Rob HaydenMcKinsey & Company

Shared Service Centersthe role in payment operations

McKinsey & Company | 1

In North America, as operations has become more automated, mindsets around Shared Services now include production heavy functions

Current

SOURCE: McKinsey team analysis

Check & ACH

▪  Enterprise relationship view ▪  Growing C-level awareness of the risk

associated with fraud ▪  Push to get to systems that talk to one

another

Fraud

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

Acct opening & customer maint.

▪  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

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

▪  Organizationally siloed/ fragmented ▪  Fraud related systems are non-

communicative ▪  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 non-

integrated architecture

Drivers

▪  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)

▪  Technological revolution: automated process with less reliance on paper

▪  Cost pressures in back office

▪  Advent of hub services architecture ▪  Need for customer enterprise level data ▪  Desire to move towards real-time

▪  1: Multiple ▪  Attempt to simplify bank architecture ▪  Movement towards enterprise integration IT arch.

▪  Siloed, fragmented, and non-integrated architecture and organization

▪  Paper intensive with a level of manual intervention

▪  Continued cost pressures around operations

▪  Growth in electronic adoption of eDelivery and eInvoicing

▪  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

Document managem-ent

McKinsey & Company | 2

4 step approach for thinking about SSC levers

Eliminate Standardize Consolidate Automate

▪  Evaluate and eliminate redundant, excessive, error-prone activities to avoid bringing over the “waste” into a new process.

▪  Harvest best practices 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 multi-tasking, cross-training, career pathing, reduction in fixed costs

▪  Automation is not beneficial to broken processes or procedures

▪  Automation provides access to multiple tools previously inaccessible due to siloed organizational structure

Outsource/ offshore

▪  Eliminate redundancy/ multiple touches

▪  Improve efficiency and reduce risk caused by inconsistent procedures

▪  Reduce the opportunity for errors and enhance customer experience

SOURCE: McKinsey team analysis

▪  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

McKinsey & Company | 3

Viable areas of production operations for SSCs

SOURCE: McKinsey GBS Leader Survey, team analysis

Areas for new SSCs

Areas SSCs have already been implemented

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

There are also Shared Services opportunities that are tangential to Payments: ▪  Project Management ▪  Reporting and Analytics ▪  Training ▪  Customer Improvement ▪  IT

▪  Finance ▪  HR ▪  Procurement

▪  Facilities ▪  Supply chain ▪  Marketing ▪  Customer

▪  Sales ▪  Innovative services

1.0

2.0

3.0

4.0

For examples of financial institutions implementing these SSCs, please contact Rob Hayden or Marcy Ellis-Williams

Areas FI’s have recently implemented SSCs

McKinsey & Company | 4

Benefits sizing ranges from 10 to 40%

SOURCE: Sizing hypothesis and then confirmation from interviews

▪ Common authentication processes regardless of channel ▪ Change one change all

account maintenance

▪ Cross channel and product information and policy share ▪ Consolidated functional

unit administering account maintenance

▪  Improve quality/ reduction in exceptions and work-arounds ▪ Filling gaps and handoffs ▪ Reduction in risk exposure

10-20%

▪ Higher percentage of first touch resolutions ▪ Greater efficiency of calls

▪ Create career path where one does not exist today

▪ Bank gaining trusted advisor reputation ▪ Retention – reduced new

hire training costs ▪ Employee satisfaction ▪ Enhanced expertise

10-20%

▪ Greater efficiency ▪ More comprehensive ▪ Any time, any place –

self-sufficient, not at the bank’s will ▪ Real-time information ▪ Relationship information

▪ Economies of scale and specialization ▪ Faster M&A integration ▪ Faster new product

speed to market

▪ Reduced headcount ▪ Reduced fixed, labor, and

system costs ▪  Improved quality

25-40%

Lever Examples of impact to customer Benefits

Examples of Impact to bank

Implemen- tation com- plexity

Expected range of benefits

Common policies and practices

Process standardiza-tion and consolidation

IT automa-tion/ self-service tools

Enhanced career pathing options

More cross-training across payments or channels

McKinsey & Company | 5

Regulatory ▪  Protection of PII ▪  Local laws ▪  Tariffs

Access to a talent pool ▪  Potential limited pool of talent

based on physical location ▪  Nearby competition creates poaching

Implementation costs ▪  Training ▪  Moving/ building ▪  Retention of knowledge base ▪  Upfront cost if you don’t 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

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

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

Integration success

Technology ▪  Dependency on consolidated

platforms ▪  Cost of implementing consolidated

platform ▪  Security, physical and cyber

Integration risks

Governance ▪  Who’s going to champion and socialize the

transformation program ▪  Who’s going to run the program (internal

politics) ▪  Self-preservation

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

Although SSCs may provide significant benefits, they are not without risks and barriers

SOURCE: McKinsey team analysis

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