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Platform-Based BPS: Driving Process Efficiency & New Business Model Adoption in Retail Banks

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Here I take a look at how platform-based business process services (BPS) is yielding benefits for retail banks – specifically, delivering manual processes with greater efficiency, increasing automation, and delivering transaction products at scale.

Delivering manual processes with greater efficiency

Retail banking (RB) BPS is a large-scale, mature business with high adoption rates by global banks operating in their home (mature) markets. However, to date, RB BPS has had low adoption by mid/small tier banks and all sizes of banks within emerging markets. Global banks typically start with single tower BPS engagements and slowly expand to multi-geography and multi-product engagements.

Vendors are asked to deliver elemental processes focused on disputes, reconciliation, and data management, from offshore centers. These processes include manual review, remediation, and analysis of assets/liabilities/entities, data, and documents. Efficiency improvements have focused on process optimization, using techniques such as Six Sigma, to improve efficiency and accuracy, and meet deadlines.

Clients and vendors have been challenged to improve BPS efficiencies beyond labor arbitrage and process discipline, due to banks’ product-centric legacy systems (which make platform-based process improvements difficult). In addition, siloed legacy systems make data extraction for deriving analytical insights difficult. Continuing industry consolidation has made legacy systems a growing challenge.

Developing & delivering automated processes

Platform-based RB BPS delivery has been tried over the past five years with the aim of delivering lower cost and higher quality operations. However, previous attempts at platform-based delivery have failed due to the unwillingness of banks to replace legacy platforms en masse. This is now changing, with the RB BPS industry beginning to adopt platform-based BPS delivery to support a wide range of banks, including global banks (their emerging market operations), regional banks, local banks, and start-up banks. The platforms are not core banking platforms, but rather process platforms (e.g. reconciliation, customer management, settlement, etc.). These are not an integrated part of the bank’s core platform, but rather operate by pulling data or transactions from the bank’s core platform, often from multiple siloes.

The processes are mostly transaction-based. Typical processes include: data/transaction support, document management, compliance, omni-channel delivery, and support for entire operations for smaller/start-up banks. Delivery to date has been focused on single tenant environments. However, BPaaS delivery is rapidly moving to the forefront to enable overhead costs to be shared across processes that are not competitive differentiators and where cost has been growing (e.g. in compliance, reconciliation). Finally, where banks do not have domain expertise (i.e. Fintech), banks are looking to vendors to monitor industry developments in order to understand and deliver best practice.

Transaction products delivered at scale with automation

Retail banks will continue to adapt to new business models whereby they will offer a wider array of low-risk, transaction-based products (i.e. deposits, payments, and wealth management), which will be supported by more standardized, consolidated, automated operations across multiple markets, from very high scale delivery centers. And increasingly these will be delivered by third party vendors. Vendors will use their own platforms for delivering services, which will be highly automated. Manual processing will shrink aggressively as a proportion of the overall operations footprint.

Standardized global processing will expand in order to continue to reduce cost per transaction. High volume, standardized processing, enabled by automation, will allow pricing per transaction to become the standard pricing scheme in RB BPS. The shift to transaction pricing will allow banks to become nimbler, shifting their product mix in response to changing market conditions, and reducing the boom/bust cycle that has driven the industry in the past.

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