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CAPCO DEBUTS ON CONSULTING MAGAZINE’S “2010 BEST FIRM TO WORK FOR”
Capco consultants thrive on firm’s unique culture and driving client transformation
NEW PARTNER TO JOIN CAPCO’S UK BANKING LEADERSHIP TEAM
Ian Holden joins Capco at a time of transformation in retail banking.
SEPA : CAPCO-ZAHLUNGSVERKEHRSEXPERTEN WARNEN VOR DEUTSCHEM ALLEINGANG UND PANIKMACHE
Capco's payments experts warn of growing unrest among German consumers further to the German Ministry of Finance's announcements on SEPA.
NOW, NO DEGREES OF SEPARATION
Banks will have to react quickly to recommendations of end-2011 (for SEPA Credit Transfers) and end-2012 (for SEPA Direct Debit).
EFFECTIVE RISK AND P&L MANAGEMENT
Don’t let the business case for improvement be driven exclusively by the “stick” of Regulation. Focus on providing the best possible infrastructure to satisfy Front Office demands.
EUROPEAN RETAIL BANKING CREDIT RISK
How do you grow market share and revenues while guarding effectively against losses?
Latest Journal
Journal 28 – Cass Capco Institute Paper Series on Risk
This issue focuses predominatly on the potential causes of the current crisis...
Research & Thoughts
SMARTER SOURCING IN A POST_CRISIS ENVIRONMENT:
New imperatives drive the need to revisit how critical processes are conceived and managed
By Carmina Venditti, Capco Director
The financial crisis has forever changed the landscape in which financial institutions operate. As a result financial services institutions are preparing for the future by transforming their operating models. Where companies previously capitalized on the comparative economic advantages that exist globally by distributing operational processes to various facilities and locations to optimize cost, Capco believes it is necessary for financial services firms to take the next step in this journey.
In our report “Smarter Sourcing in a Post-Crisis Environment,” we explore how executives must expand their focus beyond cost reduction to include the concepts of “flexibility” and “agility” when they determine what activities should be performed by whom, when, where and how. Read this report to learn best practices and imperatives for developing a global enterprise-wide blueprint around smart sourcing by creating a common platform for effectively managing a hybrid environment of internally and externally sourced operations in an integrated manner.
NOW, NO DEGREES OF SEPARATION
European Commission announces end-date for legacy payments in September, 2010
By Bernd Richter, Associate Partner
Banks will have to react quickly to recommendations of end-2011 (for SEPA Credit Transfers) and end-2012 (for SEPA Direct Debit). Should these become European Parliament legislation, every financial institution will have a transition phase of just one year to handle all payments in the SEPA format. For more on the implications and the opportunities these potential changes will bring, download our Special Report.
EFFECTIVE RISK AND P&L MANAGEMENT
The foundation of informed and sustainable trading
By Mark Reeves and Harmen Meijnen, Partners, Derek Taylor, Managing Principal, and Alexander Bommes, Head of Risk and Finance, Capco Germany
Risk and P&L Management does not have to inhibit successful business: quite the opposite. Of course, it must recognize, and address, the pervasive and varied nature of Risk in a complex commercial environment. But it should also be driven by the needs of the Front Office.
Ultimately, all successful financial institutions are looking to secure the same outcome. They need daily, weekly and monthly P&L numbers that are accurate, meaningful, and calculated in an environment where all the relevant facets of Risk are fully transparent, clearly understood, and effectively managed. Those institutions who have already created this environment are conspicuous for their market insights and continuing commercial success.
CREDIT RISK - A NEW AND POSITIVE BALANCE FOR THE CREDIT EQUATION IN A TRANSFORMED MARKET
How do you grow market share and revenues while guarding effectively against losses?
By Christine Ciriani, Mark Jenkinson and Harmen Meijnen, Partners, and Alexander Bommes, Head of Risk, Capco Germany
More balanced growth supported by strong policies and better adherence in the future should be the center of every lending strategy – a view supported in the UK by the British Bankers’ Association, which has started to promote the sort of “sensible lending practices” which are already at the heart of a far more prescriptive statutory approach elsewhere. (Germany’s MARisk framework is an excellent example.)
Lending institutions need to consider every element of the credit lifecycle when making strategic decisions. Effective organizations need to adopt a sustainable approach; one which remains true to internal codes of ethics, while decisively embracing the opportunity for positive change.
The foundation of future success will be adherence to a strategic process which can accommodate continual change. The key word is adherence. If process steps are ignored or corners cut, outcomes will inevitably deteriorate.
The proactive gathering and sharing of accurate data, both within and outside any given institution, can significantly enhance relationships and improve planning and decision quality.
Equally important is the need to critique internal processes and ask awkward questions where necessary. This is key to making an honest assessment of practice in the four key areas which offer the greatest potential to improve profitability: Customer, Vendor, Policy and Costs.
In 2010 and beyond, financial institutions, regulators and consumers who have not done so already will all realize the need for change; but each of these groups will have different and potentially conflicting ideas of what “change” means.
One thing is clear, however: change within Credit Risk departments is both inevitable as an outside force and essential as an internal attitude and culture. A rigid approach that ignores a different financial landscape is highly unlikely to work. An understanding of the key cost drivers and cost optimization techniques – reducing loss or reducing lending – will be critical, if lenders are to find a new and positive balance for the credit equation in a transformed market.
OPERATING MODEL CONVERGENCE
Improving operational performance with shared processing across Wealth Management and Capital Markets businesses
By Edward Hawthorne, Partner, Michael Haworth, Partner, and Hector Nelson, Managing Principal
Convergence is a phenomenon that continues to create both value and challenges in financial services. Combining similar lines of business within two newly merged companies has become a commonplace occurrence. Many firms, however, recognize that a great deal of additional value can be realized by combining the operations of distinctly different units within the business.
This is especially true when looking at the opportunities that exist across wealth management and investment banking units. The opportunities for gain are driven by the growing number of savvy customers who require access to products and services that are often beyond the capability of traditional private banks to offer. These demands place such individuals into the class of institutional investors, those typically served by investment banks.
Despite the opportunity that is clearly present, combining the operations of banks that serve different markets, with different products and processes, using different infrastructures is a tall order. Navigating the course of a merger of this scale requires an enterprisewide shared vision and a steady hand at the wheel.
At Capco, we believe a fundamental shift has occurred in the attitudes of financial institution executives that, coupled with new classes of technology, make it more possible than ever to unlock the power of a truly integrated firm. In this report, we offer insights into both the challenges and opportunities of creating a combined operating model and guidance for creating a strategic plan that leads to a successful integration.
POST-MERGER INTEGRATION
Making the most of day 2
By Joe Anastasio, Partner, and Tom Roughan, Associate Partner
In the days following the successful merger of financial institutions, firms can either feel satisfied with a shallow level of branding integration, or strive for a deeper combination that allows them to unlock the true potential of the merger.
Often, firms stumble on human issues, waging battles of territory and raising questions of ownership that are frequently settled by decree rather than a full assessment of options and opportunities. Or, firms undertaking a series of rapid acquisitions may ignore questions of customer value or long-term potential in order to sustain the pace of growth.
Firms that follow these approaches rarely achieve the full potential that their combination once promised. Although anticipated cost reductions may be found in the combination of back-office infrastructure, firms that pursue surface-level integration fail to deliver significant value to customers. They may also miss significant opportunities to enhance their infrastructure or revamp business models at a time when everyone is primed and ready for change.
Capco believes there is much value to be unlocked when firms look beyond the obvious merger tasks required to operate on Day One, looking instead to what occurs on Day Two. This report describes specific windows of opportunity that are present in a post-merger environment and how to capitalize on them.
IS THE PARTY OVER FOR OVER THE COUNTER?
By Maurizio Bradlaw, Jon Davis and Olivier De Decker, Capco Partner
Insight, innovation and infrastructure will prove to be winning factors in the brave new world of OTC derivatives trading. Resistance is futile; re-purposing is fertile. In the new world, there will be new opportunities, and the winners will recognize, understand and exploit them.
While governments react to voters’ sense that they let the global financial industry get “out of control”, the aftershocks of the crisis continue to be felt, generating a climate of suspicion in which public and media perceptions are dominated by words like “toxic” and “junk”.
Governments and regulators alike must be seen to be taking action to ensure that the market mayhem of 2008/9 cannot happen again. Control, transparency and regulation are now cultural imperatives, and as a result, legislative momentum is gathering pace in both Europe and North America.
Although achieving real control and transparency will not be straightforward, it will inevitably impact the way financial institutions do business, especially in OTC derivatives. While commentators disagree about the feasibility and even the desirability of a move to Central Counterparties and straight-through processing, there is no doubt that the clearing of OTC products is undergoing a paradigm shift. Regulated standardisation will soon be de rigueur.
Some players will resist. Others will be late adopters who lose out. The winners will be institutions with a profound strategic understanding of the new environment. This will be reflected in an operational infrastructure and technology practice that accommodate growing complexity, in areas from connectivity through to processing.
The winners will be the institutions which effectively plan ahead to re-purpose key aspects of their operational practice, and then reap the rewards.
EUROPEAN CARDS MARKET
What’s on the cards?
By Christine Ciriani, Mark Jenkinson, and Harmen Meijnen, Capco Partners; and Bernd Richter, Associate Partner
Change lies ahead for the retail card business and its customers across the UK and the rest of Europe. As economies slowly recover, success will, as never before, demand agile delivery of the products that customers want, used in rapidly evolving ways to meet their expectations, and supported by the most appropriate and efficient processes and technologies.
Credit and Debit Cards matter now more than ever. There may be economic and regulatory differences between Eurozone countries, but they all have one important factor in common: the cards market will continue to be a crucial source of revenue and profit. Yet the upheavals of the last two years have graphically illustrated the need to make good decisions today, in order to effectively exploit tomorrow’s opportunities – and avoid the pitfalls.
In 2010 and beyond, card providers will be looking for new geographies to enter, while dealing in their existing markets with the shift to debit card usage resulting from consumers’ continuing anxiety about debt. Debit cards will thus be a focus of increasing competition, with the drive for customer loyalty a pivotal issue.
The prepaid option will become increasingly attractive, especially to consumers without access to traditional debit and credit cards and those wishing to spend within their budget.
Though there is as yet no firm deadline, the SEPA framework will continue to send shockwaves through the cards landscape. The future looks “interesting”, to say the least, with the likelihood of battles between the EU Commission (through the ECB) and the card duopoly of Visa and MasterCard looming large on the horizon.
SOURCING GOVERNANCE
Consistency, Cost-effectiveness, Compliance and Control
Capco recently commissioned a sourcing governance survey among more than 50 key executives within the European banking and financial services sector.
Key findings:
- No imminent decrease in outsourcing and offshoring A clear majority of respondents believe that, over the next five years, the volume of both outsourcing and offshoring initiatives in financial services will continue to rise. Outsourcing initiatives will be given some impetus by the leverage of cloud-based models, which will provide further opportunities for CXOs to reduce costs
- Sourcing governance is still in trial mode While most organizations have put in place sourcing governance structures, the vast majority have done so within the last five years, and are still in the ‘test and learn’ phase
- Centers of Excellence - significant but not yet dominant There is an increasing trend towards the use of sourcing Centers of Excellence (CoEs) to guide, monitor and drive sourcing initiatives. But the extent to which such CoEs are involved in the sourcing process varies significantly between organizations
- External compliance is a driving force internally Compliance with sourcing regulation is a key driver for implementing a robust sourcing governance structure, especially as regulators increasingly turn their attention to outsourcing initiatives. Evidence suggests that regulators are particularly focused on organizations with a previous history of non-compliance
- Uptake of third party support tools is growing Organizations are increasingly leveraging specific tools to aid the sourcing process and to govern sourcing initiatives. Third-party offerings to support supplier management, data management and the sourcing approvals process are both maturing and growing in popularity
Flexible control that works for the organization is the sourcing governance ideal
The key challenge is to create a value-added model which provides stable, central mechanisms to oversee and guide sourcing initiatives. At the same time, the model must be flexible enough to adapt to evolving business needs while fulfilling regulatory requirements.
AVOIDING A REPEATABLE HISTORY
Using risk-based profitability to help ‘run the business’
By Michael Pugliese, Partner, and Scott Wise, Associate Partner
It’s easy to say that “tough times call for tough measures,” and by almost anyone’s definition, today’s business environment is tough. How often, though, does that familiar call to action lead to effective decisions or new thinking?
The most recent recession has been severe enough to reset consumer and business behaviors. The resulting “new normal” simply can’t be ignored. As a result, financial institutions must take a long, hard look at the reporting and measurement systems they use to help make strategic decisions, especially hard choices that may prove unpopular.
At Capco, we believe there is no better time than now to evaluate the steps needed to implement better risk mitigation metrics. As firms seek to elevate the role that risk mitigation plays, this paper outlines the key metrics firms should implement to improve their ability to judge the potential profitability of new products and services.
Too many firms, pursuing topline revenue growth initiatives to the exclusion of all else, learned too late just how important these measures can be. In our paper, “Avoiding a Repeatable History — Using Risk-based Profitability to Help ‘Run the Business,’” we explore what organizations can do to avoid repeating the turmoil of the past few years by striking the right balance between risk and use of capital.
MANAGING THE RIPPLE EFFECT
CIOs maximize IT supply chain to improve business alignment and efficiency
By Scott Claus, Partner, and Pete McEvoy, Associate Partner
In shepherding projects through the systems development life cycle, it’s not unusual for IT managers observe bottlenecks and other developmental delays that occur unexpectedly. Often, the source is difficult to pin down, especially when new resources have been added for the explicit purpose of addressing such obstacles. As it turns out, new practices intended to improve the return of IT optimization projects, or the introduction of policies designed to increase IT investment returns can have unexpected consequences that negatively affect the development process.
Firms are beginning to realize a broader view is needed. Managers using a model that views change in a more holistic perspective are better able to predict the effects changes in one process will have on another. New governance policies designed to improve the return on projects can add to delays in rollout, resulting in costs that may overshadow the returns these policies sought to improve. Adding resources to speed projects in one area may result in unanticipated downstream bottlenecks.
Read this report, “Managing the Ripple Effect — CIOs maximize IT supply chain to improve business alignment and efficiency,” to learn about recommended steps financial institutions can take to better predict the impact of changes that affect a firm’s IT function.
Capco believes the viewpoint offered in this paper, coupled with new metrics and measures, makes it possible to fully realize the benefits that IT optimization projects and other new management policies are expected to offer, minimizing the potential side effects these may have on the firm’s IT capabilities.
THE REAL PROBLEM IN THE HOUSING CRISIS
Who’s going to blink first, banker or borrower?
By Joe Monti, Associate Partner and Frank Terzuoli, Managing Principal
The mortgage meltdown and the recession may have subsided, but fallout will continue and recovery will be protracted — especially as so-called “strategic defaulters” abandon homes that are significantly “under water.” This could leave investors, lenders and mortgage servicers exposed to significant risk for the next several years. In the Capco report entitled, “The Real Problem in the Housing Crisis: Who’s Going to Blink First, Banker or Borrower?” we analyze the market dynamics that continue to put pressure on financial services organizations and provide detailed insight as to the kinds of risks organizations need to uncover, confront and mitigate to avoid financial losses.
In this report, we provide an overview and analysis of strategic defaulters and discuss how this next wave of less-obvious risks could affect organizations. We also identify and expand on four key strategies that organizations can initiate to mitigate these risks and reduce losses.
- Sharpen analytics
- Get the right data
- Use technology to scale processes
- Get it right the first time
Read this report to gain insight on how to institute more sophisticated techniques in identifying and managing risks — such as those posed by strategic defaulters — and learn how to develop initiatives and processes that will transform your operations, protect you from current and future risks, and ultimately add value to your business.
ENTERPRISE FRICTION
The mandate for risk management
By Sandeep Vishnu, Capco Partner
In today’s economy, it is difficult to fund initiatives that may offer a theoretical return on investment. This is a challenge often faced by risk managers as they try to put in place structures to guard against losses. However, enterprise risk management is not about playing it safe. It is about playing it smart by minimizing, monitoring and controlling the likelihood and/or fallout of unfavorable events caused by unpredictable financial markets, legal liabilities, project failures and accidents. In this Capco report, entitled “Enterprise Friction: The Mandate for Risk Management,” we explore the role of risk management in operating a successful business in today’s economy. We believe that the key to any successful enterprise risk management strategy is to treat as the application of well-balanced friction that helps organizations avoid unnecessary losses while responding effectively to the threats and vulnerabilities to which organizations are exposed.
At Capco, we believe that companies should rethink risk management, viewing it not as a necessary evil but as a strategic function in their organizations. This report provides an overview of the challenges and tools risk managers can use to win over executives who claim that risk management might dampen earnings potential or stall innovation. Learn how senior executives can integrate risk management into their business processes, while building a culture of risk awareness and action.
RETHINKING CHANNEL AND PRODUCT OPTIMIZATION IN THE GLOBAL FINANCIAL SERVICES INDUSTRY
The case for a customer-centric enterprise business architecture
By Nick Jackson, Capco Partner
In the wake of the credit crisis of 2008-2009 and the emergence of a more dynamic global environment, financial institutions must redesign and deploy their go-to-market channels. In the Capco report entitled “Rethinking Channel And Product Optimization In The Global Financial Services” we explore the current state of disparate, redundant and often disconnected processes that currently underpin relationships between customers and institutions and conclude that this situation is no longer sustainable for several reasons: customers are looking for a more integrated and unified banking experience, new niche competitors are appearing and current margins are difficult to maintain.
At Capco, we believe a failure to aggressively rethink channel and product optimization strategies will have lasting consequences. In this report, we provide an overview of the challenges and offer insights into how executives can develop an enterprise wide channel strategy. Learn how senior executives can develop a clear blueprint, or business architecture, and get buy-in from board-level executives in order to ensure sustained focus, accountability – and ultimately success.
CRITICAL SYSTEMIC SETTLEMENT RISK IMPERATIVES IN THE GLOBAL FINANCIAL MARKETS
Achieving regulatory parity between buy-side and broker-trader in financial markets
By Joe Anastasio, Capco Partner
It has only been a year since the credit crisis affected the international financial system and brought about the most daunting economic period since the Great Depression. While many questions are being explored, one of the biggest issues that should be addressed is the unsustainable discrepancy in the regulatory and settlement risk-mitigation posture that continues to exist between the major buy-side institutions and the broker-dealer community. This report explores the case for ensuring that parties that use the same clearing systems should be held to the same standards to mitigate risk.
While it is clearly a controversial issue, at Capco, we believe it must be explored in order to reach a long-term sense of confidence in the financial services markets. This initiative will require participation from all parties, including the regulatory community. Read our latest thought piece, “Critical systemic settlement risk imperatives in the global financial markets” to learn what still needs to be done in the area and how your company can get involved.