What is the future of payments for Nordic banks?

What is the future of payments for Nordic banks? A TCS benchmark study

TCS has been an active partner with a number of customers in the Nordic banking industry embarking on their journey of digital adoption. Recent engagements have positioned us as a trustworthy partner for those looking to re-align their business model to the digital world. This trust is based on more than technological know-how and customer centricity. It also builds on TCS’ global industry understanding and significant banking operations experience together with deep insight related to the trends that will shape the future.

It is but obvious that the next-generation digital banking services we are co-creating with clients represent a great opportunity to move to the next level of engagement – one characterized by a highly personalized customer experience. A closer look at cash management and specifically real time payments shows that banks are investing in the creation of the new customer experience. There are nevertheless challenges to enable the future of payments, not least issues of trust with a younger, mobile and savvy customer base.

Acknowledging the essentially regulated nature of the banking industry, we are witnessing an increasing readiness for transformation of back office and services. ValueBPS™ is TCS' approach to the next level of Business Process Leadership that is driving the clients Digital Re-imagination™ agenda and impacting business metrics. In the crucial area of trust and customer experience, the use of analytics and social media have significant potential to build a greater connection and engagement.

The following extensive operations benchmark study conducted by our ValueBPS™ team across five Nordic banks focusing on payments reveals some key findings – we hope you enjoy the report and find it of use in your own transformation journey.

Executive Summary

Amit Bajaj

Head North Europe

Tata Consultancy Services

2 What is the future of payments for Nordic banks?

“ Transformation is coming: the future of banking is digital and one driven by a highly personalized customer experience.”

3What is the future of payments for Nordic banks?

Disruption characterises the banking industry globally. Lean and agile FinTech growth companies are coming up with new technologies that challenge the banking industry’s monopoly on payment transactions. Nordic banks are not only facing toughening competition from companies within the region, but also pressure from global players exploring new markets in the North.

In 2015/2016, Tata Consulting Services (TCS) conducted a benchmark study among Nordic banks. The purpose of the study was to compare the maturity of the Nordic banks’ cross-border payment operations within the region, and against the best global banks.

Introduction

Approach and MethodologyThis benchmark study is a unique collaboration with five leading Nordic banks. TCS collected 200 data points and placed them on a maturity scale ranging from 0-4 where 4 is the highest level of maturity.

We analyzed the datasets and identified critical transformation factors that would make Nordic banks globally competitive. Furthermore, we defined KPIs to track the impact of the adoption of these factors on business outcomes. Our analysis and recommendations are based on the relationship between:

a) strategic objectives, b) business metrics and, c ) operational metrics.

Nordic banks in the study exhibited competitive coverage and platform capabilities

Cost efficiency is low with resources used inefficiency. Potential for improvement in global payment transactions is as high as 30 to 40%


Key findings at a glance

Overall Performance of Nordic Banks

4

0

Global Bank 3.5

Nordic Best 3.1

Nordic Average 2.7

Degree of m

aturity


PaymentsFor the Nordic banks studied, the level of charge automation is good, the customer interface is kept simple and use of the industry standard SWIFTNet ensures reliability of mission critical software.

Overall, Nordic banks displayed sensitivity to customer complaints but missed opportunities in the use of business applications for communications. Findings support the need for improved accuracy in payments, since rejection rates are too high prompting a call for improved audit and control mechanisms.

The recommendation is to increase automation as well as improve training and competency management to complement existing know how in the handling of payments. The implementation of imaged-based workflow would also ensure a new level of transactional transparency and accuracy.

While the comparable degree of maturity in payments against the highest level in this study is high, the deficiencies indicated in the study offer competitors a window of opportunity which must be closed.

Study Findings

Findings indicate the need for improved accuracy in payments; Rejection rates are too high.

Nordic Mean 3.1

Nordic Best 3.4

Global Data 3.6


InvestigationsThe average number of days to resolve an Investigation is

40% higherthan global standard. Despite this, productivity of investigations is considered good. Annual rate revision and inquiry prioritisation can be considered to be on a par with leading banks.

We believe that investigations can be improved by introducing a robust model for Quality Management and Case Tracking. It also makes sense to re-examine query resolution practices and their management. Additional recommendations include a focus on ADR and ADP Key Performance Indicators (KPIs) to reduce cycle times and potential case ageing and secure optimised usage of workflow tools.

6.06 days

Nor

way

Swed

en

Glo

bal

Den

mar

k

Finl

and

6.15 days

4.00 days

5.87 days

8.72 days

Average Days to Resolve (ADR)


ReconciliationsWith a good level of process automation, pre-defined matching criteria and auto match levels in pockets, reconciliations are handled efficiently in the Nordics. Nevertheless, opportunities remain for leveraging dynamic match rules; an increase in automation of tracking and reporting; a reduction in ageing of breaks and greater accuracy in break allocation.

Degree of m

aturity

02.

94

2.8

3.3

2.96

4.0

2.97 3.02

Nor

dic

Mea

n

Nor

dic

Best

Glo

bal D

ata

Finl

and

Swed

en

Den

mar

k

Nor

way

Sweden

Norway

Finland

Denmark

Global

2.4

3

2.66

2.33

3

Reconciliation Ageing (Days)

Den

mar

k 86.7

7Fi

nlan

d 87

.50N

orw

ay 91

.78

Swed

en

96.19

Glob

al 99.00

Recon Auto Match %


Degree of m

aturity

4

Nordic Average 2.8

Nordic M

edian 2.5

Cost of operationsThe study revealed that from the perspective of maturity, cost of operations has a significant deficit with costs high compared to leading banks as the result of undeveloped process standardisation. There was a huge variance in the processing of inter and intra bank payments affecting productivity compounded by poor management of queries. This leads to inefficiencies and a high level of rework.

Den

mar

k 86.7

7Fi

nlan

d 87

.50N

orw

ay 91

.78

Swed

en

96.19

Glob

al 99.00

Recon Auto Match %


Digital focus While channel strategy is in place and well integrated in Nordic Banks’ cash management operations, the overall investment in digital technologies is below par. Automation in investigations is weak and not linked to imaging or workflow capabilities. Interestingly, almost all Nordic banks have eliminated the use of the cheque as an instrument of payment, but no corresponding product or service has been designed to replace it with the digital consumer in mind.

Poor use of analyticsAnalytics is selectively applied to cover fraud, risk, operational excellence and cost insight. The use of analytics to include the examination and interpretation of customer sentiments through social media is, however, missing. With social media in focus, Nordic banks would be able to exploit a rich vein of information about their customers and better understand their behavior in the area of payments.

A knowledge deficit in human resourcesAn examination of current people management practices and banks’ shared service strategy indicates that their workforce is presently digitally unaligned and unprepared to embrace the transformation that digitisation is bringing with it. This shortfall can impact the long term performance of Nordic banks.

Operational excellenceMost banks operate as collections banks with a high ratio of inbound remittances of total payments compared to leading banks. Nordic banks’ straight-through-processing rate for payments is low (90%) compared to the global standard

This shortfall is further compounded by a similar one in accuracy of payment where Nordic banks operate at 90% compared to the global standard of

“ Nordic banks’ straight-through-processing rate for payments is low compared to the global standard (98%).”

98%

99%

Swed

en

Finl

and

Nor

way

Den

mar

k

Glo

bal D

ata

Incoming Outgoing Accuracy

STP & NSTP Accuracy


“ While channel strategy is in place and well integrated in Nordic Banks’ cash management operations, the overall investment in digital technologies is below par.”

Customer centricity Customer centricity is at the heart of any successful service and engagement is key. As the diagram above reveals, however, overall, Nordic banks operate a low

volume of transactions per customer compared with the global best indicating a limited share of wallet and attendant loss in potential revenue streams.

With little service differentiation based on prioritised customer segments, there is clear opportunity to innovate on the product side and create tailored services for greater customer engagement.

A future recommendation would be the creation and implementation of a Nordic customer experience management model applied across banks as a safeguard against competition. Greater efficiencies in transactional dealings with customers allied to better quality in those dealings should be sought for competitive advantage.

Coverage Nordic Median Nordic Best Global Data

Number of Customers Catered

Number of Currencies Supported for Cross Border Payment

Number of Countries serviced for Cross Border Payment

Number of Banks which we have RMA

Number of Global Nostro Currency

Number of Global Nostro Account

Number of Customer serviced in CLS

Number of Currency catered in CLS

Percentage of FX Deals covered for all CLS

Number of Branches which provide Investigation Services

Total Score 1.8 3 3.8


Social listening is an essential for banks wanting to understand their customers better as is the implementation of mobile-based payment solutions to match modern banking expectations. At a process level, desktop analytics for decision support and channel convergence are key factors in the evolution of payments

for Nordic banks as are work flow implementation and imaging solutions. Robotic process automation will serve to eliminate human error and bring payment practices up to a level of maturity consistent with the leading global players.

Conclusion

Nordic banks operate a low volume of transactions per customer compared with the global best indicating a limited share of wallet.


“ The in depth questions (in this study) made us think about the way we operate from a different perspective and see the process with new eyes.”

Head of Cash Management Operations, Nordea

“ The report with its analysis will give us a good base for further work with efficiency of processing and cost reduction.”

Senior Payments Products Manager, Handelsbanken

“ This exercise was a good experience and we definitely will consider participating in a future re-run of the benchmark.”

Global Process Manager, International Payments, SEB


Getting the basics rightThe following factors are identifiable opportunities for Nordic banks to catch up with leading global banks.

Automation and Quality levels have not reached the global benchmark level

Digitisation is low. Pockets of digitisation do not have a significant operational impact

Customer centricity is below par and does not have a positive revenue impact

Compliancelow level of internal controls

Human Resources Managementcomplexity presents challenges; there is need to adjust to the new dynamic posed by digitisation

Technology Nordic banks exhibit good platforms and plans, but have yet to fully leverage them

Automation this has been achieved but is not cascading to downstream results

Reconciliation

Auto-match rate of 92% between bank and customer records does not compare favourably with the global best practice



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Copyright © 2016 Tata Consultancy Services Limited

Contact To learn more about TCS Nordic Banking please visit:

Visit: http://www.tcs.com/nordicEmail: [email protected]

About TCS NordicPresent in the Nordic region since 1991, TCS has continuously invested in the market for the benefit of its customers. TCS has around 9,000 professionals working in Sweden, Finland, Norway, Denmark, and across TCS’ Global Network Delivery Model™ (GNDM™), servicing leading Nordic companies. Since 2010, TCS has tripled the size of its operations in the region, with significant increase in local hiring. TCS has been consistently rated as number one in Nordic IT services customer satisfaction over the past 7 years, in multiple surveys (by KPMG and Whitelane Research/PA Consulting). Several prominent Nordic companies have benefited from TCS’ unique service offering, including Ericsson, TDC, ABB, Telenor, NETS, and DNB. In 2016, for the fourth year in a row, Top Employers Institute granted TCS a Top Employer in Europe certificate, with Sweden, Norway and Denmark among the markets where TCS was number one.

About Tata Consultancy Services Ltd (TCS)Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT, BPS,infrastructure, engineering and assurance services. This is delivered through its unique Global Network Delivery Model™, recognized as the benchmark of excellence in software development. A part of the Tata group, India’s largest industrial conglomerate, TCS has over 353,000 of the world’s best-trained consultants in 46 countries. The company generated consolidated revenues of US $16.5 billion for year ended March 31, 2016 and is listed on the National Stock Exchange and Bombay Stock Exchange in India.

For more information, visit us at www.tcs.com

About ValueBPSTM Enterprises are looking to drive sustainable growth and profitability, and stay relevant to their customers in increasingly regulated, competitive, and global markets. TCS fosters proactive and strategic partnerships with its clients to achieve these goals.

Our ValueBPS™ approach assists enterprises to achieve significant and sustained business outcomes by leveraging our deep domain expertise and operations redesign methodologies such as FORE™ and ValueBPS™. These encompass robotic process automation (RPA), analytics and insights, our unique IT-BPS synergy, Business Process as a Service (BPaaS) models, and business process management (BPM).

TCS' Business Process Services include core industry-specific processes, analytics and insights, as well as enterprise services such as finance and accounting, HR, and supply chain management. Our cross-industry solutions ensure faster realisation of business value. TCS has consistently been recognised as a leader in various service lines by leading analyst firms.

For more information about TCS’ Business Process Services Unit, visit: www.tcs.com/bps Email: [email protected]

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What is the future of payments for Nordic banks?