Transcript Ken Katz Misys Commercial Lending Division

Misys Treasury & Capital Markets
Achieving STP in
Commercial Lending
Ken Katz
Misys Commercial Lending
Division
Product Manager Loan IQ
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What is STP?
• Straight Through Processing (STP) is the substitution of
automated tasks and processes for manual ones so that a
business process or service (e.g. the origination, servicing
and disposition of a commercial loan) can be entirely
automated from beginning to end.
– All original information (e.g. customer and loan term information) is
entered only once in the process and ‘reused’ throughout the
loan lifecycle
– Central database is sole repository for information
– Processes and workflow events are tied together seamlessly and
performed without unnecessarily repetitive data entry or
manual transition
Source: TowerGroup
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Critical Components of STP
•
•
•
•
•
Real-time data processing
Common database
Business logic rules
Automated workflow management
Seamless integration of processes
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Full STP Value Proposition to
Commercial Lending
Internal Integration
Documentation
Perfecting
Credit
Approval
General
Ledger
Internal
Systems
Sales Force
Automation
Risk &
Compliance
Workflow & Data Management
Loan
Products
Origination
Booking
Servicing
Reporting &
Portfolio Mgmt.
Core Loan Processing Cycle
Remote /
Wireless
Regulators
Service
Bureaus
Legal
Counsel
Customers
Syndicate
Members
Secondary
Trading
External Integration
Source: TowerGroup
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Current Lending Market Drives STP
• STP is a Necessity due to current commercial lending
environment
– Banks no longer hold large deposits for long periods
at high interest rates
• Highly liquid market due to secondary trading, non-bank investors and
sophisticated derivative instruments
– Banks need to coordinate increasingly global information
flow and work flows
• Need for a single platform to host and standardize data across different
locations, time zones, currencies
– Banks need to comply with increasingly strict industry and
government regulations
• Basel II, Sarbanes-Oxley Act
– Banks pressured to cut costs through improving operational
efficiencies
• Net interest margins are at 20-year historical low
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US Bank’s Net Interest Margin (19962006)
Net Interest Margin (%)
4.50%
4.25%
4.00%
3.75%
3.50%
3.25%
3.00%
1996
1997
1998
ALL US BANKS
1999
2000
2001
2002
2003
2004
2005
2006
US BANKS WITH ASSETS OVER $15 BILLION (USD)
Net Interest Margins are a 20 year low, forcing banks to reduce costs
through operational efficiencies.
Source: TowerGroup
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Increasingly Liquid Loan Market
Europe in 2006
Multiple players in the market and more ways for loan assets to be held
means banks no longer hold loans for long periods at high interest rates.
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Source: LSTA
How can STP benefit
financial institutions?
Straight Through Processing
Single Source
Database
Single Source
Database
Operational
Efficiency
Seamless Integration
of Processes & Workflow
Risk
Management
Once only Data Entry
Enhanced
Customer Service
Increased Revenue
• Elimination of
redundant systems
• Workflow
management
• Responsiveness
• Cross sell
opportunities
• Reduction of manual
labor
• Data integrity
• Accuracy
• Improved customer
retention
• Streamlined
processes
• Exception
management
• Reduced processing
time
• Increased productivity
• Lowered costs
• Accountability
• More comprehensive
knowledge of customer
• Risk-adjusted pricing
Source: TowerGroup
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STP Technology Trends
• Business Process Management Systems (BPMS): Manage
workflow—automate data gathering from host systems, apply
standardized underwriting rules and policies, centralize
reporting, and support on-going portfolio monitoring
• Electronic Content Management (ECM):
Manage & deliver content– electronic and paper based
documents, multimedia files, email, images, web pages and
other communications
• Service Oriented Architecture (SOA): Web services used as a
‘wrapper’ around legacy system integration points to provide
standard interface protocol
• Business rules management system (BRMS): Manage business
rules, enforce policies, make decisions, standardize processes
Source: TowerGroup
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Why have banks not fully achieved
STP?
• Increasingly complex loan transactions with multiple parties
– System has to be able to link to clients, vendor systems,
credit bureaus, databases
• Consolidation of front and back office processes and
workflow is costly and requires organizational change
• Difficult for banks to define clear workflow and information
flows needed for full STP
– Lack of industry standards in fast developing commercial
lending industry
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Achieving STP Efficiency
• “Policy and process first” approach before making major
technology investment
– Technology should not lead the solution but rather enable
the solution
• Bank’s internal front and back office divisions need to be
aligned
Optimization Pathway
Technology
People
Process
Policy
Benefit
70%
Source: Benchmark Consulting International
90%
100%
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Questions and Answers
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