Making rules for the exceptions

A SWIFTNet initiative to improve automation of exceptions and investigations presents a compelling business case.

Handling exceptions and investigations (E&I) remains one of the costliest aspects of the payments process and one that presents substantial barriers to automation. An initiative by SWIFTNet to improve automation of E&I through a rules-based processing system has the potential to reduce payments-related costs and improve customer service.

Current systems for handling E&I are both expensive and time consuming, said Pascal Deman, board member of SWIFT and CEO of Fin-Force, in a session entitled "Exceptions and investigations management – a real source of value for the banking system".

Industry estimates put the average cost of handling an exception at between Eur15.5 and Eur20 in a manual environment and around Eur10.70 in a semi-automated environment. "I'm quite convinced, based on what I see, that it's even higher than those figures," said Deman. Turnaround times for handling E&I are also too long as a result of lack of standards, a rule book and generally accepted service levels, he added.

On conservative estimates, automation could reduce costs across the industry by Eur48 million to Eur50 million and increase revenues by Eur80 million. "The business case for the industry is quite compelling," Deman insisted.

Jackie Keogh, head of banking markets and business solutions, banking industry division at SWIFT, described how a SWIFTNet initiative is already addressing this problem. Nineteen banks representing 33% of total SWIFT category 1&2 related investigations volume are cooperating to develop a new set of standards and a rule book for handling E&I, she said. A pilot scheme should be up and running by Q4 of 2005. "We need to do this in partnership; there's something in it for all of us. Don't wait for a few years: act now," she urged.

Andy Elliot, director of product management for financial services at Pegasystems Inc, agreed that the scope for automation was substantial. While the STP rate for payments was over 90%, "STP for exceptions in my experience is less than 10%", he said. The SWIFTNet initiative should allow the number of E&Is dealt with as STP to increase. "Over 57% of exceptions could be handled by STP," he said.

"Investigations systems have come a long way and offer a lot more by way of automation, but they've still got a long way to go," he noted. Better and more widespread use of the current SWIFTNet messages system was not sufficient to address problems and new messages would need to come with a rule book. "This rule book will bring clarity where anarchy exists today. A rule book is a necessity as it documents the standards that can't be enforced technically," he said.

He enunciated the customer service benefits of automation noting particularly the trend towards self-service. "Self-service offers some tangible benefits. The bank is putting the onus on customers to do a lot of work that they've traditionally done themselves," he said.

Carol A. Turi, vice president of the funds transfer division at the Bank of New York, also focused on customer service and cost savings.

Bank of New York has moved a long way towards automating its E&I function and adopting a rules-based system. In doing so it has reduced staff costs per enquiry to $6.72; but Turi still sees scope for improvement and further automation.

Further cost reductions can be derived from several counterparties using SWIFTNet for investigations. In a case study Turi showed that one Atlanta bank could achieve a reduction of 50% of staff handling E&I by improving automation, assuming that half the 2000 enquiries it receives a day could be handled using STP.

Customer service was the other key driver towards automation, said Turi. "Customer service remains the most expensive aspect of the payment business. And customer service is what makes banks stand apart in terms of winning business or retaining business," she said.

Automation could provide enhanced customer service through a more expedient response to E&I, quicker resolution to liability cases and more accurate handling. "You'll be able to streamline staff into becoming cash management experts," she said.

Turi also presented a wish list for SWIFTNet in developing the industry-wide solution. "We want to be able to provide our back offices with STP for E&I; we want a solution that is acceptable and feasible industry wide; we want utilization of SWIFT standard formats; and we'd like to rely on SWIFT for reporting and the training necessary for this solution," she said.