FinTechAutomationThe Role of Automation in Payments Investigations

The Role of Automation in Payments Investigations

Industry figures show that 2 per cent of all payments requests give rise to an exception. The majority of these exceptions, approximately 80 per cent, are requests for additional information. By applying technology to the common exception types, it is possible to resolve these payments investigations in a fully automated fashion. However, according to a recent survey of banks conducted by SunGard ePI, only a third of banks have automated repair and reprocess capabilities. This article discusses the role of automation in payments investigations and explores where the industry trend is headed and why.

Drivers for Automation

Increased awareness of operational risk and the escalating costs of managing investigations are driving banks and financial institutions to seek to improve operational efficiencies through the use of automation. Firms across the financial services industry are now beginning to apply the same level of automation to the exceptional transaction as they do for those transactions that pass straight through the settlement pipe.

In today’s processing environment, most back office systems have some level of built-in exception processing and are typically able to identify that an exception has occurred. However, most processing systems must route the exception to a costly manual queue for research and resolution. Such exceptions expose institutions to financial and reputational losses because of the amount of time it takes to identify, assess, and resolve them.

Financial losses include principal losses when incorrectly paid funds are not retrieved, penalties and compensation costs associated with settlement errors, and the operational costs incurred in processing exceptions (for example, overtime, inflated staffing levels, and contractor fees).

Reputational loss can occur between the financial institution and its direct customers, correspondents, or various regulatory agencies. In these cases, profitability is jeopardised through the erosion of business opportunities and loyal customer base.

Where Automation Fits in the Lifecycle

Investigations are characteristically a post-settlement event, where inquiries are initiated by the beneficiary directly to the receiving bank who then engages back into the payment chain or, where the beneficiary engages directly to the remitter who then engages forward into the payment chain. Prior to the payment generation, exceptions such as blocked accounts, insufficient funds, amendments to payment details, and cancellation requests may require significant time to resolve.

SunGard ePI’s survey, conducted at Sibos each year, revealed in 2003 that 2 per cent of all payments requests give rise to an exception. The majority of these exceptions are requests for additional information (about 80 per cent), with as many as 60 per cent arising from incorrect beneficiary information. These post settlement events are typically:

  • beneficiary claims non-receipt of funds;
  • beneficiary is unable to apply the funds;
  • additional information required;
  • return of funds;
  • compensation claims; or
  • incorrect payment details.

By applying technology to the common exception types, it is possible to resolve fully 80 per cent of payments investigations through automation. The other category is the remaining 20 per cent of exceptions, which require financial adjustment. However, according to SunGard ePI’s annual survey, only a third of banks have automated repair and reprocess capabilities.

Why are Automation Levels Still Low in the Payments Industry?

A lack of standards in the payments industry is fostering a highly manual environment for exceptions handling, as firms are not well equipped to communicate with one another or their customers. This lack of automation can also be attributed to an insufficient investment in technology. Third party vendor exception processing solutions have been installed for approximately 100 out of the 7,000 SWIFT members. This number is indicative of the relatively low levels of exception management being achieved overall within the industry.

We have all seen the trend towards centralisation and regional consolidation/hubbed common business processes and IT infrastructures in order to gain operational efficiencies and leverage IT investments. The move to regional transaction processing hubs provides greater process control and cost management by eliminating redundant systems and staff and improving standardisation to create streamlined processes that are insensitive to volume. A highly automated shared service model reduces the number of operational experts needed to resolve complex investigations, as well as the number of investigations requiring financial adjustments. However, although operations mergers, consolidation, and downsizing result in greater efficiencies in the long term, it creates higher error rates and investigation backlogs in the short term.

Anatomy of an Investigation

The average investigation is broken down into several steps, and has been assigned an estimate for the activity’s effort level/time consumption based on industry feedback:

Task Effort
Log (phone, fax, or structured message) 5 per cent
Classify/assign/prioritise 5 per cent
Research (via access to transaction history) 45 per cent
Resolution actions: 40 per cent
  • create correspondence (e-mail, fax, telex, letter, SWIFT, or structured system messages);
  • generate accounting entries;
  • generate payment instructions;
  • receive inbound correspondence; and
  • calculate and allocate compensation claims.
Verify/review/release 3 per cent
Reporting 2 per cent


By looking at the manual processes that take place during exception handling, it is clear that the majority of effort is being spent on conducting research and on taking appropriate actions once the position is understood. To reduce costs and risk, manual processing must be automated. Best-of-breed exception management solutions require highly structured incoming messages for automatic logging, business intelligence to trigger actions based upon that information, and on-line access to salient transaction history information.

Current focus: Self-service

The automation of information-only requests that inundate the customer service and investigations staff is now becoming a particular area of focus. Corporate, institutional, and bank-to-bank customers see customer service as a key differentiator between banks. To help alleviate this burden, account servicers have been offering their customers web access to balance and transaction data.

Taking this a step further, institutions are beginning to permit customers access to investigation initiation and tracking services. This service has been limited, especially within the bank-to-bank sector, due to concerns over security and the lack of a single access point. According to the TowerGroup’s research paper, Innovation in Cash Management: Customer Self-Service Systems Redefine the Business Model, web-based customer self-service systems that offer clients increased transparency into the bank’s internal systems and databases will be a precondition for cash management and transaction processing market success by banks.

International branches of financial institutions will benefit most from data transparency, since their need for transaction details is greater than most customers. If skilled (for example, system-adept and data-savvy) reconciliation and investigation clerks are given access to transaction data, then head office investigations work is effectively outsourced.

Account owners with enough payment transaction volume to warrant using the web-access services are also prime candidates to reap the benefits of data transparency. Their online research gives them immediate real-time answers to requests for information and reduces the need to communicate via telephone, providing data transparency, and externalisation. Likewise, corporate customers no longer need to use the telephone or fax, and, like all web-users, they are able to download report data for further analysis.

New SWIFTNet Working Group for Payments Investigations

The lack of automated exception management in the payments industry can be partially attributed to the lack of message standards. SWIFT’s current investigations messages, MTN95 and MTN96, are under-used within the SWIFT FIN service, as the number of query types are too extensive and lack granularity. Instead, institutions are using the MTN99 free format message or other message media and are not taking advantage of the efficiencies gained by the auto processing of standardised messages. These SWIFT FIN messages are lacking an industry rule book that defines the standard usage and the industry best practice for the messages, without this there can be no harmonisation across the industry.

The migration to SWIFTNet provides SWIFT customers with an advanced IP-based messaging platform that comprises a portfolio of products and services enabling the secure and reliable communication of mission critical transactional data on top of its current store-and-forward messaging service.

The evolution of IP-based networks has spurred the general adoption of XML as the de facto messaging format of application developers. SWIFT has also adopted XML syntax for its standards developments: new query-and-response messages for real-time cash reporting add to the XML standard messages for payments initiation for bank-to-corporate and bank-to-bank clearing segments. They will soon be complemented by new XML exceptions and investigations messages that SWIFT is targeting for 2005.

With the creation of the SWIFTNet exceptions and investigations productt, financial institutions will be able to extend the auto-enquiry concept to the exceptions and investigations area to enhance automation. This will enable their customers and counterparties to act in real-time upon the information received.

SWIFT-standard XML already ensures data integration and system interoperability in a growing multi-banking environment. The use of a common security device provides single access to all service providers. SWIFTNet and the Interact service becomes a natural replacement for hosting both bank-to-bank and bank-to-corporate exceptions and investigations products, and enables banks to reduce the cost of ownership of their SWIFTNet infrastructure.

The Way Forward

It is clear that increased standardisation will continue to benefit the industry as a whole. Following on from the continuing success of the SWIFTNet Real-time Nostro Account Information Working Group and the subsequent real-time nostro solutions, the SWIFTNet Exceptions and Investigations Working Group will introduce new standards to ensure interoperability, efficient information exchange, and automated processing of exceptions. As the new standards take hold, firms will require automated exception management solutions that leverage the new paradigm, as they will be increasingly measured on their ability to offer clients real-time information and automated processes while maintaining their cost structure.

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