Is Real-time STP Driving Business Process Optimisation?
Financial services institutions (FSIs) have come a long way in transaction processing over the past 10 years and I am hard pressed to find any product offered within the banking and securities industry that does not have some real-time capabilities. In fact, every year we see more and more batch processed offerings being replaced by real-time transaction processing. Why is it then, in an industry with such advanced processing capabilities, we must wait until 1 August to learn about HSBC’s financial results for a six month period ending 30 June? Likewise, ING reports the same period on 11 August and UBS on 9 August – in fact, most financial services institutions seem to need at least a month to bring together and analyse all the data necessary to report their earnings. In an era where we have 24 hour news services and after hour trading, this kind of delay is simply too long.
We all know that real-time business intelligence has the ability to transform business into a dynamic enterprise that can take greater advantage of profit-making opportunities, is subject to less risk, and has a greater awareness of customer and business needs. The longer FSIs delay in achieving real-time information availability, the greater the opportunities lost and the greater the risk exposure. While there may be a long way yet to go, we believe it is achievable. To accomplish this goal, organisations must be prepared to develop a long-term strategy and tackle each step in the workflow until everything has been accomplished.
Investment in STP has traditionally been justified on the basis of improving operational efficiency, risk management imperatives, adding to customer value or generating new revenue. By and large, these goals have been achieved. It is now time to add a new goal to STP: to better understand the business. TowerGroup believes that it should be a goal of every FSI to create an environment whereby business metrics can be achieved in real time, and that these metrics should then be used to manage a bank’s strategy in real time.
To accomplish this goal, data processing must be broken down into three distinct stages. First is the acquisition of all necessary data in real time. Recently, TowerGroup spoke with the 10 largest European global banks and asked how much data they needed to consider before announcing their earnings to the market: the average amount was just under 100 terabytes. Although none of the banks interviewed knew exactly what percentage of the reporting information they required was captured in real time, the general consensus was that it was only about 25 per cent.
The second stage in transforming data into a business process optimisation (BPO) tool is to subject all available data to real-time analytical analysis. TowerGroup estimates that currently only about 60 per cent of this information is analysed in real time, leaving the other 40 per cent to undergo traditional manual analysis with tools such as Excel.
Once all available data has been processed, it has to be actually used in the strategic decision-making process. At this stage, however, TowerGroup estimates that only 30 per cent of the real-time data is ever used to modify the strategic direction of a firm. This means that, at the end of the day, only 4.5 terabytes of the 100 terabytes available are being used to manage the overall strategy of the bank – which leaves 95.5 per cent of the data still in need of processing.
FSIs can also use real-time data to improve customer services. Client requirements must be translated into available services through a fully automated real-time process, and should be developed and introduced as quickly as possible. To do this, the resources needed to create these products and services must be made available instantaneously, whether they involve internal resources or those sourced through partners. For optimum margin management, this development work should be paid for via an STP environment on the final day stipulated by the negotiated agreement, whereas when it comes to billing for client services, fees should be billed and collected as quickly as possible though inexpensive automated systems. Modernising these tasks will not only drastically improve operational efficiencies, but will provide necessary data for business management in a real or near real-time manner that increases a bank’s flexibility and competitive edge.
The third step is for FSIs to manage the data that is available more effectively, which requires the implementation of systems that permit reporting in real time through STP technologies. This remains a challenge because of the diversity of enterprise data sources and the complexity of database schemes. Organisations must be able to react to incidents, solve problems and respond to opportunities more efficiently. This means that not only must they attain information more quickly; systems must be in place to enable this data to be routed to the appropriate people instantaneously.
Organisational targets within FSIs need to be realised much more quickly than they are at present. Again real-time STP can help by disseminating corporate goals and initiatives to all stakeholders at the same time and enabling issues to be addressed quickly. With the help of real-time data, the achievement of these targets can be quantified and measures put in place to track progress and identify any problems as they arise. Short- and long-term market trends can be identified early and communicated to strategic decision-makers.
When it comes to real-time STP, the type of BPO outlined above still belongs to more visionary operations. Many FSIs today still seem to be more interested in accomplishing modest goals, with most aimed at regulatory reporting and risk mitigation. In fact, many organisations today are undertaking large investments in the development of systems that will keep them well ahead of regulatory requirements.
Although FSIs generally have very good departmental risk management tools, very few of them have a suitable method of managing risk across their various channels and product specialties. In the coming years, much investment will be targeting real-time STP risk management tools capable of enterprise wide implementations. Integration with intermediaries is also getting a lot of attention. In the UK, as an example, the majority of communication between IFA and product factory is through fax, email or phone, this problem needs to be modernised. Fraud detection is also at the forefront with money laundering and risk related regulations justifying increased investments in STP technology.
TowerGroup asked the 10 largest European and global banks if they believed that the implementation of STP would increase the effectiveness of their IT operations. It was no surprise that all of them replied, “Yes, STP would indeed improve operations”. We also asked them how much could be saved by installing a complete enterprise-wide STP environment: the average was a 25 per cent saving, ranging from one firm that predicted a 2 per cent saving to another that estimated STP would reduce costs by 50 per cent. While TowerGroup agrees that STP can save money, we also believe that it is not a magic pill: STP must be regarded within the overall business and technology landscape and each environment should be considered on its own merits.
Sometimes a technology application can benefit one area of business, but be dangerous for another. Not long ago, I came across an implementation of STP that allowed branch tellers to respond to loan requests in real time. The system did the risk calculations and could provide the teller with instantaneous approval or denial. While most would consider this to be a step forward, imagine if you were standing in front of a teller and within seconds you were told you didn’t qualify for a loan – what are the negative implications here where customer satisfaction and loyalty are concerned? No STP or real-time implementation, no matter how efficient, is worth decreasing client retention. An appropriate implementation of this type of application would be to provide instant approvals, but issue rejections via a manual process so that at least the client believes their case is being duly considered.
Of course, there are many complexities associated with the implementation of STP technologies. At TowerGroup we believe that firms should select a goal that is easily understood by the whole organisation and then provide incentives for people to accomplish it. We recommend that firms embrace broad-spectrum targets such as attaining “next day EPS” or “next day profitability”. These goals are effective because they require that data be brought together from across the enterprise and from almost every data source. They are also realistic goals because targeting ‘next day’ instead of ‘real time’ allows for some batch processing which will continue to have its place in financial services. If you are able to report your EPS from the day before, it is safe to say you are well underway to having a truly STP environment.
Ultimately the goal of any STP project should be to turn business investments into profitable results in as close to real time as is realistic. However, for FSIs to accomplish this, they must bring all of their technology initiatives together into a single, seamless enterprise wide program. While this may be especially challenging for FSIs with worldwide operations, recent mergers and those with multiple silo systems and disparate business units, enterprise-enabled information availability must be developed as the only way to achieve the kind of real-time information availability that is an increasing priority for business efficiency.