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For more than 30 years Misys has provided innovative solutions for financial services firms worldwide. Misys helps more financial institutions deliver outstanding service than anyone else. Industry experts within the organisation explain some of the biggest challenges facing the industry and discuss strategies for dramatically improving both operational efficiency and customer satisfaction. Visit us at www.misys.com.
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anks face the combined challenges of regulatory burden, heightened competition, market rationalisation, intense pressure on costs, the drive for enhanced customer service and the overarching need to return greater profit margins. For these reasons, the role of the core banking system has never been more important. The new era of banking demands a fresh technological approach, as banks must rid themselves of the burden of inflexible solutions designed and implemented when the financial world was a very different place. Misys has
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front-end technological innovations that allow banks to collaborate more closely with these customers and develop new, tailor-made products. Historically banks have focused on processing and the efficiency of the back office, Berthier explains. Now we are seeing banks look at their corporate value chain, decide how they are going to pitch products and do it in a way that focuses on customer service. The more that is understood about what a client wants the more carefully tailored a product can be. It allows banks to broaden their business and grow their revenue options.
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Lending consolidated
Eyal Altaras, senior solution consultant at Misys Loan IQ, explains how consolidating lending channels can result in cost savings and increased efficiencies.
inancial institutions have long known that there are great potential benefits to be derived from achieving lending consolidation. They can gain greater efficiencies, improve standardisation and enhance their risk management and exposure reporting capabilities. Until recently, cost and disruption to the business prevented many taking advantage of the efficiencies gained from placing lending lines of business on a single platform. However, by consolidating syndicated and bilateral lending onto a single system, financial institutions will see immediate improvements in operational efficiency. Loan processors touch the data much less, which means fewer errors and processing delays. According to Eyal Altaras, the critical operational efficiency increase comes from continuous virtual straight-through processing. Financial institutions have processing centres worldwide. If operations fail at one processing centre, then others can still virtually service the loan. Centres can also take over work from each other, providing 24/7 services with no downtime.
Altaras argues that one of the most important consolidation benefits is the banks ability to access comprehensive exposure reporting across their various lending lines of business in real time. In the past, organisations used to report on exposure once a month. In todays heightened regulatory environment, with Basel II and III, organisations need to report on exposure faster and more regularly. A single system will also promote the development of standards in lending operations: workflow processing, lending structures and naming conventions. Financial institutions will be able to improve exposure reporting and monitoring controls as well as create a better system for global coverage and disaster recovery back-up. Financial institutions have to grasp the opportunity that consolidation brings now if they want to improve reporting, visibility, operational efficiencies and ultimately customer service.
for banks to design new products, not necessarily based on the old, well-defined principles. In response to these changes, Misys has created online portals with integrated value-added financial services, which allow for the real-time, transparent movement of information by connecting banks with buyers and suppliers. Demand is coming from corporations, which see how such technology can improve their own supply chain relationships.
Leading by example
One project weve worked on recently involved Crdit Agricole and one of its big corporate customers on the import side, Berthier recounts. The corporate had the objective to improve the way it managed its relationship with some of its suppliers to help suppliers in the management of their own cash flow. Crdit Agricole ultimately wanted to increase the visibility of its supplier relationships and encourage the more timely notification of statuses and payment-related information. The corporate wanted to be able to roll out the service itself, without having to rely on complex know-your-customer (KYC) reports from the bank. It came out of a direct demand from the corporate, not driven by the banks wanting to roll out a new product, Berthier explains. Its a good example of how corporates are
using this new platform to improve relationships with their clients. They are not just saying, I want to have a very cheap fee for issuing early payments. Over the short term, Berthier expects movements towards harmonised financial products in the open account field. A lack of standardisation is preventing the full development of financial supply chain services, he explains. To reach critical mass in the open account space, we need to standardise. A lot of parties are looking at this and Im sure well see great gains made over the next year.
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nternet access to personal bank accounts has been around since the late 1990s, but has failed to live up to the initial hype and replace its more costly sister channels. In fact, banks are investing more in their branch networks and telephone banking is thriving. A total of 80% of customers still do not use the internet to access their accounts, so what has gone wrong? The reason for the disappointing performance of online banking, compared with the internet success stories of the past ten years is simple: banks didnt provide anything worth the effort of logging on. So after investing in a must-have, me-too channel, banks have found that customer apathy is depriving them of the cost-savings they were promised. And
any banks have seen the businesses of their corporate customers change considerably in recent years. Customers, especially of smaller financial institutions in the US and Europe, are adopting an increasingly international outlook. Trade and foreign exchange transactions are beginning to play a much more prominent role and on-tap capabilities are needed to handle these demands. In addition, difficult financial times have led senior managers to demand a clearer, more up-to-date overview of their corporate liquidity. Stephane Nouy, solution manager, and Nick Clare, manager, TCM Solution Consulting, Europe, at Misys, see the development of portal technology as key to a banks ability to satisfy these demands.
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PFM tools
PFM tools are unlikely to attract new current account customers, but they will be powerful tools in the banks campaigns to encourage their existing current account customers to bring them more of their other business; e.g. mortgage accounts, personal loans and insurance products. Banks will be able to boost their cross-selling campaigns by advertising personalised offers as part of the PFM online reports and displays, reaching their customers more frequently and at precisely the time their customers are thinking about their finances. The aggregated customer data will help banks understand their customers better and help them tailor their products and services.
The single portal can be plugged with functional components from across a banks product portfolio, from FX and money markets to trade finance. According to Nouy, this is a product of Misyss extensive experience in the field. We havent started the Misys Portal for Opics Plus from scratch, he explains. We are taking a global portal approach with a product that is proven with corporate customers.
The new capabilities delivered by the Misys Portal platform now ensure that the regional bank optimises the straight-through processing capabilities offered in order to allow them to increase efficiencies while decreasing operational risk.
front-end operations. Clare and Nouy also anticipate the greater movement of mobile technology from the consumer into the corporate space. There are a lot of areas where the bank can provide FX services, such as when you repay a loan and want to debit an account, Clare explains. There are also great opportunities in commercial lending and cash management services. This is a very much a one-stop-shop for treasurers. Nouy is confident of what differentiates Misys from its competitors.It is what we have on top of the portal technology that makes us unique, he explains. This out-ofthe-box integration between the portal and back office and our experience in covering a range of functional areas are unique features.
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evelopments in consumer mobile technology have opened up new channels for communication between banks and their customers. Harnessing the full power of this fledgling technology is, however, proving a struggle for many. Banks mobile offerings are mainly reactive in nature, such as sending one-way informational text messages that require a customer response. This removes the cost-saving potential of mobile by forcing customers to reply via a traditional service channel such as a call centre. In addition, many banks are funnelling investment into smartphone capabilities when a majority of their customers have yet to graduate to that technology. If your main focus is releasing phone apps, you are putting investment into a very small segment, explains
There are huge opportunities for banks to exploit the popularity of sites such as Facebook, not just from a brand management perspective, but as a service channel in its own right.
Tim Tyler, solutions manager at Misys. You need to think more broadly. It is about the customer and the fact that they are mobile, more so than the technology itself. What methods are my customers going to use to access bank services while they are mobile?
This real-time functionality could be especially useful when handling instances of credit card fraud, which can often take days to detect. It is also useful for more routine operations, such as responding to balance enquiries. Banks can use the mobile channel to immediately verify suspicious transactions with customers directly, argues Tyler. From a corporate banking standpoint, customer priorities are different. Multiple interfaces on small devices are not as important for workers sat in front of a computer for much of the day. In the corporate world its really about notifications and approvals, Tyler says. Payments often require multiple approvals and executives are not tied to their desks. Banks could offer greater flexibility
Social services
Misys recognises the huge opportunities for banks to exploit the popularity of sites such as Facebook, not just from a brand management perspective, but as a service channel in its own right. Misys is building customer mobility into its banking solutions working alongside social media and networks. For Tim, mobile banking is more than just banking on a mobile phone, but embraces banking customers wherever they are. Mobile network operators will send a message welcoming a customer to a new country, Tyler explains. There is no reason why banks cant send a message saying, Welcome, for free cash withdrawals use these ATMs, your exchange rate right now is this. Its about looking beyond the phone at where the customer is and delivering superior services based on that.
Commercial break
On the retail side, Tyler emphasises providing easy access to banking services in a proactive fashion that exploits the inherent advantages of mobile technology. Mobile phones are multi-modal, Tyler explains. You have SMS, voice, a web browser, all of which offer real-time potential that no other channels can. Actionable text alerts, for example, which allow for a direct customer response, could save a lot of money.
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Central to success
Regulatory changes and increased competition are making it more difficult for banks. Barry Kislingbury explains how implementing a payment services hub can improve processing efficiency, cut costs and generate revenue.
ayments divisions have long been an undervalued asset for banks. Steady but unglamorous, they were often viewed purely as cost centres and were consequently hindered by a lack of investment. In recent times this has started to change. The economic crisis highlighted the value of payment services, which continued to generate returns while many other divisions suffered. But even as banks began to see the benefits of investing in payment services, a number of mitigating factors were coming into play. Post-recession regulatory changes, the growth of SEPA and increased competition from non-banking money transfer services are threatening banks ability to profit from payments. On top of this, heightened customer expectations are putting pressure on financial institutions to be more innovative in the facilities they offer and to provide better customer service. Payments moved to centre-stage during the financial crisis, explains Barry Kislingbury, solution manager at Misys. But now banks are feeling the squeeze from both ends. Revenues from payments are dropping yet adjusting to change is pushing costs up. These new challenges require banks to modernise their often archaic payment systems, an expensive undertaking and one which tier 2 and 3 banks are often reluctant to take on. Some of the largest banks have built huge, expensive payment systems in the hope that smaller banks will look to outsource. Results so far have been mixed. Although many banks are losing money, a vast majority want to maintain control of their payments, says Kislingbury. What operators are looking for is a different approach to modernising their processing environment without having to spend a fortune or give away a core competency to a third party. applications arent automated or tied together, you cant possibly make money or provide a higher level of service. Kislingbury cites a recent example involving an Australian banking client, which wanted to implement a hub to handle its larger corporate customers. These firms often deal with multiple branches of the same bank and might have their requests processed by a different application each time. The outcome was that one application might have very good straight-through processing and produce very efficient payments, but others would involve a lot of manual work and consequently be very poor, he explains. Sometimes, a customer would make a payment on time yet the bank would process it late, meaning that the bank had to pick up the interest.
More cost-efficient than a complete back-office overhaul, hubs can help a bank harmonise its payment applications, increasing process speed and visibility.
Misys helped the organisation create a payment services hub, harmonising its applications and breaking down the walls between its different silos. After a few years of operation, efficiency and transparency improved dramatically. When we started out the client had straightthrough processing rates in the 40% area, which is not uncommon, Kislingbury explains. Now it is up to 99.3%. In the very first weekend of operation, the new payment system trapped some errors that would have cost the bank a considerable sum of money. It really paid for its own implementation. In the past some banks were reticent to go down this route, deeming payment hub implementation to be too complex, but the knowledge now exists to do it effectively. As Basel III forces banks to reconsider their risk exposure silos will continue to be broken down, making payment service hubs an even more attractive option. People just didnt believe that these solutions were out there, Kislingbury says. But companies like us have come in from a different background and so have fewer legacy issues than our competitors. One customer recently made the move over to SWIFT messaging to comply with new regulations. With a modernised, centralised payment system they were able to make the complete changeover in two weeks. Another bank in the area took six months.
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Regulated risk
John Le Hunte explains why banks must gain a holistic view of risk exposure if they are to fall in line with new regulations regarding capital.
asel III and other regulations drafted in the wake of the financial crisis have pushed banks to address their capital adequacy. However, many banks still do not have a full understanding of their risk exposure, leading them to act with more caution than necessary. They react slowly to new investment opportunities or fail to allocate sufficient capital when such possibilities arise. With some of the regulations coming into force as early as next year, and with systemic changes required, the sense of panic is palpable. In order to comply with new regulations, banks have to gain a holistic view of their risk exposure. Being able to analyse business data and carry out stress testing in real time would help them to decide how capital should be allocated and how big a return different business units are making on investment. According to John Le Hunte, sales manager of
Misyss flagship Summit risk management solution, this is rarely the case at the moment. Trading operations are largely desk-based, with systems covering different classes of instrument, he says. Information isnt shared across the organisation, leading to inflated capital figures, which provide fewer funds for reinvestment. Gaining the necessary visibility requires data aggregation. One way of doing this is to feed data from current systems into a single platform, bringing market and credit risk together to build an economic capital calculator. This takes into account causalities and interdependencies, producing a holistic view of risk. The ultimate goal would be to have an independent pricing factory, which would contain the pricing functions as libraries that the front office, risk and accounting systems could use. Many versions of the pricing library could exist for different purposes, but all would be centrally located and fitted with version control mechanisms. This would eliminate pricing hotspots and improve overall consistency across the organisation. Such systems ultimately allow for the comprehensive calculation of risk across trading desks, giving banks the knowledge to invest capital with confidence.
A little intelligence
Andrew Hebron, business architecture director at Misys, explains how financial institutions can spend more time analysing their data and less time accumulating it.
n recent years, banks have begun to take a proactive approach to business intelligence (BI). Though efforts are beginning to bear fruit, many organisations remain hampered by poor data management and BI systems that arent tailored to the needs of the financial services sector. This at a time when banks are under increasing pressure to realise profits, while simultaneously having to cut costs and adapt to new regulatory requirements. Achieving this balance requires improved operational efficiency. According to Andrew Hebron, business architecture director at Misys, this comes from businesses spending more time analysing data and less time accumulating it. If data can be queried quickly and interrogated in a more conversational manner, new business plans and cost reduction initiatives can be put into place in a decisive manner, he says. Understanding the performance of products and divisions, risk exposure assessments and hypothetical impact analysis are becoming critical to the success of a business.
Achieving this level of BI efficiency has proved difficult for many. The huge amount of data stored by banks is often of poor quality and split across multiple departmental servers. In fact, Misys and IBM estimate that financial institutions without effective BI systems can spend up to 90% of their time accumulating data and only 10% analysing it, but this trend is reversible. Firstly, financial and operational parts of the business need to make sure their priorities are aligned. While IT departments work to collect and structure disparate data, companies can ensure the information is of a high quality by investing in tools that can be manipulated by business users themselves, without the need for technical help. IT should also trust business users to change the way in which they track and measure performance, and invest in a robust data model that can adjust to changing analytical requirements. Such an overhaul need not be disruptive. An outof-the-box solution can be installed quickly, delivering an immediate return on investment. The failure of BI projects is often in project management. A lack of common goals makes designing complex systems from scratch extremely difficult. Opting for a standard solution from an established provider can result in quicker, more effective project execution.
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