How to improve your operational efficiency with technology

Feb 7, 2023 by Yogesh Kshirsagar

Not sure how to find customized banking solutions to make your operational processes more efficient? Here’s a road map.

You can improve operational efficiency by identifying and removing three critical areas of constraint: data management, straight-through processing (STP) and reconciliation. Once you’ve taken steps to standardize your infrastructure, you’re free to build leaner Ops teams. But first, you must develop an operational efficiency strategy.

Key constraints on improving operational efficiency

No standard enterprise-level database for rates or customer data
Weak STP rates making payments slower (typical banking challenge)
Very low reconciliation matching rates

Ways to increase operational efficiency

If you’re thinking of taking steps to improve operational efficiency through offshoring, think again. Offshoring is not about efficiency. It’s more about cost savings and sustainability. Think about standardizing data across the organization (enterprise data management platform, EDMP), improving STP confirmation and payment rates, and raising matching rates in reconciliations. These three areas create extra work and a demand for more Ops users when you could contain the need for improving operational efficiency.

Solutions

Data standardization could mean building a database for the entire bank where the data is fed, massaged and diffused to downstream systems. Many vendors sell appropriate products
Improving STP could mean finding areas where Ops users are still sending confirmations and payments manually, understanding the reasons behind the operational inefficiencies and automating them as much as possible to mitigate repetitive tasks (ideally for around 80% of your customers). Don’t forget, not everything can be automated
Reconciliation is a typical back-office business process where high percentages of matching rates reduce the workload of your Ops users

Solution details

Data standardization

There are two ways to standardize your data - use an internal EDMP or buy an out-of-the-box product. It’s easier and more usual to go for the out-of-the-box product option because of the many benefits it brings. The product usually includes the latest technology (e.g., cloud implementation) and the vendor generally works with system integrators to integrate the new application with your existing apps. For example, Luxoft would provide system integration support, and a data provider vendor would help provide the application.

The application is secure, it satisfies regulatory compliance guidelines, and comes with documentation and user guides. The vendor or system integrator provides SME, BA and testing support. Therefore, your data is part of a standardized process when you have a standard data management application and methodology in the bank.

Upgrading STP

Straight-through processing (STP) is an automated electronic payment process used by banks and financial institutions. Again, it’s best to use vendor products that support STP.

At first, Ops users may feel this approach to improving confirmations and payments could lead to automation tools blitzing their jobs. However, I believe their time will be utilized for higher-level activities where real skill is required, avoiding tedious human errors.

Benefits of improving STP:
- Manual pdf confirmations for customers will be distributed automatically according to standard settlement instructions set by the Ops team
- Fewer human errors
- Ops users can spend their time on more critical activities
- Improved customer satisfaction due to the timely delivery of information
- More accurate payments

When you improve STP, it reduces the Ops workload immediately. Please note, phase in automation tools gradually.

Improving reconciliation

Reconciliation is an ongoing process used by a bank’s back office to tally correctly booked and settled transactions. It’s a control mechanism to keep track of all transactions. Again, it’s best to stick to standard reconciliation tools available in the market.

Benefits of improving reconciliation:
- Front- and back-office (FOBO) reconciliations refine processes, reducing the Ops workload drastically
- Improved Nostro reconciliations aid operational efficiency maximization for payment processes
- Other reconciliations include bridge, position, and sundry reconciliations. Enhancing these reconciliations reduces the Ops team workload, improving operational efficiencies

Note, Ops should have a higher percentage of matching for all types of reconciliation.

Implementing operational efficiency improvement projects

Standardizing EDMP: To migrate enterprise data to a new standard application, you’ll need a team of two or three SMEs for the vendor, and a BA, PM, technical architect, and testers. As a guestimate, it should take around 12 months to complete the project.

Upgrading STP: To migrate your STP back-office product to a new standard application, you’ll need two or three SMEs for the vendor, and a BA, PM, technical architect and testers. You should be able to complete the project in approximately 6-8 months. However, if you’re only looking to improve STP, you might be able to include it as an internal BAU activity without having to call on a team of experts.

Improving reconciliation: One of the more complex issues. If matching rates are meager, first, you need to analyze what needs to be done. Consequently, estimating a reconciliation timeframe is not easy (ballpark figure: 6-8 months).

You should now have a decent working knowledge of the key constraints, solutions, team composition, out-of-the-box applications and ideas to improve operational efficiency. Moreover, now you can make an informed decision on which product and system integrators to choose.

Let’s talk

If you’d like to develop the conversation further and discover how Luxoft can help you use technology to improve operational efficiency, contact us.

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Yogesh has 19 years of IT experience in banking and finance. Before joining Luxoft, he held leadership positions across the UK, United States, Singapore, Malaysia, and India, working with clients like Standard Chartered, Credit Suisse, American Express, CLSA, Natixis, Bank of Ireland and MUFG Securities. He specializes in regulatory reporting, anti-money laundering, client lifecycle management and investment banking. Yogesh also writes and speaks about these topics. Any spare time is spent with his daughter, jogging, reading or experimenting with new ideas.