Capgemini Transactional Services for Public Sector

Global Public Sector the way we see it

Rising to the New Challenges of
Transactional Services in the Public Sector

A FRESH PERSPECTIVE SETTING THE CONTEXT PUBLIC SECTOR TRANSACTIONS LEVERAGING PRIVATE SECTOR EXPERIENCE SUMMARY



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A Fresh Perspective Previous | Next



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Introduction: A Fresh Perspective
The following is an abridged version of of view on the most recent trends and So why the need to refresh our thinking?
Capgemini’s recently updated paper on the what can be learned from the comparable Much has changed since we published our
financial transactional services in the public challenges that exist between the financial paper in 2008. Due to the financial crisis,
sector. This is designed to provide you with services industry and the public sector. For governments in the developed countries
a summary of the findings and thought example, the financial services industry has now need to balance the cost cutting with
leadership,which is included in a full- the challenge of multi-channel customer maintaining or even improving service
length paper that you can download from interaction and shareholders seeking levels. Developing countries face the
www.capgemini.com. efficiency. In the public sector there is growing challenge of having to deploy new,
pressure from the public and the politicians complex and scalable transactional service
Our latest paper updates the findings of our to cut on the budgets and spending while capacity for their citizens.
2008 paper1, in which we have explored and improving the customer interaction and
compared the general trends of transactions experience. Both sectors have industrialized Companies and government agencies alike
in the public and private sectors to see what processes with transactions that are replicated have continued to move their activities
lessons might be learnt. for billions of events, with a similar need to online. The rising curve of the online service
reduce the cost of these processes. delivery adoption has raised the expectations
The updated version brings in a fresh point of the service levels. Yet many transactions in

Rising to the challenge of Financial Transactional Services in the Public Sector, Capgemini, 2008
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the public sector are often still provided by Services strategies moving away from
systems that were not intended, designed and pure cost reduction to transformational
built to support the exponential user and data outsourcing; and
growth. Subsequently, the rise of online service
delivery not only requires new investment but • The rapid rise of Cloud technology, with
also adds new risks in making these legacy dramatic changes to delivery models.
systems secure for an online world with its
increasing levels of cyber crime.

Both the private and the public sectors
are still under pressure to reduce the
costs associated with the delivery of the
transactional services. But since 2008 three
other significant trends have emerged, these
include:

• The increased urgency to reduce fraud and
non-compliancy;

• The changing nature of Business
Process Outsourcing (BPO) and Shared

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Setting the Context Previous | Next



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Setting the Context: twice as good, in half
the time, for half as much
Public sector organizations today are faced a time when revenue streams that are open government services and there is an
with changing customer expectations and to governments have become tighter. The opportunity to take advantage of this by:
new technologies at a time of political and fiscal situation of almost all the advanced
economic strain. The rapid growth in the economies has deteriorated and economic • Re-examining the current business
internet usage and social media proves that downturns are now limiting on how much processes that support transactions, for
the customer requirements, which includes the tax burden can be increased. So, the instance the back office functions;
the exchange of information, accessibility of taxpaying public is shrinking as populations
the government services, data re-usage and so are aging worldwide. This has resulted in • Looking at how embracing new
forth are fundamentally different than what the multiple challenge of delivering services technologies, can reduce the costs per
was a decade ago. Public sector agencies are better, faster and cheaper. transaction and improve the customer
transforming themselves in an attempt to experience;
Efficiency & Effectiveness
keep up with the expectations of the modern
citizens around rapid, customized and secure The public sector has to look at how it • Looking at how standardizing and sharing
online transactions with the government. can take out cost and drive in efficiencies. of the business processes and IT can create
For example, staffing typically takes up a economies of scale with other government
Yet this transformation needs to take place at high percentage of the costs for running agencies; and

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• Looking at the option of outsourcing certain integrated ‘produce-to-deliver’ or ‘doing
routine tasks so that efforts can be redirected everything’ payments model is no longer
to more specialized, effective tasks. optimal. Traditionally, banks handle
everything, from developing propositions
Higher value through specialization to producing payments, managing client
relationships, and offering a whole series
Given the pressures that governments of other services to their clients. Through
are faced with, it is possible to foresee a a number of procedures (regulation,
fundamental change to the way government liberalization, commoditization and
services are structured. In essence it will be technological development) banks now
a move from government agencies ‘doing adapt their business models by specializing,
everything’ to a new role consisting of ‘being outsourcing or sharing certain services.2
focused, efficient and better’. Specialization
allows for a level of investment in creating Global sourcing has also allowed insurers
high quality services for users that is difficult to lower administration cost-per-policy
to achieve when governments need to compared to insurers with in-house
operate multiple smaller services. operations. By outsourcing back office
functions such as policy administration,
A similar role change can be observed insurers are able to focus more on their
within the private sector. Many banks have core competencies of sales and marketing,
found that the efficiency of the traditional underwriting and asset management.3

2
World Payments Report 2011, Capgemini, 2011 Previous | Next
3
Global Trends in Life Insurance: Policy Administration, Capgemini, 2011



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Public Sector Transactions Previous | Next



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Public Sector Transactions
Pooling and Sourcing of Services All these examples show that traditional services operated in some of the key delivery
transactional services, administered and units of the government and it is clear that
In the UK, the Netherlands and soon the processed by separate government entities, there is a great potential for sharing and
US the tax agency is now the provider are increasingly being pooled and blended aggregation of services. This would naturally
of social security benefits, tax credits together. Importantly, technological result in cost efficiencies and economies of
and other payments. In Denmark the developments (such as Cloud) now allow a scale.
tax agency is responsible for the vehicle fundamental acceleration in the delivery of
registration and related road taxes, while joined-up transactional services. Those financial transactions that make
France is currently preparing a vehicle the best targets for improvement are areas
tax to be collected by the Ministry of Types of Transactional Services such as invoicing and, tax and benefit
Ecology. The UK has recently announced payment, both of which are highly repetitive
the merger of around 50 separate social Looking across the public sector we have and occur frequently. The transactional
benefits into one Universal Credit system, found that there are significant overlaps services that qualify for industrialized pan-
while also merging the operation of income in the back office functions responsible government solutions (when looking at cost
tax and National Insurance Contributions. for transactional processes. There is efficiencies) are those that are repetitive and
commonality among the transactional undertaken by multiple agencies.

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The scale of the transactional processes agencies involved with transactions have existing businesses, generate additional
operated by advanced industrialized already taken the business approach of revenues, and/or facilitate new business
nations is enormous and growing rapidly standardizing and merging their underlying models.4
in developing countries. At this level, any processes. And it is not only financial
imperfections in individual processes are transaction processes that are merging in Breaking down transactional services
amplified by numerous factors. When the public sector. For example, France has into their basic building blocks shows
multiple agencies replicate financial successfully created core business data for its that they are standardized and common
transactional departments, there are vast citizens and businesses, leading to a single in organizational and process terms and
opportunities to be more cost efficient and and universal data view of the taxpayer. The that their lowest common denominator
effective. And when government agencies single view has allowed the tax agency to be is information and its processing. An
do not effectively share information, it a data hub for the citizens, businesses and information-centric approach to optimizing
will be inevitable that citizens will have to other government agencies. an organization’s people, processes and
submit their personal information over and technology is the only way to guarantee
over again when transitioning with their Standardization and merging of transactional that structures and processes will be able
government. processes can also be observed in the financial to drive the performance and efficiency
sector, the reasons include improving efficiency, improvements in both the financial industry
Moving towards Standardization reducing costs and streamlining the more and the public sector.
automated elements of the payments value
Government transactional services have chain. Standardization is fueled by banks
more in common across countries than is that are (sometimes jointly) seeking to boost
thought. In many countries governmental transaction volumes and scale to expand

World Payments Report 2011, Capgemini, 2011
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Leveraging Private Sector Experience Previous | Next



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Leveraging Private Sector Experience

Apart from generic observations, we can or higher, if they are repetitive, and if they and protect profits. Banks are also looking at
see that both the private and public sectors can be learned in no more than six weeks other aspects of their financial transactional
are reacting to the three trends we have given a certain skill level, then they can processes, including risk management,
described in our introduction. These be outsourced. Private sector experiences asset management and securities. In this
include, the BPO/Shared Services, the have shown that sourcing can be applied to environment, going forward it is imperative
Fraud and Yield Management and Cloud transactional activities, but far less to high for the payment providers to distinguish
Computing, which are rapidly affecting the value-adding activities such as decision their propositions and demonstrate their
way transactional services are delivered. making, strategy or policy. Private sector value through increased specialization.
experience has also shown that transactional
BPO and Shared Services activities account for 80% of the headcount. So the response to the changes in the payment
landscape has been to reassess how services-
The pooling of business functions into silos for It is not a surprise that banks have back, middle and front office-are structured.
greater standardization, automation and control particularly looked at how they can take out But the underlying trend has been towards
is an ongoing trend in the private transactional cost in their operations. The focus has been BPO, Shared Services and specialization.
service sector. The rule of thumb has been that, on the repetitive, highly manual processes
if tasks can be documented to an 80/20 level that can be automated to lower overheads If government transactional agencies apply

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a similar approach of BPO, Shared Services Fraud and Yield Management bolster consumer confidence. The adoption
and subsequent specialization this would of new chip technology on payment cards
imply that: Transactions in the private financial sector (EMV chips) has already proven to be effective
closely resemble paying benefits and credits with a massive drop in fraud cases. Attention
• Core policy, regulation, assessment and in the public sector. For example, as is the is focused most, however, on e-commerce
fraud management functions will remain the case in the insurance sector, the processes of transactions, especially as electronic thefts are
core responsibility of government agencies registry, assessment and transaction are beset increasingly hitting the headlines.5
that provide transactional services, with a growing challenge of fraudulent claims.
The public sector is under political pressure to The current challenges related to
but protect or even increase the tax yield and to cut fraud detection have driven increased
(benefit) on spending. So for the public sector, implementation of advanced technologies in
• Citizen-based functions - registry, transaction it is worth taking a close look at how the banks the life insurance industry. New investigation
and all accompanying citizen contacts and and insurers tackle the similar issues of Fraud solutions based on risk scoring and predictive
interactions, can be commissioned ‘as-a- and Yield Management. analytics allow more granular analysis of data
service.’ This could mean sharing services to identify fraud patterns and thus allow for
with other parts of the government (registry As the adoption of non-cash payment early fraud detection. The scoring models use
services) and/or joining forces with the instruments grows, so does the potential for a combination of rules-based engines, data
third-party providers to handle (bulk) fraud in the financial sector. The payments mining, database searches, predictive modeling,
transactions. This will free up civil servants industry is pursuing various technological and network link analysis (including social
to focus and specialize on core functions innovations to tackle fraud and ensure more media) to identify the possibility of fraud in an
where they can add the highest value. secure non-cash transactions-and thereby insurance claim.

World Payments Report 2011, Capgemini, 2011
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Enterprise-wide data warehouse systems that In general, the private sector’s main focus is credit card or insurance frauds) require a
capture historical information from the fraud on fraud prevention by identifying high risk combination of upstream and downstream
cases and integrate information from the third- activities and by refusing the provision of a techniques in order to be successful.
party sources have made the fraud detection service or product, or by flagging high risk
processes more powerful.6 Better fraud cases for investigation before a transaction Drawing from the experiences in the financial
detection processes (Early Fraud Detection) is completed - so called upstream activities. sector, public sector organizations should
leads not only to lower claims expenses, it also This is in stark contrast to the public sector implement new technological solutions in
increases customer satisfaction. approach which is mainly focused on order to execute their tasks around:
detection, investigation and prosecution of
Public sector agencies involved with large fraud that has already been committed - so • Monitoring inbound citizen
transactional volumes also need (near) real- called downstream activities. In downstream communication to identify fraudulent
time insight into the possible fraudulent or processes, once repayment is made, recovery transactions through rules, heuristic
non-compliant transactions. Like insurers and of payment requires time and cost, mostly measures and forensics.
banks, tax and welfare organizations handle for people concerned, and may not result in
millions of transactions on a daily basis. success, especially in identifying fraud cases. • Applying data in conjunction with agile
Fraudulent transactions account for millions Keeping this in mind, it may be tempting business policies and business rules
of Euros of uncollected tax and unjustly paid to take the radical approach of ‘prevention across:
out benefits. As an example, the HMRC states being better than cure’ and limit investments
the UK tax gap to be around € 40 billion7 while downstream. However, in the public sector l Advanced data validation
social benefit fraud is estimated to be around this is unlikely to be a successful strategy as
€ 1.4 billion.8 many tax frauds (in contrast to many banking, l Predictive models and segmentation

6
Global Trends in Life Insurance: Claims, Capgemini, 2011 Previous | Next
7
UK tax gap narrows to £35bn, says HMRC, BBC, September 2011
8
DWP Website, December 2011



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l Networks linking data items and with skilled and focused staff will significantly core business functional systems, such as
customers enhance fraud detection capabilities. It also wealth management or core banking.
demonstrates that better fraud detection
l Risk and propensity models. capability lowers the cost of service delivery In the longer term, Capgemini expects the
and enhances customer satisfaction. banks to have an application portfolio mix of
• Using input from data and advanced on-premise and Cloud-based services delivered
analytics to design and execute outbound Cloud Computing across a combination of private, hybrid, and
public campaigns aiming at driving desired public Cloud-based deployment models.
customer behaviors. Financial institutions are moving cautiously Cloud solutions are also becoming enablers
towardsthe Cloud, with IT spending on Cloud for public sector agencies seeking to introduce
The likelihood of fraud in those developed technologies expected to be € 17 billion in standardization, cost efficiency and increased
countries that are affected by the economic 2012. Capgemini’s analysis has shown that service levels.
downturn is growing and all the governments banks tend to adopt a gradual evolutionary
desperately need the uncollected tax yields. approach to Cloud computing services, Typically, payments processing and
Sourcing and specialization can free up evaluating each project based on the type of underlying systems have been designed
staff to focus on assessment and fraud applications and nature of the data. Lower and implemented in isolation, all with
management. Private sector experiences show risk projects that are likely to move first to a their own separate applications and
that technological solutions can help staff to Cloud model include customer relationship maintenance. Cloud technology has the
compile customer ‘black’ or ‘watch’ lists and management and enterprise content potential to reduce the cost of these business
profile risks ‘upstream.’ Combining technology management. Higher risk projects will involve processes and the IT that supports them by

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disaggregation, consolidation and sharing. • Increasing the flexibility of legacy systems services and a reduction in license costs for
Public sector agencies can enhance the and reducing the cost of introducing software because most Cloud software and
transactional and citizen-facing services (legislative) changes. platform solutions are sourced on a pay-
of the banks by adopting Cloud. Using per-use basis. The concept also reduces the
(private) Cloud technology to transform Cloud technology also has the potential to amount of infrastructure required because this
separate transactional processes into a pan- make transactional services better and more too can be sourced from the Cloud, which
government function is about: customized by improving communications means saving potential on IT maintenance
with the citizens and other public sector capacity.
• Streamlining the current application and agencies. Earlier we discussed how the BPO
process landscape; and Shared Services allowed the public sector Cloud solutions ensure flexibility toward
agencies to source and handle routine tasks changes in legislation, product portfolio and
• Smooth migration, maintaining reliability jointly or ‘as a Service.’ The ‘as a Service’ political demands. The improved reuse of
and consistency; concept of Cloud computing means that data, harmonization of processes through
services, platforms and storage/infrastructure standardization, and the easier sharing of
• Maintaining service levels within the same solutions are ordered, accessed and used over existing data ensure that fewer mistakes
underlying process; the internet, eliminating the need for local are made. Massive cost reductions are also
implementations, software management and anticipated on data entry, whilst improving
• Moving towards virtualization, infrastructure. quality.
consolidation and potential outsourcing;
and Significant business benefits include reduced
costs as a result of the virtualization of the

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Summary Previous | Next



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Summary
In conclusion, the trend to source and/ in the developed and emerging countries. Although we do not believe that the
or share business processes has been Since the public sector is facing fraud sectors are fully interchangeable, we do
ongoing since 2008, although the focus challenges similar to the private sector, feel that experiences can be transferred for
has shifted from pure cost savings to more leveraging new technologies to enhance mutual benefit. As a direct consequence
holistic business outcomes. Connected employee fraud detection and yield of the difficult fiscal situation, now and
to this trend is the role shift by financial enhancement capabilities on urgent basis. in the foreseeable future, we believe that
service providers, moving away from Finally, the promise of Cloud in terms of many public sector transactional service
doing everything to more specialist roles. enhancing transactional service delivery is providers can benefit from private sector
We foresee a similar evolution for the enormous. Private sector experience shows experiences. Capgemini has the experience
public sector delivery organizations, that customer relationship management and capabilities to help the public sector
commissioning common processes and and enterprise content management has the agencies in their journey to enhance vital
bulk transactions ‘as a Service’ while policy most propensity for Cloud delivery. Public transactional service delivery, and make
setting and fraud detection remain at the sector organizations have a huge potential their services better, faster and cheaper.
heart of the agency. to move their citizen interaction and
transactional service to the Cloud, using
The topic of Fraud and Yield Management
‘as a Service’ models for facilitating of cost
has become more important than ever, both
efficiency and specialization.
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outsourcing services. The Group reported
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results they want.
Contact our experts:

Ian Pretty
ian.pretty@capgemini.com

Jan-Jaap Harkema
jan-jaap.harkema@capgemini.com
capgemini.com/public

Copyright © 2012 Capgemini. All rights reserved.

Capgemini Transactional Services for Public Sector

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