role of the CSD.
The European harmonisation agenda driven by the ECB is materialising in these years with T2S and CSDR. VP is on track with both these projects, and Niels Olsen is welcoming the new level playing field for CSDs.
“In the European financial market, the perception is that we got four different regions. All CSDs are of course national infrastructures, but you also see some common regional traits in Central Europe, Eastern Europe, the UK&I and in the Nordics. Until now, all these national infrastructures have been local, but will now become European due to the harmonisation and competition”.
One of the consequences is probably also a harmonisation in pricing models, and in the Nordics, some changes are under way, Niels Olsen added. VP is preparing to adapt to a European pricing structure, which means that the prices for issuance will be lowered in the Nordic region. However, to the CEO of VP this is only one change on a bigger journey for the CSDs.
“Our customers are looking for business benefits to attract and retain their customers. We need to get closer to their value chain, and we need to “partner up” with banks that may use us for some of their processes. Our value proposition will change from a utility to a commercial vendor of services”, he said.
Issues from customers
The home market for VP is the Nordics and VP is constantly monitoring the key concerns of banks in the Nordics. They are looking for harmonisation, simplification, lower costs, compliance and European distribution. This is the landscape that CSDs need to fit into, and if they do not, they may be challenged.
“Growing complexity and more compliance is of course a cost driver for the CSDs, but we also see some significant technology gains which can lower the prices on our core business. Also more open and direct competition combined with growing demands from customers will put pressure on prices and make room for differentiation among the CSDs”, he said.
VP focuses on the Nordic market, which includes accessing T2S, and through that offering European functionality. Niels Olsen expects VP to be among the first European CSDs to get a European license, and along with links to other CSDs, this will fuel the cross-border business, which is expected to grow as T2S is implemented.
Consolidation and diversity
“Consolidation among CSDs is a likely scenario in the longer term. This is one way to cut costs and gain a more competitive appeal, because it will generate a higher transaction volume and provide the banks with scale benefits. I also think that T2S will result in more effective clearing, which will benefit Danish and Nordic customers”, Niels Olsen says, who quite modestly describes himself as a newcomer to the industry, having been four years with VP.
He also argues that many clients may make use of two, three or four CSDs in the future, and not just one – and only one – CSD for all their business. The diversity and the contradictory driving forces make it extremely hard to predict the future. The landscape is truly changing, and the long-term consequences are not given.
For VP to be the preferred CSD among the Nordic customers, one thing is quite sure, according Niels Olsen: “Partnership is the new black”.