2. Executive summary
Today’s wholesale banking executives face a significant
set of challenges in growing their payments business.
Increased commoditization of treasury services has
increased pressure on banks to differentiate themselves
by the quality of the customer experience they deliver.
Standing in the way of this objective is a legacy of
siloed payment operations with significant complexity
and redundancies. Merger and acquisition activity has
only exacerbated these issues.
The HP Business Service Management solution for
Wholesale Payments helps wholesale banking executives
begin to address these issues. The HP BSM solution
enables wholesale banking operations to deliver customer
self-service, improved operational efficiency and reduced
operational risk.
Challenges facing payment
executives
In a typical large bank, payments are responsible for
between 30 to 40 percent of the overall revenue of the
bank. Wholesale payments are a major contributor to
this revenue stream and often contribute an outsized
share of profit to the bottom line of the bank. Despite the
strategic importance of payments in terms of generating
both revenue and profit, banking executives today face a
formidable set of challenges when it comes to protecting
existing business and growing new payments business.
Customer experience as the basis of competition
Wholesale banking services are increasingly viewed as
commodities by the corporations that consume these
services. Consequently, the basis of competition has
shifted heavily towards a focus on price. In this hyper-
competitive world, providing differentiated customer
service has become a key strategy for maintaining a
competitive position within the wholesale payments arena.
Unfortunately the expectations of corporate treasuries are
increasingly dramatically. Corporations have successfully
implemented technology to conquer internal and external
integration hurdles with supply chain management,
and they have similar expectations for the banks that
service them.
Payment integration with banks is a key frustration for
corporate treasurers. Just as companies and third-party
service providers work with multiple suppliers, they work
with multiple banks and would like to link their bank
payment systems with their internal payment systems in
an efficient manner. But before banks can deliver these
services they need their own integrated and holistic
view of their payments business.
Improving operational efficiency
Whether retail or wholesale, all payments processes share
a common set of characteristics. They all have of a source
of funds, a security model, and a clearing and settlement
network. The similarities between payment types extend
beyond data elements to the process steps, which
encompass receipt of message to settlement and a finite
set of steps in between. Lastly, all payment methods
require certain services such as pricing, limit checking,
balance validation, and risk and fraud management.
Despite these similarities, historically each payment type
has grown up in a different and unconnected operational
silo. Within each of these silos there are duplicated
services that could be leveraged across silos. Processes
such as credit checking, AML, and fraud detection are
logical candidates for re-use, though they are not highly
leveraged today.
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3. Making the problem of duplication more difficult is the
amount of merger and acquisition activity that permeates
the financial services landscape. While a few banks have
been aggressive in rationalizing redundancies (at least
within payment types), many have made significantly
less progress than would be expected, relative to
achieving the economies of scale put forth as part of
the financial formulation that justified the acquisition.
Addressing new regulations
New regulations, such as Basel II and Sarbanes Oxley,
are increasing the need to understand operational risk at
an enterprise level within banks. The ability to positively
impact capital reserve requirements—through the proactive
mitigation of operational risk—creates incentives for
the bank to allocate out the cost of carrying these
reserves to the operational units most responsible for
generating the risk.
Given the high levels of operational risk historically
associated with activities such as high-value payments,
there is ample opportunity for wholesale payment
operations to contribute to programs aimed at reducing
operational risk and thus reduce the level of required
reserves.
Banks in the Eurozone countries are pressed by the Single
Euro Payments Area initiative and Target2 initiative for
harmonization of payment and settlement systems. The
United Kingdom is revamping the clearing process with
its Faster Payments initiative. And in the United States,
banks are implementing changes to their infrastructures
based on the Check 21 Act.
Each of these new market infrastructures requires banks to
implement new or modified data formats, communication
protocols and security methods. Given the high level of
complexity associated with payment infrastructures, banks
are extremely challenged to implement these changes
in a timely and cost effective manner. Irrespective of
these challenges, banks must still find a way to quickly
respond to these challenges or risk regulatory sanctions
and significant loss of market share.
Long-term transformation–
Enterprise Payments
The long-term goal of many banks to address these
challenges is transformation through the implementation
of an Enterprise Payments strategy. Enterprise Payments is
a paradigm shift where the entire payments infrastructure
of the bank is decomposed into a set of common and
unique services that lie in a payments hub. In this hub,
all payments data is held in a single data store and all
payments instruments, channels and core systems interact
via this payments hub.
This approach achieves multiple objectives. First, it solves
the problem of integrating data related to customer
transactions in order to achieve a single, real-time view of
the customer. Secondly, it offers considerable efficiency
improvements by rationalizing redundant processes
across payment types and channels. It also eases the
pain of integrating legacy systems by eliminating the
need to integrate on a point-to-point basis. Finally, it
helps to address the need to understand operational
risk at the enterprise level by creating a single unified
view-to-payments processing across the enterprise.
While most senior banking executives recognize the
desire-ability of this long-term direction, no bank has the
luxury of a wholesale “rip and replace” strategy. The
cost and associated risk of such a strategy is simply too
high. Hence a major stumbling block is deciding what
is the incremental path and more importantly what are
the first most critical steps that must be taken to achieve
this objective.
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4. 4
Business Service Management–
The Critical First Step
Business Service Management (BSM) for Wholesale
Payments is a logical first step in addressing the
challenges related to delivering differentiated customer
service, increasing operational efficiency and reducing
operational risk. BSM also lays the foundation for long-
term transformation by supporting six sigma process
re-engineering programs that help move banks
forward on the path towards enterprise payments.
Forrester research defines BSM as “Software that
dynamically links business-focused IT services to underlying
IT infrastructure. A business-focused IT service may be
specific or part of a business process, but it must support
a significant, visible metric for a business owner.”1
The HP Business Service Management (BSM) solution
for Wholesale Payments is focused on immediately
increasing the overall effectiveness of high-value payments
operations while laying the foundation for longer term
transformation of all of the banks payment processes–both
wholesale and retail.
1
The Forrester Wave™
: Business Service Management, Q1 2007;
March 28, 2007; Peter O’Neill and Evelyn Hubbert
The HP Business Service Management solution for
Wholesale Payments delivers the following benefits:
• Enables customer self-service inquiry to deliver a
positively differentiated customer experience
• Enables improvement in the day-to-day functioning of
the payment process by increasing visibility into the
health and performance of the payments process
• Enables the creation of six sigma benchmarks that can
lay the foundation for near term process improvement
and longer-term process transformation
• Enhances transparency of the payments process, which
leads to clearer identification and mitigation
operational risk elements
The HP BSM solution illustrated
The HP BSM solution for Wholesale Payments provides
a holistic view of the overall payments process, and as
such, serves the different but related needs of business
owners and IT teams. A high-level process map supports
the need of operational executives who care about how
the process is performing from a business standpoint.
BSM also meets the needs of IT teams that need to
understand and act upon information that ties directly to
the infrastructure that supports the overall business process.
High-level process monitoring
The HP Business Service Management solution for payments provides line-of-business owners a real-time view of
process health and performance.
5. 5
Highly flexible and customizable, the HP BSM solution
brings together key data from the overall business process,
the application services, the IT infrastructure and the
customer experience point of view, and provides the
right information to the right audience.
The HP BSM solution allows banks to create metrics that
define what levels of performance are acceptable along
with the thresholds and events that warrant escalation
when performance is outside of expected norms. The HP
BSM solution provides answers to questions such as:
• How many payments are in credit check,
investigations or repair?
• What is the value of these payments?
• What customers submitted these payments?
• What is the average processing time for items in
investigation or repair?
As the cut-off for submittal of payments to each bank’s
central bank approaches, being able to quickly ask and
answer these kinds of questions becomes “business
critical”. The HP Business Service Management solution
monitors the business process, tracks every transaction,
and monitors the entire critical infrastructure that
underlies the payments process.
The ability to monitor the health of the end-to-end business
process as a business process is especially critical since
many wholesale payment transactions are generally
longer-lived transactions with potentially huge business
impacts when things go wrong. Just as important is the
ability to track each and every transaction from the
high-level business process down through the underlying
IT infrastructure. Simple solutions that just monitor end-user
experience or system availability will not suffice since it
is the back-end asynchronous steps that span several
hours that tend to cause the most problems.
Enabling customer self-service
The HP BSM solution tracks every payment from front-end
initiation all the way to the back-end core systems that
are likely hosted on mainframes. As such, it is possible to
ask and answers questions such as: Where are all of the
payments that have been submitted by Hewlett-Packard?
How many payments worth more than one million dollars
are in the repair queue?
Once a bank has the capability of tracking every single
payment that is submitted and understanding where it is
in the process, the bank is in a position to decide whether
it wants to expose this data to only the bank’s staff, or
whether they want to enable some level of direct customer
inquiry. This is a first step in providing corporate
customers the kind of information and control they are
increasingly expecting from the banks that they entrust
to serve their wholesale needs.
Increasing operational efficiency
Every transaction is tracked throughout its lifecycle in
the payments process. This information feeds a higher-
level process map that is used to track the overall health
and performance of the real-time payments process.
This process map provides information on how well the
process is performing and where there are critical issues
that require immediate attention. The visualization of
this information can be tailored for different audiences
based on the role of the recipient within the organization.
Operational line-of-business owners receive information
at the business process level. Escalations can focus on
the payments that are impacted and on strategies to
deal with specific or groupings of payments that require
attention. IT can drill down to understand the specific
infrastructure that might be implicated in any problem
that needs quick resolution to verify that the day’s
payments are effectively processed.
6. 6
BSM provides the logical linkage between the business
process and the IT infrastructure that enables that business
process. It provides the single console that enables
drill-down from a problem in a business process to the
underlying infrastructure, and drill-up from the IT
infrastructure to the impacted business process. This
tight linkage between the business process and the
underlying infrastructure also facilitates the ongoing
dialogue between IT and operational owners in terms
of what investments truly enable the business to achieve
its business objectives.
Reducing operational risk
The payments process generates substantial operational
risk. Failed payments can have serious ripple effects for
customers, in the form of liquidity risk, and even impact
the functioning of financial markets. Throughout the day,
banks must prudently manage their payment flow within
the limit of their central bank intraday credit. Banks with
backlogged payments, or system issues, as payment
system cut-offs approach must be in a position to make
informed decisions on which payments to process,
whether to consider a clearing extension, and how best
to manage related customer issues.
Understanding where payments are throughout the
end-to-end process is central to mitigating these risks.
Which payments, for which customers, are at what stage
in the process? Which payments can best be throttled
back to avoid intraday liquidity issues? Which payments
can be processed before payment system cutoff that
would avoid the need for a payment system extension?
Powering six sigma initiatives
The information that supports the daily real-time view
of the process can also be used for longer term trending
of the performance of the payments process. This process
trending information can then be used to identify those
projects and IT investment initiatives that are likely to
yield the highest value back to the business in terms of
the impact of process improvement initiatives.
This type of information is exactly the type of information
a bank would want to have to create a baseline for six
sigma projects, which might be targeted at near term
process improvement efforts but might also be part of a
much longer-term transformation program. Once a project
is initiated the HP Business Service Management solution
continues to track performance over time, which can
provide valuable information relative to gauging the
success of any process improvement program.
Transaction level tracking
The HP Business Service Management solution for Wholesale Payments enables the line of business to monitor and react to operational issues in real time.
The same solution also enables customer service owners to quickly and easily locate any single or any group of payments progressing through the
payments process.
7. Why HP?
HP understands the needs of the financial services
industry, having delivered solutions to financial services
customers for more than three decades. Today HP has
significant presence in the world’s top 200 banks, top
50 brokerages, and the top 25 global insurance carriers.
In addition, HP products and solutions power more
than 130 of the world’s largest stock and commodity
exchanges, and 95 percent of all exchange transactions
depend on HP technologies.
HP BSM is an integral component of the HP Business
Technology Optimization (BTO) software strategy to help
organizations optimize the business outcomes of IT. BTO
is an approach to IT management and a category of
software that enables IT leaders to reduce costs and
make better business decisions. BTO is based on two
key principles:
• Strategic initiatives such as IT-business alignment,
business application deployment and upgrades, and
compliance are most likely to succeed if they are
focused on specific business outcomes.
• IT organizations that take a holistic, lifecycle approach
can bridge the gaps between IT strategy, applications
and operations teams.
This aligns the efforts of these teams vertically with lines
of business and horizontally with one another, driving
business results, and at the same time promoting IT
efficiency.
To learn how HP can help wholesale banking operations
differentiate themselves in the marketplace, visit HP at
www.hp.com/go/software, or contact your HP account
representative for more information.
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