Real Time Processing Improves Bank Business Processes

Submitted by Ronald Tennant with Metrocities Mortgage:

MBA (5/19/2008 ) Palaparty, Vijay
Real time processing in banks could significantly benefit and improve business processes, going beyond reducing systems costs, ensuring consistenty in data entry and eliminating redundancy, according to a report from Benchmark Consulting International, Atlanta.
“There are compelling reasons why banks should be adding core system conversions to their future technology plans,” said Brian King, senior vice president at Benchmark Consulting and author of the report, Real Time Processes: Achieving Optimal Results. “Continuing to support costly legacy systems, the changing distribution in non-cash payments, expanding regulatory requirements, new product speed to market and the need to access an increasing number of channels should all be on the radar for reasons to change.”

Sixty-seven percent of non-cash payments occurred through debit card, credit card, automated clearning house (ACH) or electronic bank transfer (EBT) transactions in 2006, the report revealed. Check processing decreased from 46 percent in 2003 to 33 percent in 2006. Furthermore, the number of on-us checks—depositors' checks that are presented for payment at the same financial institutions that carry the accounts on which checks are written—also declined. Volumes decreased from 22.1 percent of paid checks in 2003 to 19.9 percent in 2006.

“As check volumes continue to decrease, the payments system and the banks that comprise it need to reengineer processes required to support check clearance,” King said. “With the right technology, less human intervention will be needed as this distribution continues to change.”

King also said the increasing regulatory environment presents challenges for banks using legacy systems, also considering increasing costs to maintain and update with new requirements. He also said a real time platform would allow banks to offer new products, better enabling them to react to market changes and offer different types of products accordingly.

“Real time event monitoring improves regulatory compliance,” King said. “With the recent fallout in the nation’s credit quality, regulatory and stakeholder scrutiny likely will increase. Banks should anticipate screening for new risks and prepare their platforms for the introduction of new technologies to support them. A flexible real time platform allows for a time response to market and regulatory changes.”

In the real time model, King said reengineering business processes at every step of the transaction can yield maximum benefits. “Installing technology without this important step may mean that outdated, redundant or non-value processes will continue despite enhancements the new technology provides, which in turn results in higher transaction costs,” he said. “Banks can anticipate the kind of straight through processing benefits across the enterprise, from the front-office to back office, from data operations to risk management.”

The report said banks should develop clearly defined workflows, established before and after metrics, and use staffing tools that would ensure the implementation of processes associated with real time posting. “The new real time model incorporates technology components with business process to ensure low cost transaction processing while meeting or exceeding customer expectations and ensuring regulatory compliance,” King said. “Intuitive front-end systems, image capture capabilities and posting real time provide the technical framework of this model.”

“Banks that have moved to real time processing report results that are being attributed to business process benefit,” King said.”What is not known is the extent that the original business processes were reengineered. If specific processes were not engineered, then it’s likely that reengineering would further increase overall benefits. Our experience shows that savings can be attributed directly to business process design and execution. While banks have accrued benefits from technology conversions without process reengineering, most of these benefits were due to technology upgrades.”

The report also said real time processing would impact fraud detection and that banks have the opportunity to detect fraud earlier in the processing system, though it would be largely dependent on the banks' abilities to authenticate presenters. “Fewer returns and adjustments mean reduced handling costs, errors and reduced collection and fraud risk,” King said. “The value-add is designing end-to-end fraud detection processes in order to optimize the early detection benefits that real time posting can provide."