operational intelligence and payments monitoring...to embrace immediate low value domestic payments,...

A FINEXTRA RESEARCH REPORTSPONSORED BY AXWAY MARCH 2015

OPERATIONAL INTELLIGENCE AND PAYMENTS MONITORING A REPORT ON A SURVEY BY FINEXTRA AND AXWAY

Finextra Research Ltd 101 St Martin’s LaneLondonWC2N 4AZUnited Kingdom

Telephone+44 (0)20 3100 3670

[email protected]

Webwww.finextra.com

OPERATIONAL INTELLIGENCE AND PAYMENTS MONITORING A REPORT ON A SURVEY BY FINEXTRA AND AXWAY

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage and retrieval system, without prior permission in writing from the publisher.

© Finextra Research Ltd 2015

| OPERATIONAL INTELLIGENCE AND PAYMENTS M

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0401 Introduction ..........................5 1:1 Finextra ....................................5 1:2 Axway ......................................5

02 About this survey ...................7 2:1 A snapshot of operational

intelligence maturity for payments ..................................7

03 Instrument processing, platform and volumes ........................ 10 3:1 Immediate payments add to the

mix of supported instruments ... 10 3:2 Volume and value .................... 11

04 Business priorities and strategic payments areas .................... 13 4:1 Mobile payments dominate

strategic planning, particularly in Europe ................................. 13

4:2 Customer satisfaction deemed more important than profit ....... 14

05 Real-time decision making, customer commitments and breach handling ................... 16 5:1 Requirement for instant decision

making is growing .................... 16 5:2 Time commitments dominate

SLAs ...................................... 17

06 End-to-end monitoring and tool usage ...........................20 6:1 Some immediate payments go

unmonitored ............................ 20 6:2 Custom tools are the first level of

monitoring maturity ................. 21

07 Benefits and barriers to operational intelligence maturity ..............................22 7:1 Banks target operational risk

reduction ................................ 22 7:2 Agreement on requirements and

management buy-in required .... 23

CONTENTS00


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05

INTRODUCTION

1:1 FinextraThis report is published by Finextra Research. Finextra Research is the world’s leading specialist financial technology (fintech) news and information source. Finextra offers over 100,000 fintech news, features and TV content items to visitors to www.finextra.com.

Founded in 1999, Finextra Research covers all aspects of financial technology innovation and operation involving banks, institutions and vendor organisations within the wholesale and retail banking, payments and cards sectors worldwide.

Finextra’s unique global community consists of over 30,000 fintech professionals working inside banks and financial institutions, specialist fintech application and service providers, consulting organisations and mainstream technology providers. The Finextra community actively participate in posting their opinions and comments on the evolution of fintech. In addition, they contribute information and data to Finextra surveys and reports.

For more information: Visit www.finextra.com, follow @finextra, contact [email protected] or call +44 (0)20 3100 3670

1:2 AxwayAxway is a market leader in governing the flow of data and is a global software company with more than 11,000 public and private-sector customers in 100 countries.

For more than a decade, Axway has empowered leading organizations around the world with proven solutions that help manage business-critical interactions through the exchange of data flowing across the enterprise, among B2B communities, cloud and mobile devices. Our award-winning solutions span business-to-business integration, managed file transfer, operational intelligence, API and identity management, and email security

01


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– both offered on premise and in the Cloud through professional and managed services.

Axway is registered in France with headquarters in the United States and offices in 19 countries.

About Axway Decision InsightAxway Decision Insight is the latest Operational Intelligence technology platform arising from the acquisition of Systar, the industry leading provider of Operational Intelligence solutions. The Axway Decision Insight platform enables business users to create Operational Intelligence solutions with an unmatched rapidity. Teams are provided with a solution functionally ready to be deployed into production in only a few days.

Implementation without coding allows non-technical business users to create and modify the solution by configuration, without having to write a single line of code. There is no need for the traditional lengthy, waterfall application development life cycles. New iterations of dashboards can be configured in hours, rapidly accelerating the time to implementation, improving adoption, and reducing the time to value.

For more information visit: http://www.operational-intelligence.axway.com or follow Axway on Twitter via: @axway


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ABOUT THIS SURVEY02

2:1 A snapshot of operational intelligence maturity for paymentsThis survey was conducted by Finextra at the beginning of 2015 and targeted financial institutions worldwide to take a snapshot of banks’ priorities in their payments business, the challenges they face in their operations, and their current use of operational intelligence tools for delivering real-time business analytics and decision support.

We received 105 responses from 66 different financial organisations and 38 countries. Where multiple responses came from a single large financial group they were frequently from different geographies or business units - e.g. cards, retail, transaction banking or financial markets.

61% of respondents came from Europe, with the remainder spread worldwide. 44% were C-level or senior management. Where differences in responses were apparent by region, position or role, this has been noted in the analysis.

Sample job titles include: ● Chief Operating Officer ● Director, Cash Management ● Vice President - Strategic Planning ● Head of Payment Systems ● Head of Payments Policy and Strategy ● Enterprise Architect - Payments ● Senior Manager Global Payments ● Director, Business and Operations ● Director, Cash Management & International Business ● Head of Global Portal and Customer Experience


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Internal consultant

POSITION

C-level (executive)

38%

40%

8%

6%8%

Middle management

Other

Senior management

Change management

ROLE

Fraud prevention

29%

23%

40%

3% 5%

Payment system processing

Payment system expert

Other


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09Other

REGION

Africa

Asia Pacific

Europe

North America

12%

20%

4%12%

61%

3%


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103:1 Immediate payments add to the mix of supported instruments

We sought to find out from respondents what payment instruments their bank processed, to get a sense of their business operations and use as a filter to analyse later questions about priorities and operational challenges. Cards payments processing is ubiquitous for banks with a retail presence, and the 86% response for this instrument gives an indication of how many of our respondents operate in the retail space vs just serving corporate banking customers.

Cheque usage is declining rapidly worldwide in the face of more secure, convenient card and electronic payment methods. But only in a few countries, mainly in northern Europe where giro systems essentially replaced them, have they been completely phased out. As such, cheque processing, usually in conjunction with industry owned processing utilities, is still required by most banks.

INSTRUMENT PROCESSING, PLATFORM AND VOLUMES

03

WHAT DOES YOUR BANK PROCESS? - PLEASE TICK ALL THAT APPLY

10% 20% 30% 40% 50% 60% 70% 80% 90%0% 100%

86%

81%

77%

75%

70%

Card

Cheque

Immediate payment

Mass payment/SEPA

Unit real time payment


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IS YOUR BANK DIRECTLY CONNECTED TO A PAYMENT PROCESSING PLATFORM?

No

Yes10%4%

90%

Until the beginning of this millennium, Japan and Switzerland were the only major countries to support low value domestic payments that could be posted to recipients’ accounts in under a minute. All other immediate payments were limited to high-value transactions conducted over national real-time gross settlement (RTGS) systems. Since 2000 a number of countries have moved to embrace immediate low value domestic payments, including Brazil, South Korea, United Kingdom, China, India, Sweden, Denmark and Singapore. 77% of respondents to this survey say they process immediate payments of one kind or another, and this number will grow as projects underway in countries such as Australia are implemented and planning progresses within Europe’s SEPA framework and by the United States Federal Reserve.

10% of respondents to the survey were small sized banks that do not connect directly to payments clearing infrastructure, instead connecting via a third party agency arrangement.

3:2 Volume and value56% of our respondents are dealing with payment transaction volumes of at least one million per day, and the same percentage have an aggregated monthly value of transactions equivalent to $1 billion or greater.


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WHAT IS THE AVERAGE MONTHLY AGGREGATED VALUE OF TRANSACTIONS?

> $1B

$100M - $1B

56%

8%4%

19%

13%$10M - $99M

$1M - $9M

< $1M

WHAT ARE YOUR PAYMENT TRANSACTION VOLUMES?

Greater than one million per day

Up to one million per day

45%

25%

11%

19%

Up to one million per week

Up to one million per month


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BUSINESS PRIORITIES AND STRATEGIC PAYMENTS AREAS

4:1 Mobile payments dominate strategic planning, particularly in Europe

We asked respondents to separately identify what were their primary, secondary and tertiary strategic payment areas. Overall, mobile payments dominated as both the primary and secondary selection (26% and 22% respectively). This was followed by immediate payments and the ever-present regulatory demands.

04

WHAT ARE YOUR TOP THREE STRATEGIC PAYMENT AREAS FOR 2015?

Mobile payments

21%16%

16%

8%

10%

22%26%

8%16%22%

16%

14%13%

3%8%9%

10%8%

9%5%4%

27%10%3%

Immediate payments

Regulatory

Internet

SEPA

Liquidity

Primary Secondary Tertiary

None of the above

Security


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But for Asia Pacific and North American respondents, immediate payments were a bigger priority than mobile payments. Of course, the two are not mutually exclusive. The mobile channel is an important one for making immediate payments an attractive and widely used payment product among consumers. But immediate payments via mobile can’t be offered until the bank back office systems and external connectivity are replaced or upgraded to support the appropriate standards. And in the meantime there is plenty of development going on in the mobile payment space even in countries that have not yet begun to tackle immediate payments infrastructure.

Regulatory drivers, including SEPA, were mainly an issue for European respondents dealing with projects related to compliance with current legislation. They are also looking at changes on the horizon such as Payment Services Directive (PSD) II and the potential impact on interchange and m- and e-payments.

Security was not a primary strategic focus for many organisations, but it was most commonly selected as the tertiary focus, showing that it is an important consideration within strategic projects in any payments area, particularly given payment systems’ attractiveness to those who would commit cyberattacks and fraud.

4:2 Customer satisfaction deemed more important than profit

WHAT IS YOUR MAJOR BUSINESS PRIORITY FOR 2015?

Customer service improvement

Increasing profit

55%

19%

26%

Performance improvement


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Moving beyond just the payments area, we asked respondents more broadly what they believed the major priority for their business was for 2015. For 55%, improving customer service was more important than increasing profit or performance improvement (although if customer service is actually improved that should lead to improvements in the other areas as well.)

This focus on customer service provides an interesting perspective with which to view the following questions about service level agreements, breaches and penalties.


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165:1 Requirement for instant decision making is growing

Making decisions driven by data is at the heart of business operations management. But we wanted to know from respondents how often they are expected to make immediate operational decisions when particular data is presented to them.

All but a few, who mainly identified as internal consultants, said they have to make decisions without delay at least sometimes. And for the majority (58%) it is a daily occurrence.

For a significant number of respondents, this requirement is growing. 44% say that in the past year they have been required to do more instant decision making.

REAL-TIME DECISION MAKING, CUSTOMER COMMITMENTS AND BREACH HANDLING

05

IN YOUR DAY TO DAY ACTIVITY, ARE YOU REQUIRED TO TAKE OPERATIONAL DECISIONS WITHOUT DELAY?

No

Occasionally

25%58%

17%

Yes


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5:2 Time commitments dominate SLAsWhen it comes to the quality of experience a customer has with an organisation, service level agreements (SLAs) and what happens when they are breached is a good indicator. Of course, the levels of commitment within an SLA will differ greatly from mass market retail customers through to large multinational corporations.

Processing time and deadline/cut-offs are the most usual commitments banks make to their customers when it comes to payments (84% and 70%). But far fewer have made any commitments to how fast they would react to customer queries. Only 51% have done so, and all of these institutions are at the larger end of the scale in terms of processing volume and value. This is one area that could be improved if the priority to improve customer service is going to be followed through.

Those who identified mobile or immediate payments as their top priority for 2015 (section 4) were more likely to have commitments to customers about processing time (94% compared to 74% for those with other payments priorities).

There was a wide range of responses when we asked how many significant commitment breaches had occurred in the previous year. Interestingly, the number did not seem closely correlated with overall transaction volumes. For example, none of those with more than 100 significant breaches were among the 45% of respondents who processed more than one million transactions a day.

HAS THIS REQUIREMENT INCREASED IN THE PAST 12 MONTHS?

No

Not significantly

28%

44%

28%Yes


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18

WHAT COMMITMENTS DO YOU HAVE TOWARDS YOUR CUSTOMERS? - PLEASE TICK ALL THAT APPLY

10% 20% 30% 40% 50% 60% 70% 80% 90%0% 100%

84%

70%

63%

52%

51%

33%

Processing time

Deadline / Cut-off

Feed back on mandated transaction & reporting

Intraday credit

Reactivity to question

Zero defaults

Customer commitments often comprise two parts – what the organisation promises its customers it will do, and also what it will do to compensate if it doesn’t meet those standards.

When presented with a range of options to describe the impact of commitment breaches, and being able to select multiple responses, reputational damage was the most commonly selected (85%). Most would agree that this applies whether the customer being failed is a mass market retail customer, a high net worth individual or large corporate. Any failure in service commitments can make a customer less satisfied, less likely to increase business with the bank and less likely to refer others.

But financial penalties tend to kick in only for larger customers who are in a position to negotiate penalties and interest charges as part of their contractual arrangements.


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WHAT IS THE IMPACT IF A COMMITMENT IS BREACHED? - PLEASE TICK ALL THAT APPLY

10% 20% 30% 40% 50% 60% 70% 80% 90%0% 100%

85%

56%

40%

6%

Reputation

Interest claims

Penalties

None: customer is always alerted

HOW MANY SIGNIFICANT COMMITMENT BREACHES DID YOU EXPERIENCE IN THE PAST 12 MONTHS?

0

1 - 9

39%

22% 33%

6%

10 - 100

>100


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206:1 Some immediate payments go unmonitored

Given the penalties and reputational damage are both going to be higher for high value transactions that go wrong, it is not surprising to see that 81% of respondents conduct end-to-end monitoring of transactions in this category.

There is then a large jump to the next category with only 50% of respondents monitoring low value payments, which could include direct debits and credits, and peer-to-peer and bill payments. Cards and cheques were listed separately and ranked a little lower.

Immediate payments was also listed separately, and only 48% said these transactions were monitored end-to-end. Given that Q1 established that 77%

END-TO-END MONITORING AND TOOL USAGE

06

WHAT SORT OF PAYMENT TRANSACTIONS ARE MONITORED END-TO-END? - PLEASE TICK ALL THAT APPLY

10% 20% 30% 40% 50% 60% 70% 80% 90%0% 100%

81%

50%

48%

45%

35%

12%

3%

High value payments

Low value payments

Immediate payment

Card

Cheque

Other

None


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of survey respondents came from institutions that processed immediate payments in some form, this shows that there is room for improvement in oversight of these transactions and transaction systems, which are attractive targets for fraudsters.

6:2 Custom tools are the first level of monitoring maturity

For those institutions that have implemented monitoring tools for payments operations, they are most commonly custom developed. This is not surprising given that the vendor market for effective operational intelligence (OI) solutions tailored for payments is relatively new. Given a lack of availability or greater awareness of what’s available in the market, banks look to first deliver monitoring capabilities in-house, and 70% of respondents have done this.

Operational intelligence tools provide real-time insight into operational performance and can provide views compared to historical performance, while business intelligence (BI) tools provide only a retrospective view of past performance. OI provides real-time dashboards. BI provides reports after the fact. Some institutions may have multiple monitoring solutions in place – a mix of customer developed solutions with operational intelligence and/or business intelligence tools from the market.

30% of respondents say they have implemented an OI tool. 11% have just implemented a BI tool. And 28% have implemented both (and possibly a custom tool too).

WHAT TYPE OF MONITORING TOOLS DO YOU CURRENTLY USE? - PLEASE TICK ALL THAT APPLY

10% 20% 30% 40% 50% 60% 70% 80% 90%0% 100%

70%

30%

28%

11%

Custom tools

Operational Intelligence / Business Activity platforms from the market

Both BI tolls and OI tools from the market

Business Intelligence platform from the market


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227:1 Banks target operational risk reduction

While improving customer satisfaction is considered the highest business priority, the benefits of end-to-end monitoring are seen more as reducing operational risk. 85% of respondents selected this as one of the benefits they hope to gain from end-to-end monitoring.

But an improved customer experience is still seen as a benefit by 71% of respondents, who expect that end-to-end monitoring will reduce instances of commitment breaches and boost reporting capabilities for customers as well as minimising the organisation’s operational risk and fraud exposure.

Cost reduction is seen as a potential benefit by half of respondents, who can see how monitoring can also help to optimise usage of back office resources working on payments validation and repair.

BENEFITS AND BARRIERS TO OPERATIONAL INTELLIGENCE MATURITY

07

WHAT ARE YOUR STRATEGIC OBJECTIVES FOR END-TO-END MONITORING? - PLEASE TICK ALL THAT APPLY

10% 20% 30% 40% 50% 60% 70% 80% 90%0% 100%

85%

71%

62%

50%

Reduce operational risk

Improve customer experience

Increase performance

Cost reduction


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7:2 Agreement on requirements and management buy-in required

For those that have yet to implement their desired level of payment monitoring tools, and those who have overcome challenges to do so, the biggest barrier is the cost and lack of budget.

Organisations have a view on the level of operational intelligence they would like to have at their fingertips in an ideal world. But getting to that stage in one massive project is too much to ask given resource constraints, maintenance, and regulatory priorities competing for budget.

Instead, payments monitoring projects are more likely to start out smaller in specific areas, perhaps via bespoke solutions, and then extend in scope and capability as partners are found to deliver and implement market solutions.

Getting IT and business users to agree on requirements and delivery approach was considered the second biggest barrier to deployment. Managing this can be difficult, but when it is done well, it contributes the shorter implementation time and faster time to value from the project.

WHAT ARE THE BARRIERS TO DEPLOYING PAYMENT MONITORING TOOLS IN YOUR ORGANIZATION? - PLEASE TICK ALL THAT APPLY

10% 20% 30% 40% 50% 60% 70% 80% 90%0% 100%

59%

40%

35%

31%

24%

18%

14%

Lack of budget

Difficulty of getting IT and business users to agree

Difficulty in convincing business leaders (ROI, etc)

Implementation too lengthy

Lack of business justification

There are no appropriate tools available

Lack of human resources

Finextra Research Ltd 101 St Martin’s LaneLondonWC2N 4AZUnited Kingdom

Telephone+44 (0)20 3100 3670

[email protected]

Webwww.finextra.com

operational intelligence and payments monitoring...to embrace immediate low value domestic payments,...

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