Solutions international 2013

Management know-how for practical use

SolutionS Post-merger integration

Professor Kay Axhausen

Client data management

Focus back on the client

Turning change into a source of competitive advantage Page 4

Singapore is a role model for transport planning in Asia Page 8

CRM 2.0 is much more than an IT tool Page 20

Optimising touch points to improve client experience Page 24

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Editorial

«More comprehensive customer data has given banks and insurers the opportunity to better understand their customers and to provide them with even better services.»

Since the surveillance and eavesdropping practices of the American National Security Agency (NSA) and other secret services became public by the Snowden revelations in June 2013, a heated debate on transparency and its limitations is under way.

Michael Gerber Managing Partner & CEO Group Solution Providers Singapore

There is outright indignation that in cases of doubt the most harmless e-mails, telephone conversations and online chats cannot be concealed from overzealous authorities. Against this background it appears anachronistic that in connection with FATCA, MiFID II and the Financial Services Act (FSA) regulatory authorities are forcing banks and insurers to request evermore personal details from their customers. The latter are already becoming increasingly «transparent» citizens through their (NSA) digitalisation.

The pressure for total transparency is growing. One can sometimes almost imagine that Orwellian conditions prevail. Even here in Singapore it’s impossible to entirely shake off this feeling: I feel the camera at every food court in my neck and the early morning stop at Starbucks begins with surveillance teams having to watch in my tired eyes.

Perhaps meeting the need for privacy and the call for digital civil rights are relics of «digital immigrants» and «digital deniers», while the generation of «digital natives» publish personal information on the Internet and handle their digital footprint as second nature.

Transparency is always a question of perspective and does not have to be bad per se. More comprehensive customer data has given banks and insurers the opportunity to better understand their customers and to provide them with even better services. This is shown in the two articles on customer relationship management in Asian private banking and reinsurance. But an essential requirement is that the customer is informed about the use of data and gives permission for its use. Only then are customer trust and a long-term relationship possible.

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Content

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Editorial The effective and efficient implementation of a buyer’s strategy is key for all post-merger integration activities

Post-merger integration: turning change into a source of competitive advantage Professor Kay Axhausen on Singapore’s model for success and future trends in transport in Asian cities

«The population is seldom asked what they want» The Swiss Banking Topic Map 2013/14 from the client community of Solution Providers

Anticipating opportunities in a turbulent market environment Subsidiaries in Asia must make a sustainable contribution to profits

Entry or expansion in new markets – getting ahead of the competition How the increasing number of independent advisors on the asset management scene affects the region

External asset managers in Asia – the business model of the future?

The underestimated potential of client data management within Asian private banking

CRM 2.0 is much more than an IT tool Banks are realising sourcing potential by remodelling their value chain

The time is ripe for strategic sourcing Optimising touch points to the client holistically for an excellent client experience

The focus is back on the client Traditional financial services providers and social media

In search of simplicity Finnova Academy relies on new learning methods

Blended learning: a win-win situation for course providers and participants Optimisation of cash information flows to cash management as an improvement opportunity

Reinsurer short-term liquidity planning: a challenge The search for standard software for insurers

The market needs standards MARKETMAP: an excellent tool for health insurers

Use of structured market information for pricing and distribution Structured products in Asia: capitalising on latest market trends

Identifying a best execution model

Publishing details Articles can be accessed via www.solutionproviders.com.

Published by: Solution Providers Schweiz AG, Dübendorf/Zürich, Switzerland, www.solutionproviders.com / Editor: Ballhaus Wording, Zurich, Switzerland / Realisation: Andy Braun Gestaltung, Zurich, Switzerland / Printer: Neidhart + Schön AG, Zurich, Switzerland, using FSC-certified paper. Feedback and inquiries to: Solution Providers Schweiz AG, Neugutstrasse 89, CH-8600 Dübendorf/Zürich, Switzerland, phone +41 44 802 2000, fax +41 44 802 2001, solutions@mailsp.com Copyright: The reproduction of articles is permitted with the agreement of the publisher if the source is acknowledged. Articles by guest authors do not necessarily represent the opinion of the publisher.

Photos: pp. 1, 4, 10, 13, 16, 24, 26, 32, 34, 40 iStockphoto; p. 8 Günter Bolzern

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Trend Strategy

The effective and efficient implementation of a buyer’s strategy is key for all post-merger integration activities

Post-merger integration: turning change into a source of competitive advantage

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SolutionS 1/2011

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Strategy Insurance companies have been busy preparing for a slew of regulatory changes to the industry, which will permanently alter the state of the «new normal» for markets worldwide. The Solvency II Framework Directive, for example, is a stringent set of supervisory requirements for insurers domiciled in Europe. Additionally, the International Association of Insurance Supervisors (IAIS), which represents insurance regulators and supervisors of more than 200 jurisdictions in nearly 140 countries, has been updating its Insurance Core Principles (ICPs) in an effort for the global convergence of standards and to promote financial stability.

The implications of these and other such reforms have repercussions globally, with numerous Asian countries impacted by the rapidly evolving global economic and regulatory environments.

The sustained economic recovery and successes of Asian countries post the global financial crisis (GFC) and the region’s pivotal role as the global driver of potential growth for the foreseeable future has greatly increased the market appetite of multinationals looking to do business in Asia, as they hunt for growth which is stagnant in their home countries.

Pre-merger

The booming economies in many Asian countries and the increase in merger and acquisitions (M&A) activity have provided global investors the perfect breeding ground for consolidation, the development of sustainable growth strategies and the opportunities to shape the insurance industry.

Given the reputational hit that some insurance companies took during the GFC (e. g. AIG and AIA) the pressure is now on for international and local insurance firms to regain the trust and business of consumers. In order to achieve this, they will need to reconsider how and where they wish to do business and whether traditional business models continue to be fit for such purposes.

Solution Providers works with its clients throughout the M&A process, with an emphasis on post merger integration.

Ensuring that the strategy behind an acquisition is delivered in the most effective and efficient manner requires attention across a number of key areas, which this article now expands upon.

Pre- and post-merger activities In general, when entering a new market, country or region most insurance

Rigorous integration execution Customers and channels Value driver Branding, products and price

Integration preparation

Target Operation Model, culture and change management Finance and regulations

Information technology

Source: Solution Providers

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Pre- and post-merger activities

Solution Providers supports its clients in all aspects of pre- and post-merger activities (see figure 1). This article, however, focuses on the overall approach to M&A, identifying areas critical to a successful integration based on experience in supporting clients through such change.

Pre-merger activities Strategic rationale: Before the deal is signed and integration can commence, it is essential that there is a clear definition of the overall strategic rationale of the M&A. Working with a clear statement of why the deal is important and what the expected outcomes are, results in a more efficient project, focusing the work and team on a common goal. This is especially important for the management, who need to be aligned with the M&A as early decisions reflecting the «new world» set the tone for the whole project. Solution Providers’ experience is that management can often lose momentum during the integration; ongoing interaction with individual managers is a key success factor.

Value creation: It is essential to have a detailed understanding of the value drivers and corresponding sources of value for any M&A. Drivers and sources need to be at a total level and broken into their constituent elements of cost and revenue across all lines of businesses. In parallel to the definition of the drivers, the setting of top-down targets and the development of concrete initiatives to deliver the value is essential prior to any decision to acquire or merge. Whilst considering the value of the M&A, it is important not to lose sight of the impact it will have on business as usual and the various initiatives that will inevitably be happening; do they need to be amended, stopped or accelerated?

Post-merger

Aspiration

companies will seek a merger or acquisition to speed up their presence. There are some specific activities that need to be considered and managed to ensure that the M&A delivers the expected outcomes and these activities can be split into two; a pre- and a post-merger phase.

Integration preparation: To ensure that integration work happens as quickly as possible once a deal is signed, the third key pre-merger activity is the preparation for this, including developing a «Masterplan» covering the individual work streams such as distribution, HR, IT and finance and the associated resource SolutionS

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Strategy requirements. The «Masterplan» (based on Solution Providers’ SPEEDmethod®) is the project’s backbone, and the setting up of an efficient project team structure represents its heart and brains. The project team structure also represents the governance structure, along with the communication, change management and decision-making processes.

Nothing can slow down a project than ineffective decision-making and poor communication.

Post-merger activities Customers and distributors channels: Throughout any merger it is all too easy

to focus on the integration and its issues, leaving the business as usual aspects to flounder. During any integration it is important therefore to ensure an ongoing, relevant dialogue with customers and distributors. Many acquisitions are to expand distribution access, so understanding the end-customers’ needs and requirements is a powerful input into the development of marketing campaigns and material.

Branding, products and price: Another driver of many M&As is the access to a well-known brand or a new range or suite of products. Sometimes it is pos-

Integration of HSBC P&C business with AXA Insurance, Singapore In 2012, AXA acquired the non-life insurance business of HSBC bank in several countries, including Singapore. Within a six-month period the whole business transferred to the books of AXA Insurance, Singapore, and the HSBC employees and IT systems were successfully migrated.

Speed is the key to a successful migration, but only if supported with appropriate discipline and resources. AXA Insurance used the acquisition as a valid reason to conduct a comprehensive review of its organisational structure and design. Whilst both businesses previously organised their underwriting along product-centric lines, distribution was built around the various channels. In the new world, simple volume business can now be handled entirely by the frontline sales teams, while the complex and special cases are managed by a product-centric, underwriting team. It was extremely important to give the employees from both businesses a clear view of their role and future, as Asian business is often based around personal relationships especially with the major intermediaries and partners.

Although this additional work brought huge complexity during the course of the integration, it also increased greatly the benefits from the acquisition.

Solution Providers supported AXA determining the new target operating model and associated processes (using its STRIPmethod® and its process reference model INSURANCEINABOX®) and its organisational design. Additionally, Solution Providers assisted with the product migration, technology migration, testing, and led the project management office (using the project process model SPEEDmethod®).

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sible to retain both brands or product ranges and use marketing and pricing to differentiate them for different market segments. If expansion hasn’t been the ambition behind the acquisition, then careful analysis of which products, pricing and positioning is required to ensure that there isn’t any confusion out in the market.

Target Operating Model, culture and change management: Most organisations when acquiring a business simply assume that what they are already doing is the most effective business model for the expanded company.

Solution Providers’ experience indicates that stepping back and determining a business model that is not just fit for purpose now, but fit for the future, is more likely to deliver the expected value and benefits. Introducing a third party to objectively manage the development of the target operating model, associated processes and organisational design, ensures that the outcome is the possible best fit, whilst aligning to the two teams who will have to collaborate and work together in the future.

Consequences of such a collaborative approach also include greater retention of staff involved in the process as they have greater buy-in to the outcome, early alignment of cultures (or the identification of significant differences) and enhanced communication between the two businesses.

Information technology: An important aspect of the IT workstream is the initial analysis of the data landscapes to reveal the optimal potential of the combined business. One common IT platform not only enables the future organisation to run efficient processes with suitable controls, it delivers the best services and products to the clients and is also the key element for realising cost synergies.

Finance and regulations: The legal and regulatory issues vary significantly from merger to merger due to three main factors 1) the country of acquisition 2) whether the acquired company is public or privately owned and 3) the competitive overlap between the existing and acquired companies. It is essential to understand the timeline of legal and regulatory activities, whilst from experience of Solution Providers; ongoing and open dialogue with the appropriate regulatory bodies ensures a smoother process for all. Finance requires specialist attention to ensure that all reporting

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Strategy ÂŤThe ultimate measure for increasing enterprise value is the acquisition and integration of an insurer. Management and workforce hold the key to success, particularly in Asia where various cultures live together in a relatively confined area. Solution Providers Singapore knows how to kindle management enthusiasm and transform employee anxiety into positive motivation.Âť Michael Gerber, Managing Partner & CEO Group, and Sarah Luheshi, Associate Partner, Solution Providers Singapore

and accounting, internal and external, is maintained, even during the hiatus of an integration project.

Supporting and, at times, driving all the above in the rigorous integration execution during the post-merger phase are the core team and the project sponsor. In addition to project management, reporting

and governance, a further essential element is communication. Project reports, steering committee papers, and internal communication with employees from both businesses, external communication with distributors, suppliers and regulators about the merger rationale and management commitment is critical. Key to much of this is the choice of the project manager

and the project sponsor and a simple, clearly understood communication channel between the two.

Solution Providers has worked on many projects across many clients, markets and countries. The text box highlights some recent experience in Singapore, working with AXA Insurance.

Asia’s insurance market is undergoing major changes. Insurance companies are facing numerous new regulatory requirements and market challenges. Preparations for the implementation of these requirements are in the pipeline and occupy both local and global insurance companies. A strategic tool to master some of these challenges is M&A and integrations.

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From Outside In

Professor Kay Axhausen on Singapore’s model for success and future tren

«The population is seldom a Solutions: How does traffic affect the prosperity of a city?

Kay Axhausen: Traffic is one element of many, but an important one. It helps to match supply and demand of goods and services. The larger, more accessible a catchment area is the better supply and demand work. Good public transport increases, for example, the chances of a company f inding exactly the right employee for the job.

Professor Kay Axhausen has been Professor at the Institute for Transport Planning and Systems (IVT) ETH Zurich (Swiss Federal Institute of Technology) since 1999. The 54 yearold lives in the German-speaking part of Switzerland and studied civil engineering in Karlsruhe and at the University of Madison-Wisconsin (USA). He obtained his doctorate at the University of Karlsruhe in 1988.

He is currently not only working on projects modelling traffic flows in Switzerland and Singapore in connection with the Future Cities Laboratory (see text box), but also on toll systems, cooperation on THELMA – Technology Centred Electric Mobility Assessment, simulation of evacuation scenarios, research on potential and implementation strategies for carpooling, etc.

Kay Axhausen is the editor of two technical journals.

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Solutions: Is there such a thing as an Asian mega city, or is it just a myth?

Axhausen: Mega cities go beyond our existing perception of a city. This was the case in the 19th centur y when London’s population exceeded one million inhabitants or when Tokyo’s population reached the 30 million in the 70s.

Today it is perhaps Mumbai or Calcutta.

If one defines a mega city as large and poor, then we can include such agglomerations as São Paulo, Rio de Janeiro, Mexico City, Bogotá or Caracas in Latin America. These cities are qualitatively different than similar large agglomerations in the OECD countries such as Seoul, Osaka, Kyoto, Tokyo, Los Angeles or the Californian Bay Area. The former are not yet in a position to organise their settlement structures and make them accessible to the same extent as the latter.

This type of city is de facto the most usual type in Asia.

Solutions: To what extent are these cities comparable?

Axhausen: Each city has its own profile, but wherever you look urbanisation is underway. Earning power in and loyalty to rural areas are decreasing to such a great extent that, despite all the attending difficulties, it has become more attractive for the inhabitants of these countries to live in agglomerations. However, resources in cities are distributed in very different ways. Some countries make it easier than others to take unsettled land or to improve the first huts or cottages later. Depending on the legal system and local culture these so-called squatters acquire the titles to «their» house and

«their» land more easily than in other places. Exploitation of these people by criminal organisations varies greatly, as does the interaction of the shadow economy of the poor with the formal sectors.

Solutions: Can you give some examples?

Axhausen: The cities in Red China have a far more rigid and underlying policing and administrative structure than cities in many other countries. Only those registered as settled in a city are entitled to many social benefits or public services such as state schools for children. This has led to very difficult and degrading conditions for migrant workers, but generally speaking things work. China is relaxing this policy now. In India on the other hand, city administration is far less well developed because of the political situation. They simply can’t manage to provide sufficient services. The same can be said for Burma and Indonesia.

Solutions: How does this affect transport development?

Axhausen: People everywhere need to be able to get from their homes to their workplaces and back again and in some cases the distances are huge. In a squatter settlement with no decent roads, people have to rely much more often on walking and public transport. New settlers are often forced to the edges of a city or they live in extremely cramped conditions on the last remnants of land close to city centres. The elite drive. Because of the dramatic differences in income there are huge differences in the expectations as to the speed and comfort with which one advances.

This causes conflicts which are argued out in traffic which is why some of the super-rich in São Paulo fly around in helicopters. In Bangkok, where officials were never in a position to provide a coherent public transport system, overall speed is almost reduced to a walking pace.

Solutions: Is there a lot of interest in transportation telematics in Asia?

Axhausen: That’s not really my area. In Singapore the focus is on electronic toll

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From Outside In

ure trends in transport in Asian cities

m asked what they want» systems. In the 80s, the city purchased a state-of-the-art system for the adaptive control of traffic lights. In the rest of Asia one could debate whether generations of technology will be skipped, in road safety for traffic signal control for example.

Solutions: Is there an ideal city as regards traffic, and to what extent is a solution transferable from one city to another?

Axhausen: Many city councils in Asia look to Singapore as a role model because the city provided adequate to good flats and the necessary traffic capacities to meet the huge population increase in the 70s and 80s. This is combined with mobility pricing on the streets and a public transport system which covers its operating costs. Currently Singapore is considering a GPS-based electronic toll system which would toll every meter driven at various times, including blackbox functionalities. Singapore had the capital to invest and almost all the land on the island belonged to the state. Thus the state had good control of the settlement areas. Usually it is private property that dominates – fragmented private property – which makes major solutions impossible or expensive. Chinese cities are attempting to adopt some of the Singaporean ideas, but are less consistent in their realisation. Additionally, not all people feel at home with the Singaporean incarnation of Le Corbusier’s’ visions.

Generally speaking, people from slums are initially happy when they get reasonable and clean housing with the reliable water and electricity services. How this changes over time is almost never questioned.

Solutions: What are the most important traffic-related trends in Asian cities?

Axhausen: Most agglomerations invest heavily in public transport. China is certainly an impressive example with hundreds of kilometres of underground railways currently being built. It is now recognised that public transport must travel at a certain basic speed so that private transport doesn’t slow down. Under-

«An important traffic-related trend in Asian cities is that most agglomerations are heavily investing in public transport.»

ground public transport is also being built in India, but much less efficiently.

This is partly because of the democratic planning process but also because of dysfunctional corruption. Another particularly saddening example is Bangkok where three or four different administrative bodies want to organise local traffic but do not communicate enough with one another. Chinese cities and others are also investing in urban motorway networks. Peking already has five ring motorways.

Solutions: In what ways could Europe or the USA benefit from development in Asian cities?

Axhausen: One solution from Singapore, which has existed since the 70s, controls the demand for transport via time-adjusted charges. At the moment cities such as London and Stockholm are experimenting with ingenious electronic toll systems to

relieve the pressure at peak times. The subject will become virulent if electronic vehicles become more frequent as both road maintenance and public transport are currently largely funded by fuel tax.

Solutions: Is China interested in such issues?

Axhausen: Shanghai began limiting the number of private cars a long time ago and also uses toll charges on the central motorway network. As far as one can gather, this is the main reason the city is spared daily gridlocks. However, there is a growing middle class in Peking. The city only began limiting private car ownership at the beginning of the year and so far has no toll charges. But as the city suffers from some of the worst air pollution in the world, one can expect it to begin copying Shanghai’s example sooner rather than later.

The Future Cities Laboratory in Singapore is an interdisciplinary centre which researches urban sustainability globally. It was founded at the suggestion of the National Research Foundation of Singapore, is supported by ETH Zurich and works closely with a number of universities including ETH Lausanne. It employs more than 100 researchers. Most of the groups from the ETH Zurich who work in the centre come from the Faculty of Architecture. Subjects range from technology, materials and building technology, to questions regarding urban sociology.

Kay Axhausen and his team in Zurich and Singapore work on simulating the various flows of transport with the tool MATSIM-T (www.matsim.org). This is an open-source tool used to show the temporal and spatial distribution of traffic in large urban regions or countries within a reasonable timeframe.

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Trend Strategy

The Swiss Banking Topic Map 2013/14 from the client community of Solution Providers

Anticipating opportunities in a turbulent market environment Working with its client community, Solution Providers has identified 13 key areas to successfully lead Swiss banks out of the crisis in 2013/14 (see figure 1).

The return of differentiation and growth topics indicates that the clouds over the Swiss financial centre are slowly lifting.

Disciplined cost management still the focus Cost remains the central theme for banks this year, with major saving po-

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tential in operational efficiency and in the expected shift in sourcing strategy from make to buy.

Now that many banks have successfully outsourced their IT or parts of it, banks are increasingly concentrating on outsourcing back-office processes such as payment transaction processing.

In contrast to realising existing costsaving potential, further tightening of regulatory systems and the correspond-

ing requirements are having a negative effect on the cost structure of banks.

Regulatory requirements should be implemented as leanly as possible as regards the necessary investment, while at the same time being sufficiently secure as regards (mostly liability) risk (implementing compliance). The quality and integration of customer data along the value chain (client data management and utilisation) have proven to be an important factor in successfully fulfilling regulations. Continuous avail-

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Strategy proven to be effective here. New, customer-oriented investment advisory mandates play a major role in closing the gap between traditional asset management and simple account and securities deposit management. A structured advisory and investment process coupled with a sound basis for decisionmaking help to win back and sustainably safeguard customer trust and assets (integrated advisory competence). For complete penetration of the existing customer base and successful new acquisition, banks with increasing predatory competition can no longer avoid a structured sales process. In this context value-driven sales management helps to consistently align the service offering, pricing and sales with profitable customers and target segments and thus maximise customer value.

ÂŤTogether with our clients we have invested a lot of energy and passion to develop a joint understanding of the subjects which concern the Swiss banking industry. We have identified approaches which have the potential to lead banks back onto the path to growth.Âť Raphael Jung, Partner, and Eric Stehli, Associate Partner, Solution Providers Switzerland

The sales side has also suffered under a decline in the traditional wealth management business. Negative headlines and insufficient performance coupled with high fees have resulted in a loss of confidence. This has encouraged many customers to invest their assets passively in simple account and securities

Seize opportunity Leveraging external asset manager Operational efficiency

Integrated advisory competence

Product portfolio management and pricing

Operations modelling and sourcing

Client interaction and experience

Collateralised securities lending Value-driven sales management

Trusted information security Operational risk management Client data management and utilisation

Business model alignment and transformation

Implementing compliance

Fulfill regulatory requirements Source: Solution Providers

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Swiss Banking Topic Map 2013/14 SolutionS

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Increase revenue

Meeting the financial crisis head on by seizing opportunities Anticipating opportunities also in a turbulent market environment, that is the motto of the client community of Solution Providers. Customers are not only focussing on cost, sights are again being set on the future and attention to earnings. Loss of customer confidence during the financial crisis impacted the sales side in particular. Thus, customer interaction and experience focusses directly on the customer relationship. The aim is to serve customers via various channels and create a good customer experience throughout the customer life cycle. Here, banks can benefit from the experience in other industries where customer experience concepts have enabled sustainable differentiation.

deposit management. Now that the crisis has bottomed out, it is necessary to win these assets back to active management. Only then can margins be sustainably improved. Modifying the advisory and investment processes and expanding the product palette in the area of investment counselling have

Reduce costs

ability of data and flexible adaptation of critical customer processes, such as client opening, enable banks to develop a setup which ensures that they are well prepared to deal with future regulatory requirements and the attending challenges.

Relevance of the areas identified The subjects of the Swiss Banking Topic Map 2013/14 were identified, structured and prioritised by Solution Providers’ client community (see figure 2). The first step was to identify possible topics by interviewing our customers and analysing running and planned projects as well as media coverage. A tool was used which analysed the sources as regards frequency of terms and under consideration of their semantic connection and presented the results in a tag cloud. Topics are depicted

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Strategy

Source: Solution Providers

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Tag cloud to the Swiss Banking Topic Map 2013/14

smaller or larger depending on their citation frequency. Tag clouds enable new topics to be included exploratively and to be validated by customers effectively.

subjects was available to the community for evaluation. Topics had to be pooled in such a way that they were roughly on the same level and of a comparable size.

In a second step, identified topics were structured according to their interdependencies so that a comparable set of

The third step was to review the structured and sufficiently detailed subjects by the client community, strategically place

them on the Swiss Banking Topic Map 2013/14 and finally, to prioritise them.

Based on its expertise and project experience, Solution Providers has developed approaches, best practices and methods to enable customers to successfully master these topics.

Together with its client community, Solution Providers has formulated 13 central themes to support Swiss banks in getting back on track in 2013/14. A first glimmer on the horizon can be seen in the return of differentiation and growth subjects; cost, however, remains important. Additional cost-saving potential is expected in service provision and a shift in sourcing strategy. Further tightening of the regulatory system and the corresponding requirements are another important subject – they should be implemented as lean as possible but also be sufficiently secure. On the opportunities and potentials side are the customer relationship and experience: a modern, customer-oriented investment advisory process and a clearly structured and targeted sales process are the focus. Based on the options formulated and best practices, these topics can now be successfully addressed.

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Strategy Strategy

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Transaction Costs BPO Phased approach

Subsidiaries in Asia must make a sustainable contribution to profits

Entry or expansion in new markets – getting ahead of the competition In the past few years, the wealth management business in traditional markets has struggled to maintain the growth of previous years. The reasons for this have been discussed many times, as has the question of whether growth in Asia and in other new markets has been at the expense of established markets including that of Switzerland.

With a third of the global land surface and two thirds of the world’s population, Asia is the most densely populated con-

tinent with strong economies in China, India, Japan, Indonesia and Singapore.

Asians own around one third of global assets and in ten years this could reach 50%. Of around 1,000 billionaires worldwide, 25% come from Asia. China is the third richest country after the USA and Japan.

This situation is attracting interest for coping with slow growth in traditional markets by setting up or expanding wealth management in the new markets.

15 years of development and growth Hong Kong and Singapore are currently the two hubs in Asia, which have established themselves doing business with the wealthy. In a country comparison, Singapore has been the most consistent in realising the strategic goal of a regional leadership role in the wealth management business as suggested in 2002 by its Economic Review Committee. Although the industry is relatively young, it is gaining momentum considerably more quickly than in Europe. In SolutionS

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Strategy

Profitable growth

Sales efficiency

Ensure profitability and

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grow share of wallet

Attract new clients and

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develop new markets and distribution channels

Business efficiency

Control efficiency

Stay abreast of regulatory

Strive for operational

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Strengthen operating

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changes

efficiency

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environment

Maintain high standards on all levels

Branding: develop esprit de corps as part of internal DNA and ensure bespoke client experience Talent management: acquisition, integration, development and retention Source: Solution Providers

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Efficiency as a management priority for successful market development

Asia some years ago a representative office was the best that was on offer and the few Asian clients who existed were booked in Switzerland. Most of these offices have morphed into independent booking centres in the past ten years and the number of relationship managers and other specialists has grown considerably.

In the meantime, a significant majority of established private banking addresses

are in Singapore or Hong Kong. Local banks have also become interested in wealth management; such companies as DBS, Standard Chartered and OCBC have invested and now belong to those few service providers who are making a decent profit in the current climate.

These banks are well connected with SMEs and their entrepreneurs in the region, and manage to stay relevant in that segment thanks to an appropriate service offering.

«Those who want to compensate lack of growth in traditional markets with growth in new markets must have a clear vision and strategy and must implement it rigorously. In private banking these conditions are often not met.»

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It is interesting that business is also growing for the so-called bank-independent asset managers who are becoming established as an additional service provider to the wealthy. The numbers remain small in comparison to Switzerland but their importance is increasing rapidly. This was underlined with the foundation of the Association of Independent Asset Managers Singapore in 2011, which was created to better safeguard the interests of its members in the market.

Efficiency increasingly important In the past few years management focus was mostly on increasing assets under management, new money inflow and revenue. Profitability was all too often forgotten because Asian investments were supported by lucrative European and North American business. As is well known, the situation in many traditional markets is that is it difficult for many banks at the moment. Against this backdrop, the focus these days from the executive floor is increasingly on the profitability of their Far Eastern subsidiaries.

Many wealth managers have come to Asia in the past few years. This has created a huge demand for local relationship managers and other specialists. As the industry is still relatively young, it has not yet been possible to meet the demand for local experts. In addition to all the other challenges, such as meeting regulatory requirements, more reserved investment behaviour of clients, etc., this situation is putting a dampener on local profits.

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Strategy Reports also show that only 9% of all private banks in Asia have revenue growth of more than 10% and a cost/ income ratio under 60%. As the average cost/income ratio is over 80% and the ratio of some – particularly local – banks is under 60%, it suggests that some institutes in Asia are currently not profitable.

Consistent implementation of a clear strategy With initiatives such as sales management, some banks have tried to increase efficiency on the frontline. There have also been attempts to increase business efficiency with approaches such as Lean Six Sigma.

«Today, sustainable business success requires a clear vision and strategy, which is implemented but also embodies passion. This passion is an important motivation for us to successfully implement change for our clients.»

Dr Mario A. Bassi, Managing Director & Head Asia, Solution Providers Singapore

Experience has shown that the impact of these widely publicised strategic programmes often dwindles considerably or disappears entirely with the next change of management.

Those who want to compensate lack of growth in traditional markets with growth in new markets must have a clear vision and strategy and must implement it rigorously. In private banking these conditions are often not met. The promise of the marketing collateral often does not match reality. Instead of clear segmentation many banks still offer everything to everyone. Management generally gives its full attention to the day-to-day business, with transformation only occur-

ring in connection with the high profile strategic initiatives mentioned above.

The new and emerging markets are in a continuous state of upheaval. A Chinese proverb says: «When the wind of change blows, some build walls and others windmills.» An institute remains more relevant for its clients and has a better chance of success if it has a vision and strategy to build «windmills» which are supported by employees on all levels, if

each employee knows his or her contribution to its realisation and their superiors verify this in performance evaluations (see figure 1).

With the economic development in Asia and a clear commitment from the Singaporean authorities to the wealth management business, the past few years have seen all the renowned private banks sustainably establish or further develop their business in the region. There has been massive investment in the front area such as employing relationship managers and other specialists. Efficiency in the client advisory and back office disciplines often do not receive the necessary attention. Thus many providers have been unable to achieve the desired profits. A successful management agenda requires a clear vision and strategy supported on all levels of the company. Only in this way can wealth managers distinguish themselves in the market and sustainably position themselves with their target clients. Each and every activity in the company must thus be focused on the realisation of this vision.

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Trend

How the increasing number of independent advisors on the asset management scene affects the region

External asset managers in Asia – the business model of the future?

Industrialization Entering new markets

Method

Languages

Innovation

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Trend The business model, in which a bankindependent asset manager looks after his or her clients with the involvement of a custodian bank, is well-established in Switzerland and carries numerous titles: external asset manager (EAM), external portfolio manager (EPM), independent asset manager (IAM), and financial intermediary (FIM). In the article at hand, the term external asset manager (EAM) is used.

The EAM business began around ten years ago in Singapore when the two largest Swiss private banks introduced a platform for EAMs in connection with an expansion of their services for European clients. At that moment the business model did not exist in Asia and correspondingly considerable education work with the various internal and external key positions had to be carried out. Many former employees of both banks can today be found at EAM desks of other local banks. Also, with most custodian banks the non-Asian EAMs form the majority, which, among other things, is on the lookout for local expertise on better investment opportunities.

However, the Asian EAMs appear to be gaining momentum.

ÂŤWithin Asia, Singapore and Hong Kong are established financial centres and are thus the favoured destination for establishing an EAM office. The officials in both centres endeavour to create favourable conditions for the asset management industry.Âť

Current EAM landscape A study by Solution Providers has shown that before 2007 there were practically no local EAM and that the Asian EAM scene only gained momentum during the global financial crisis (see figure 1).

23% 20%

23% 19% 15%

2004 to 2007

2008

2009

2010

2011

Source: Representative study by Solution Providers

1

Percentage distribution of the year of foundation of EAMs in Asia

Interestingly, many experts regard the Asian crisis of 1997 as the birth of private banking in the region. The EAMs emphasize customer relationship and product independence as their key elements of differentiation from banks, which provide traditional wealth management services. Additionally, experienced client advisors have ventured into self-employment over the past years. The growing demand for customer relationship and product independence, along with the emerging EAM service offerings and the resulting better understanding of this advisory model, have led to an increase in significance of local EAMs. Within Asia, Singapore and Hong Kong are established financial centres and are thus the favoured destination for establishing an EAM office. The authorities in both centres endeavour to create favourable conditions for the wealth management industry. Within the framework of the study, Solution Providers found that most EAMs are located in Singapore, whereas Hong Kong traditionally has more Family Offices. Additionally, it became clear that more than 80% of EAMs in Asia have European roots. In connection with the study, Solution Providers received various estimates as regards the amount of assets under management. In Singapore the assumption is between SGD 6 and 10 billion. In contrast to established EAM markets such as that in Switzerland or the UK with market shares of 15 to 20%, EAMs in Asia have between 1 and 3%.

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Trend Customer needs and regulation services in Asia. This is in stark contrast influences to traditional private banking where It is known that Asian customers are loans are rather the exception. The study Concept much more actively involved in the in- by Solution Providers shows that there vestment decision than a client in are numerous Asian EAMs, which do Europe for example. This means that not provide their customers with loans. one would expect the transaction approach to dominate in EAMs in Asia. The focal point of a wealthy client is ofHowever, the study shows that also here ten his or her company and thus it has there are EAMs with 100% portfolio the highest priority. Quick and efficient management mandates in the traditional access to the services of an investment sense. One of the reasons could be the bank – such as providing support in origin of customers, who often come IPOs or bridging loans – is an important from the «old world» and are looking differentiation factor, if one wants to be for proximity to the growth markets in and remain relevant for these clients.

Asia. The study shows a similar phenomenon as regards loans, which are In addition to customer needs, regulaalmost a mandatory offering if one tion also significantly influences the wishes to provide wealth management EAM business in Asia. Most EAMs in

Solution Providers’ White Paper on the Singapore asset management industry In relative terms, the Singapore asset management market was approaching the size of the Hong Kong counterpart (USD 1.03 trillion compared with USD 1.17 trillion as of December 2011) reflecting the leaps of progress made by Singapore in growing the industry – not just in Asia, but globally as well.

Looking to the future, Singapore is poised to become the secondlargest asset management cluster in the world by 2017, behind New York, and is predicted to experience tremendous growth from 2010 to 2040.

Currently there are more than 800 organisations regulated by the MAS to conduct asset management functions in Singapore, including external asset managers (EAM), who are relatively new entrants to the industry here. Also, supporting this burgeoning industry on the IT front are approximately 45 asset management software providers who provide a range of products covering different propositions and functional needs.

In light of the growth story and bright prospects for Singapore’s nascent asset management industry, Solution Providers’ recent White Paper sets out to describe the multiple facets which have contributed to the thriving hub, as well as provide a view on the emerging external asset management segment and the asset management-supporting technology providers.

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Singapore start out with the so-called «Exempt Fund Manager» permit. However, this permit restricts the number of clients and the amount of assets under management. EAMs with three to five years of experience in Singapore can apply for a «Capital Market Service» (CMS) license. The latter makes higher demands on the infrastructure of the EAM – among other things it requires an in-house responsible for compliance.

On the other hand, the customer and asset restrictions no longer apply. As shown by the study, only one third of EAMs has a CMS permit.

The current licensing system is undergoing revision by regulators at the moment. The exempt status in particular should disappear. In March 2011 the Association of Independent Asset Managers (AIAM) was founded to better represent the interests of the industry in these efforts.

Specific requirements for the partner banks The basic needs of EAMs in Asia are in many respects the same as in established markets. They begin with the reputation of the bank and its attitude towards the EAM business. The better the banks are organised – for example with a special EAM service team and complete understanding and support right up to top management – the more likely it is that an EAM will recommend the partner bank to its clients.

In the study by Solution Providers, those banks in which the EAM business was a significant source of earnings received higher marks. Moreover, efficiency as regards infrastructure and processes is also a clear opportunity for differentiation.

Those who also manage to sustainably support the needs of the EAM’s Asian clients (credits, SME services, etc.) also have a competitive advantage. In contrast to European customers, prompt execution – naturally under consideration of care and diligence – also gives clear advantages in positioning.

The future of the EAM business in Asia In comparison with the European and in particular the EAM business with Swiss roots, the business in Asia is just getting started. However, experts are in no doubt that this segment will develop into a crucial element of the wealth management industry in Asia in the coming years.

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Trend In the study, Solutions Providers asked for the reasons for this growth. The responses can be summarised as follows: 1. The quality of services of the banks has deteriorated so badly that customers no longer completely trust their banks and are therefore looking for independent advisors for the wealth-related matters.

2. More European EAMs who want to diversify their offerings and provide local investment expertise will establish themselves in Hong Kong and Singapore.

«Offering customers tailor-made solutions creates trust and is the basis for long-term cooperation. In this sense our work is very similar to that of the EAM: we also go that extra mile for our customers and are tireless in our commitment to finding the perfect solution.»

Dr Mario A. Bassi, Managing Director & Head Asia, Solution Providers Singapore

3. The number of experienced client advisors who are disgruntled is continually on the increase as is the level of their dissatisfaction. As a result, the willingness to get involved in the EAM business model with their book of customers is growing.

In addition to the traditional Swiss private banks, local banks are also discovering the benefits of this new segment.

EAMs, with their close relationship to clients, are often more active on the investment side and thus in generating commission income. Furthermore, front office personnel in private banking are one of the largest cost drivers; this does not apply in an EAM approach.

A well-functioning infrastructure with efficient processes and systems is also in Asia a basic prerequisite for the successful set-up and development of the EAM business. While the wealth management business in Asia is comparatively young and growth in the past few years has been above average, the relevant platforms and their processes and infrastructures have often not developed at the same pace.

One market player said: «We believe that the EAM model is the future of wealth management, as it is neutral and unbiased. And in contrast to the customer advisor at a bank, the EAM carries complete responsibility with respect to the client and is better qualified thanks to his or her experience.»

The business with external asset managers (EAM) began around ten years ago in Singapore when the two largest Swiss asset management banks set up a platform for European EAMs. Now the Asian EAMs appear to be gaining momentum and even local banks are investing in this segment. Those who also manage to sustainably support the needs of the EAM’s Asian clients will have a competitive advantage.

A well-functioning infrastructure with efficient processes and systems is also in Asia a basic prerequisite for the successful set-up and development of the EAM business.

While the wealth management business in Asia is comparatively young and growth in the past few years has been above average, the relevant platforms and their processes and infrastructures have often not developed at the same pace. The EAM business is a logical step in the development of wealth management in Asia and can also here become an important and profitable source of income for local banks.

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Strategy The underestimated potential of client data management within Asian private banking

CRM 2.0 is much more than an IT tool The dramatic increase in the number of high net worth individuals (HNWI) in the Asia-Pacific region has contributed to a booming private banking industry over the last 15 years. Despite this, there is still considerable untapped potential given that private banks manage only about 20% of all HNW assets in the region. According to a private banking survey conducted in 2012, HNW assets are expected to grow 13 to 17% over the next five years, with Asia expected to be a key growth driver for the industry.

The resultant growth in the client base, and corresponding assets under management (AuM), implie a substantial increase in the client data volumes that banks are currently handling. In addition, the sophisticated nature of today’s client, the need to stay ahead of the competition, tightening regulations and stringent controls mean that the information being captured for each client is also growing substantially. The net combined effect of this is that there is an ever-increasing amount of data being captured and maintained by banks.

Traditionally, banks have struggled with effective management of client data.

Primarily, this has been a side-effect of

rapid growth and the desire to turn things around quickly. The result: there is no single «source of truth». Data is held in disparate systems leading to redundancies and quality issues.

While this situation is manageable in the short-term, over a period of time it leads to serious inefficiencies with paperbased processes, disconnected information and lack of straight-through processing (STP). Client data management is thus a very real problem that banks are now facing. A research report published in 2010 confirms this need – wealth management firms plan to increase the spending on client data management by 8% in the five years up to 2014.

Leveraging efficiency gains to focus on client needs From the perspective of the relationship manager (RM) the real value they bring to a bank is the amount of time they spend servicing the needs of their clients. This forms the cornerstone of client relationship management anywhere in the world. Even more so in the Asian context where clients like to be directly involved in investment decisions and the business tends to be more transactional in that sense, with RMs having to

Traditional view of CRM Marketing  Campaign management  Event management  Find revenue

Sales  Customer activity management  Sales support  Generate revenue Customer

Client lifecycle  Prospect management  Account opening  Account servicing  Account closure CRM in private banking Regulatory reporting  Business control reporting  Call reports  Audit trail

Customer knowledge  Data management  Data analytics and reports

Customer service  Call centre support  Customer care initiatives

 Sustain revenue

 Protect revenue

Dashboards and views  Functional dashboards  360° views  Customised reports

Quelle: Solution Providers

1

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Comprehensive CRM concept

spend more «service time» to achieve the same business results as their European counterparts.

In the post-financial crisis world, Asian clients have also become more risk averse towards complex financial products and their need for transparency has increased.

Together with tightening regulations and mandatory investment suitability checks, it is important for banks to capture the right kind of client data in the most efficient way. Subsequently, this data needs to be effectively managed for it to be fit-for-purpose for different uses both internally, such as management insights to drive growth, as well as externally, such as regulatory reporting.

Ideally, the data management elements should be encapsulated in the bank’s standard operating procedures (SOP) to make them easy to enforce and control.

This can be achieved by ensuring that all necessary client data elements are formalised across the entire «service cycle» of the client, from prospect management through to account closure with all key client relationship management processes that fall in between. Get the strategy right and the benefits go beyond answering auditors and satisfying regulators. Structuring the processes along these lines results in big efficiency gains for all departments of the bank not just front office. This has a direct impact on responsiveness to client needs, thus achieving customer delight and driving up profitability.

Formalising concepts with CRM Putting in place a sound client data management model and then formalising it as part of the entire client lifecycle results in a firm foundation for a customer relationship management (CRM) system. Most banks still view CRM tools and processes as marketingdriven, which front office may use to store customer details and drive sales.

This, however, is a very myopic view of what CRM should be. Incorporating all aspects of the client life-cycle results in a client data management framework

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Strategy being extended from a purely front office contact data and campaign management tool to a pan-organisational client information management, process management and reporting tool.

The advantages of a well-designed CRM framework are manifold.

At the functional user level:  Automation of paper-based and manual business processes  Meaningful dashboards and reports to give a 360˚ view of the client for decision-making  Single source of truth for all clientrelated data  Tracking of workflow tasks through different departments At the organisational level: Ensure procedures are correctly followed as per SOP  Ability to easily adapt to changing regulatory and compliance requirements  Strong record keeping and audit capabilities  Reduction in fraud and operational risk 

Another advantage specific to the region arises and deserves a mention.

Poaching is very common among local banks given the rapid growth of the industry. Thus, it is important for banks to retain client information and maintain the client relationship even after an RM’s departure. The information retention is facilitated by a CRM framework that mandates recording all client touchpoints and formalises all client processes as part of the system.

«Only companies with a passion for better understanding their clients will be able to assert themselves in the asset management business in the long term. With the same passion we are committed to furthering the development of an efficient and integrated customer information solution for our clients.»

Dr Mario A. Bassi, Managing Director & Head Asia, Solution Providers Singapore

Challenges and next steps There is increased management attention towards managing client data efficiently and making the best use of it in order to deliver compliant and profitable business expansion in the region.

This is especially true given that it is increasingly seen as a critical success factor for driving growth. A welldesigned CRM takes the administrative and paperwork burden off the minds of RMs so that they can devote all their energy to serving their clients.

However, a change of this scale has its own challenges: User buy-in: Complete formalisation of processes in the client life-cycle requires concerted effort from all departments. It is imperative to reach a common ground between different

departments while removing redundancies and streamlining processes.

Inertia to change: With transparency comes the fear of control and the feeling of «being watched». Users, especially RMs, are used to working in their own silos. Changing this around is not easy and requires management directives and good change management.

Thus, the implementation of a robust and flexible client relationship management methodology requires good project management and change management strategies enabled by clear top management attention and vision. It is crucial to involve users at all levels and get their buy-in to reap the benefits of a CRM implementation. This is an art, which most banks are still trying to perfect.

The Asia-Pacific region holds many promising opportunities for the private wealth management industry. However, to be able to take advantage of these opportunities and ensure robust growth, banks must also overcome the inherent challenges that they are being faced with. In the post-financial-crisis world, tighter regulations and strict controls have become the norm and are here to stay. In addition, risk appetite of HNWI in the region has also taken a beating. In such operating conditions, banks can make the most of the opportunities afforded by the region only if they provide highly responsive services to their clients, while streamlining their internal processes. A well-designed client data management strategy achieves this goal with long-term cost reduction and efficiency improvements.

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Trend Banks are realising sourcing potential by remodelling their value chain

The time is ripe for strategic sourcing Sourcing has been the subject of discussion for some time now. Having attracted little attention from banks for a long time, it now appears to have arrived.

This can be seen in current examples such as with UBS Swiss Financial Advisors who have outsourced their entire IT and back-office activities to service providers.

This development comes as little surprise if one looks more closely at today’s service providers. Their business and IT services are more professional, more extensive and offerings more mature.

This is reflected in suppliers’ increasing turnover and growing competition. The partial takeover of Entris by Swisscom IT and the B-Source cooperation with Bank Vontobel and UBS have brought additional momentum to the market.

The list of business services on offer is long. It includes such services as payment transactions, securities centres, corporate actions, brokerage, global correspondent and output management to name but a few. On the IT side, com-

plete IT infrastructure services as well as application management are on offer.

Cost and quality benefits The primary goal of outsourcing banking activities some time ago was purely to realise cost savings. Essentially, providers could achieve economies of scale and benefit from networking and experience, thus offering services more cost-effectively than internal solutions.

Today the focus is increasingly on qualitative aspects:  Improving quality through highly specialised providers  Access to new technologies to extend existing services  Focus by banks on their core business  Reducing the focus of management on IT  Shared use of innovation and platform renewal  Introducing flexibility to the entire value chain However, outsourcing business and IT services must be scrutinised carefully.

Usually, high investment costs are incurred when realising a sourcing initiative. They are complex, time-intensive and carry various operative risks. And the bank loses know-how in the area it outsources. One aspect not to be neglected is the bank’s dependence on the provider. Contract termination is complicated.

Sourcing as a solution to current challenges Increased competition and the decline of bank client confidentiality are forcing banks into greater cost awareness.

They are also confronted with increased regulatory pressure. Some banks are therefore focussing on individual markets. Customer segments are today being reconsidered and in some cases rejected (e. g. American clients).

There is a long list of challenges, which is far from complete, and banks today are forced to react to these challenges more than ever before. Sourcing can offer a reasonable solution. It is not necessarily the most successful remedy for every

Content: what?

Achieve economies of scale

Achieve specialisation advantages

«Make»

«Buy» Sourcing potential

Company strategy alignment

Sourcing strategy alignment

1

2

Business case

3 Business process selection Resource-based view

«Share»

4

Sourcing model

Business model

Increase market share

Action plan

Definition sourcing process Transaction-costbased view

Supplier types

Depth/range of services

Location

Decision-making basis

Process: how?

Source: Solution Providers

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Sourcing navigator SolutionS

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Trend bank, but the possibilities in today’s environment should be the subject of bank-internal discussion and checked at regular intervals.

«There is no right time for sourcing: if business is good, cost pressures are low; if cost pressures are high, there is a reluctance to invest. That is why it is finally time to tackle dormant potential at full speed.»

Weighing up the sourcing options Sourcing options can only be checked and potential successfully identified with a systematic approach (see figure 1). The following four steps are crucial:  Alignment of the company strategy with the sourcing strategy  Identification and selection of sourcing scenarios  Evaluation of sourcing scenarios including business cases  Development of an action plan First, it is necessary to clarify which activities differentiate or should differentiate the company from its competitors.

Activities which can easily be outsourced and where complexity or legal obstacles could prevent outsourcing should also be taken into consideration.

Within this framework the company strategy is aligned with the sourcing strategy.

Berno Ullings, Partner, and André H. Müller, Manager, Solution Providers Switzerland

   

Based on its core competences, the bank selects processes on the expert and IT side which are not considered differentiating. These activities are then checked according to their ability and suitability to be sourced. Finally the bank can derive various scenarios from a combination of «make vs. share vs. buy». The scenarios differ as regards dimension:

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Sourcing direction (insourcing, cosourcing, outsourcing, back-sourcing) Location of services provision (offshore, near-shore, local sourcing) Depth and range of services (processes vs. specific tasks) Object of services (type of business and IT service) Types of providers (single vs. multisourcing)

These sourcing scenarios are selected according to pre-defined criteria and subject to detailed analysis. Development of business cases takes on a special role. There is a rule-of-thumb that cost savings of at least 20% must be pos-

sible for outsourcing to be worthwhile in the long term. On the other hand are qualitative aspects, which must be considered and are not visible in the cost savings. This is particularly true when the company strategy is focussed on realising qualitative potential rather than a cost saving.

Following the successful completion of these steps the bank can assess the sourcing potential and discuss it on a management level. If the sourcing potential is promising, a prioritised catalogue of measures and an action plan must be developed to further clarify sourcing.

For a long time the sourcing market in banking experienced steady growth. The partial takeover of Entris by Swisscom IT and the B-Source cooperation with Bank Vontobel and UBS have brought additional momentum to the market. In the meantime offers are more professional, more extensive and thus finally mature.

In addition to pure cost benefits, many far-reaching possibilities have opened up through sourcing also on the qualitative side.

In this dynamic environment banks are redesigning their value chains. The article on hand shows how banks can create systematic advantages from the realisation of sourcing potential.

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Trend

Optimising touch points to the client holistically for an excellent client experience

The focus is back on the client Challenge

Achievement Transparency

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Trend Banks are currently experiencing a profound change in the market environment.

This is additionally enhanced by social and regulatory norms. While profits are more or less stagnant, regulatory costs and the need for capital are increasing continuously. At the same time, clients have been and will be undergoing a dramatic change of behaviour with regards to communication and expectations towards the quality of service. There is growing evidence that the industrialisation has finally reached the banking business, too. Even though this process has been discussed for the past two decades, it failed to achieve a noticeable consolidation or optimisation of internal processes.

Besides the intensified monitoring through the authorities, the banking sector is still suffering from loss of confidence of the public. The common trust in banks declined considerably with the financial crisis, which in turn led to an increased competition with providers outside of the actual banking industry.

Point of sales (POS), for example, is continuing to shift towards the Internet including all age groups, contrary to prevalent expectations. The public is increasingly committed to largely online

ÂŤWhen advising clients it is essential to understand them and offer them tailor-made solutions. Meeting this challenge is as versatile as it is fun.Âť Raphael Bianchi, Associate Partner, Solution Providers Switzerland

based services of global corporations such as Google, Apple, Microsoft, Facebook, Amazon, etc. who could easily take advantage of the cross-selling potential.

Banks are now facing the challenge of finding a way to interface to these companies and thus actively becoming part of the online trading value chain.

The majority of banks has recognised the need to keep up with the fast development in modern times. On the one hand they are working on increasing efficiency in internal processes and flexibility through system support, in order to reduce factor costs while improving readiness for regulatory changes. On

Customer

Touch points

Web portals

Interaction

Factors

1 Enabling

Social media

E-banking/ mobile banking

Client reporting

Phone/e-mail

Client events

Client meetings

Branches

One-way vs. multiway communication, synchronous vs. asynchronous, static vs. interactive

Web infrastructure

Social media platform

E-banking platform

Reporting system

Service centre

Relationship manager

Employee/ terminal

2 Supporting

Organisational structure, process efficiency, customer data management, CRM connection, MIS analyses, etc.

3 Restricting

Technical possibilities, regulatory requirements, market environment, organisational limits, etc.

1 Changes have a direct impact on the channel to the customer 2 Changes have an indirect impact on the channel to the customer 3 Framework conditions, which must be adhered to by the bank Source: Solution Providers

1

Customer interaction and experience SolutionS

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Trend the other hand, margin pressure combined with increased competition is forcing banks to question/challenge their strategies. This also requires for a return to core competences, accurate positioning in the market and the ability to drive innovation forward. There is now a stronger focus on the client’s needs which are finally given the appropriate attention.

The client is changing Besides the financial crisis influencing the needs of the bank’s clients, the everincreasing technical possibilities have upset the balance. Bank clients now demand more transparency and better quality services. The use of online banking services is on the rise, yet good branch advisory services and customer advisors are still very much appreciated.

The banking business for non-standard products is likely to continue to distinguish itself through personal advice.

Client’s virtual banking requirements are similar regardless of the value of their assets. Banking services that are independent of time and place as well as the introduction of new communication channels are high on the wish list of many clients today. This will but increase with further technological innovation. The challenge for banks lies in the segmentation of clients according to their needs rather than their assets.

Clients have also become more careful.

Gathering of information online, on social media platforms and from friends, considering alternatives based on information from relevant comparison sites or generally searching for information from independent sources on the Internet has become increasingly popular.

Studies in this area have revealed the so-called ROPO effect (research online, purchase offline) whereby the client of today prepares for a sales talk using online services, which strongly influence the purchasing decision in advance.

As a result of the latest developments, the demand for quality and individualisation of services is growing. This provides an opportunity for the bank to distinguish its services from those of the competition.

One way to respond to this development is to create a positively enhanced experience for clients at all touch points.

Client experience is essential In addition to branding and other marketing activities, outstanding treatment of clients at the various touchpoints increases customer satisfaction. The goal

26

is to meet or even surpass client expectations at a reasonable cost. Solution Providers supports banks in the conception and implementation of projects aiming at improving client experience.

Often times, a structured search for optimisation potential in the various touch points provides a starting point for the analysis. Solution Providers questions clients about their experiences with the bank and compares their answers to what is internally belived to be the client’s perception. The results reveal information about which touch points have the potential to improve the client experience, particularly where internal and external perceptions differ.

Figure 1 shows Solution Providers’ overview of the most important touch points and the corresponding possibilities for configuration. The touch points can be roughly categorised into virtual contacts (web portals, social media and e-banking/ mobile banking), individual client support (meetings, client events, client desks, phone contact, etc.) and physical/electronic reporting. These channels indicate where banks might have potential to further direct their business towards the client. The level «Enabling» lists factors which have a direct impact on the client experience at the relevant touch point, if changed. The level «Supporting» on the other hand, describes factors with an indirect impact on the client experience, such as the underlying technology. «Restricting» factors comprise of all those framework conditions and external factors on which the bank has limited or no influence and that restrict the possibilities for configuration.

The goal is to identify opportunities for improvement in the various distribution channels and the potential of cross channel management. By defining appropriate measures for detected weaknesses the client experience can be sustainably improved as a whole.

Banks are now increasingly tackling the following aspects affecting client experience:  Promoting process orientation within the business through change management and sensitising employees towards enhanced client focus  Setting-up task forces to develop and implement social media concepts  Expanding existing e-banking solutions and use of mobile channels  Distribution channel management for the successful hand-over of the





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





 

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client from the virtual channel to the client advisor Solutions to optimise processes in the areas CRM, client opening and loans Use of workflow tools to increase efficiency and support in meeting regulatory requirements Introduction of tools to support the client advisor throughout the advisory process Development of better solutions for intermediaries and promotion of this important distribution channel Implementation of systems for flexible, individualised but also standardised production of client documents Concept and realisation of a client communications centre which controls all output to clients centrally and integrates it into existing processes Realisation of client data management solutions Training of client advisors in dealing with clients from compliance point of view Optimisation of back-office processes and systems which directly impact the client experience

Conclusion Change offers many opportunities for improvement. These have to be identified in a timely manner and implemented with a strong focus on client needs.

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Trend

Asia

Banks can thus use their services to distinguish themselves from the competition. There are already exciting innovations in the areas of reporting and virtual banking under way. However, personal contact with the client remains

an important aspect of financial advisory. The client advisor should thus receive support in the form of training and new tools which help ensure adherence to regulatory requirements and ability to explain the products on offer.

The success of initiatives in the area of client experience largely bases on a holistic view of the subject along the value chain. Inter-departmental cooperation, coordinated centrally and promoted by management, is essential.

The global banking industry is currently undergoing a change in the market environment.

Industrialisation of processes and cost structures as well as individualisation of services are leading factors in the process. The financial crisis is not the only trigger; increasing technical possibilities and evolving customer awareness open up new opportunities. Clients are better informed, connected and thus smarter about business. Ubiquitous technologies are becoming a reality in daily life, the trend towards social media must not be ignored by the banks.

Banks are meeting these challenges by returning to their core competences and focussing once again on the client. Touch points with the client are being optimised to improve the client experience. Solution Providers has set up a team of experts on the subject of ÂŤClient Interaction and ExperienceÂť to support banks in the conception and realisation of an excellent client experience.

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Strategy Traditional financial services providers and social media

In search of simplicity Swiss banks are carefully following the subject of social media at the moment and are taking their first steps in this area. This is the conclusion reached in a study on the social media positioning of the 12 largest Swiss (retail) banks. However, it was also shown that banks rarely use the channel actively and when they do, the offering is largely tailored to a younger audience.

However, social media platforms are only one example of Web 2.0, which, in its entirety, is breaking new ground in communicating and cooperating with customers. With the additional and newly aggregated information, interested customers nowadays are better informed than ever before: comparison portals offer the possibility to compare, rate and comment off-the-shelf products and services. And new forms of services are being developed or existing services re-bundled.

New information and client needs environment The banking sector has been navigating choppy waters for many months. Cost structures, which developed in successful years, now need re-dimensioning.

The fact that customer expectation

regarding contact and gathering information continues to grow and that the press is increasingly calling attention to the discrepancy between desire and reality further exacerbate the situation for banks: channel management must be reworked and aligned with new customer expectations. Additionally, the product portfolio needs to be tightened to fit the new information and needs environment of customers.

may be interested in; they prefer a discussion of topics, which could identify a new need. In banking, this trend can be addressed by aligning the approach with the customer’s specific lifecycle phase. An approach via subjects and solutions is particularly suitable for today’s «research online» customer and focussed use of all electronic media, including social media, serves this purpose very well.

Furthermore, in recent months and years the banking industry has experienced a spread of the so-called ROPO effect (research online, purchase offline), which makes high demands on the positioning of a company, brand and products in electronic media. In this respect, social media platforms provide many more opportunities than a largely static company website. But there are also many more pitfalls. A study has shown that the two worlds of social media and banking do not yet interact successfully.

In a modern channel management practice customers should be able to easily switch between the online world and offline advice (and even vice versa). Thus, the subject-oriented advisory process, which began online, could change to the real world as soon as personal contact is necessary. This could occur, for example, when offerings require comparison or explanation, offers must be developed or complex questions require joint discussion. And the modern customer takes it almost for granted that not only PDFs and brochures are used, but that contemporary tools are implemented.

Customers prefer discussing topics However, if it’s about creating new needs in the modern customer, new trends can be observed. Customers no longer want head-on promotion of products that they

«Customers no longer want head-on promotion of products that they may be interested in; they prefer a discussion of topics, which could identify a new need.»

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Ideally, following consultation the customer should be able to peruse and compare the offer again (online) at home and even discuss it with his or her social community before deciding on purchase. But, due to lack of budget, this remains a dream.

Web 2.0 demands ubiquity of financial services On Web 2.0 platforms new cooperation and service forms are developing. «Social lending», «crowd funding/financing» or «social investing» provide money services which make use of the advantages of social networks and their recommendation structure. Additionally, they transfer services to the internet which were previously almost only available via banks and are thus creating a new ubiquity of financial services.

Some readers will remember Bill Gates’s words in this connection a few years ago: «The world needs banking, but it does not need banks.»

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Strategy In addition to the previously «impacted» retail business, private banking is increasingly being confronted with new Web 2.0 offers which have the potential to attack the value chain of banks. Portals such as the Motley Fool provide comprehensive information offerings for financial tools (including share ratings), as well as investment strategies and ideas and discussion forums to debate these subjects «socially». Covester and United Signals allow participants to follow and discuss certified investment strategies from experienced portfolio managers or even to copy them, right up to quasiremote asset management. Of course a considerable level of trust is necessary for such an approach. But, in direct contrast to their bank-internal colleagues, these portfolio managers are publicly transparent and must prove themselves in front of a wide audience. Other portals such as Socialpicks provide participants with a platform to swap and discuss investment ideas and information.

The portal also follows the performance of so-called financial bloggers and puts the results up for discussion. Piggem works in a similar way: from a large number of individual evaluations a socalled crowd rating (based on the concept wisdom of crowds) is generated.

Portals such as Portfolio Monkey or Swissquote also provide online tools for portfolio analysis and portfolio management, in addition to comprehensive financial information and discussion forums. As recent surveys have shown,

«Change processes and handling pioneering innovation are our core business. We are convinced that social media has the potential to sustainably change bank-customer interaction. We are committed to working with our clients to unlock this potential.»

Cyrill Steinebrunner, Managing Partner, and Eric Stehli, Associate Partner, Solution Providers Switzerland

it falls short of the mark to assume that only so-called «self-directed» customers use these services. Also so-called advisory customers use such portals. This could be because the service quality of traditional financial services providers is considered unsatisfactory, that trust in bank-internal advisors has been shattered, or that the products on offer do not meet the need of customers (anymore).

Of course none of these tools replace a good bank advisor, but it is still essential to observe these developments carefully.

In future, advisors will be under more pressure if customers come to an appointment with such an information ad-

vantage and also investment consultants involved must make more of an effort.

Customer emancipation and continually increasing transparency of offers mean that banks have to position themselves and their offerings anew to ensure that they do not simply disappear from the customer focus as one of many. Finding a common language with customers, which also includes Web 2.0 content will most probably become a central key to success in customer care. Adapting products and further developing forms of customer interaction in service provision will also determine who wins the race for Web 2.0 customers.

Social media and Web 2.0 have long since reached end users. The attraction of the various platforms for many is huge and poses the question as to what changes the various new channels and Web 2.0 opportunities will bring about in the banking sector. But it is not only the use of technology that is central: customers are developing new expectations, which must be addressed in the future. Numerous aspects will determine whether a bank is successful in meeting the needs of customer 2.0: channel management must be brought to a new level and with it variable use of new channels along the sales process and providing services; products and their performance-based components must be adapted to the changing needs of customers, and customer interaction requires a common language with customers which addresses the content and possibilities of Web 2.0.

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Case Study

Finnova Academy relies on new learning methods

Blended learning: a win-win situation for course providers and participants To minimise operative risk when implementing new IT solutions, staff of financial services providers such as banks must be trained on the new systems very quickly. Yearly release upgrades and regulatory changes – typical for standard software solutions – demand continual training which can no longer be handled with traditional classroom training.

Financial services providers are also keenly interested in quickly training new employees to work in existing environments. In any event, efficient, targeted and practical training programmes are essential.

This need was recognised by the Swiss software manufacturer Finnova AG. Since 2011, the company has steadily converted its training courses to the «blended learning» concept which optimally combines various learning methods. Prior to this, Finnova relied on face-to-face tuition and guided selfstudy in the course room. Although these methods of knowledge transfer are also used in the blended learning approach, they are purposefully supplemented by e-learning modules.

Preparation at the individual’s pace Before beginning the introductory course to become a Finnova Certified Profes-

sional, course participants can acquire the necessary knowledge to a large extent autonomously and whenever it suits them thanks to e-learning. First, exercises can be carried out directly on a simulated system interface, which also ensures that course participants are familiar with the basic set-up of the application even before the course starts. The subsequent training course at Finnova onsite strengthens what has been learnt and deepens specific areas, which are relevant to the future activities of each bank employee or application responsible.

Using the e-learning module administration system, those responsible for Finnova Academy can monitor whether all the participants have completed the modules and the preparatory tasks. This ensures that participants are sufficiently prepared for and can maximise the benefits of the course. Participants’ feedback on e-learning modules is extremely positive. They appreciate being able to prepare for the course at their desk and at their own speed and the fact that they can repeat the modules as many times as they wish. Modules are considered appealing and attractive. And a high level of interactivity has been proven to increase learning achievements throughout the learning process.

Finnova AG Founded in 1974, Finnova AG is the leading Swiss manufacturer of banking software.

The software company has 300 employees at various locations. Finnova, the company’s standard solution is currently in use by more than 80 universal and 20 private banks in Switzerland and abroad. These banks benefit from a wide range of functionalities of exceptional depth and from the lowest total cost of ownership compared to other companies in the industry. Pronounced scalability and parameterability enable efficient implementation of strategic banking requirements under consideration of time and cost.

Finnova’s OPAL® software fulfils the requirements in all areas of a service-oriented architecture. Together with comprehensive business process outsourcing options, the concept allows mapping and support of various process and business models. At the same time, the multiclient capability of the standard solution allows more than 50 banks to be operated on one central installation.

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Interplay of competences For the conception of the e-learning modules, as well as their implementation and integration in Finnova’s learning platform, the skills of a number of partners were successfully brought together in a tailor-made project. Arevos, a subsidiary of the Solution Providers Group specialising in change management solutions, was assigned the task of carrying out a preliminary study. Based on a comprehensive e-learning concept, technical feasibility of a state-of-the-art solution, its application potential and the resulting benefits were ascertained.

For the technical implementation, solutions from leading providers in the area of learning management systems, authoring tools and video messages were evaluated. This was carried out in consultation with the key stakeholders who formulated the requirements of Finnova’s learning platform.

Prioritisation according to number of users As part of the preliminary study, the business case showed that greater cost advantages could be achieved with a greater number of participants. Accordingly, the development of e-learning modules was prioritised according to the user population. In a first step, the focus lay on the learning content of parameterisation courses, which were complemented by media-based components.

Based on the results of the preliminary study, a request to Finnova’s management for the implementation of a blended learning platform was formulated.

Following its approval, Finnova specialists and training experts from Solution Providers successfully implemented the project in close cooperation with Finnova experts. An important customer specification was the continual knowhow transfer to Finnova Academy staff; so ensuring they were qualified to sus-

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Case Study tainably manage the learning content.

As a result, Finnova only requires external support sporadically.

As Finnova already had comprehensive training documentation and exercises, the e-learning units could be based on these and developed quickly. As part of the implementation project a video was recorded in which Charlie Matter, CEO Finnova AG, personally welcomed «visitors» to the Finnova Academy, presented the company and its philosophy, and wished the students success.

Face-to-face tuition significantly reduced Continual interaction with trainers allowed the project team to quickly develop modules and have them approved. Thus, within only three months 11 of the existing foundation course units could be entirely converted into e-learning modules of a total of 15 to 20 hours. This enabled Finnova to reduce classroom instruction of foundation course participants by one week. A test run for e-learning modules for the foundation course was carried out in October 2010 which went live successfully in January 2011. Subsequently, using the re-recording function of the authoring tool, the e-learning modules were semiautomatically translated into English.

The Finnova Academy is continually expanding its range of services in e-learning for end-users: new bank employees who have to be trained in using Finnova can dial into the monthly virtual class-

«The e-learning initiative has proven to be an investment in quality and efficiency. Our ‹passion for banking› is expressed both in the excellent Finnova Academy course programme and in the extended service offering for our client banks.»

Michael Massaro, Head Finnova Academy, Finnova Bankware AG

room and ask their questions, which are then answered interactively. Employees can order a general web-based training module which allows them to learn the basic operation of Finnova and so be able to use the software very quickly.

Expanded use of e-learning modules Finnova can use the e-learning units to train their employees as well as in direct contact with customers for international sales activities. New and existing customers are shown the Finnova user interface interactively in a simulation. Elaborate test environments and pilot installations can be avoided. Finnova is content to continue to rely on Arevos experts for training units and learning platforms which are tailored to the individual needs of the customer.

Conclusion Finnova’s interactive learning platform underpins the company’s innovative capabilities and satisfies today’s demands for a flexible and efficient transfer of learning content at any time and in any place. This is reflected in the consistently positive feedback given by course participants. E-learning also allows Finnova to utilise their trainers more productively as they have to impart less basic content and can thus concentrate on more in-depth subjects, exercises and individual support of course participants. E-learning has thus led to a reduction of repetitive tasks whilst at the same time improving the quality of training. Through partial automation, a significant part of training can be done anywhere, which in turn supports Finnova’s internationalisation strategy.

The Swiss manufacturer of banking software Finnova AG began complementing its existing training programme with e-learning modules in 2011. Participants can now complete the introductory module on a simulated Finnova interface at their desk and at their own pace. The modules serve as preparation for classroom tuition at Finnova’s headquarters, which has been reduced from four to three weeks. The skills of various partners were successfully combined for the conception, implementation and integration of e-learning modules. Arevos carried out the preliminary study and, together with the partner companies, ascertained technical feasibility. In summer 2010, Finnova’s management gave the go-ahead to implement the Finnova Academy platform. Working in close collaboration with Finnova experts, Solution Providers’ own Finnova specialists and training experts successfully implemented the project.

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Case Study

Economies of Scale

Diversification

Phased approach Transparency

Internationalization

Optimisation of cash information flows to cash management as an improvement opportunity

Reinsurer short-term liquidity planning: a challenge

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Case Study Short-term liquidity planning or cashbased forecasting is a central aspect of cash management in financial institutions. Cash forecasting summarises all incoming and outgoing cash flows within a prospective budget period and ensures a company is able to meet current financial obligations. What sounds simple in theory is in practice a challenging task for reinsurance companies:  The administration and reporting (e. g. settlement of premiums and claims between insurance and reinsurance companies) of proportional treaties is initially approved by insured to reinsurer. A reinsurer therefore must validate this initial reporting from the insurance company to achieve more accurate cash flow information as to the resulting receipt or payment obligations at the end of the respective accounting period. 





Special contractual components such as cash calls (immediate payments for major claims) result in short-term liquidity requirements in potentially significant amounts in various currencies.

Globally operating reinsurance companies encounter differing market practices with regards to payment periods and behaviour (e. g. by country but also as regards broker vs. cedent business). Within the reinsurance company itself, on the other hand, processes are generally standardised worldwide and cash management is centralised to a large extent.

Although today the market for insurance and reinsurance companies is highly industrialised, cooperation and established long-standing relationships support the insured reporting and technical accounting validation process between insured and insurer. Thus, strict terms and conditions of receipts and payments, typical in many other industries, is the challenging aspect for the reinsurance industry.

The 2008 credit and liquidity market crisis and recent financial Eurozone crisis have dramatically increased risk aversion within financial institutions. The cash management of reinsurers has maintained excess cash balances in order to be able to cope with unforeseen circumstances without a liquidity bottleneck. For reinsurance companies this can result in an inefficient cash «buffer».

«Each and every day we are motivated by challenging tasks to apply our reinsurance expertise profitably on behalf of our clients.»

Roger Nösberger, Associate Partner, and Christian Ruhse, Manager, Solution Providers Switzerland

At the same time, the conditions for achieving good overnight and shortterm investment performance have become increasingly difficult. The level of interest rates has reached a historic low which has resulted in a reduction in potential income from government bonds – the largest asset class for (re)insurance companies. Thus, reinsurers are using every opportunity for income optimisation. Here, cash management also provides an opportunity. According to industry experts, efficient cash management, based on a state-of-the-art cash-based forecasting solution, can potentially achieve annual yields of at least two basis points. With cash balances of many billions in US dollars equivalent the result can be substantial.

In addition to economic conditions, internal factors have a considerable impact on the operational performance of cash management. In this respect, Solution Providers identified the following situation with clients:  In recent years, outsourcing and offshoring of business support units to Eastern Europe and Asia has increased. This trend can also be observed in the reinsurance industry.

The geographical separation of central technical accounting and cash management elements leads to inherent changes in unstructured informational flow between the two departments. 

The system landscapes of technical accounting and cash management are often not directly integrated. If at all, information directed to cash management regarding future cash flows is produced manually and

communicated only for large threshold amounts. Thus, the information exchange is incomplete, error-prone and only provides a rough indication of future payments. 

Treasury and cash management teams are often kept small and efficient, focused on day-to-day business. This leads to minimal capacity for time-consuming and manual information gathering.

Despite the excess cash reserves mentioned above, this type of situation contributes to higher expense costs for short-term procurement of funding. A reinsurance client of Solution Providers reviewed the inefficient cash-based forecasting situation and launched a project to improve the cash-based forecasting process. Solution Providers was able to support this project on a project management and business analyst level. The primary project goal was to improve the premium cash flow information, reduce the excess cash balances for short-term commitments and thus improve investment performance. Additionally, the costs for unexpected payments, and the resulting necessity to liquidate longer-term investments, should be reduced. At the same time, the information flow to cash management was to be fully automated.

The priority for the client during the entire project was the qualitative rather than the quantitative aspect of cash forecasting: the value date, amount, currency and legal entity accounts involved in a forecast must be correct and accurate.

Following the project phase, it should be possible to successfully increase the SolutionS

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Case Study cash-based forecast coverage over various source systems, business units and sectors without the necessity to apply extensive development efforts. To reach this level of flexibility, from the very beginning the focus was on a parameterisable set of business rules or logic.

To achieve these goals it was essential that the intended solution was supported and maintained by all the business support areas concerned. First and foremost, the processes in technical accounting were expanded with steps to record and maintain the cash forecast attributes. The necessary changes to the IT systems involved were carried out in such a way that users were supported with work flow entry proposals and additional effort was kept to an absolute minimum. Technical transactions in administration systems served as further sources of data. For example, the payment terms in broker transactions are clearly defined in the contract conditions and generally adhered to. Data available in administration systems for such areas could be adopted.

In the case of the previously mentioned client, the relevant data from underwriting, technical accounting and claims management are delivered on existing interfaces to a central data warehouse.

The data is consolidated and available for evaluation already the following morning. A system developed specifically for cash forecasting is applied to analyse the data. Its principal task is to analyse the relevance and quality of the data available and to determine whether the dataset in question can be transmitted directly to cash management as a cash forecast, whether data must be ad-

justed (e. g. the date for overdue payments deferred), or whether a dataset should be filtered out because it is irrelevant, duplicated or of poor quality. The system set of rules was developed based on far-reaching requirements and has a number of distinctive features:  Rule templates allow simple parameterisation of concrete rules.

The templates have been defined to group functional rather than technical aspects. Only ten different templates are required with this approach. Correspondingly, the familiarisation period needed by the expert to maintain the set of rules is brief. 





The rules can be parameterized as a tree structure rather than the classic step-by-step approach. This allows standard constellations, including cases of poor quality or high uncertainty, to be identified and processed first.

Only where necessary are the more extensive rules called upon for more complex cases. This performance aspect plays a decisive role particularly in forecasts, which are based on technical accounting. Here a significant volume of data must be handled.

In addition to the data for cash management, the set of rules also generates data to evaluate the quality of the forecasts. Reports can be created which continuously monitor data quality and can also serve as feedback to data providers.

The set of rules can be thoroughly tested automatically (including parametrisation). Thus, the testing effort following adjustments is minimal.

«According to industry experts, efficient cash management, based on a stateof-the-art cash-based forecasting solution, can potentially achieve annual yields of at least two basis points.»

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Cash forecasts, which are considered of high quality by the set of rules or have been adjusted are provided to cash managers in their front end treasury workstation system which cash management already uses for daily cash business. This integrated solution provides a user interface overview of all relevant data. The familiarization and training effort for end users is reduced to a minimum.

The implemented solution has been in use since several months and first conclusions are possible:  Meaningful forecasts for cash flows can be recorded and maintained with only a few small adjustments to the settlement process in technical accounting. The additional effort in the processes can be reduced to only a few seconds per forecast by using automatisms. 

A well-designed set of rules allows fully automated and high-quality analysis and enrichment/adjustment of forecasts based on various data sources.



Achieving complete coverage of all sectors and business areas as well as attaining the level of quality required is a process, which exceeded the project duration and must be carried out continuously.



To ensure quality forecasts, employees well trained in technical accounting, continuous monitoring and regu-

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Case Study

Time-to-market

Process Unification

Intercultural teams, different nations

lar feedback are essential. ÂŤBadÂť data can be identified and filtered out with the set of rules implemented.

End users were pleased with the solution from the very beginning, as the quality

of the transmitted forecasts was very good. Meanwhile, additional business units were being covered. However, the increase in transparency represents a significant improvement compared to the situation prior to implementation.

The solution also provides the flexibility to link further source systems through parametrisation of rules and requires no software development effort.

Interest rates are at record lows and are forcing financial institutions to optimise their cash management processes, to reduce excess cash balances and to minimise operational and funding costs. Increased risk aversion since the last financial crisis has encouraged reinsurers to maintain excess cash balances to avoid liquidity bottlenecks.

With state-of-the-art cash-based forecasting these balances can be optimised and additional income generated.

To this end a reinsurance client of Solution Providers introduced a system developed specifically for cash-based forecasting. Its core is a parameterisable set of rules which can be extended and adapted flexibly and requires no programming effort. In this way new data delivery systems can be integrated immediately and modified work flow processes quickly changed.

Solution Providers developed this system and set of rules together with the client and accompanied its implementation. In the meantime the solution has been running since several months. Thanks to transparency resulting from the future cash flow system, improvement and efficiency goals in cash management have been achieved.

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Trend The search for standard software for insurers

The market needs standards In comparison to banks most insurance companies weathered the financial crisis well and, with one or two exceptions, were never under serious threat. Although changes in the market and on the regulatory front have been a major challenge, they are also creating opportunities. The search for alternative, profitable products in a prolonged low interest rate environment is proving to be just as challenging as the focus on an efficient back office and in reducing costs.

Policy system requirements are continually increasing; changes need to be implemented swiftly and accurately, new products or tariff adjustments sold promptly and in a standardised form, and a high level of automation and service be enforced. Additionally, accessibility to online services and Solvency II reporting must be ensured. Small to medium sized insurers in particular are faced with large and growing costs. To this can be added the industry-wide problem of system environments, which, due to ever growing data volumes and flows and increased integration, are gradually beginning to pass their peak and need to be replaced in the coming years. Under permanent pressure to reduce costs, it is almost impossible for an insurer’s IT department to meet the multiple challenges.

This complex starting point and unsuccessful attempts at in-house development over the last few years have prompted some insurers to purchase standard software to ensure that their strategic goals are met. In the meantime, there are many suppliers in the German software market who, by their own account, offer «standard solutions» for insurance companies. However, in contrast with the banking sector, none of the solutions – with exceptions in life insurance – have managed to become the «standard».

Potential customers are therefore still considering the same uncertainties, such as:  Which system models the insurer’s requirements with as little adaptation as possible?  What expertise does the insurer; provider and other partners need to have to implement the new system successfully, on time and within budget?  How can a high level of buy-in be achieved with both the internal application development and specialist departments?  Which software supplier can guarantee long-term maintenance of the system?

Market experience shows that answering the above questions should not be

«Because of the general dissatisfaction, combined with an existing demand for standard software, providers must face the growing criticism with a solution-oriented approach and realise the needs of customers.»

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underestimated. Until today, around two thirds of the projects to implement standard software that were started in the last three years have been stopped, cancelled or modified to focus on inhouse development.

It’s up to suppliers From the customer’s point of view, manufacturers of insurance software, particularly in composite insurance, have failed to meet the requirements of a standard software provider, of project management for implementation and with the software itself. It is a typical stalemate: insurers expect ready-made solutions but providers can only develop these when the relevant input and experience from the market is made available.

Because of this general dissatisfaction, combined with an existing demand for standard software, providers must face the growing criticism with a solutionoriented approach and realise the needs of customers. The result could be a reliable and established market for standard insurance software in the Germanspeaking region.

In order to set standards and learn from previous problems of acceptance, providers must not only have the necessary expertise, but must also carry out a robust analysis of needs in the Germanspeaking market.  Fit for the future: the majority of solutions currently on offer are either too technical or functionally future-oriented. At the moment there are few providers, which are cutting-edge both technically and professionally.  Risk is with the insurer: insurance companies are not willing to share the risk of a pilot project with a new provider.  Business know-how: insurers expect business know-how from the supplier and not from a third party, despite the fact that many suppliers have insufficient internal know-how.  Provider commitment: new foreign suppliers in the market are not suffi-

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Trend ciently committed to the Germanspeaking market or to a single country.  Heterogeneous system environments: no supplier has managed to show a convincing level of integration capacity with the growing and heterogeneous systems environment of insurers.  Supplier management: insurance companies are not used to treating providers as part of their supplier management, particularly at those stages where marketing and sales meet the supplier’s capacity to deliver.  Project culture: based on experience of how such projects have been managed in the past, many software houses lack the project culture, which is so important for projects with external partners. There are generally too few good project managers because the focus is on technical work.

The current situation For those insurance companies, which decided to discontinue a project, the problems on the standard software market described above can be seen in retrospect: The insurance industry is in dire need of modern standard solution and would generally prefer this to an inhouse development, but can find neither a mature system nor an experienced supplier in the German-speaking region.

Solution Providers recently analysed this problem in an internal market survey to outline a possible path, which should

«When it comes to the implementation of standard software, customers can build on our competences. Thanks to our extensive experience, we know the numerous challenges surrounding a change of system and how to deal with them successfully.»

Michael Gerber, Managing Partner & CEO Group, Solution Providers Singapore

lead both the supplier and the insurer to an efficient standard system in the future.

The hypothesis above and project experience from the last two to three years were discussed. The survey shows whether a joint path to implement standard software for an insurer should be set up and how it could be achieved. The fact that with composite insurance in particular only a few successful standard software implementations have been achieved clearly shows that suppliers’ understanding and the requirements of the sector do not match. There is a long way to go until a market penetration similar to that in the banking sector is reached.

Interviews were carried out with representatives of projects of all types (inhouse developments, abandoned and successful projects with standard software). The focus was on the areas of decision-making, project work and operations. As regards the decision-making process, we aimed to find out whether decisions were driven more by business or IT and what influenced a make-orbuy approach. In the area of project work the focus was on meeting expectations and promises, of project partner skills and the impact of future decisions following the abandonment of a project.

Statements on achieving goals and meeting expectations with regard to operations and maintenance will allow future undertakings to be assessed.

Insurers are facing numerous challenges: in addition to increased regulatory pressures, there is particular focus on expenses ratios and customer orientation.

A significant factor is the efficiency of the policy system. To save costs and to implement uniform processes, a number of insurers have decided to replace their old system with a standard software solution.

In the past few years, numerous providers developed solutions, which should model the market standard. However, of the implementation projects that were started so far, most have been either stopped or cancelled. The reasons for this seem mainly to stem from the project organisation and communication: the expectations of both parties are not clearly articulated.

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Trend MARKETMAP: an excellent tool for health insurers

Use of structured market information for pricing and distribution In the non-life sector in particular, using rivals’ pricing information for competitive pricing has been popular for years. Data is typically procured via mystery shopping or data service providers and then used for product and tariff development and sometimes also in sales. With MARKETMAP Solution Providers has developed a method to structure and methodologically process, evaluate and utilise such market information. The concept was awarded first place in the competition «Best of Consulting 2012» carried out by the German financial magazine «Wirtschaftswoche» last year. In the past the focus of the method was on the non-life sector. But the concept can easily be applied to other sectors such as health insurance. The areas of application – product development and sales – remain the same (see figure 1). However, a number of specifics must be considered which are discussed below.

Product development On the Swiss health insurance market a clear division is made between compul-

Competition data

sory health insurance (OKP) and optional supplementary coverage (VVG). In the OKP market insurance benefits are clearly defined and pricing possibilities are restricted by close regulation. Additionally, the tariffs in each region and for every product are transparent and publicly available for all competitors. But this should not belie the fact that pricing requirements remain complex: with 42 premium regions, 19 franchise levels for all age groups and the additional differentiation between inclusion/exclusion of accident coverage, there are at least 1,596 premium variations for a health insurer in Switzerland. And these variations are dependent on benefit, cost and provision ratios, as well as risk exposure.

With MARKETMAP Health Insurance these factors are estimated and, with the support of structured evaluation methods, their impact on the premium situation is simulated. A particular challenge is that the premium development process takes place at the same time for all

In the VVG area premiums for comparison with the competition must first be procured via mystery shopping – no simple task as the variety of products and the free use of tariff factors makes the definition of comparative profiles demanding. In particular, premium regions (e.g. for hospital insurance) and age groups can be freely defined. Here Solution Providers has the relevant know-how and can apply expertise and method to the development and modelling of the necessary profiles. Once the profiles are defined and the corresponding market data levied, a structured comparison of premiums or sim-

Simulation/evaluation

OKP Competition data via FOPH

health insurers. This means that simulation can only be carried out against the previous year’s tariffs with actual data; alternatively competitors’ new premiums are also estimated. The main benefit of the simulation stems from the fact that scenarios allow the future development of premiums to be gauged early and appropriate measures to be taken.

Sales

Rates Benefit prognosis

Application/controlling

Risk exposure

n n

Sales management Provisions

MARKETMAP VVG Competition data via mystery shopping of standard comparison profiles

Inflation expectation

Competitive position Competitive focus

Pricing n n

Pricing Product management

OKP Compulsory health insurance VVG Optional supplementary insurance FOPH Federal Office of Public Health Source: Solution Providers

1

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Trend ulation is carried out as with OKP. Premium structure is not the only aspect that can then be derived. As the benefits side is also considered in a competitive comparison, derivations for product development also result. This information flows into the alignment of the product strategy and forms the basis for strategic portfolio management.

Sales Structured market information is not only useful for product management and pricing. It can also be used to great potential advantage in sales. As mentioned, a health insurer operating throughout Switzerland manages at least 1,596 premium tariffs in the OKP area. However, most providers do not only have one product but also offer various insurance models such as general practitioner (GP), Telemed or HMO models. Thus the number of actual premium tariffs on offer is multiplied many times. But this is only the view from the inside. There are up to an additional 61 providers – the number varies depending on the region. According to a Comparis study, throughout Switzerland there are ca. 287,000 premium variations in the OKP area alone, and on average there are 45 tariffs available to each policyholder with his or her individual tariff criteria.

In contrast to the OKP area, market information is somewhat less transparent in the VVG area. However, with the gradations of insurance coverage for ambulatory and long-term care alone,

«We are convinced that health insurers’ pricing process is considerably better structured, more efficient and more precise with MARKETMAP.» Dr Michael Hartmann, Associate Partner, and Marco Kamerling, Associate Partner, Solution Providers Switzerland

which can then be sub-categorised into coverage and sub-variations for general, semi-private and private wards, the variety of offerings is considerably larger.

The result is an incredible complexity of requirements in sales management: target segments and campaigns cannot simply be defined for the whole of Switzerland. It requires detailed differentiation according to premium region, age category, product focus etc. MARKETMAP Health Insurance provides a tool that supports both strategic planning as well as operative sales activities. It can also serve as a basis for the development of provision regulations to underpin strategic goals with appropriate incentive systems.

Conclusion The health insurance sector differs significantly from other insurance sectors.

The most important issues lie in a clear division between basic and additional insurance coverage whereby basic coverage restricts tariff and product development and sales possibilities (e. g. discounting, provisions) to a certain extent.

However, the MARKETMAP concept has proven successful and valuable in the health insurance sector, as it principally comprises a methodological survey and structured evaluation of market information. Potential benefit can be found both in the OKP and VVG areas and have an optimum effect when both areas are combined.

MARKETMAP is a concept which has proven successful in the non-life area many times.

The basic idea is the methodological gathering of marketing information on priceperformance offers and their processing in a structured form. The resulting information can be used in two ways: on the one hand, it supports product development in both pricing and product management, and on the other, it can be used in sales for both strategic planning and operational activities.

MARKETMAP Health Insurance adapts this concept for health insurance under consideration of the special nature of the sector, be it the division between basic and additional insurance coverage, the limits on the freedom to set tariffs, or the availability of tariff information.

1/2011 SolutionS

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Trend

Structured products in Asia: capitalising on latest market trends

Identifying a best execution model People Process Unification

40

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The private banking sector in Asia has seen consistent net inflows over the past five years as well as double digit growth rates of assets under management (AuM). This, coupled with a large, untapped client base has seen private banks not only grow, but thrive in Asia.

considerably from the time it was first introduced in the 1990s. Figure 1 describes the current process followed by a majority of medium-sized private banks in the market. Every morning, banks and their respective counterparties exchange price quotations for various products. These prices are made available to relationship managers (RM) who in turn use it as a tool to give clients an indicative price of the products.

In addition to the inflow of money into the region, an interesting trend seen over the past year has been the resurgence of structured products in Asia. A combination of increased knowledge about the product, new investor protection regulations, low interest rates and a growing risk appetite in the region have seen sales grow at about 30% at some private banks.

From figure 1 it is apparent that the process tends to get tedious with the constant back and forth interactions between clients, RMs, dealers and counterparties.

Quotes are sent out via the «e-mail pricer» – a method whereby e-mails with deal details are sent from the buy-side and the sell-side autoreplies to the request with an indicative price. The method still requires deals to be finalised over the phone. Dealers claim that it is tedious for them to sift through the quotes from different counterparties and analyse them to identify the best quote. Furthermore, equitylinked products often have a number of post-trade events in the form of dividends and stock splits, which require further processing by middle office and settlements. These factors together give compelling evidence that banks need to improve their business processes.

However, offering these structured products to clients has given rise to a number of challenges for banks across Asia.

According to a private banking survey run by McKinsey & Co., rising cost to income ratios owing to regulatory overheads, intense competition and a general need for greater price transparency is adding impetus for banks to customise their business models for these products.

Trading of structured products today The process of trading a structured product in the market has not changed

A front end multibank solution to the problem By implementing a front-end multibank solution with a process flow similar to that described in figure 2, nearly 70% of dealer touch time can be cut per trade.

Once scaled upwards to the number of trades flowing through the desk on an annual basis, the savings realised are significant. Dealers will therefore have more time to pursue new trading strategies, business opportunities, etc. In addition, savings of time can be realised by the middle office in terms of time spent preparing pre-trade and posttrade documentation.

Improve efficiency to lower costs In light of inefficient processes highlighted earlier and the fact that cost income ratios are growing at a faster pace there is now an overwhelming need to re-engineer these processes to keep a tighter control on costs.

So far the banking industry has gravitated towards the simplest solution – automation of low value, back office activities.

However, those solutions have not managed to achieve their desired impact.

Taking these shortcomings into account, banks have begun to realise the need for

Client

Bottlenecks Client contacts RM to request quote on product (5 mins)

Front office

Singapore, Hongkong

6

RM calls dealer and gives deal details (2 mins)

Confirms price with client and places deal with dealer (2 mins)

2

Dealer

n Medium-sized private bank n AuM: ~USD 20 billion n Booking centres:

Client confirms (<1 min)

1

5

3 Dealer

1 Price query

analyses quotes from CPs (3 mins)

to CPs (e-mail/phone) (5 mins)

3

RM communicates to client that deal is booked (<1 min)

7 11

Dealer confirms with CP and books the deal (<1 min)

10

2 CP confirms prices (4 mins)

CP confirms (<1 min)

4 CP operations 9

sends post-trade termsheet (5 mins)

1 Unnecessary time spent communicating deal details via the phone or via e-mail.

Drafting e-mails in the «e-mail pricer» format takes time.

2 Counterparties usually take longer or give wider spreads if using e-mail pricer. Need sharper pricing, which masks the origin of the quote request.

5 Operations

activities, client and market legislation, settlement

5 Post-trade activities

Middle/Back Office

3 Once quotes are received, dealer has to spend time to analyse them. This should be automated ideally.

Dealer touch time

4 Counterparty operations usually take close to five minutes per deal to draft post-trade termsheets and trade confirmations.

AuM Assets under management RM Relationship manager CP Counterparty

5 Straight-through processing to the back-end and auto post-trade activity is usually manual.

8 4

Counterparty

ion

Trend

12 mins

Source: Solution Providers

1

Current structured products trade flow using e-mail-pricer (end-to-end) SolutionS

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Trend multiple counterparties with a click of a button and sort quotes to provide the best one to the client.

«An automated process for price discovery via a multidealer platform is key for banks to build economies of scale and to cope with the increasing regulatory pressures.»



Documentation: Application vendors developed termsheet generators that customise the format of documents based on counterparty and type of instrument traded. This functionality saves significant costs for the bank when the effort is scaled up to the number of deals done over a year.



Post-trade events: Previously, middle office operations would have to manually keep a tab on events like dividend payouts and stock splits. Now, this can be monitored from execution management systems via calendar reminders and alerts which notify the RMs.

Yves Roesti, Associate Partner, and Dr Andreas Wenger, Manager, Solution Providers Singapore

combatting the new status quo with a «best execution model» – targeting the front-end rather than only the back-end.

Banking software application vendors have identified the price discovery and termsheet generation as key processes for improvement of trading structured products. The automation of these processes with new innovative solutions solves the inefficiency and reduces the costs per trade.

Arriving at a best execution model Over the past few years banks have looked for solutions to arrive at the «best execution» model – a fiduciary duty outlined by the Markets in Financial Instruments Directive (MiFID). Financial institutions guarantee the best possible outcome for their clients by ensuring best price, low

cost and high speed timely execution of all orders. Although this directive mainly applies to European financial institutions, multinational European banks in Asia following these practices have ensured that its core principles have been propagated.

End-to-end multibank solutions have been developed, which address the major sore points in the trading of structured products. A few of the common bottlenecks in the process flow that have been addressed:  Price Discovery: Traditionally, dealers communicated via the phone for the purpose of procuring a quote from counterparties. Although e-mail pricers have alleviated this hassle there are still a lot of manual interventions involved. New solutions in the market allow dealers to query

It would be easy to misconstrue the initiatives above simply as «cost cutting measures» or «cutting headcount» but the real benefit of automating time-consuming tasks is to free up more time for traders to perform a higher value task.

Price transparency In light of the negative impact some structured products had on investors during the global financial crisis in 2008, there is growing requirement for banks

Client

Front-end solution benefits Client contacts RM to request for quote on product (5 mins)

Client confirms (<1 min)

Front office

1 RM calls dealer and provides deal details (2 mins)

Confirms price with client and places deal with dealer (2 mins)

5

3 Dealer

1 Price query to

passes on price quote (<1 min)

CPs (application) (<1 min)

3

7

9

Dealer confirms with CP and with RM, once deal is booked (<1 min)

Straight through processing to settlement/ back-end

Middle/Back office

8

2 CP confirms prices (3 mins)

Dealer touch time CP confirms (<1 min)

1 Unnecessary time wastage drafting e-mails eliminated.

One can simply fill out an order form in the order execution screen.

2 Due to communication via industry specific protocol, counterparties are able to return prices quicker, in a non-discriminatory manner.

RM communicates to client that deal is booked (<1 min)

4 Counterparty

Singapore, Hongkong

6

2

Dealer

n Medium-sized private bank n AuM: ~USD 20 billion n Booking centres:

~3.5 mins

AuM Assets under Management RM Relationship Manager CP Counterparty

3 Applications able to automatically calculate the best price for the dealer based on pre-determined rules  With real-time termsheet

generators the process of creating customised termsheets is eliminated.  Dealer touch time spent in the

process drops by nearly 70% by adopting the above time-saving strategies

Source: Solution Providers

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Future ideal state – using a front-end multibank application targeted at private bank dealers SolutionS

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Trend to adopt and implement multibank platforms in order to promote greater price transparency.

Europe is currently at the forefront of this initiative with exchanges such as Scoach, founded by collaboration between Deutsche Boerse and Swiss Exchange Ltd. in 2007, backed up by a pan-European regulatory authority known as the European Structured Investment Products Association (EUSIPA). The advantage of setting up such organisations is threefold.

Firstly, it opens up regional markets and asset classes that are otherwise impossible for the average investor to access. Secondly, they set strict guidelines for product issuers before they can be listed; thus protecting investors and increasing investor confidence and finally, formally trading these instruments via an exchange makes them highly liquid and available at all hours during the day.

Conclusion Although Asia does not currently have a formalised exchange like Europe, there have been initiatives taken to increase liquidity and transparency in the market. In July 2012, the Hong Kong Exchanges and Clearing (HKEx) published additional requirements and guidelines for banks regarding providing clients with standardised documentation for all deals and liquidity support for over 90% of the market’s trading hours. In future, regulators will force banks to

Counterparty 1 Client

Private banker

Counterparty 2 Relaying price and deal info

Front-end application Counterparty 3

FIX engine

1 Price request

4 Price confirmed

2 Price request Counterparty 4

5 Trade executed Dealer

3 Price displayed Counterparty 5 Source: Solution Providers

3

Essential components of a best execution model using FIX

adopt a MiFID model to promote better transparency and best execution.

This requirement therefore adds incentive to the banks to adopt independent multibank platforms similar to the one described in figure 3. In the absence of a centralised regulatory

authority, the private sector has always found a way of regulating itself. The market has thus found the solution to this challenge: multibank platforms that ensure that markets are kept liquid and prices are kept transparent in accordance with the «best execution model».

Today’s end-to-end process for trading structured products is often cumbersome and laborious. The back and forth interactions between the parties involved are time consuming and not efficient. The high interest in this products, the inefficiency of the process and the cost pressure force the banks to rethink their current process. Automating key parts of the process like the price discovery and termsheet generation can help to reduce the touch time per trade drastically and the bank can save costs.

By leering on the European market for structured products, Asia can foresee and increase regulations in near future. Europe with MiFID is a few steps ahead of Asia in this topic.

In future, regulators will demand from the banks to deliver price transparency and the best execution to their customers. With an automated process for the price discovery, the banks can fulfill these requirements. To be ahead of the regulations and also competitors, Asian banks should start looking into solutions to improve their current process as solutions are available in the market.

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info@mailsp.com www.solutionproviders.com

Solution Providers Schweiz AG Management Consulting Neugutstrasse 89 CH-8600 D端bendorf/Z端rich Phone +41 44 802 2000 Solution Providers Deutschland GmbH Management Consulting Arndtstrasse 23 D-22085 Hamburg Phone +49 40 226 229 560 Solution Providers Singapore Pte. Ltd. Management Consulting 67 A Boat Quay Singapore 049855 Phone +65 6229 5770

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