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Pioneer global banks push ahead with Customer Self-Service Despite perceived technological obstacles amongst service users

Survey Audience - Global top 500 banks
Fieldwork - LMR
Completion - April 2002

The issue of providing the customer - whether interbank or corporate - with the ability to access and query their own transactions, is emerging as one of the next major developments in global banking technology. Initial interest is concentrated firmly amongst pioneer institutions, often those forward thinkers who were first in the fray of STP in the early 1990s, and who then embraced automated exception processing in the latter part of that decade.

In order to reveal current attitudes to the notion of Customer Self-Service, SunGard eProcess Intelligence (SunGard ePI) commissioned LMR to research opinion on the subject amongst the global top 500 banks. The research was completed in April 2002, and respondents were equally drawn from departmental heads and senior operations professionals. Reflecting the balance of the survey audience, our sample is comprised rather equally of users (55%) and interbank service providers (45%).

It would appear that the main operations objectives of the global top 500 banks are firmly focused on cost reduction. The global banking community sees much further room for efficiency improvements in back-office operations, no doubt especially with the progress of key standardisation initiatives such as CLS, GSTPA, Omgeo, Bolero, etc. The more rigorously standardised transaction and settlement processes become, the more value STP solutions will deliver. Based on its high ranking among key operations objectives, automated exception processing has now achieved a high awareness, in terms of its advantages for service providers and users alike. The benefits of automated exception processing - reduced operations risk, enhanced reputation, minimised compensation payments - are well recognised.

The provision of customer self-service comes in at the lowest position of key operational objectives. However, those with longer memories will recall that automated exception processing occupied exactly this low awareness status in the global banking community some five or six years ago. Continuing the comparison, we believe that despite the fact that there are proven Customer Self-Service solutions already available (and in a number of cases, implemented) on the market, many players are unaware of them. In fact, looking at answers to the following question, it would seem that real-time reporting capabilities - an essential component of effective Customer Self-Service - is perceived by a majority amongst the global top 500 banks as a currently insurmountable technological obstacle. We believe that this perceived technical hurdle has greatly influenced the lowly status afforded by our respondents to Customer Self-Service as a key operations objective.

The lower ranking of customer self-service provision as a key operations objective is unlikely to last for much longer, on account of rising demand for such capabilities from the front office. While customer self-service extends the exception processing platform of a transaction service provider to its customers, thus streamlining investigations and exception processing, it also acts as a tool for improved customer service, customer retention, and possible new revenue streams to the front-office.

When examining the opinions of top global financial institutions on technological obstacles to Customer Self-Service for Interbank Service Providers, we find a level of scepticism about what level of Self-Service can really be delivered today - a scepticism which we have already noted to be unfounded.

Respondents did not believe either security issues, or access to statement and transaction data, to be technologically difficult for Self-Service providers to deliver. Sending payment instructions (see “effect real-time payments” above) was also not seen as a difficulty. On the other hand, the ”value-added” aspect of Customer Self-Service was perceived to be far more problematic to provide. These ”value-added” aspects of Self-Service include: knowing where transactions had a problem (exceptions); understanding how exceptions might be affecting a net figure; knowing what had caused the exception; and being able to access the status of an investigation.

In short, our respondents see the more sophisticated (and therefore more useful) side of Customer Self-Service as troubled with technological delivery problems. Despite the fact that there are several Customer Self-Service applications in successful operation in pioneering institutions, the marketplace as a whole is currently unaware of the existence of these powerful end-to-end solutions. As we have previously stated, this technological ‘doubt’ prevalent in the marketplace is reminiscent of attitudes to automated exception processing in the latter part of the 90’s. In some ways, this ‘doubt’ and lack of awareness is understandable. It is not a small task for automated systems to gather all data - statement, transactional, investigations - in a single data mart, so that seamless provision of information for Customer Self-Service is possible. Yet internally, this is precisely what the more sophisticated exception management and processing solutions have been doing for some years. Therefore, the process of extending an operational platform to make that information available to interbank customers, across a secure network, should not be a vast logical or technological leap.

Given that the settlement window - both in FX and in Securities - is shortening, there is now an increasing urgency to provide customers with information, and indeed interaction, about the current status of their transactions. For the provider, tightening settlement deadlines increase risk. In the case of CLS, for instance, exceptions which are not repaired by the official pay-in schedule deadline will result in charges for expensive and compulsory liquidity provision to rectify short positions. In the T+1 environment for securities, inefficient exception processing can lead to similarly expensive stock borrowing requirements. Hence, the general trend towards better cash and collateral management through automated exception processing and granular position reporting. The more efficient the institution, the better its service provision, the more enhanced its reputation becomes, and the more it is preferred as a service provider. The institution which can provide intra-day statements in real-time and automated investigations tracking and reporting to its customers through a self-service facility gains a competitive advantage over those that cannot.

In light of this, answers to our next survey question helped to size the proportion of settlement services providers that can deliver these sophisticated levels of Customer Self-Service. Full transparency and granularity is provided by just 20% of settlement service providers. However, a wider proportion (36% of transaction service providers) provides some level of real-time Customer Self-Service today (although these institutions may only offer net figures), a proportion which is expected to rise to 58% in two years time. This constitutes our current ‘pioneer’ community for true Customer Self-Service provision, and is surprisingly strong at this early stage of Customer Self-Service development; demonstrating that, although awareness amongst the user community is still relatively low, many pioneering institutions have quietly proceeded with their Customer Self-Service developments.

Finally, we investigated the communications protocols over which Customer Self-Service might be acceptably provided. Implied by the high vote received for SWIFTNet as an acceptable protocol for interbank services, SWIFT has effectively promoted SWIFTNet as a secure communications network and an attractive option for institutions on which to deploy their third party services, defraying the cost of implementing their own networks.

Just as arresting are the growth figures associated with “Other Secure Internet Networks” rising from a respectable 47% today, to a high 83% in five years’ time, showing that respondents have overcome worries about effective security over these secure networks. Perhaps most interesting is the parallel prediction of a negligible fall-off in SWIFTNet usage. Interbank service providers are apparently embracing a dual channel strategy, developing their service solutions for SWIFTNet as well as for other secure Internet networks as options for their customers.

Summary and Conclusion:

As the Customer Self-Service survey shows, top global financial institutions are predominantly concerned with driving down costs. Although our balanced respondent sample (of transaction service providers and users), agree that real-time information provision is a key element in achieving a competitive edge, the perceived technological obstacles associated with the provision of a complete customer-service solution concerns them. The awareness level and acceptance of customer self-service solutions seems to be maturing slowly, even though there are already service providers in the marketplace with solutions that meet these needs.

Analysis of these survey results suggest that a customer self-service solution that provides granular information on both cash and securities transactions in a real-time environment will provide a resolution to the most important of operations objectives: to drive down costs. Not only will customer self-service solutions improve customer retention rates via value-added services and reduce call-center costs and investigations time, it will reduce operational risk for both the transaction service provider and their customers. Exceptions, (which make up 20% of transactions, yet generate 80% of operational costs), will be resolved more quickly and effectively through the extension of the transaction service provider’s exception processing platform to their customers - driving both parties closer to the industry’s holy grail - STP.