Pegasystems Confidential October 2002

Corporate Headquarters
Pegasystems Inc. 101 Main Street, Cambridge, MA 02142-1590 USA
PHONE: 617.374.9600 FAX: 617.374.9620 WEB: www.pega.com
International Offices
Australia Canada France United Kingdom
About Pegasystems Inc.
Since 1983, Pegasystems (NASDAQ: PEGA)
has been a pioneer in rules technology and is
now a leader in the industry. Business rules
are the practices, processes and procedures
that define how a company does business
and are an important asset that differentiate
enterprises in the marketplace. Pegasystems
patented rules technology allows companies
to aggregate their diverse business practices
and lets business managers rapidly implement
change across the enterprise and over the Web.
Blue-chip companies in financial services,
healthcare and insurance turn to Pegasystems
rules-driven, Business Process Management
(BPM) technology to streamline business
processes, to quickly and easily adapt to
changing market conditions and to realize a
significant ROI. Headquartered in Cambridge,
Mass., Pegasystems has regional offices in
North America, Europe and the Pacific Rim.
For more information about Pegasystems
visit: www.pega.com.
Securities
Billing Advice, Incorrect Information
Billing Missing/Incomplete
Corporate Actions Advice, Incorrect
Corporate Actions Information
Corporate Actions Missing/Incomplete
Corporate Actions New Instructions
General Information
Income Advice, Incorrect Information
Income Missing/Unpaid
Settlement Advice, Incorrect Information
Settlement Missing/Unsettled
Settlement New Instructions
Static Data
Stock Reconciliation Statement
Stock Reconciliation Incorrect Registration
Stock Reconciliation Information
Stock Reconciliation Stock Difference
Tax Beneficial Owner
Tax Incorrect Reclaim
Tax Information
Tax Missing/Open Reclaim
Treasury Operations
Confirmation Unconfirmed Deal
Confirmation Wrong Counterparty
Confirmation Wrong Rate
Confirmation Wrong Value Date
Confirmation Wrong Amount
Confirmation Wrong Settlement Details
Confirmation Wrong Way Round
Pegasystems Confidential October 2002
Financial institutions face a myriad of challenges, many of which are completely changing the competitive
landscape. Institutions must look at new developments and efforts to maintain success. Internet
banking, sophisticated customer demand, cost reduction, and new regulations and standardizations
are all changing the way organizations operate on a day-to-day basis. Institutions are increasingly
inspecting their business to gain operational efficiency and reduce operational costs. More than ever,
operational risk must be taken seriously. But, with the right solution, institutions can minimize
operational risk, maintain a competitive edge, and succeed as a world-class player in the industry.
Dot com Banking. As the Internet gains importance as a communications channel, Internet
banks are increasing their marketshare. Without the overhead associated with traditional banks
think of the marble floors and oak wickets in a High Street branch Internet banks are able to
invest more resources to enhance customer service. These online-only institutions can reduce fees
and offer customers more incentives than traditional institutions. Furthermore, because the Internet
is truly a 24x7 channel, customers have access to the information they want, when they want it.
The customers who are turning to these Internet banks may be lured away if traditional institutions can
develop new competitive tactics. Traditional banks must be able to offer customized packages, fee reduction,
and 24x7 availability. Furthermore, many of these customers are becoming increasingly savvy looking
to invest in foreign markets, intrigued by online trading, and demanding several choices and options
for their accounts. Retaining these sophisticated customers is key to maintaining competitive advantage.
Minimizing Operational Risk and Operational Costs. Unfortunately, maintaining customers
often requires investment. And, in a stagnant economy, financial institutions look to cut operational costs,
not increase them. Institutions that succeed will find a way to do both satisfy customer demand, while
reducing operational costs. Surprisingly, it may be a perceived obstacle satisfying new regulations and
standardizations that provides the answer to this challenge.
The emergence of Continuous Link Settlement (CLS) will greatly reduce operational risk in foreign
exchange. Similarly, the Basel II Capital Accord (Basel II) will require institutions to accurately assess their
operational risk across the enterprise and take action to minimize it. While both of these developments
will require an investment of both time and money, they may very well provide a substantial
Return-on-Investment (ROI) as a result of the efficiencies they will bring to the operation.
Enterprise Exceptions Management
Reducing Operational Risk and Operational Cost to Maintain a Competitive Advantage
By Andy Elliott, Product Manager, Commercial Banking, Pegasystems Inc.
As the transactions that expose an institution to penalties, fees, etc.,
exception items are key components to both measuring and mitigating
operational risk. Exceptions management processing has become
increasingly vital to an institutions ability to maintain a competitive
edge and a strong bottom line. In short, mainstream transaction
processing is now truly a commodity in banking institutions.
Industry analysts have recognized this trend. According to a Giga
Information Group, Inc. report, Best Practices in Workflow, August 2002*:
Since exceptions processing adds significant cost to an operation and is
the gatekeeper to the financial institutions operational risk rating, it
only makes sense to examine the management of these items to see where
improvements can be made. While manual procedures and practices are
a start, only an IT-based solution will address risk while simultaneously
streamlining an operation to make it more productive and cost efficient.
State of the Industry Exceptions Management
In many organizations, it is still the transaction processing systems
that attract the large budgets leaving the non-core functions such as
exceptions processing to make do with the meager funds that remain.
It appears that as a result of Basel II, more money will be directed
toward exceptions processing, which will ultimately benefit everyone
those measuring risk, the bank as a whole, and customers. For too
long, organizations especially those outside the top-ten global financial
institutions have made do with manual or semi-automated solutions
for handling transaction processing investigations and exceptions.
Telephone inquiries are responded to without being recorded, SWIFT-
based inquiries are answered and filed with no log maintained. Even when
an investigations staff is in place, they often need to spend 30 minutes
at a time crawling though microfiche or paper archives to find the original
transaction. In some cases, the investigations staff will cherry pick the
work to avoid the older, harder-to-resolve inquiries. The common thread
within most institutions is manual processing that is time consuming and
prone to human error. Invisible boundaries, or silos of information,
also exist between departments in many of these banks. Investigations
that require work between departments often results in significant delays
or even lost investigations.
Over the next two years, it is highly probable that some of the
funding previously set aside for transaction processing systems will be
diverted to fund exceptions management initiatives in pursuit of Basel II
compliance. This should eliminate many of the inefficiencies that
currently exist for the benefit of all concerned.
The Ideal Solution
Enhanced management of exceptions is critical to the key areas of
improving operational efficiency and reducing operational cost not
to mention improving customer satisfaction through faster resolution
of inquiries. Institutions looking to be world-class providers of
transaction services must begin to see their services holistically.
Customers now demand both excellence in transactions, like rapid
and accurate payment processing, and superior customer service,
including a knowledgeable agent each and every time they make an
inquiry, regardless of how they make the inquiry. Organizations that
succeed will offer 24x7 customer service via SWIFT, e-mail, telephone,
and the Internet, in a language of the customers choosing and for
each interaction, regardless of channel or product all of which
results in the same, high level of consistent service.
As can be seen, focusing on managing the exceptions may well be a
necessity as a result of Basel II, but the by-products are worthwhile
themselves a leaner, more efficient operation and a significantly
more satisfied customer.
A very common pitfall is building processes that are incapable of handling
exceptions items that deviate from the way most instances are processed.
There are two ways to attack this problem either by choosing a flexible,
adaptable workflow engine that can handle exceptions and ad hoc
processes, or by analyzing the business process in enough detail so that all
the exceptions are anticipated and designed into the system. The majority
of workflow products are not built to handle a large number of exceptions,
so care must be given during product selection if the business process to be
automated is ad hoc in nature or is prone to a high number of exceptions.
Vice President, Connie Moore
*
Copyright 2002, Giga Information Group, Inc.
Pegasystems Confidential October 2002
Business Process Management. Many institutions may already
have varying degrees of process automation in place. More efficiency
can be achieved through the implementation of an exceptions
management solution that greatly enhances automation across the
enterprise. A Business Process Management (BPM) solution would
enable business practices and processes to be automatic, as well
as the interactions of systems with one another. This means that the
way work gets accomplished (transaction begins via phone call, gets
routed to manager based on customer profile) is directed by the
system, without any human intervention or decisioning. It also
means that coordination across systems can be automated.
For example, when an address change is made in one database,
it is updated in every other affected system across the enterprise.
An enterprise-wide solution would eliminate the inefficiencies in exception
processing that occur as a result of inter-departmental boundaries.
Institutions should be seeking an exceptions management solution that
can design process automation around business best-practices. Many
financial institutions have complex standards by which they conduct
business. Unfortunately, those standards are often undocumented or
isolated. If an employee leaves the institution, their knowledge leaves
as well. And while that might not be categorized as operational risk,
it is definitely an undesired outcome.
Process automation also affects standard operational risk, by reducing
the potential for human error. Automating work in accordance with best
practices means that work is completed in the right way every time.
Reacting to change. Institutions looking to succeed in the
dynamic global economy must be agile. In other words, they must
be able to respond to changing market conditions and pressures,
offer specialized products and services based on customer profile,
work with new and complex systems, comply with regulations, and
more. In many cases, agility is hampered by complex, hard-coded
legacy and back-end systems that contain mission-critical data
but will not share it. A stock system may not interface with a
settlements system, and the customer database may contain data
that cannot be automatically updated with information from the
contracts system. And, in the case of mergers and acquisitions,
institutions often find they have multiple systems for the same
function, but cannot feasibly transfer or consolidate the data.
Enterprise-wide rules-driven solutions solve this problem. Rules
systems allow companies to access and manage their business rules
by separating them into a distinct layer away from applications. This
separation means business practices can be more easily changed, managed,
and applied across the entire enterprise within departments, between
departments, across geographies and communications channels. It also
means a single change can be made to affect a multitude of applications
that previously would have had to be updated individually.
This ability to react to change is critical to maintaining competitive
advantage. For example: An opportunity arises to sign a multi-national
conglomerate as a new name customer effective on the first of the
month six business days away providing the institution can deliver
tailored services that include priority customer service, a tiered fee
structure, and a weekly statistical analysis of their business. The
prestige and the revenue that this high-profile corporation will bring
are significant, but changes to multiple systems are required. If the
business manager is in control of a rules-driven, BPM solution, the
changes would be relatively simple and quick to make. In fact,
the manager might not have to even engage the IT Department.
The manager could configure the rule objects to meet the new
demands and automate certain processes to eliminate manual
intervention. Time-consuming testing and impact analysis would be
dramatically reduced, as the rules-changes would not affect the code
of the applications.
Real-time, Multi-Channel Information. Completing transactions
efficiently and effectively is, of course, ideal. But it means little unless
you can convey the end result to the customer. The ideal exceptions
management solution would allow institutions to supply information
in real time, 24x7 globally, across any information channel. Increasingly
sophisticated computer (and Internet) users will demand anytime
access to their account information. Furthermore, this information
must be reliable if it is not, institutions can rely on their customers
to point out their errors. Customers will no longer accept an e-mail
response that is either 1) delayed in arriving, or 2) non-personalized.
Institutions that will retain their customers will either develop or
implement their solutions to be inherently multi-channel.
Multi-product, EnterpriseWide. The ideal exception management
solutions will be enterprise-wide. That is to say, a single application
will be used to manage exceptions relating to the full suite of
transactions provided by the bank, such as payments, securities, forex,
derivatives, and trade finance. As a result, customers looking for
information on a failed securities trade or a forex deal that settled
late will also have access to the domestic and foreign payment
transactions that have crossed their accounts. One of the by-products
for the bank is a valuable set of data that can be mined to produce
risk, customer, and operational control reports. No longer is it necessary
to collate data if it exists at all from multiple sources before
being able to produce a global view of a customers business or an
institutions global operational risk.
The Pegasystems Approach
Pegasystems delivers an unparalleled solution for integrated
investigations and exceptions management. PegaINTEGRATED
INVESTIGATIONS provides solutions that:
Improve productivity and control service costs by leveraging
rules-driven BPM technology
Automate the full range of payments, securities, and treasury
investigations and exceptions management activities
Increase service quality and improve customer satisfaction
across every channel and product line
Significantly reduce risk by proactively and efficiently managing
investigations and exceptions management processes
Rules-driven for Better Results. In order to differentiate
themselves, institutions must be able to service exceptions quickly,
consistently, and efficiently. It merits stating that exceptions do not
just originate from a reconciliations process. Customers can call or
e-mail, counterparties may send faxes, and correspondent banks may
send SWIFT messages concerning a variety of problems from where
are my funds to what are these charges and youve duplicated this
payment. While many exceptions management vendors can send an
e-mail or SWIFT message relating to a break, only Pegasystems
PegaINTEGRATED INVESTIGATIONS is a truly enterprise-wide,
front-to back-office, comprehensive exceptions management solution.
PegaINTEGRATED INVESTIGATIONS leverages a unique
rules-based architecture, which provides maximum agility. Pegasystems
rules-driven approach to business process management has been
praised as industry leading by several industry analysts.
PegaINTEGRATED INVESTIGATIONS stores your business
rules in a separate, distinct layer, making them accessible across the
enterprise. Changes can be made easily and rapidly, without costly
testing and change analysis. In this way, your institution can keep pace
with market demands, regulations, and stay ahead of the competition.
Pegasystems Confidential October 2002
Enterprise-wide Service Backbone. PegaINTEGRATED
INVESTIGATIONS is a powerful BPM solution that works with
your existing legacy environment to drive information and best
practices across your enterprise, bridging both front- and back-office
systems, enabling holistic work management.
PegaINTEGRATED INVESTIGATIONS interfaces with your
payments systems, contracts systems, message switches, settlement
systems, income systems, and many others. Through its unique
externalization of data, the application allows re-use of best-business
practices across the enterprise. By identifying business practices and
processes necessary to complete a transaction, institutions can
recognize which steps can be streamlined in many cases eliminating
red tape or miscommunication.
The application establishes real-time, bi-directional connectivity with
almost all legacy systems. Changes made to one system can be driven
into other affected applications, as mentioned above. This virtually elimi-
nates the need for data duplication or replication, reducing the risk
of maintaining bad data.
Mitigated Operational Risk. Powerful process automation
solutions reduce the risk of costly human error by minimizing manual
work efforts. But PegaINTEGRATED INVESTIGATIONS further
reduces operational risk by automatically researching investigations
related settlements, payments transactions, compensation claims,
adjustments, and other transactions. Once an item has been
researched, the application, in many cases, can automatically repair the
transaction, resolve it, and automatically apply interest where appropriate.
In addition to mitigating risk, PegaINTEGRATED INVESTIGATIONS
extensive reporting capabilities allow institutions to quantify their
risk globally and comprehensively. Risk quantification is a necessary
component for Basel II compliance. Organizations that can achieve
this will be rewarded with a lower capital reserve requirement.
Enhanced Customer Service. PegaINTEGRATED
INVESTIGATIONS delivers real-time holistic information across the
enterprise. The application aggregates customer information on a holistic
level payment inquiries, errors, failed trades, etc. and presents it in a
single screen during a single customer inquiry. Customers who contact
the institutions requesting information can gain access to all of their
information. Customer service representatives can deliver personalized,
customer-centric information without accessing multiple systems and
back-end applications. This frees the CSRs to focus more on the
customers and less on their computers.
Customer inquiries and transactions are automatically prioritized and
routed to the appropriate person, based on customer profile, transaction
type and operator skill set. Inquiries need not be transferred from
department to department or to representatives who have greater or
lesser access levels.
Finally, operators have access to information concerning a customers
inquiries, irrespective of the channel that was used. PegaINTEGRATED
INVESTIGATIONS is a true multi-channel solution. This means,
not only is information available over all communications channels,
including Web, but that service and information is consistent and
accurate in real time. Transactions that happen via one channel are
captured and the results are accessible via all other channels.
Transactions that happen via one channel are captured and the results are
accessible via all other channels.
Real-Life ROI
Since 1983, Pegasystems has been delivering integrated investigations
solutions to leading financial institutions around the globe. Organizations
like JPMorgan Chase, WestLB, Rabobank, Clearstream International,
and Citibank rely on Pegasystems industry expertise.
PegaINTEGRATED INVESTIGATIONS has delivered significant
and measurable results time and time again. One institution realized
a 65% cost savings from improved technical infrastructure, reduced
data storage, and operational running costs. Another organization
achieved a 200% improvement in customer response rates.
Other successes include:
A reduction in backlog from 2-3 days to none
A reduction in average inquiry response time from 6 to 2.5 days
50% reduction in response time with prioritized inquiries
33% reduction in processing costs
100% increase in user productivity
30% increase in Payments Services business in 3 years
The following graphs illustrate the benefits that can be achieved.
This data was collated by the production dynamics
department of a European customer.
The total improvement in time spent in a beneficiary claims non-
receipt inquiry was improved by 87.3%. Likewise, there was a 57%
improvement on the number of steps required to complete the inquiry.
Summary
Market pressures, increased competition, and new regulations are
forcing institutions to examine how they can reduce operational risk
and operational cost while at the same time delivering unparalleled
quality of service to the customer. Many institutions are finding that
an investment in technical infrastructure will deliver the tools they
need to maintain competitive advantage.
By streamlining exceptions management and implementing an
enterprise-wide business process management system, institutions
can achieve almost immediate results. This will also prepare
institutions for compliance with regulations such as Basel II.
Pegasystems has been delivering powerful exceptions management
solutions to financial services organizations for 20 years.
PegaINTEGRATED INVESTIGATIONS has delivered proven
results around the globe.
The applications powerful rules-driven business process management
capabilities allow institutions to increase agility, automate processes,
significantly reduce operational risk, and improve customer satisfaction.
Learn More about PegaINTEGRATED INVESTIGATIONS
PegaINTEGRATED INVESTIGATIONS is an exceptions management
servicing backbone for financial institutions. Enterprise-wide business
process management allows institutions to transform their business
rules and processes into business assets. Through seamless integration
and data aggregation, the application provides real-time comprehensive
customer information to the point-of-contact. In this way,
PegaINTEGRATED INVESTIGATIONS shifts the focus of your
investigations activity from transactions and accounts to a
customer-facing relationship view with the emphasis where it should
be on the client. To learn more about how PegaINTEGRATED
INVESTIGATIONS can deliver results to your institution, visit
Pegasystems online at www.pega.com.
Impact analysis - Reduction in
Steps required Per Investigation
Impact analysis - Reduction In
Investigation Time
Workflow Workflow
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Appendix
PegaINTEGRATED INVESTIGATIONS Architecture
PegaINTEGRATED INVESTIGATIONS has been
engineered as an entirely browser-based application that can
be delivered over a corporate intranet, extranet, or via the
Internet. The application itself runs on a multi-node UNIX
architecture that provides resilience and fail-over capabilities
that can deliver 24 x 7 x forever processing. It is also
immensely scalable. Pegasystems customers range in size and
scale from single departments with 10 operators to global
operations with several thousand concurrent investigators.
The PegaCONNECT interface layer provides connectivity
to virtually all platforms, databases and networks, avoiding
the need for costly and unnecessary data replication.
Workflow in PegaINTEGRATED INVESTIGATIONS
PegaINTEGRATED INVESTIGATIONS comes with all the necessary investigation types to enable a rapid deployment in payments,
securities, reconciliations or treasury. These investigation types are;
Payments
Amend Beneficiary
Beneficiary Claims Non-Receipt
Incorrect Currency
Cancellation Request
Credited Wrong Account
Debited Wrong Account
Duplicate Payment/Entry
Overpayment
Underpayment
Return of Funds
Unable to Apply Funds
Unable to Effect Payment
Early Payment
Late Payment
Incorrect Rate
Check Collections Unpaid
Check Collections Fate
Compensation Claims
Amend Beneficiary or Beneficiary Bank
Late Payments
Underpayments
Duplicate Payments
Cancellation Requests
Overpayment Requests
Nostro Reconcilement
Outstanding Ledger Credit/Debit
Outstanding Statement Credit/Debit
Value Difference
Missing Statement
The above diagram depicts an example of a PegaINTEGRATED INVESTIGATIONS
solution.