A FINEXTRA RESEARCH REPORT SPONSORED BY AXWAY MARCH 2015 OPERATIONAL INTELLIGENCE AND PAYMENTS MONITORING A REPORT ON A SURVEY BY FINEXTRA AND AXWAY

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1 A FINEXTRA RESEARCH REPORT SPONSORED BY AXWAY MARCH 2015 OPERATIONAL INTELLIGENCE AND PAYMENTS MONITORING A REPORT ON A SURVEY BY FINEXTRA AND AXWAY

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3 OPERATIONAL INTELLIGENCE AND PAYMENTS MONITORING A REPORT ON A SURVEY BY FINEXTRA AND AXWAY Finextra Research Ltd 101 St Martin s Lane London WC2N 4AZ United Kingdom Telephone +44 (0) contact@finextra.com Web All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage and retrieval system, without prior permission in writing from the publisher. Finextra Research Ltd 2015

4 00 CONTENTS 01 Introduction...5 1:1 Finextra...5 1:2 Axway About this survey...7 2:1 A snapshot of operational intelligence maturity for payments Instrument processing, platform and volumes :1 Immediate payments add to the mix of supported instruments :2 Volume and value Business priorities and strategic payments areas :1 Mobile payments dominate strategic planning, particularly in Europe :2 Customer satisfaction deemed more important than profit End-to-end monitoring and tool usage :1 Some immediate payments go unmonitored :2 Custom tools are the first level of monitoring maturity Benefits and barriers to operational intelligence maturity :1 Banks target operational risk reduction :2 Agreement on requirements and management buy-in required Real-time decision making, customer commitments and breach handling :1 Requirement for instant decision making is growing :2 Time commitments dominate SLAs... 17

5 01 INTRODUCTION 1:1 Finextra This report is published by Finextra Research. Finextra Research is the world s leading specialist financial technology (fintech) news and information source. Finextra offers over 100,000 fintech news, features and TV content items to visitors to Founded in 1999, Finextra Research covers all aspects of financial technology innovation and operation involving banks, institutions and vendor organisations within the wholesale and retail banking, payments and cards sectors worldwide. Finextra s unique global community consists of over 30,000 fintech professionals working inside banks and financial institutions, specialist fintech application and service providers, consulting organisations and mainstream technology providers. The Finextra community actively participate in posting their opinions and comments on the evolution of fintech. In addition, they contribute information and data to Finextra surveys and reports. 05 For more information: Visit contact contact@finextra.com or call +44 (0) :2 Axway Axway is a market leader in governing the flow of data and is a global software company with more than 11,000 public and private-sector customers in 100 countries. For more than a decade, Axway has empowered leading organizations around the world with proven solutions that help manage business-critical interactions through the exchange of data flowing across the enterprise, among B2B communities, cloud and mobile devices. Our award-winning solutions span business-to-business integration, managed file transfer, operational intelligence, API and identity management, and security

6 both offered on premise and in the Cloud through professional and managed services. Axway is registered in France with headquarters in the United States and offices in 19 countries. About Axway Decision Insight Axway Decision Insight is the latest Operational Intelligence technology platform arising from the acquisition of Systar, the industry leading provider of Operational Intelligence solutions. The Axway Decision Insight platform enables business users to create Operational Intelligence solutions with an unmatched rapidity. Teams are provided with a solution functionally ready to be deployed into production in only a few days. Implementation without coding allows non-technical business users to create and modify the solution by configuration, without having to write a single line of code. There is no need for the traditional lengthy, waterfall application development life cycles. New iterations of dashboards can be configured in hours, rapidly accelerating the time to implementation, improving adoption, and reducing the time to value. For more information visit: or follow Axway on Twitter 06

7 02 ABOUT THIS SURVEY 2:1 A snapshot of operational intelligence maturity for payments This survey was conducted by Finextra at the beginning of 2015 and targeted financial institutions worldwide to take a snapshot of banks priorities in their payments business, the challenges they face in their operations, and their current use of operational intelligence tools for delivering real-time business analytics and decision support. We received 105 responses from 66 different financial organisations and 38 countries. Where multiple responses came from a single large financial group they were frequently from different geographies or business units - e.g. cards, retail, transaction banking or financial markets. 61% of respondents came from Europe, with the remainder spread worldwide. 44% were C-level or senior management. Where differences in responses were apparent by region, position or role, this has been noted in the analysis. Sample job titles include: Chief Operating Officer Director, Cash Management Vice President - Strategic Planning Head of Payment Systems Head of Payments Policy and Strategy Enterprise Architect - Payments Senior Manager Global Payments Director, Business and Operations Director, Cash Management & International Business Head of Global Portal and Customer Experience 07

8 POSITION C-level (executive) 6 % 8 % Internal consultant 38 % Middle management ROLE 29 % 8 % 3 % 5 % 23 % 40 % Other Senior management Fraud prevention Change management Payment system processing 08 Payment system expert Other 40 %

9 REGION 3 % 4 % 12 % 12 % 20 % Africa Asia Pacific Europe North America 61 % Other 09

10 03 INSTRUMENT PROCESSING, PLATFORM AND VOLUMES 3:1 Immediate payments add to the mix of supported instruments WHAT DOES YOUR BANK PROCESS? - PLEASE TICK ALL THAT APPLY Card Cheque Immediate payment Mass payment/sepa Unit real time payment 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 70 % 77 % 75 % 81 % 86 % 10 We sought to find out from respondents what payment instruments their bank processed, to get a sense of their business operations and use as a filter to analyse later questions about priorities and operational challenges. Cards payments processing is ubiquitous for banks with a retail presence, and the 86% response for this instrument gives an indication of how many of our respondents operate in the retail space vs just serving corporate banking customers. Cheque usage is declining rapidly worldwide in the face of more secure, convenient card and electronic payment methods. But only in a few countries, mainly in northern Europe where giro systems essentially replaced them, have they been completely phased out. As such, cheque processing, usually in conjunction with industry owned processing utilities, is still required by most banks.

11 Until the beginning of this millennium, Japan and Switzerland were the only major countries to support low value domestic payments that could be posted to recipients accounts in under a minute. All other immediate payments were limited to high-value transactions conducted over national real-time gross settlement (RTGS) systems. Since 2000 a number of countries have moved to embrace immediate low value domestic payments, including Brazil, South Korea, United Kingdom, China, India, Sweden, Denmark and Singapore. 77% of respondents to this survey say they process immediate payments of one kind or another, and this number will grow as projects underway in countries such as Australia are implemented and planning progresses within Europe s SEPA framework and by the United States Federal Reserve. 10% of respondents to the survey were small sized banks that do not connect directly to payments clearing infrastructure, instead connecting via a third party agency arrangement. IS YOUR BANK DIRECTLY CONNECTED TO A PAYMENT PROCESSING PLATFORM? 4 % 10 % No Yes % 3:2 Volume and value 56% of our respondents are dealing with payment transaction volumes of at least one million per day, and the same percentage have an aggregated monthly value of transactions equivalent to $1 billion or greater.

12 WHAT ARE YOUR PAYMENT TRANSACTION VOLUMES? Greater than one million per day 25 % Up to one million per day Up to one million per week Up to one million per month 19 % WHAT IS THE AVERAGE MONTHLY AGGREGATED VALUE OF TRANSACTIONS? 8 % 4 % 11 % 45 % 56 % > $1B $100M - $1B 13 % $10M - $99M $1M - $9M < $1M %

13 04 BUSINESS PRIORITIES AND STRATEGIC PAYMENTS AREAS 4:1 Mobile payments dominate strategic planning, particularly in Europe WHAT ARE YOUR TOP THREE STRATEGIC PAYMENT AREAS FOR 2015? Mobile payments Immediate payments Regulatory Internet SEPA Liquidity 16 % 13 % 9 % 8 % 3 % 8 % 10 % 26 % 22 % 22 % 16 % 16 % 14 % 16 % 10 % 8 % 21 % 8 % 13 None of the above 4 % 5 % 9 % Security 3 % 10 % 27 % Primary Secondary Tertiary We asked respondents to separately identify what were their primary, secondary and tertiary strategic payment areas. Overall, mobile payments dominated as both the primary and secondary selection (26% and 22% respectively). This was followed by immediate payments and the ever-present regulatory demands.

14 But for Asia Pacific and North American respondents, immediate payments were a bigger priority than mobile payments. Of course, the two are not mutually exclusive. The mobile channel is an important one for making immediate payments an attractive and widely used payment product among consumers. But immediate payments via mobile can t be offered until the bank back office systems and external connectivity are replaced or upgraded to support the appropriate standards. And in the meantime there is plenty of development going on in the mobile payment space even in countries that have not yet begun to tackle immediate payments infrastructure. Regulatory drivers, including SEPA, were mainly an issue for European respondents dealing with projects related to compliance with current legislation. They are also looking at changes on the horizon such as Payment Services Directive (PSD) II and the potential impact on interchange and m- and e-payments. Security was not a primary strategic focus for many organisations, but it was most commonly selected as the tertiary focus, showing that it is an important consideration within strategic projects in any payments area, particularly given payment systems attractiveness to those who would commit cyberattacks and fraud. 4:2 Customer satisfaction deemed more important than profit WHAT IS YOUR MAJOR BUSINESS PRIORITY FOR 2015? Customer service improvement % Increasing profit Performance improvement 55 % 26 %

15 Moving beyond just the payments area, we asked respondents more broadly what they believed the major priority for their business was for For 55%, improving customer service was more important than increasing profit or performance improvement (although if customer service is actually improved that should lead to improvements in the other areas as well.) This focus on customer service provides an interesting perspective with which to view the following questions about service level agreements, breaches and penalties. 15

16 05 REAL-TIME DECISION MAKING, CUSTOMER COMMITMENTS AND BREACH HANDLING 5:1 Requirement for instant decision making is growing IN YOUR DAY TO DAY ACTIVITY, ARE YOU REQUIRED TO TAKE OPERATIONAL DECISIONS WITHOUT DELAY? 58 % 17 % 25 % No Occasionally Yes 16 Making decisions driven by data is at the heart of business operations management. But we wanted to know from respondents how often they are expected to make immediate operational decisions when particular data is presented to them. All but a few, who mainly identified as internal consultants, said they have to make decisions without delay at least sometimes. And for the majority (58%) it is a daily occurrence. For a significant number of respondents, this requirement is growing. 44% say that in the past year they have been required to do more instant decision making.

17 HAS THIS REQUIREMENT INCREASED IN THE PAST 12 MONTHS? No 28 % Yes Not significantly 44 % 28 % 5:2 Time commitments dominate SLAs When it comes to the quality of experience a customer has with an organisation, service level agreements (SLAs) and what happens when they are breached is a good indicator. Of course, the levels of commitment within an SLA will differ greatly from mass market retail customers through to large multinational corporations. Processing time and deadline/cut-offs are the most usual commitments banks make to their customers when it comes to payments (84% and 70%). But far fewer have made any commitments to how fast they would react to customer queries. Only 51% have done so, and all of these institutions are at the larger end of the scale in terms of processing volume and value. This is one area that could be improved if the priority to improve customer service is going to be followed through. 17 Those who identified mobile or immediate payments as their top priority for 2015 (section 4) were more likely to have commitments to customers about processing time (94% compared to 74% for those with other payments priorities). There was a wide range of responses when we asked how many significant commitment breaches had occurred in the previous year. Interestingly, the number did not seem closely correlated with overall transaction volumes. For example, none of those with more than 100 significant breaches were among the 45% of respondents who processed more than one million transactions a day.

18 Customer commitments often comprise two parts what the organisation promises its customers it will do, and also what it will do to compensate if it doesn t meet those standards. When presented with a range of options to describe the impact of commitment breaches, and being able to select multiple responses, reputational damage was the most commonly selected (85%). Most would agree that this applies whether the customer being failed is a mass market retail customer, a high net worth individual or large corporate. Any failure in service commitments can make a customer less satisfied, less likely to increase business with the bank and less likely to refer others. But financial penalties tend to kick in only for larger customers who are in a position to negotiate penalties and interest charges as part of their contractual arrangements. WHAT COMMITMENTS DO YOU HAVE TOWARDS YOUR CUSTOMERS? - PLEASE TICK ALL THAT APPLY Processing time Deadline / Cut-off Feed back on mandated transaction & reporting Intraday credit 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 52 % 63 % 70 % 84 % 18 Reactivity to question 51 % Zero defaults 33 %

19 HOW MANY SIGNIFICANT COMMITMENT BREACHES DID YOU EXPERIENCE IN THE PAST 12 MONTHS? 6 % 22 % 33 % > % WHAT IS THE IMPACT IF A COMMITMENT IS BREACHED? - PLEASE TICK ALL THAT APPLY Reputation Interest claims Penalties 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 40 % 56 % 85 % None: customer is always alerted 6 %

20 06 END-TO-END MONITORING AND TOOL USAGE 6:1 Some immediate payments go unmonitored WHAT SORT OF PAYMENT TRANSACTIONS ARE MONITORED END-TO-END? - PLEASE TICK ALL THAT APPLY High value payments Low value payments Immediate payment Card Cheque Other None 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 3 % 12 % 35 % 45 % 50 % 48 % 81 % 20 Given the penalties and reputational damage are both going to be higher for high value transactions that go wrong, it is not surprising to see that 81% of respondents conduct end-to-end monitoring of transactions in this category. There is then a large jump to the next category with only 50% of respondents monitoring low value payments, which could include direct debits and credits, and peer-to-peer and bill payments. Cards and cheques were listed separately and ranked a little lower. Immediate payments was also listed separately, and only 48% said these transactions were monitored end-to-end. Given that Q1 established that 77%

21 of survey respondents came from institutions that processed immediate payments in some form, this shows that there is room for improvement in oversight of these transactions and transaction systems, which are attractive targets for fraudsters. 6:2 Custom tools are the first level of monitoring maturity WHAT TYPE OF MONITORING TOOLS DO YOU CURRENTLY USE? - PLEASE TICK ALL THAT APPLY Custom tools Operational Intelligence / Business Activity platforms from the market Both BI tolls and OI tools from the market Business Intelligence platform from the market 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% For those institutions that have implemented monitoring tools for payments operations, they are most commonly custom developed. This is not surprising given that the vendor market for effective operational intelligence (OI) solutions tailored for payments is relatively new. Given a lack of availability or greater awareness of what s available in the market, banks look to first deliver monitoring capabilities in-house, and 70% of respondents have done this. 11 % 30 % 28 % 70 % 21 Operational intelligence tools provide real-time insight into operational performance and can provide views compared to historical performance, while business intelligence (BI) tools provide only a retrospective view of past performance. OI provides real-time dashboards. BI provides reports after the fact. Some institutions may have multiple monitoring solutions in place a mix of customer developed solutions with operational intelligence and/or business intelligence tools from the market. 30% of respondents say they have implemented an OI tool. 11% have just implemented a BI tool. And 28% have implemented both (and possibly a custom tool too).

22 07 BENEFITS AND BARRIERS TO OPERATIONAL INTELLIGENCE MATURITY 7:1 Banks target operational risk reduction WHAT ARE YOUR STRATEGIC OBJECTIVES FOR END-TO-END MONITORING? - PLEASE TICK ALL THAT APPLY Reduce operational risk Improve customer experience Increase performance Cost reduction 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% While improving customer satisfaction is considered the highest business priority, the benefits of end-to-end monitoring are seen more as reducing operational risk. 85% of respondents selected this as one of the benefits they hope to gain from end-to-end monitoring. 50 % 62 % 71 % 85 % 22 But an improved customer experience is still seen as a benefit by 71% of respondents, who expect that end-to-end monitoring will reduce instances of commitment breaches and boost reporting capabilities for customers as well as minimising the organisation s operational risk and fraud exposure. Cost reduction is seen as a potential benefit by half of respondents, who can see how monitoring can also help to optimise usage of back office resources working on payments validation and repair.

23 7:2 Agreement on requirements and management buy-in required WHAT ARE THE BARRIERS TO DEPLOYING PAYMENT MONITORING TOOLS IN YOUR ORGANIZATION? - PLEASE TICK ALL THAT APPLY 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Lack of budget 59 % Difficulty of getting IT and business users to agree 40 % Difficulty in convincing business leaders (ROI, etc) Implementation too lengthy Lack of business justification There are no appropriate tools available Lack of human resources For those that have yet to implement their desired level of payment monitoring tools, and those who have overcome challenges to do so, the biggest barrier is the cost and lack of budget. Organisations have a view on the level of operational intelligence they would like to have at their fingertips in an ideal world. But getting to that stage in one massive project is too much to ask given resource constraints, maintenance, and regulatory priorities competing for budget. 14 % 18 % 24 % 31 % 35 % 23 Instead, payments monitoring projects are more likely to start out smaller in specific areas, perhaps via bespoke solutions, and then extend in scope and capability as partners are found to deliver and implement market solutions. Getting IT and business users to agree on requirements and delivery approach was considered the second biggest barrier to deployment. Managing this can be difficult, but when it is done well, it contributes the shorter implementation time and faster time to value from the project.

24 Finextra Research Ltd 101 St Martin s Lane London WC2N 4AZ United Kingdom Telephone +44 (0) contact@finextra.com Web