Introduction

In a market marked with fierce competition, consolidation, evolving technology and more than ever stringent regulatory framework, banks are finding it tough to not only acquire new customers but also to retain the existing ones.  Banks are exploring avenues to improve customer experience through uniform and controlled processes for onboarding, loan origination, credit card dispute resolution, payment processing etc.

Business Process Management (BPM) has emerged as a critical tool that can help banks achieve operational efficiency through process orchestration and integration of departments (including but not limited to front, mid and back office). An effective BPM solution involves not only internal stakeholders in the organization but also external ones like customers, partners and others in the banking ecosystem.

Primary challenges faced by banks

Meeting customer and regulator expectations through controlled processes is one of the primary challenges faced by banks today. Improving profit margins in a fiercely competitive landscape comes next. Listed below are some of the challenges that banks need to address as swiftly as possible:

• Unavailability of standardized processes

Regulators across the globe are coming out with stringent norms like Basel III, FATCA and Dodd Frank which require banks to have efficient risk management, compliance and control over processes along with consistency across geographies. Banks are finding it expensive and time consuming to respond to frequent regulatory changes. Most banks rely on manual processes which are difficult to change according to regulatory changes.  

• Longer time-to-market for new products

To meet market and customer demands, banks are coming out with innovative products. They need to make these products available to the customer at the earliest and cannot afford to have any glitches in the process, right from customer request to servicing. But due to absence of standard processes for product introduction across branches, time-to-market is longer and customer experience is not uniform.

• Limited process automation

With the emergence of technologies like cloud, social, mobility and analytics, banks need to innovate and provide real time experience to their customers. For instance, customers visiting branches to submit an application is a thing of the past. They are now initiating the application from their mobile/tablet. Banks need to ensure that the application is automatically routed to the right person/department/system for subsequent action. Customers are demanding quick action for their requests and banks are finding it difficult to automate the entire approval process. For example, In case of a mortgage application, if a customer meets all the eligibility criteria, his application should be automatically approved based on defined business rules without any manual intervention.  But due to lack of automation, banks are not able to quickly turnaround customers’ application, resulting in mounting expenses and customer churn.

• Lack of collaboration

Several departments of a bank are involved in addressing a particular customer requirement. Each of these departments work in siloes, having their own processes, systems and data. These systems are not integrated and limited or no information is shared between these departments. This results in lack of visibility on status of customer requirement, and longer turnaround time. In this age of diminishing interest income, especially commercial banks which are affected by volatility in the lending market, banks are looking at other avenues to increase their income. They have to reduce operating costs of processes to boost income. This can be achieved through collaboration, information exchange, customized work flow, task delivery and notification across departments.

Leveraging BPM to standardize processes and enhance revenues

Gartner defines Business Process Management (BPM) as “the discipline of managing processes (rather than tasks) as the means for improving business performance outcomes and operational agility. Processes span organizational boundaries, linking together people, information flows, systems and other assets to create and deliver value to customers and constituents.”

BPM has evolved as a critical tool which can solve most operational challenges faced by banks. BPM helps banks improve operational efficiency and enables them to meet the end objective, which is customer satisfaction. BPM has useful features like Straight through Processing (STP), business rules to automate approval and workflow, SLA definition and comprehensive audit trail. These features enable banks with:

• Standardized processes, use of business rules to manage workflows and automate approvals

Banks can orchestrate and automate processes across departments and systems without much manual intervention using STP capability of BPM. STP eliminates the need for data re-entry and makes the decision-making process easier by rendering current data. BPM provides flexibility to banks to easily redefine processes based on changing business or regulatory requirements. Some banking processes are extremely complex and require high-costing specialists to manage them and train other resources. Such processes can be standardized in the system so eliminate the need for specialists and hence reduce the cost of managing these processes. For example, LC transactions are complex, involve risks and require multiple approvals. Banks find it difficult to replicate the desired process (meeting regulator requirement of streamlined process) across branches. But with BPM, banks can implement the desired process across all its branches and have more control in terms of compliance, along with efficiency.

Credit appraisals in commercial banking is another area where BPM can be very useful. Using workflow defining capability of BPM, Banks can define workflow for credit appraisal right across the sales, risk and operations departments. BPM enables Banks through Business rules to effectively route proposals across various departments and users for subsequent action and approvals. For example, if customer risk rating is AA, proposal can move to next stage automatically, else relationship manager needs to substantiate the proposal with more facts and justifications before it moves to the next stage. In case of payment transactions, with the help of STP, banks can reduce the overall settlement time from the usual T+3 days to same day settlement, thereby improving system efficiency, reducing cost and improving customer satisfaction.

• Process optimization through notification, assignment of tasks and SLAs

BPM delivers the tasks pending in the business process to the right person and notifies through email. For example, if a credit card proposal is submitted by the relationship manager, an “underwriting” task is generated and assigned to the team of underwriters. Notification is sent to the underwriting team about the due task. Upon notification, either the team head can assign the same to one of the team members or one of the team members can pick the task and act upon it. If the underwriting team needs further clarification on the proposal, they can reassign it back to the relationship manager with the query. This feature ensures that no task is left unattended and is acted upon in time.

SLAs can be defined for each activity in a process and the same can be monitored through BPM. In case of customer onboarding, banks can define SLAs for each activity like scrutiny of documents, KYC etc. and performance of each activity and user can be monitored. This helps identify the bottlenecks in the process and banks can improve upon these to have better TAT for the entire process. This feature can prove to be invaluable in case of customer query resolution where timely revert is critical. Banks can monitor TAT of customer service representatives against assigned SLAs.

• Process traceability

As banks are expanding their reach across the globe, it is imperative that they comply with the various regional regulations. It is mandatory to conduct due-diligence (like KYC) on customers before onboarding them. BPM can ensure that the regulations are followed. Comprehensive audit trails can be obtained through BPM to trace when, what and who of any action in a process. This can help improve compliance efforts cost effectively. Banks can have real time visibility of the entire end-to-end process. This feature enables relationship managers to provide customers with real time status of their application and the expected time of closure.  

Phase-wise approach for BPM implementation

Banks can adopt the following methodology of implementing BPM in phases so as to derive maximum benefits.

• Identification: Complex existing processes spread across departments and systems of the bank have to be identified. This can be done by identifying “AS- IS” high level processes and then broadening the scope to sub-processes. While carrying out this exercise, business rules, involved parties, systems and tasks involved in the process also need to be identified. Once done, the entire process needs to be properly documented as most banks do not have documented processes.

• Assessment: Next step is to assess the identified processes along with the different parties involved in the process. Factors like complexity of process, turnaround time, number of systems involved and number of tasks have to be considered before deciding which processes have to be implemented through BPM. Banks also need to evaluate the various BPM tools available in the market which suits their needs.

• Implementation: Bank can start BPM implementation with smaller processes, which can be quick wins, and then extend it to the more complex processes. Implementation should be in small phases, starting with processes in a department and then extend it to processes spanning across departments. 

• Review and analysis: Banks need to review the end result by measuring parameters like turnaround time for a task in process, cost involved and the bottlenecks.

• Reengineering and improvement: Upon identification of problem areas, banks need to redefine/rearrange the tasks to improve performance (For example, having parallel tasks instead of sequential). The end goal is to reach “TO-BE” stage with continuous assessment and improvement of processes. 

Conclusion

BPM can help banks fulfil the needs of a challenging business environment and refuel growth by empowering internal and external stakeholders. It can transform banks by providing better control and visibility of its critical processes, eliminating errors, improving employee productivity and enabling fast response time to customers.