Digital technology is spurring straight through processing (STP) in Financial Services Industry

For the first English blog post of 2015, I would like to begin with a subtle but evident trend that could have major implications for the financial industry in the future.

The media has been abuzz with reports of Toppan Printing’s plan to introduce an electronic system to facilitate the sale of home loans. In light of this, in this edition we want to consider straight through processing and its possibilities and implications in the financial services industry.

The proliferation of bank ATMs has largely driven cash transactions from banks, bank branches, and cashier windows. Meanwhile, as banking services have migrated online, online banking and online trading have resulted in small-value, high-frequency financial transactions becoming increasingly self-service in nature.

Similarly, the Internet has and continues to transform the insurance industry. Online insurance premiums payment and online requests for insurance materials have already become the norm. However, documentation and message formats particular to an industry or specific to individual financial institutions are a challenge. Today the technology is still a far cry from being able to automate business processes for complex products. As such, this inability—in addition to administrative costs and financial transaction risk—has also become a major obstacle to sales channel diversification.

Bank home loans could be called the poster child for products that have fallen behind the digitization and STP curve. However, if digital technology could be used to handle financial products—in this case home loans—that need to be processed manually, then it would be possible to recommend and compare products so that consumers can obtain the optimal loan product at the right time and place. Banks are the companies that create financial products—home loans; homebuilders and house manufacturers are the companies that market or sell these products. Digital technology is driving the decoupling of product creation from product sale, and profoundly transforming this business model.

A glimmer of this and things to come appeared on in the December 22 edition of Nikkei (1). This glimmer was an article reporting on a new initiative by Toppan Printing, in conjunction with realtor Tokyu Livable and four banks—the Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Trust Bank, Sony Bank, and Mitsubishi UFJ Trust and Banking Corporation.

Today the proliferation of digital technology is spurring the automation of business processes. Digitization is a key technological development that promises to bring improvements and advancements in many areas. Indeed, processes that cannot be digitized are likely either extremely high value-added or, perhaps, should be eliminated.

 

(1) The Toppan-developed system will be set up at Tokyu Livable’s network of real estate offices. It is designed to streamline the home loan application process by allowing customers to use a tablet computer to apply for a mortgage from any of the four banks, and to as many as three at once.

December 22 edition of Nikkei

TOPPAN PRINTING CO., LTD.

Tokyu Livable

Indian Banks Migrating From Self-Service Model to Outsource Model in ATM Space

There was a time when banks wanted to have control of all the activities, especially those that involved the new technology; right from identification, deployment, installation, ownership and management. As time passed by, banks realized that all this took a significant bandwidth in order to have a dedicated team that did not justify the productivity and costs so involved. During this time, Reserve Bank of India allowed banks to partner with third party vendors to outsource certain technology completely even without prior approval from the central bank. Banks in India are increasingly migrating from self-service model to outsource model to achieve cost savings, increase the convenience for customers thereby banks can focus on core banking business. From banks perspective, there is better efficiency in ATMs if outsourced to third parties. Apart from this, it also helps to standardize the systems and process across locations. Another benefit of such model for banks is that the service charges incurred from such outsourcing can go under operational expenses in banks books as opposed to the assets in self – service model. ATMs in India are now in outsourcing phase, where banks are thinking on outsourcing ATM related deployment and maintenance to third party vendors. Banks like HDFC bank, ICICI bank and AXIS bank have already outsourced their ATM management and maintenance to third party vendors. And several others want to try out in bits and pieces before outsourcing the entire process. At present, 20,000 ATMs in the country are maintained by third party vendors like AGS Transact Technologies, Financial Software & Systems, Tata Communications, Euronet, Fidelity National Information Services, Prizm Payments and First Data. Apart from this there are also ATM equipment manufacturers like NCR, Diebold and Wincor Nixdorf who also cater to end-to-end solution needs in the ATM space.