Date post: | 26-Mar-2015 |
Category: |
Documents |
Upload: | taylor-cannon |
View: | 213 times |
Download: | 0 times |
1
ICBI Operational Excellence
What do Banks Really Need to do to Address the Issues of Business and Operational Excellence?
How will the Long Arm of Regulation Continue to Impact Banking Operations?
September 2010
BOB LYDDON – IBOS ASSOCIATION
2
The Payments business is not on a convergence trend
● Harmonisation within the EU / EEA has hit the buffers
Politicians’ stated aim Status
Cut 2% GDP off cost of payments
Direct Payments
Fewer Interbank events
Layered Market
Only 4% migration to SEPA instead of the critical mass that should, by end of 2010, have made migration irreversible (SEPA Roadmap 2004)
XML no longer integral to ISO20022 or SEPA
More room for national flavours
● Maxi-SEPA, universal usage of XML are not “just around the corner”….
3
Reg 924/2009 - partial abolition of CBR- reachability for SEPA Core Direct Debit- no MBPs after 2012
PSD - float income reduction- increased responsibilities and risk- new entrants with passports
SMED - mandatory adoption of SEPA schemes- but with many safety valves- national variations/”niche” schemes
More complexity
Lower price
Impact of latest regulations
4
SWIFT - standards co-existence- no retirements dates for MT- E&I and n92, 95, 96 co-exist beyond 2012
SEPA - SEPA does not mean XML any longer- “essential requirements” discussion- permits national variations/data formats- Credeuro (XCT) is SEPA-compliant- “niche” schemes formally excluded (RIBA)
Standards convergence no longer on the agenda
Proliferation and complexity
Very low migration to SEPA instruments so far (see Appendix with STEP2 statistics including for Credeuro)
Latest “Industry” developments
5EU Vision for future market structure: away from Vertical to Horizontal Integration
HORIZONTAL
Direct SWIFT Access
Bank-owned Channels
Mobile Social Networks
Activities requiring Banking Licence or Payment Institution Licence
Processors of non-licensed activities
VERTICAL = BANK
Customer Access Systems
Operations and data centres
Own backbone
ShareholdingsDirect memberships
Sub-memberships
Correspondents
SWIFT ISPs BT Radianz
PEACHes ACHs Net Settlement Systems Banks
Final Settlement activities:
● Direct RTGS membership
● Banks
Acquisition
Processing
Communications
Clearing &
Settlement
Only two areas of activity are the unalterable preserve of Banks:Activities requiring a full Banking License (as opposed to a PI or eMI)RTGS clearing membership
6
EPC Design Model for Card Schemes (Source EPC)
Cards market model is already layeredEPC design encapsulates this
7
EPC Design Model for Payments (Source EPC)
Layered – big change from status quoMore layers and more complex than for CardsIn principle a lot of space for non-bank “horizontal” players
8
Cards vs Payments
Cards Payments
Schemes Concentration of volume on Visa and Mastercard
Distribution over many CSMs to avoid duopoly
Standards Rigid definitions from the centre
Space for community-defined variations in the form of Additional Optional Services and Value-Added Services
Performance High speed, high volume, interoperable
Message size x line capacity x routing facilities >> quick response time
Bigger message size (XML) and usage of SWIFT (which runs on the lines of Equant etc) could compete with public internet usage
9
SWIFT Standards Co-Existence IR 535
IR 535 approved at SWIFT’s June Board Meeting is a major change of position:
Migration to XML is non-mandatory: no end dates for MT
ISO20022 does not automatically imply XML as the physical layer
The UML level (actors, data, process) is the fulcrum
By extension any Scheme that fulfils the EPC Rulebooks and the UML models can be SEPA-compliant – it does not have to use XML
10
Layered market should create many opportunities for industry utilities
For activities not needing a banking licence
Should banks lead this? What is the track record in collaborative, self-regulatory ventures?
What activities and tasks could be delegated to industry utilities?
What would be the hand-offs to them as Inputs to their Processes, and how would their Process Outputs be re-integrated into the banks’ processing flow?
Industry Utilities
11
Simple Outsourcing Model (Source PW)
Critical Non-critical
Core Do-It-Yourself Volume processer:Cheaper if output is commoditised
Non-Core Professional service expert: more expensive
Don’t do it at all
So which actions in the payment processing flow can be outsourced and who to?
Complicated in banking by the banking licence issue + VAT + no proof that the service itself is becoming harmonised.
12
Linear & Sequential Process - Amazon
Payment and Logistics are Non-Core but Critical.
What about Fedex?
Is there room here for a cheap volume processor?
13
Payment Process
Sporadic “Core and Critical” actions all the way along
PSP must retain decisions on credit, routing and liquidity.
Outsource does the legwork that does not require a banking licence.
Multiple hand-offs during the flow
Outsourced work is VAT-able towards the PSP: can the PSP reclaim it?
14
ACH models – direct + indirect submission
Vocalink acts as an effective outsource for UK banks
It prepares files of accounting entries
There is no “choice of routing” for UK Credit Transfers and Direct Debits as Vocalink is the sole system
Banking controls are done upfront by the posting of credit limits by system members for corporates + other FIs (who are not direct members)
Those other FIs in turn post limits for their customers
Three rings: not equal access for all, as required by PSD Title 2
15
ACH Payments – Credits and Debits: Submission direct to clearing
Account-holding
bankClearing System
File upload into EB
Client Accounting
system
DR/CR ACCOUNT
BENEFICIARIES/DEBIT PARTIES’ ACCOUNTS
OTHER BANKS
OTHER BANKS
OTHER BANKS
16
ACH Payments – Credits and Debits: Submission model through the bank
Account-holding
bank Clearing System
File upload into EB
Client Accounting
system
OTHER BANKS
OTHER BANKS
OTHER BANKS
DR/CR ACCOUNT
BENEFICIARIES/DEBIT PARTIES’ ACCOUNTS
17
Is Cloud Computing the answer?
Is this the way the hand-off to Outsourcers is effected?
What is the certainty that the computing resources at the Outsource remain superior to in-house ones?
How nimble is this set-up when requirements change and what are the costs of change?
Cloud computing is internet-based computing, whereby shared resources, software and information are provided to computers and other devices
18
What about Blade Computing?
Massive increase in power and flexibility.
Enables datacentre consolidation and shrinkage.
Game-changer – allows processes to be run in much smaller scale without normal penalty of poor scale economics.
A blade server: houses multiple server modules ("blades") in a single chassis (rectangular, usually steel frame).
Used in datacenters to save space and improve system management.
19
What’s the environment we are going into?
Proliferation of processes defying achievement of scale economics
Variations in data and service level
Learning from other industries:
oBanking processes are not linear and can be hard to fully automate
oActivity has to be strictly standardised with rigorous data and banking checks applied upfront
oThe Cards business and a utility model like Vocalink for UK BACS follow this line
oThat is not the SEPA environment as it appears to be unfolding
20
SEPA environment unlikely to be 6σ compliant
Bank B
Bank A
STEP 2
SEPA Compliant
ACH
SEPA Compliant
ACH
PEACH
Too many players Too many routing choices Expandable data requirements (VAS, AOS..) May work in small volumes to begin with As more players come on and more volumes,
standard deviation moves away from the mean over time
Many instances then fall outside Upper/Lower Specification Limits which are only 2σ away from the mean
Not 3.4 Defects Per Million Opportunities (6σ) but 000s of DPMO
non-STP rate in 15-20% range
Account Blocked
SCT
SCT
SCT
SCT
R-message
R-message
R-message
R-message
21
Curve is same shape but μ moves by 1.5σ
Hardly any instances below LSL
LSL USL
+1σ +2σ +3σ
μ
μ -3σ -2σ -1σ
But huge numbers – 45% - fall outside USL
Non-compliance / not STP
Proliferation of official Schemes (Core, B2B..)
Annual Scheme upgrades
AOS
What happens when more volume is brought onto SCT and the normal assumed movement of 1.5 occurs in or over time?
μ moves by 1.5σ because μ itself moves or σ widens
22
Conclusions
The emerging environment is one of divergence, not convergence
Detailed management of inputs and outputs becomes a Core and Critical function of a Transaction Bank
That means “do it in-house”
Whether the IT configuration can include Cloud will depend on line capacity and contention with public internet usage
Blade seems to be a better bet: higher power in one place and more flexibility >> lower costs and a change of scale economies
23
Appendix
EBA STEP2 Volumes as a proxy for SEPA migration:
STEP2 frequently used a bridge between other CSMs
Credeuro (XCT) statistics are steady
SEPA Credit Transfer (SCT) statistics show steady increase:oHigher average value than XCToHigher average value than national payments
Volumes are therefore:oCross-border paymentsoCorporate payments
Virtually no Direct Debit volumes migrated to the SDD yet – key date is 30th November when all Euro-in banks must be reachable
24
APPENDIX: STEP2 SCT
Average daily volume Average daily value
July 2010 663,259 3.84 bio. euro
June 2010 653,925 3.77 bio. euro
May 2010 604,561 3.55 bio. euro
April 2010 594,092 3.53 bio. euro
March 2010 553,841 3.13 bio. euro
February 2010 466,026 2.76 bio. euro
25
APPENDIX: STEP2 XCT
Average daily volume Average daily value
July 2010 189,292 841 mio. euro
June 2010 192,439 822 mio. euro
May 2010 189,131 805 mio. euro
April 2010 202,067 852 mio. euro
March 2010 193,253 789 mio. euro
February 2010 195,586 778 mio. euro
26
APPENDIX: COMBINED STEP2 SCT & XCT
Average daily volume:
XCT + SCTAverage daily value:
XCT + SCT
July 2010 852,551 4.681 bio. euro
June 2010 846,364 4.592 bio. euro
May 2010 793,692 4.355 bio. euro
April 2010 796,159 4.382 bio. euro
March 2010 747,094 3.919 bio. euro
February 2010 661,612 3.538 bio. euro