Richard Pattinson, senior director, group treasury, Barclays and chairman of the Cable & Wireless User Group discusses the value of real time information with User Group members.
The case for real time information continues to be discussed within the banking industry, as does the case for improving efficiency, reducing risk and driving greater product innovation. The fundamentals driving the debate are the same, and the overlapping drivers behind each need no explanation. Add to this mix the lingering attention of regulatory bodies, both in the US and the EU, then proof of returns and benefits banks will gain from new systems and processes are critical to their implementation.
"Time equals risk" is still a familiar mantra in banking operations. However, if on the surface the discussions may appear to be the same as a year ago, on closer inspection much has changed. "What does it mean for me?" is now a familiar phrase used throughout the industry. How to equate systems with efficiency, risk management and critical benefits in terms of tangible returns is the key, and one which the real time information debate needs to secure. As Chairman of the Cable & Wireless Real Time Nostro User Group, I feel it is clear that tangible returns on real time information are becoming evident.
Cable & Wireless Real Time Nostro (RTN), launched during Sibos last year in Singapore, is one of the first applications to take advantage of real time information. Following the launch and subsequent signings of a number of banks to the RTN service, there followed the inception of the RTN User Group, early in 2004. These bi-monthly sessions provide a platform for banks to exchange ideas and experiences with cash reporting, the RTN service and the intrinsic benefits of real time information. The next will actually be held during Sibos, on the Monday.
This group, comprising existing users and those reviewing the service, includes Lehman Brothers, Citigroup, Royal Bank of Scotland, ANZ, Mizuho Corporate Bank, Credit Suisse First Boston, Calyon, Barclays Bank, Bank of America, State Street, JPMorgan Chase, Royal Bank of Canada, UBS and Dresdner Kleinwort Wasserstein.Opportunity for value
If there is general agreement on the theory and drivers towards real time information, then the need to quantify the much talked about benefits has been discussed within the User Group. As a result, the 'opportunity for value' segmentation (see diagram) was devised by C&W and illustrates different areas of a bank that can derive benefits from real time information.
I have referred to this diagram in the past as the, "Virtuous Circle of Value" and this demonstrates the value not only of RTN, but also real time information beyond nostro accounts. This is the critical area of the debate – driving real time information throughout, and across, various areas of a financial institution. In conjunction with this segmentation, C&W developed a macros-based four-phase methodology that enables banks to enter their own data and calculate the value to their institution of using real time information. This methodology can also enable banks to compare results to its situation prior to implementation of RTN.
Alister Hoad, programme director, financial services, C&W says: "The underlying message of real time information is that it is changing the way information flows through an organisation. The segments identified in the value wheel are those where RTN can make a difference. There will be others in due course."
Frank Harris, head of correspondent banking, clearing and settlement business at Mizuho Corporate Bank in London, adds: "The methodology provides a broad indication of where hard dollar value can be realised. It enables a bank to quantify the funding gap that occurs when real time information is not used versus when it is used. Some banks may dismiss this gap as the cost of doing business, but that is less justifiable when cost reductions are still being sought."Regulatory issues
As mentioned, the regulatory issue is one that is here to stay and real time information lends several arguments to the case regarding transparency, management of information and improving risk ratings. In essence, banks need to exercise practices that clearly exhibit to regulators that they are in control of their business.
Andrew Rourke of UBS adds a degree of clarity to this subject: "UBS is undertaking a strategic programme looking at all of its cash services. Real time information would help reconciliation and control functions, with implications from a client service perspective, such as faster query turnaround, and risk mitigation. This latter point is important, as with increased focus on the regulatory environment, such as Sarbanes-Oxley & Basle II, concepts such as RTN will assist in demonstrating risk-mitigating processes. The value wheel helps demonstrate the impact of real time information and takes people out of the narrow tranche of the Bank in which they tend to think."The future
In a globally connected and regulated industry where "time equals risk", then "risk equals money". Real time information provides a solution to manage scenarios as they occur. The risk mitigation benefits are clear and on nostro accounts, for example, the benefits to monitoring currency and counterparty exposures in real time deliver benefits to liquidity management which are real and quantifiable.
The value of real time information is not just in cash or reconciliation processes. Harris says: "In the future, banks will be using real time information as it will allow them to enhance their product offerings to clients. They will also use real time information within their own businesses to improve profitability, operational efficiency and help manage risk in a changing regulatory environment."
The current implementation of Swift's IP-based network, SwiftNet will bring the real value of IP-driven, real time information to the banking sector even further.
One year on from the launch of RTN, some banks are specifying RTN in their RFPs for reporting purposes – evidence that the value of real time information is being recognised. The level of interest and acceptance is at a point where the industry must move on in a real time environment.