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FUNDS PROCESSING – UNLOCKING HIDDEN EFFICIENCIES

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Geoff Hodge

By Geoff Hodge, CEO Milestone Group

Geoff Hodge

Geoff Hodge

Efficiency has been at the top of the funds industry agenda for more than a decade. Technology vendors and outsourced service providers have flourished on the back of efforts to improve output while reducing costs.

Naturally, much of this effort has been directed at core processes and competencies such as fund accounting, transfer agency and investment operations or ‘middle office’. But this has left an important group of activities that are not serviced by core platforms. These are the activities that can be collectively referred to as fund processing, also known as fund administration in the US, and which have been left to fragmented and often chronically inefficient spread sheets or manual processing.
But as the industry matures, the margins are no longer there to pay for inefficient practices or to cover the costs of operational risk. With regulators becoming increasingly aggressive about robust and transparent infrastructure, and placing a premium on fiduciary responsibilities and investor protection, a growing number of funds and administration businesses are starting to look again at these remaining pools of inefficiency.

And with good reason. Fund processing is an emerging focus area for business transformation, with the potential to yield the highest immediate return on technology investment. Milestone Group’s own analysis shows that these functions tie up approximately 40 per cent of all middle and back-office staff effort, and represent about 70 per cent of the operational risk. As these figures demonstrate, the potential of the opportunity is significant.

A problem of definition
One of the reasons that fund processing has evaded the efficiency spotlight for so long is that it is something of a grab-bag of processes, with no real agreement about what it consists of. Often, the way these types of activities are defined crosses over with fund accounting and transfer agency activities, further hindering clear focus on the opportunity. More recently, these functions are often best identified as the key functions that are ‘left over’ after a firm has outsourced a portion of its operations.

However, it is possible to view fund processing as a distinct area of activity, in which a number of key functions can be identified. The list can be lengthy, but includes NAV validation, often striking NAVs or unit prices across more complex fund of fund or investment structures, cash allocation and rebalancing for multi-tiered investment structures, tax and fund expense forecasting and expense cap management and more. As this list alone indicates, fund processing is often a breeding ground for fragmentation, inefficiency and operational risk.

Fund processing

  • Validating the daily net asset value (NAV) and often striking NAVs or unit prices across more complex fund of fund or investment structures.
  • Cash allocation and rebalancing for multi-tiered investment structures.
  • Processing fund distributions and settling distributed income within multi-tiered investment structures.
  • Reconciliation of holdings, transactions and cash between internal systems and external service providers and IBOR/ABOR reconciliations.
  • Managing data connectivity both within the client environment and to industry-wide counterparties and service providers.
  • Tax and fund expense forecasting and expense cap management.
  • Fee and rebate management to support recovery of fund distributor’s fees from asset managers.
  • Production of financial statements.
  • Regulatory reporting.

The second problem is the widely held, but erroneous, belief that automating this array of functions will require either a series of point solutions that will then need to be connected, or constructing a new all-encompassing enterprise-level platform, with all the attendant disruption that this inevitably incurs. Understandably, neither of these options is popular.

But firms increasingly recognise that there is a third way. These disparate functions can be viewed as a single set of fund-related activities with a common set of challenges and opportunities. They often share common data and require an understanding of the same fund structure; they may also be interdependent in their operational execution. If thought about in the right way, these processes are not as diverse as first appears, and can therefore be automated on a single platform that exploits their common features, and allows functions to be added sequentially over time but – critically – offers a much simplified operational design. From there it is a short step to finding solutions that have the appropriate set of characteristics to achieve this.

Process vs. production management
If identifying fund processing is the first step to making it more efficient, the next step is a little less obvious. Not least because part of the solution can be found in the archives. In the 1970s, Bank of America hired an executive from Chrysler, the car-manufacturing giant. The reason was that he knew how to design processing systems when bankers and fund managers didn’t. By importing the latest thinking about process design and quality management from manufacturing, the banks themselves saw improvements to their own workflow.

Fast-forward to the 21st Century, and banks and other financial institutions habitually apply Six Sigma principals and other techniques to improve their process management. But in the intervening years, manufacturers have continued to push down the real costs of finished goods year on year through effective production management – which offers a different perspective on efficiency, and requires a step change in thinking about technology and its deployment.

To date, financial institutions have delivered efficiency through effective process management. They have constructed logical sequential processes – like Chrysler’s production line – along which various functions will be performed. By looking at one area of their workflow, and cutting the fat from that, before moving on to the next area and the next, each individual process in the workflow has become as efficient and streamlined as possible.

But this method has maxed out. For the vast majority of firms, the piecemeal approach of best-of-breed process management has been stretched to its elastic limit – and it isn’t going to deliver any more.

This is where production management comes into play. Rather than taking this incremental approach and looking at individual processes, production management looks at all those processes together and how they interact with each other. Where process management develops an efficient workflow, production management zooms out to see what else is going on. Rather than attempting to fine tune the production line for ever-diminishing returns on effort, it looks at the interaction of a variety of processes to unlock significant new efficiencies.

In our car manufacturing plant, process management originally delivered a carefully calibrated series of sequential and simultaneous activities. But production-management thinking has encouraged the development of a single production line that can be tooled up such that it can produce a convertible one day, a station wagon the next and an SUV the next.

When translated to fund processing, a production management mind-set offers the same flexibility: a single platform that can value funds, allocate cash, and process income according to demand. Where process management says, “Build me the cheapest tool to handle allocations”, production management says, “Get me the cheapest portfolio of tools to process all potential fund activity”.

Thinking straight, thinking strategic
In other words, unlocking the efficiency gains from fund processing and its varied functions is very much about getting the right mind-set and then making sure that technology supports that approach.

A production management mind-set enables a firm to set out on a more strategic path towards its ideal operating model and make better decisions even within the same budget parameters, resource constraints and short-term priorities. The difference is that even as change is rolled out in manageable increments, short-term decisions will not limit the firm’s ability to meet its long-term strategy, or divert it from its chosen path.  It gives the firm the confidence of knowing that any processes that may need to be re-engineered, added or automated in the future can be dealt with in the same platform.

That opens up a much wider pool of opportunities for generating efficiencies. It also means that the firm is no longer constrained by the need to join up numerous point solutions or ‘stage’ data between different systems – the equivalent of pouring concrete over a production line.

Finance

Corporate treasuries under pressure need multi-banking trade finance technology

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Corporate treasuries under pressure need multi-banking trade finance technology 1

By Andrew Raymond, CEO, Bolero International

The pressures on corporate treasuries in global trade have continued to mount since an HSBC survey last December found many felt ill-equipped to meet the demands placed on them.

Since then the pandemic has caused massive disruption and has overturned many carefully-laid plans. The same pressures identified in the survey remain, but have intensified. Treasurers still face ever-more complex flows of information from multiple systems while relying substantially on manual processes. At the same time they are expected to drive change and provide strategic insight.

It was no surprise then that two-thirds of treasurers in the survey were planning changes to the technology they used as part of transformation programmes to increase efficiency and bring greater visibility to treasury operations.

Reliance on manual methods and paper documents makes little sense and is unsafe

As we move through the pandemic, pressure on cashflow and working capital remain potent factors. Many treasurers working for enterprises engaged in global trade know that continuing to use manual methods to manage credit lines, and important trade finance instruments such as letters of credit (LCs) or guarantees is hard to justify in an age of digitisation and multi-banking trade finance solutions.

Not least because of the constant problem of fraud and forgery in relation to paper documents, which has led some banks to withdraw from involvement in commodity trade finance. The allegations of prolonged major fraud against the oil trader Hin Leong in Singapore are a case in point, sending tremors through the trade finance world. Court documents reportedly allege the fraudulent use of 58 import letters of credit that were not supported by any underlying transaction. Forged bank statements, bills of lading, sales contracts and invoices are also allegedly involved in very substantial fraud designed to cover losses and give a false impression of liquidity.

The case has not just exposed the susceptibility of paper trade documentation to forgery – it has also prompted some well-known European long-term commodity finance banks to withdraw or review their activities in this field. None of this makes everyday operations any easier for corporate treasuries still using paper in trade finance.

Reducing fraud through digitisation of trade finance

With fraud such a substantial problem, treasurers need to think hard about digitisation and how it reduces the risks. Paper documents can be forged when out of sight while being couriered around the globe. Once a document is digitised, however, fraud or forgery become extremely difficult because of encryption and audit trails. The electronic document remains completely visible at all time, but only to those engaged in the transaction and only the legitimate holder can amend it.

Increasing the efficiency of each trade transaction through digitisation

Digitisation substantially reduces the chances of fraud, but it also transforms how treasuries manage credit lines, letters of credit and guarantees, vastly increasing the speed and efficiency of transactions. It also maintains relationships with preferred banks.

In a digitised workflow, automation takes care of the data-uploading for LCs, while transfer between parties is at the click of a mouse across secure digital networks. LCs are notoriously complex instruments requiring close attention to detail and strict compliance with the rules governing their use. Compliance-checking can also be automated to reduce the administrative burden on treasuries and increase accuracy.

These advantages are important because the use of paper under LCs can imperil a transaction at many potential break-points. Documents must be presented physically, often to a prescribed location. Yet being time-limited, LCs (and bank guarantees) often expire before they are used, or their presentation periods are found to have been exceeded. Prevention of these problems requires constant supervision and many hours of work. When lines expire, new and potentially more expensive credit must be negotiated, while failure to present on time threatens transactions, leads to substantial extra costs, delays in releasing cargo and poor relationships between counterparties.

Consolidating credit lines and trade finance on a single, easy-to-use platform

The most effective form of digitisation for corporate treasuries is through a multi-bank trade finance platform which will slash the time involved in supervising credit lines, LCs and guarantees. An exporter may have thousands of LCs and guarantees with dozens of different banks. Optimising their use still requires laborious logging in and out of banking portals. Finding a single LC or guarantee relating to a transaction can be very difficult.

If treasuries implement multi-banking trade finance solutions, they will eliminate the need to toggle between different bank portals. They gain quick and easy access to all their banks, along with far greater visibility and control of all their credit lines and individual LCs. From a single platform they can manage and edit all their trade finance documentation and electronic presentations, as well as open account transactions and electronic bills of lading. All tracking and reporting is accomplished with a few mouse-clicks, while communications with banks remain secure. This is a major advantage when remote working is on the increase in so many areas of the globe.

As the world changes, but the pressures intensify, there is an urgent need for treasuries to grasp greater efficiency and visibility in their management and optimisation of credit lines and trade finance. It makes the adoption of multi-banking trade finance solutions an obvious first move.

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How can financial services companies deliver great customer service and retain customer loyalty? 

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How can financial services companies deliver great customer service and retain customer loyalty?  2

By Chris Angus, Senior Director, 8×8

The reality many banks are facing now is that given Amazon Prime can deliver goods to our doors in less than 24 hours, even during a pandemic, consumers expect the banks they use to keep up with their needs.

People want to be able to access their bank accounts, services and speak to an expert within a matter of minutes, whether it’s via an app on their device, web-chat or over the phone – their expectations are high. Adding to this, the World Health Organisation has advised consumers to use cards instead of banknotes during the Covid-19 pandemic – changing the way consumers pay for products.

With the recent health crisis forcing contact centres to shift to home working, collaboration can be more challenging, especially without the appropriate IT systems and applications in place. A delay in communication or unavailable information can, over time, cause reputational damage.

According to Deloitte, the bank of 2023 will look very different from today, making it clear that financial institutions should consider how they  prepare for the future.

  1. Review your business communications strategy – both inside and out.

A crucial part of this preparation needs to be on reviewing business communications – both internally and externally – ensuring that employees can seamlessly collaborate and connect regardless of their location.

And technology is key to this movement, not only between teams, but also with customers. With the right communication tools in place, employees can gain better insight and deliver services that meet customer expectations. This results in not only satisfied customers, but also happier, and more motivated employees. All of which goes towards truly building a solid foundation for business recovery and continuity.

For many businesses right now, the future feels uncertain, so it’s important to consider the flexibility of solutions before deployment. Cloud computing, for example, allows businesses to stay nimble, scaling up and down their requirements to reflect the needs of the business and their customers.

  1.  Implement an ‘Operate from anywhere’ strategy 

The first half of 2020 was defined by the need for agility, an adjustment in how we operate our day-to-day lives and how we communicate both professionally and personally. The remainder of 2020 and beyond will focus on the application of technology to define how we reinvent working and connecting with each other, our customers, partners, and beyond.

Chris Angus

Chris Angus

To deliver great customer service, while ensuring employees are happy, productive and most of all safe, businesses need to be able to operate from anywhere. Yet, for many with contact centre requirements, this is not an easy transition. Enabling contact centre agents to work flexibly and from remote locations is now a critical component of business operations that must be top of mind for the entire C-suite.

Agents need to have the right tools to ensure they can continue to provide the same level of customer service, from any location. For an operate-from-anywhere strategy to be effective, organisations should consider how they can combine voice, team chat and video meetings on a single technology platform.

The use of multiple apps for multiple purposes can have the opposite effect than intended. Unifying communication channels enables collaboration and productivity while minimizing complexity. It also means a more streamlined and efficient experience for both employees and customers aiding great customer service.

  1. Meeting expectations is key

Not only have recent events affected contact centres operations, but the traditional, in-person branch experience has also been significantly impacted. Bank branches can now only accommodate a small percentage of customers. These restrictions have accelerated the impetus for businesses to meet their customers’ needs online, but also, the expectations of customers  have also evolved rapidly.  Virtual instant communication between businesses and consumers is now becoming a basic customer need. For financial services, this means considering digital-first applications, such as chatbots or instant messaging, where possible.

Businesses now also need to be where their customers are and offer them an omnichannel experience. Via the cloud, businesses can continue to serve customer needs through multiple channels such as voice, video, email, SMS and more.

While meeting expectations needs to be a priority – it’s not enough. Financial services institutions need to ensure they meet those expectations at speed, being the new battleground for competition. When it comes to finances, consumers expect their problems to be dealt with at speed and to the highest standards.

In summary, taking a technology-first approach which enables both employees and consumers to operate and access their data and communication tools from anywhere is the defacto business priority. Helping the financial services industry empower employees to better serve customer expectations with speed and accuracy – and ultimately delivering great customer service.

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How payments can help streamline operations and boost customer satisfaction in the vending industry

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How payments can help streamline operations and boost customer satisfaction in the vending industry 3

By Darren Anderson, Business Development Manager, Self Service, Ingenico Enterprise Retail

The COVID-19 pandemic has had an astounding impact on the payments industry, causing cash usage to plummet as contactless and card-not-present volumes soared. Of course, this phenomenon was not unforeseen by payments professionals, who had predicted such a movement away from cash, but not at the speed the virus guidelines facilitated. In fact, due in part to the hygiene perks of contactless payment methods increasing its adoption, 50% of customers think that cash will disappear completely at some point in the future.

The unattended market was ahead of the pandemic in terms of contactless alternative payment method (APM) adoption, and it continues to upgrade its offerings to suit a wider range of industries. Nevertheless, the pain point for vending operators is that they’re often not sure exactly how these technologies work, or how to implement them. And with payments offerings constantly evolving, it’s becoming harder for vending operators to know which solution would be the best fit for their business.

As such, one easy way for vending operators to ease this load is to partner with a knowledgeable payments advisor who can not only provide the best solutions for their business, but guide them through the process and any need-to-knows. It’s also important to investigate the payments trends across the vending market, what the future might bring and what vending operators need to know about newer payments technology and the value it can bring to their unattended retail business operations.

Vending through the pandemic

Coronavirus has impacted the unattended market in various ways. In some cases, vending machine use has decreased as a result of lower footfall and closed premises. However, the nature of vending being self-service, for many it’s just been a case of upgrading systems to meet new guidelines and hygiene recommendations to start boosting their usage again. As cash usage decreased over the course of the pandemic, cards and APMs stepped in to provide a host of benefits, and as customers use and enjoy these seamless technologies, they are fast becoming the preference.

These developments have provided the opportunity for vending operators to embrace newer technologies which, although ultimately positive, can prove daunting if such retailers are not accustomed to working closely with payments. Fortunately, the vending market is in a great position to take advantage of new contactless technologies, being already low on human interaction and having 24/7 capabilities.

Darren Anderson

Darren Anderson

What’s more, the market can not only cater to consumers’ evolving needs, but it can also provide the flexibility and reliability that consumers are relying on as the world around them is changing. Many new technologies can also improve the general operations and management of vending, offering features such as easier on-the-go stock management and maintenance notification technology.

Keeping the consumer in mind

Consumers today want to enjoy the latest innovations and best-in-class customer experiences. These shoppers believe that self-service is a time-saver, and they also view cashless and contactless as faster and more seamless ways to pay – a fact which is reflected in the recent consumer demand for a wider variety of APMs. Customers now expect even more options to pay for their goods and services, from QR codes, to in-app payments and more.

Alongside the cashless trend, data-security and customer experience are two other factors driving the vending market evolution. With constantly evolving fraud developments in the online world, good security is more pertinent than ever, and has to be a central consideration to vending operators – as well as ensuring a seamless customer experience.

From a customer usage standpoint, mobile payments are becomingly increasing popular, as driven by the Gen Z market. According to our research, 63% of Gen Zers have said they would pay more for a mobile experience[1].

Trust and a good experience are also considerable factors across all customer groups, with 95% of customers claiming their loyalties lie with a company they trust[2], and 86% willing to pay more for a positive experience[3].

To appeal to ever-hungry consumers, vending operators need to provide the options they want. In the unattended market, this is relatively simple – not only do they provide a convenient and reliable method of payment for customers, but they also avoid face-to-face interaction. They can also supply a range of different products and accept a variety of payment methods to appeal to all customers, no matter their preference.

Using payments to drive revenue

Driving revenue is a two-pronged approach – you need to appeal to customers to keep them coming, and streamline operations to reduce overheads. In order to meet both parties’ expectations, it’s important to respond well to new vending challenges, taking note of the solutions that enable merchants to provide their customers with the payment methods they prefer.

Payments are complicated, so there’s no need to worry if you’re not hugely familiar with the offering out there, or unsure where to start – that’s where a payment service provider (PSP) can assist. With the expertise that a PSP brings, along with the technological solutions they offer, vending operators can improve customer journeys in all unattended environments.

Such technological solutions are flexible and can cater to specific business needs, while providing easy, quick, and secure payment methods that protect both the business and the customer’s personal data. They can also improve operational efficiency, increasing business performance with features such as real-time reporting and smart transaction management, to provide a best-in-class customer experience.

With smart devices, a secure gateway and advanced acquiring capabilities, PSPs can help vending operators design a flexible vending solution tailored to their individual and specific needs. To find out more about unattended retail and how your company can benefit from Ingenico’s unique expert knowledge, get in contact with Ingenico Enterprise Retail today at www.ingenico.com/smartselfvending.

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