Business Process Management in the Payments Arena

A critical process within every financial organisation, payments processing has come under mounting pressure as costs and risks have risen. Much of this is due to increasing duplication of functionality that has grown up over the past decade. This duplication is often across lines of business such as treasury, corporate banking and foreign exchange with further payment infrastructures commonly found embedded within areas such as trade finance, securities, mortgage, direct debits, loans and credit card.

Inefficiencies through duplication has often resulted from merger and acquisitions where systems have not been consolidated or where each line of business chooses to implement different platforms and solutions – the result being:

• Duplication of manual processing, validation and efforts to meet new regulations
• High cost of multiple system maintenance
• No provision of centralised management information for processing such as fraud detection
• Difficulty in providing an integrated payment offering to customers, especially corporate companies with cross border and domestic requirements
• Increased risk of errors caused by operators relying on manual systems which result in financial loss and damage to the banks reputation
• Difficulty in supporting predicted growth in electronic payments.

Facing increasing demands

As the electronic payments industry matures, standards and best practices are being introduced including IBAN, EBA Step 2, CLS and new SWIFT message types. The ability to realise the benefits these initiatives are designed to deliver is very difficult given the typical level of duplication of payment infrastructures in most banks. Thus, the focus is typically on meeting the minimum requirement of each of these changes on an ad hoc basis as they are introduced. This not only misses out on achieving the potential benefit of the initiative but also compounds the issues of duplication as the changes have to be made across each payment system within the bank.

In addition to the issues of regulatory changes there are a number of other pressures to improve the performance of payment structures, including:

• Reducing the cost per transaction as revenue per transaction is likely to decline while volumes grow
• Reducing execution times and fees applied to domestic and cross border payments
• Increasedthreat to profitability as the size of float available for investment is under pressure from reduced clearing cycles
• Demand to ensure secure contingency planning for key payment processes.

Applying a BPM approach to payments

Most banks are aware of the extent of the problem that they have with complex legacy payment systems and there has been a recent history of success in applying Business Process Management (BPM) in order to realise cost savings and reduce financial and operational risk. To achieve these benefits there must be a conscious move away from the silo approach for each business line in favour of an enterprise-wide strategy for payments processing. Any new solution needs to integrate with existing systems easily and be flexible enough to allow for changes to be made with little business disruption. To meet these requirements, the processing of payments must be automated – automation brings visibility and control of the process and from this comes greater efficiency, increased staff productivity and ultimately, cost reduction.

From Workflow to BPM

This type of process automation started life as workflow – technology to automate and improve person-to-person processes – ensuring data was passed around to the right people, in the right order, at the right time. Extension of this focus past the data itself to encapsulate the work, decisions and activities relating to that data led to an evolution of the technology – to what we now call BPM. The need for this extension of focus has also been accelerated by the increasing use of new and different forms of electronic ‘content’ such as image, video, sound and application code and the addition of emerging channels such as the internet and call centres.

The increasing complexity of these processes is driven in part from the mixture of manual, automated, human and computer interactions – leading to BPM being applied to streamline, control and automate processes. BPM technology brings together capabilities in process modelling and monitoring, application integration and rapid application development tools – into an ‘independent process layer’. By acting independently from the underlying business infrastructure, BPM is able to deliver rapid and impressive results while retaining flexibility and control. Thus, processes can be measured and improved as bottlenecks are identified and business needs change.

Put simply, BPM significantly improves the way people and applications work together as part of a particular financial business process.

Improved agility

BPM technology complements an organisation’s existing systems as its role is to coordinate the various tasks performed by both people and systems as part of a business process. Through the independent process layer, BPM helps a company get more value from existing legacy applications and therefore provide very clear ROI – as faster, lower cost business processes can be implemented without having to replace expensive applications. Long-term, BPM provides greater agility and the ability to meet new business needs by implementing new processes faster.

• Financial organisations are traditionally heavily reliant on paper-based documents. As a result, they were at the forefront of using workflow technology to streamline and automate document management. Now, by applying BPM technology, they are made more efficient through the automation of critical processes such as those related to corporate actions, credit authorisation, interest claims, new product development, research production and payments processing, as well as streamlining the trade and settlement cycle.

Making it pay

BPM is now being widely applied to the payments industry as the ideal approach for enterprise-wide automation of complex, rules based processes. It allows for deadlines to be set for the completion of tasks and for automatic escalation procedures to be determined. In a payments process, this means a user of the system is given payments to make within specified timeframes and where these timeframes are not met, the payments would be routed to a supervisor for action.

The benefits of applying BPM to payment processes are many: payments do not get lost; more payments can be processed without increases in headcount; managers can see what payments are being made and by whom; and customers will be satisfied with the better service they are receiving.

An automated payments process will also allow managers to see where bottlenecks occur so that they can be rectified. It provides a full audit trail for reporting and compliance purposes, ensures adherence to quality standards, and importantly, gives managers a clearer, timely and more accurate picture of the bank’s cashflow situation.

Business cases for the application of BPM to payments processing demonstrate impressive ROI based on realising unit cost savings and reducing financial and operational risk, but the benefits go beyond this – including:

• Scalability – the ability to handle increasing volumes with minimal effort and disruption
• Adaptability – as banks’ processes evolve, BPM mirrors the change quickly and at low cost, by the banks’ own staff if desired
• Commonality – BPM sits in front of all the payment applications used by the bank, providing a common front end for creating any type of payment such as CHAPS, CHIPS or SWIFT instruction. This facilitates the introduction of a ‘follow-the-sun’ policy meaning no more missed deadlines or backlogs due to local staff shortage.
• Strong control mechanisms – a powerful Management Information System facilitates improved decision making
• Potential to achieve very high STP rates
• The facility to store and update electronic reference look-up tables, such as SWIFT’s BIC (Bank Identifier Code) Directory
• The ability to customise the presentation of the menus and forms visible to end customers, and incorporate the bank’s standard layouts and brandings.

We will see a continued growth in the use of BPM technologies over the next year or two as financial institutions increasingly look to manage their processes from end-to-end, across both systems and people. BPM is more than another three letter acronym – it delivers real value to almost every type of financial business process.

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