Shared Service Centers

the role in payment operations

Rob Hayden McKinsey & Company

In North America, as operations has become more automated, mindsets around Shared Services now include production heavy functions
Historical Check: manual & paper based ACH: digital and autonomous Check: relied on physical transportation Historically siloed due to inherent differences in processing and ops model Current Drivers

Check & ACH

Significant increase in the electronification and automation of check Removed dependence on physical paper making ops process more electronic more akin to how ACH is processed Ability to break silos and see like skill sets Enterprise relationship view Growing C-level awareness of the risk associated with fraud Push to get to systems that talk to one another

Check 21 enabled image based processing Cost pressures to be more in line with electronic Continued cost pressures around operations Increase in risk exposure and fraud related losses C-level involvement Need to avoid catastrophic loss (financial and/or reputational)

Fraud

Organizationally siloed/ fragmented Fraud related systems are noncommunicative Little to no C-level awareness of the magnitude of fraud Fraud mitigation transactional in nature Paper intensive Manual and product specific based on staffing and technology View that it is core to product 1:1 architecture Siloed, fragmented, and nonintegrated architecture Siloed, fragmented, and nonintegrated architecture and organization Paper intensive with a level of manual intervention

Acct opening & customer maint.

Shift away from the thinking that it was core to their product to something that gets done and not core to product

Technological revolution: automated process with less reliance on paper Cost pressures in back office

IT arch.

1: Multiple Attempt to simplify bank architecture Movement towards enterprise integration Significant increase in the adoption of eDelivery and eInvoicing Reduced demand for paper creating capacity in Print & Rendering Consolidate around like skill sets and infrastructure

Advent of hub services architecture Need for customer enterprise level data Desire to move towards real-time Continued cost pressures around operations Growth in electronic adoption of eDelivery and eInvoicing

Document management

SOURCE: McKinsey team analysis

McKinsey & Company

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4 step approach for thinking about SSC levers

Eliminate Outsource/ offshore Standardize Consolidate Automate

Evaluate and
eliminate redundant, excessive, errorprone activities to avoid bringing over the waste into a new process.

Eliminate redundancy/ Harvest best practices Automation is not

multiple touches Improve efficiency and reduce risk caused by inconsistent procedures Reduce the opportunity for errors and enhance customer experience

into one organization for the best possible result Improving visibility Create accountability to ensure that simplified and standardized policies and procedures are implemented Leverage skill sets resulting in multitasking, cross-training, career pathing, reduction in fixed costs

beneficial to broken processes or procedures Automation provides access to multiple tools previously inaccessible due to siloed organizational structure

Offshoring or outsourcing is a viable option to be heavily

considered especially prior to steps 2-4 To offshore or outsource an inefficient process could still negatively affect pricing (cost) and quality/ customer experience

SOURCE: McKinsey team analysis

McKinsey & Company

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Viable areas of production operations for SSCs

4.0

Areas for new SSCs Areas SSCs have already been implemented Areas FIs have recently implemented SSCs

The Shared Services world can be broad depending on what is in scope and what is out. Here is the list for payments related activities that are prime targets for SSCs: Research and Adjustments Exceptions and Returns

Keying Reconcilement and Balancing Non-Check Document Management - Statements, Print,

Scanning, Signature Card, Tax, IRA Forms (Receiving, Scanning, Storage and Retrieval) Fraud Management New Account Opening Customer Account Maintenance File Transmission (incoming and outgoing) Cross-channel Investigations

3.0

Sales Innovative services

2.0 Facilities Supply chain Marketing Customer 1.0 IT Finance HR Procurement

There are also Shared Services opportunities that are tangential to Payments: Project Management Reporting and Analytics Training Customer Improvement For examples of financial institutions implementing these SSCs, please contact Rob Hayden or Marcy Ellis-Williams
McKinsey & Company

SOURCE: McKinsey GBS Leader Survey, team analysis

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Benefits sizing ranges from 10 to 40%

Lever Common policies and practices Examples of impact to customer processes regardless of channel Change one change all account maintenance Examples of Impact to bank Benefits

Expected range of benefits 10-20%

Implementation complexity

Common authentication Cross channel and

product information and exceptions and workpolicy share arounds Consolidated functional Filling gaps and handoffs unit administering Reduction in risk exposure account maintenance reputation Retention reduced new hire training costs Employee satisfaction Enhanced expertise

Improve quality/ reduction in

Enhanced career pathing options More crosstraining across payments or channels Process standardization and consolidation IT automation/ selfservice tools

Higher percentage of first Create career path

touch resolutions where one does not Greater efficiency of calls exist today

Bank gaining trusted advisor 10-20%

Greater efficiency More comprehensive Any time, any place

and specialization Faster M&A integration self-sufficient, not at the Faster new product banks will speed to market Real-time information Relationship information

Economies of scale

Reduced headcount Reduced fixed, labor, and

system costs Improved quality

25-40%

SOURCE: Sizing hypothesis and then confirmation from interviews

McKinsey & Company | 4

Although SSCs may provide significant benefits, they are not without risks and barriers Integration risks Regulatory
Governance Whos going to champion and socialize the transformation program Whos going to run the program (internal politics) Self-preservation Implementation costs Training Moving/ building Retention of knowledge base Upfront cost if you dont already have location to house this service Loss of/inability to attract highly skilled staff at surviving/ new locations Loss of best-practice knowledge in transition Business disruption during transition

Protection of PII Local laws Tariffs

Technology Dependency on consolidated platforms Cost of implementing consolidated platform Security, physical and cyber

Integration success

Business continuity If consolidated to one side, there is a single point of failure Longevity of transformation program Initial implementation success Lack of LOB buy in or cooperation Mindsets and behaviors False fears Need for whole degree of standardization Unclear vision and aspiration for shared services across the firm with low buy-in/compliance from LOBs LOBs fear loss of control and flexibility

Economic/ political threats Physical location may be of concern based on current political conditions Reputational risk of moving both from customer and local population perspective LOB dissatisfaction with shared service performance and remoteness Negative scale and decreased effectiveness

Access to a talent pool Potential limited pool of talent based on physical location Nearby competition creates poaching

SOURCE: McKinsey team analysis

McKinsey & Company | 5

Thank You!