Building tomorrow’s banks today (Part 3 of 3)
Focus on high-impact solutions with manageable risk
In the final part in the series, Angus Scott, Euroclear’s Head of Product Strategy and Innovation, looks at practical, targeted ways of improving back office costs and efficiency without engaging in wholesale re-engineering.
The back office has a key role to play in the battle to achieve infrastructure savings. But bankers should be wary of anything that reeks of a prestige project. The big bang approach to replacing legacy systems is rarely the answer as they tend to be complex, long-run projects that are difficult to manage and carry greater risks.
The key is to choose projects with high impact but manageable risk. New technologies can be introduced alongside old ones and processes gradually changed to realise efficiency gains. There is a lot to be achieved by automating areas that have been left behind, by rethinking the way things are done, and above all by collaborating with industry peers.
This is the approach that we at Euroclear are taking – working with the industry and relevant third-party technology providers to develop new solutions, some of which are ready to implement now.
SetClaim: automating claims processing
The prime example is SetClaim , a service we launched in June 2015 in collaboration with Merit Software, and is now on-boarding its first clients. Banks typically make and receive thousands of payments each day. Each requires a notification to be compiled, sent, accepted and processed and a payment to be created and reconciled. To date, this has been conducted manually. SetClaim allows it all to be automated, while improving control, reducing breaks and speeding up resolution times.
The potential savings are significant. In just one area, the management of coupon and dividend payments, we estimate the industry could save $150 million a year. That is before taking into account the thousands of other payment claims in areas such as mortgage pricing resets, fees and commissions, bilateral derivative positions or tax.
SetClaim is a classic example of what can be achieved by focusing on processes that have hitherto been overlooked in the switch to automation. And importantly, it does not require banks to engage in costly re-engineering.
Taskize: increasing industry collaboration
We are also involved in an initiative to drive efficiency in areas that are not susceptible to straight-through processing. Taskize, a 2012 start-up in which we are a substantial investor, has developed an advanced operations network bringing together the right people in the right roles in the right firms to resolve issues and queries in a timely compliant manner. In simple terms, it allows operations personnel, clients and counterparties to work together and make work flow more quickly and efficiently.
New operations models enabling closer cross-industry working, such as Taskize, have an important role to play in the war on back-office costs. And again, it does not require any change to existing operating models.
Blockchain: the future of transaction data?
Our reading of the future is that the financial industry will increasingly look to share data and concentrate on adding value where it matters. Distributed ledger technology – Blockchain – could be the purest expression of that trend. It is still early days, however, like many others, Euroclear is looking at the potential of this technology to enable automation of new markets at much lower cost.
Together with Oliver Wyman, our recent whitepaper, Blockchain in Capital Markets – The Prize and the Journey, looks at how this could be applied to the capital markets and what the next steps are for the industry to consider over the coming 12 to 18 months.
Adapting to the new normal
The transformation of the back office is just beginning. Finding new and better ways of supporting our industry is fundamental to Euroclear’s mission as a neutral market infrastructure. And while we need to stay focused on the future, we also recognise the need to concentrate on what is achievable in the here and now. This combination is key to being able to adapt in this new era, and targeted solutions that address previously neglected areas of operations or make for more productive ways of working can deliver big wins.
About the author
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.