Tackling the final frontier of back office automation – Euroclear
For all the effort banks have put in to automating their back offices, one activity remains stubbornly hands-on: claims management.
Banks generate thousands of claims against each other every day – many of them related to coupon and dividend payments. But rather than having an automated process, these claims are still matched and cleared for payment on a one-to-one basis by operations staff armed with little more than email, a phone and an Excel spreadsheet.
This is just not efficient.
Firms have to deal with between a quarter and a third of their claims which fail to settle on the allotted date. Teams of people find themselves chasing their counterparts, disputing, correcting, and finally reconciling and posting payment details.
It’s no wonder that the costs associated with claims management are so high.
There are other costs as well
A large firm can often have 20,000 open items a month (per type of claim) with up to 30% of them being open an average ten days after the agreed contractual settlement date. There is a direct cost here in terms of manpower – but hidden ones in terms of liquidity and other areas such as risk, regulatory capital inefficiency and client money.
Delays in receiving funds that are due squeeze a bank’s cash, particularly where it is committed to contractual settlement with the client. Delays in paying sums owed, perhaps because of a simple failure to match, oblige a bank to ring-fence the amount in question, tying up more cash. The funding costs for larger firms, for example, can be in the millions annually.
Time to automate claims management
At Euroclear we are working with Merit Software, a provider of specialised claims management software, to tackle these issues. SetClaim is our automated solution that streamlines the process by matching claims between banks and their counterparties via a central hub.
By replacing time-consuming bilateral matching with a multilateral system, SetClaim reduces the scope for error and frees up operations staff to focus on exceptions. This enables you to reduce costs and make better use of your resources. Faster reconciliation also frees up cash for use elsewhere and simultaneously releases capital.
There are other gains too.
SetClaim makes it possible to net and aggregate payments while still enabling full reconciliation to the underlying items. That in turn cuts the number of payments that have to be made. And it is scalable: a rising volume of claims will no longer mean more feet under desks.
Now banks can finally bring the claims management process into line with the way they manage their transactional activities.
And that is long overdue!
Angus Scott has over twenty years experience in capital markets infrastructure and securities services, specialising in strategy and strategic change management. As Head of Product Strategy and Innovation at Euroclear Group, he is responsible for creating and delivering a portfolio of new, commercially viable product opportunities that support Euroclear's strategic agenda.