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Royal bank of Scotland Introduces a More Flexible Operating Model


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HP Case Study

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  • 1. ROYAL BANK OF SCOTLAND INTRODUCES A MORE FLEXIBLE OPERATING MODEL Case Study ”Latest estimates indicate check usage is falling by approximately 10 percent per year. We therefore needed a more flexible operating model as volumes continue to decline over the coming years. A less complex infrastructure will generate cost efficiencies, making the clearing system more cost effective to maintain.” Judy Lenihan, business manager, clearing operations, The Royal Bank of Scotland Group Objective Develop a more flexible operating model to support the check clearing system and generate cost efficiencies despite declining volumes Approach Introduced a business transformation program to assess the clearing system’s cost model and renegotiated the terms of the existing Business Process Outsourcing (BPO) contract IT improvements • Introduces additional image capture technology at smaller sites, reducing courier, voucher storage and The Royal Bank of Scotland Group (RBS), a UK bankingHP customer infrastructure costs and insurance holding company, delivers a wide rangecase study: of services to over 35 million customers through moreRBS Groupawards HP a Business benefits than 40 well-known consumer brands, including Direct • Improves workflows within the check clearing process, Line, Churchill, Coutts and Citizens. Royal Bank ofBusiness Process Scotland plc also controls National Westminster Bank enhancing the service to customersOutsourcing (BPO) (NatWest) and Ireland’s Ulster Bank, with the Groupcontract to manage • Delivers a cost-effective BPO model that prevents operating the UK’s largest bank network comprisingUK check clearing fraud, mitigates risk and aids regulatory compliance over 2,000 branches. Established in 1727 and basedoperations with a in Edinburgh, worldwide services include business andhighly-flexible cost • Supports all industry Service Level Codes (SLCs) and between 1,400 and 1,500 Service Level Agreements private banking, insurance and corporate finance.model that supports (SLAs) defined by the bank, exceeding RBS’sdeclining volumes expectations Declining check usageIndustry: Historically, checks evolved as a payment method toFinancial services avoid carrying large amounts of gold or silver, and later, paper money. Although checks have been around since the ninth century, they only became popular during the twentieth century. By the second half of that century, banks issued billions of checks every year as automated processing became prevalent throughout the industry.
  • 2. Customer solution at a glance Applications • Check out-clearing • Check in-clearing HP ES Services • Check Clearing Services • Document Processing Services • Inbound Processing Services • Outbound Processing Services “Annual check volumes peaked at four billion During 2010, the sites processed a monthly average in the early 1990s but recently usage has fallen of 71.6 million items for all work streams, which significantly as electronic payment methods, such as included a monthly average of 65.2 million checks credit and debit cards, have become more popular. within the out- and in-clearing processes. In that same Latest estimates indicate check usage is falling by year, the monthly SLA achieved by HP regularly stood approximately 10 percent per year,” explains Judy at between 99.64 and 99.99 percent. With this level Lenihan, business manager, clearing operations, The of service quality in place, it is not surprising that RBS Royal Bank of Scotland Group. attained the longest period at the industry’s highest rating for service standards, as driven by the Cheque “Several alternative payment methods already exist for and Credit Clearing Company. the industry’s various customer segments. These include online banking, debit and credit cards, telephone Business transformation program banking and the Clearing House Automated Payment System (CHAPS),” continues Lenihan. “However, some The check and credit industry researched alternative customer segments such as charities and small-medium payment methods including a truncated method enterprise businesses still feel they cannot manage adopted by the USA that involves check scanning and without checks. The industry, banks and other suppliers mobile technology. However, this option proved cost feel it is important to manage the decline in volumes prohibitive within the UK. “The flexible cost model without disenfranchising any customer segments. we required needed to accommodate a shift from We therefore need innovative solutions and a sound larger sites to smaller and more local image capture education process to deal with this inevitable change.” sites whenever check volumes reach a predefined level,” says Lenihan. “This approach to consolidating RBS therefore decided to introduce a business operations will drive down infrastructure costs.” transformation program that included reassessing its check clearing system and the services delivered by The original contract between HP and RBS was due long-term outsourcing partner HP Enterprise Services. to expire in 2011 but both parties recognized that the existing operating model was not flexible enough. Put Trusted partner simply, as volumes decline, the cost of processing each check increases and eventually the cost of the clearing HP has managed the check clearing process within process would become unsustainable. Consequently, RBS for over 10 years by providing Business Process before building a new cost model, RBS established Outsourcing (BPO) services at 11 locations throughout a business transformation program that involved the UK. The larger sites, some of which run around the mobilizing a joint team to consider the operational clock, are equipped with voucher sorting machines design and the commercial and risk aspects of the while the smaller sites employ image capture clearing process. To support this, RBS extended its BPO technology. Designed to streamline the clearing contract with HP to 2018. process, both types of site must satisfy clearly defined Service Level Agreements (SLAs).2
  • 3. New flexible cost model The check clearing system The new, variable, volume-related cost model involves charging only for the number of items processed. In 2007, the UK banking sector introduced ‘two-four-six’, an HP charges RBS a unit rate for each workstream, and industry-wide agreement that sets a maximum time limit of two, four or six working days for each stage of the check clearing the cost incorporates an allowance for outsourcing, real process. This ensures that banks pay or charge customers within estate, hardware and software provisioning costs, and specific deadlines. After a customer deposits a check, the check other non-volume related items. clearing process begins (Day Zero). At the end of that transaction day RBS branches send the checks by courier to their appointed “We renewed our contract with HP due to an excellent clearing centers where voucher machines capture the sort code, track record in clearing operations,” reveals Lenihan. account number and serial number from the checks’ code-line “Since then, HP has worked very hard to deliver and sort the checks, creating bundles for each paying bank. the contractual benefits while being aware that the During the following day (Day 1), the system electronically sends commercial aspects of the deal must also must work. the captured data and the checks’ value to the appropriate paying banks, aiding fraudulent check detection and completing “While dealing with a process that involves paper the out-clearing process. A courier then moves the check bundles vouchers, machines, couriers, and even the weather, to a strategically-located exchange center in Northampton. Each HP can be proud of its incident management. When paying bank then collects their checks and returns them to their respective processing sites to complete the in-clearing process. it really matters, the commitment of the HP staff is Customers can withdraw money against the funds on Day Four. exemplary. Both sides of the partnership always push However, it is only after Day Six that in most cases the check is the boundaries to make sure the end-customer gets the deemed paid. service they expect,” confirms Lenihan. “The UK is the only country to ensure the two-four-six timescales. However if, for example, someone stops a check or there Working in partnership is a query about available funds, this prolongs the clearing process,” comments Lenihan. “Check clearing seems simple but Today, RBS continues to work in partnership with as it involves physically moving paper and checking for fraud HP and operates an efficient BPO model that reduces to protect customers, there are always inherent delays in the costs, prevents fraud, manages change and aids process. Any outsourcing partner must adhere rigidly to our SLAs regulatory compliance. This new and flexible operating to maintain customer service levels.” model will help the bank to cope as check usage declines. At the same time, HP continues to invest considerable resources at the clearing centers while The new flexible cost model readily supports 12 accommodating a shift to local image capture sites. industry-facing SLCs and satisfies between 1,400 Consequently, as more and more image capture sites and 1,500 Gold SLAs demanded by RBS. “As open to replace the larger voucher processing centers, both parties strive for continuous improvement, the the bank sees a significant reduction in courier, real transformation program is already delivering design estate and voucher storage costs. improvements and, from an operational perspective, we have jointly implemented innovations to increase “During our clearing transformation program, workflows, enhancing service and our bottom line,” HP adopted a collaborative approach to dealing with concludes Lenihan. the challenges of delivering a quality product in a timely manner while maintaining commercial integrity,” Although the clearing system in Ireland differs from declares Lenihan. “This style established an excellent that in the UK, RBS is facing similar challenges within supplier relationship and we are pleased that HP is the Irish banking system and plans to address them by endeavoring to adopt a similar approach while dealing building on the successes it has achieved in the UK. with other parts of the RBS Group.” Share with colleagues Get connected Get the insider view on tech trends, alerts, and HP solutions for better business outcomes© Copyright 2011 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. The onlywarranties for HP products and services are set forth in the express warranty statements accompanying such products and services. Nothing hereinshould be construed as constituting an additional warranty. HP shall not be liable for technical or editorial errors or omissions contained herein.4AA3-8557ENW, Created December 2011